American Southern Insurance v. Halbert, J. ( 2019 )

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2019 PA Super 15AMERICAN SOUTHERN INSURANCE : IN THE SUPERIOR COURT OF
CO., INC. : PENNSYLVANIA
:
:
v. :
:
:
JAMES A. HALBERT, JULIE BETH :
WRIGHT HALBERT, DOUGLAS E. : No. 504 MDA 2018
HALBERT , DAVID R. HALBERT AND :
VIRGINIA V. HALBERT :
:
Appellants :
Appeal from the Order Entered February 22, 2018
In the Court of Common Pleas of Dauphin County Civil Division at No(s):
2017-CV-298-CV
BEFORE: OTT, J., McLAUGHLIN, J., and FORD ELLIOTT, P.J.E.
OPINION BY McLAUGHLIN, J.: FILED: JANUARY 17, 2019
James A. Halbert, Julie Beth Wright Halbert, Douglas E. Halbert, David
R. Halbert, and Virginia Halbert (collectively, the Halberts) appeal from the
order entered February 22, 2018, granting American Southern Insurance Co.,
Inc. (American Southern) summary judgment in this indemnity contract
dispute. As the terms of the contract are clear and dispositive, and further, as
Halberts’ claims on appeal are devoid of merit, we affirm.
American Southern is in the business of providing performance surety
bonds, including those related to completion of public improvements. In May
2006, the Halberts individually signed a general agreement of indemnity in
favor of American Southern. The agreement set forth the terms of
indemnification. In relevant part, the Halberts agreed to indemnify American
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Southern from any claim or liability arising from the issuance of a performance
bond. See American Southern’s Complaint, 01/10/2017, Exhibit A (“General
Agreement of Indemnity”) (hereafter, Agreement), ¶ 2. Moreover, the
Agreement granted American Southern the sole authority to determine
whether a claim brought pursuant to a performance bond was valid:
The Company [i.e., American Southern] shall have the exclusive
right to determine for itself and the Indemnitors [i.e., the
Halberts] whether any claim or suit brought against the Company
or the Principal upon any such bond shall be settled or defended
and its decision shall be binding and conclusive upon the
Indemnitors.
Agreement, ¶ 5.
Thereafter, and in reliance upon the Agreement, American Southern
issued a performance bond in favor of North Cornwall Township, Pennsylvania,
in the original amount of $650,580.63, later revised by bond rider to
$740,000.00, to secure completion of certain subdivision improvements by
Oaklea Corporation for a local development. See American Southern’s
Complaint, 01/10/2017, Exhibit B (“Subdivision Performance Bond”)
(hereafter, Performance Bond). Mr. James A. Halbert signed the performance
bond as president of Oaklea. Id.In July 2016, the township advised American Southern that it had made
a demand upon Oaklea to complete required improvements but had received
no response or performance. Accordingly, the township demanded the
improvements or compensation from American Southern, which in turn sent
notice to the Halberts, who did not respond.
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In June 2017, American Southern commenced this litigation, seeking
damages arising from its performance under the surety bond. In response,
the Halberts answered that the improvements demanded by the township
were unnecessary. See Halberts’ Answer, 02/07/2017, at ¶¶ 18-27
(unpaginated). In addition, the Halberts pleaded new matter, including several
affirmative defenses to American Southern’s claims. Id. at “New Matter” ¶¶
1-13 (unpaginated). American Southern filed a reply thereto.
In October 2017, American Southern filed a motion for summary
judgment, asserting that “[t]here are no genuine issues of material fact in
dispute and American Southern is entitled to judgment as a matter of law.”
American Southern’s Motion for Summary Judgment (Motion), 10/31/2017, at
¶ 24. In their response, the Halberts did not counter American Southern’s
assertion with evidence of record, choosing instead to reiterate prior
averments that the improvements demanded by the township were
unnecessary. See Halberts’ Response in Opposition (Response), 12/04/2017,
at ¶¶ 11, 16-19, 23-25.1 Further, the Halberts cited no evidence essential to
any affirmative defense. See generally id.____________________________________________
1 In several paragraphs, the Halberts also averred that they could not
challenge the evidence provided by American Southern establishing that it had
relied upon the Agreement as a condition of issuance for the Performance
Bond because “[n]o discovery in this matter has been undertaken.” See, e.g.,
Response at ¶ 23(b). This is specious, as no discovery was requested. See
generally Pa.R.C.P. 4001-25.
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In February 2018, the lower court held argument on the motion for
summary judgment. At the argument, which was not transcribed, the Halberts
conceded that Paragraph 5 of the Agreement applied to the improvements
demanded by North Cornwall Township. See Summary Judgment Order,
02/22/2018. Nevertheless, the Halberts raised two affirmative defenses not
previously pleaded. According to the Halberts, (1) the Agreement was a
contract of adhesion, and (2) the federal Equal Credit Opportunity Act (ECOA),
15 U.S.C. §§ 1691–1691, precluded any judgment against Ms. Julie Halbert.
See Statement in Absence of Transcript, 03/26/2018. Following argument,
the court granted summary judgment, concluding that Paragraph 5 of the
Agreement “negates [the Halberts’] sole defense that the requested
improvements were not necessary.” Summary Judgment Order at 1. In
addition to this ruling, the court explicitly rejected the Halberts’ assertion that
the Agreement was unconscionable as a contract of adhesion; however, it did
not address the Halberts’ purported ECOA argument. Id. at 2.
The Halberts timely appealed and filed a court-ordered Pa.R.A.P.
1925(b) statement. In response, the lower court issued a statement directing
our attention to its prior order. See Pa.R.A.P. 1925(a) Opinion, 04/25/2018.
On appeal, the Halberts raise the following issues:
1. Whether the trial court erred by ruling the contract at issue was
not a contract of adhesion.
2. Whether the trial court erred by ruling Julie Halbert did not have
a defense under the Equal Credit Opportunity Act, (“ECOA”) [sic]
15 U.S.C. §1691, and Regulation B (“Reg B”), 12 C.F.R., Part 202,
et seq.
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Halberts’ Br. at 2.
Before we address the Halberts’ arguments, we note the following.
Summary judgment is appropriate where the record clearly
demonstrates there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. When
considering a motion for summary judgment, the trial court must
take all facts of record and reasonable inferences therefrom in a
light most favorable to the non-moving party. Whether there are
no genuine issues as to any material fact presents a question of
law, and therefore, our standard of review is de novo and our
scope of review plenary.
Estate of Agnew v. Ross, 152 A.3d 247, 259 (Pa. 2017) (citations omitted).
The Pennsylvania Rules of Civil Procedure recognize two species of
summary judgment:
After the relevant pleadings are closed, but within such time as
not to unreasonably delay trial, any party may move for summary
judgment in whole or in part as a matter of law
(1) whenever there is no genuine issue of any material fact
as to a necessary element of the cause of action or defense
which could be established by additional discovery or expert
report, or
(2) if, after the completion of discovery relevant to the
motion, including the production of expert reports, an
adverse party who will bear the burden of proof at trial has
failed to produce evidence of facts essential to the cause of
action or defense which in a jury trial would require the
issues to be submitted to a jury.
Pa.R.C.P. 1035.2. Thus, we have previously remarked, “a record that supports
summary judgment will either (1) show the material facts are undisputed or
(2) contain insufficient evidence of facts to make out a prima facie cause of
action or defense and, therefore, there is no issue to be submitted to the jury.”
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Cigna Corp. v. Executive Risk Indem., Inc., 111 A.3d 204, 210-11
(Pa.Super. 2015) (citation omitted).
Here, following the close of pleadings, American Southern sought
summary judgment of the first species, asserting that “[t]here are no genuine
issues of material fact in dispute and American Southern is entitled to
judgment as a matter of law.” Motion at ¶ 24. It supported this assertion with
evidence of record, setting forth the terms of the Agreement, the Performance
Bond, the township’s demands for performance, American Southern’s
invocation of the Agreement, the Halberts’ failure to perform and breach of
the Agreement, and American Southern’s resulting damages. Id. at 2, 7, 8,
9, 10, 12, 14, 19-23.2
____________________________________________
2 We note that American Southern supported its assertion of damages by
affidavit. See Motion, ¶¶ 20-22, 23(h), Exhibit A (Affidavit of Jerry
Underwood, Vice President of American Southern). The Halberts challenged
these assertions by averring that “[n]o discovery has been undertaken to
determine the veracity” of the affidavit, Response at ¶¶ 20-22, and “[t]he
demands for [sic] improvements were unnecessary.” Id. at ¶ 23(e). It is not
clear from these averments whether the Halberts sought relief pursuant to
Nanty-Glo v. American Surety Co., 163 A. 523 (Pa. 1932). Further,
although they cited Nanty-Glo in their supporting brief, the Halberts
presented no argument premised upon it. See Halberts’ Response
Memorandum, 12/04/2017, at 2-3. Rather, the Halberts again denied that the
improvements were necessary and suggested that it was unclear whether the
Performance Bond issued in reliance upon the Agreement. Id. at 3.
The Nanty-Glo rule provides that “[t]estimonial affidavits [or depositions] of
the moving party or [its] witnesses, not documentary, even if uncontradicted,
will not afford sufficient basis for the entry of summary judgment, since the
credibility of the testimony is still a matter for the factfinder.” Shamis v.
Moon, 81 A.3d 962, 965 (Pa.Super. 2013). Thus, it may be relevant to this
case. Nevertheless, the Halberts failed to preserve any such claim for relief in
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Pennsylvania Rule of Civil Procedure 1035.3 governs a non-moving
party’s response to a motion for summary judgment and provides in relevant
part:
[T]he adverse party may not rest upon the mere allegations or
denials of the pleadings but must file a response within thirty days
after service of the motion identifying
(1) one or more issues of fact arising from evidence in the
record controverting the evidence cited in support of the
motion or from a challenge to the credibility of one or more
witnesses testifying in support of the motion[.]
Pa.R.C.P. 1035.3(a).
In their response, the Halberts cited no “evidence in the record
controverting” the evidence cited by American Southern. Id. Further, though
permitted by rule to do so, the Halberts made no effort to “supplement the
record or set forth the reasons why” they could not do so. Pa.R.C.P. 1035.3(b).
Rather, the Halberts merely reiterated the denial repeatedly set forth in their
answer, that the improvements were unnecessary. Compare Halberts’
Response at ¶¶ 11, 16, 17, 18, 19, 23, with Halberts’ Answer, at ¶¶ 18-27.
Rule 1035.3 explicitly prohibits a party from “rest[ing] upon the mere
allegations or denials of the pleadings.” Pa.R.C.P. 1035.3(a). Thus, the
Halberts’ Response was deficient, and summary judgment was properly
entered against them. See Pa.R.C.P. 1035.3(d).
____________________________________________
their Pa.R.A.P. 1925(b) statement, nor do they attempt to argue the claim on
appeal. Accordingly, we deem it waived. Id. at 971 n.10; Lineberger v.
Wyeth, 894 A.2d 141, 149 (Pa.Super. 2006).
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Moreover, the Halberts conceded during oral argument that the terms
of the Agreement applied to the improvements demanded by North Cornwall
Township. See Summary Judgment Order at 1; see also Response at ¶ 23(a)
(admitting that each of the Halberts had executed the Agreement). Paragraph
5 of the Agreement grants American Southern the exclusive right to determine
whether claims such as the one brought by the township “shall be settled or
defended.” Agreement at ¶ 5. As noted by the lower court, “[t]his [provision]
negates [the Halberts’] sole defense that the requested improvements were
not necessary.” Accordingly, as we discern no error in the court’s decision, we
shall affirm the order granting American Southern summary judgment.
We now address the Halberts’ arguments on appeal. According to the
Halberts, summary judgment was inappropriate because (1) the Agreement
was a contract of adhesion and (2) the ECOA, as enforced by federal
regulation, precluded any judgment against Ms. Julie Halbert.
Both of these arguments raise affirmative defenses. See Pa.R.C.P.
1030, 1032. “An affirmative defense is distinguished from a denial of facts
which make up the plaintiff's cause of action in that a defense will require the
averment of facts extrinsic to the plaintiff's claim for relief.” Coldren v.
Peterman, 763 A.2d 905, 908 (Pa.Super. 2000).
Generally, failure to properly plead an affirmative defense constitutes a
waiver of that defense. See Charles v. Henry, 334 A.2d 289, 291 (Pa. 1975).
However, this Court has declined to find waiver if an opposing party fails to
object to an improperly pleaded affirmative defense. See Pollina v. Dishong,
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98 A.3d 613, 617 n.3 (Pa.Super. 2014). While the Halberts did not raise these
claims in their Answer to American Southern’s Complaint, and they did not
seek leave to amend their pleadings, the certified record does not reveal
whether American Southern raised an objection with the lower court. See
American Southern’s Br. at 4 n.2 (acknowledging the Halberts raised these
claims during argument but failing to cite where in the record any objection
was preserved); see also Pa.R.A.P. 1923 (defining procedure supplementing
record where no transcript is available). Thus, we decline to find waiver based
on this procedural error. Pollina, 98 A.3d at 617 n.3.
Nevertheless, this does not eliminate the Halberts’ obligation to support
their claims with evidence, and they have failed to do so. See Pa.R.C.P.
1035.3(a)(1).
“An adhesion contract is a standard-form contract prepared by one
party, to be signed by the party in a weaker position, usually a consumer, who
adheres to the contract with little choice about the terms.” Chepkevich v.
Hidden Valley Resort, L.P., 2 A.3d 1174, 1190 (Pa. 2010). The manner in
which a party may establish that a contract is one of adhesion is dependent
upon “the particular circumstances and parties involved.” Denlinger, Inc. v.
Dendler, 608 A.2d 1061, 1067 (Pa.Super. 1992). The Halberts have failed to
cite any evidence of record, detailing circumstances or the parties involved,
that would support a finding that the Agreement was a contract of adhesion.
See generally Halberts’ Response; see also Summary Judgment Order at 2
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(observing that parties entered Agreement for commercial purposes and were
not “unsophisticated consumers who require protection”).
Not every contract of adhesion is unenforceable. Denlinger, 608 A.2d
at 1066. The doctrine of unconscionability provides an affirmative defense to
an adhesion contract’s enforcement. Id. at 1067 (“[T]he party challenging the
contract or provision bears the burden of affirmatively pleading and proving
the unconscionability …”). There are two requirements. “First, for a contract
or a term to be unconscionable, the party signing the contract must have
lacked a meaningful choice in accepting the challenged provision. Second, the
challenged provision must ‘unreasonably favor’ the party asserting it.” Id. at
1068. The Halberts cite no evidence of record that would establish either of
these requirements. See generally Halberts’ Response; see also, e.g.,
Denlinger, 608 at 177-78 (suggesting there must be evidence a contract’s
terms were non-negotiable or that terms were dictated by “an exclusive
supplier of rare or much-sought-after goods”).
The Halberts’ ECOA claim fares no better.
The ECOA was enacted to ensure fairness in creditors'
consideration of credit applications. Through the ECOA, Congress
chose to protect women from credit discrimination by requiring
that creditors treat all credit applicants—male and female, married
and unmarried—in an identical manner. On the other hand,
Congress did not enact the ECOA to permit permissibly bound
debtors to escape contractual liability when called upon to
perform.
Guarantors are considered “applicants,” and thus are protected by
the ECOA. A guarantor may assert an ECOA violation as a defense
to a state-court confession of judgment. If the defense is
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successful, the guarantor's obligation is voided, but the underlying
debt and any other guarantees are not voided.
Sw. Pa. Reg’l Council, Inc. v. Gentile, 776 A.2d 276, 281-82 (Pa.Super.
2001) (internal punctuation and formatting modified; citations omitted).
However, the Agreement signed by the Halberts was not a credit agreement—
it did not provide a right to defer payment on a debt. Rather, it created a
contractual obligation for the Halberts to compensate American Southern for
losses it might incur due to Oaklea’s failure to complete improvements
required by the Performance Bond. See Capitol Indem. Corp. v. Aulakh,
313 F.3d 200, 201 (4th Cir. 2002) (“[A] surety bond does not constitute a
credit transaction.”).3 Thus, an ECOA defense has no relevance in this matter.
Further, even if we were to accept the Halberts’ claim as relevant, they
have failed to cite evidence of record that would support such a claim. For
example, federal regulations provide, in part, that “a creditor shall not require
the signature of an applicant’s spouse or other person, other than a joint
applicant, on any credit instrument if the applicant qualifies under the
creditor’s standards of creditworthiness for the amount and terms of the credit
requested.” 12 C.F.R. 202.7(d)(1). However, the record includes no evidence
documenting the marital status of Ms. Julie Halbert or anyone else, nor does
it document whether any of the Halberts, including Mr. James Halbert, meet
the necessary “standards of creditworthiness.” Id.____________________________________________
3Huber v. Etkin, 58 A.3d 772, 779 n.7 (Pa.Super. 2012) (en banc) (noting
we may rely on federal precedent to the extent we find it persuasive).
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Lacking any evidence to support their claims on appeal, the Halberts are
due no relief.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 01/17/2019
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