Devereux Foundation v. Chester County IU No. 24

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Devereux Foundation, :
Appellant :
:
v. :
:
Chester County Intermediate Unit : No. 698 C.D. 2014
No. 24 : Submitted: November 6, 2015
BEFORE: HONORABLE DAN PELLEGRINI, President Judge
HONORABLE P. KEVIN BROBSON, Judge
HONORABLE ANNE E. COVEY, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
PRESIDENT JUDGE PELLEGRINI FILED: December 3, 2015
The Devereux Foundation (Foundation) appeals from an order of the
Court of Common Pleas of Chester County (trial court), dismissing its breach of
contract action against Chester County Intermediate Unit No. 24 (Intermediate Unit
or CCIU) with regard to a series of contracts the Foundation and the Intermediate
Unit entered into for the provision of special-education services. For the reasons that
follow, we affirm.
I.
This matter is presently before us for the second time. In Devereux
Foundation v. Chester County Intermediate Unit No. 24 (Pa. Cmwlth., No. 698 C.D.
2014, filed May 8, 2015) (Devereux I),1 the Foundation asserted that the Intermediate
Unit breached certain Standard Education Agreements (Agreements) into which the
parties entered, providing that the Intermediate Unit would pay a set, daily fee to the
Foundation with regard to each child referred there, in exchange for the Foundation’s
provision of educational services.2
Following the execution of the Agreements, in 2000, the parties also
entered into a separate agreement (Fee Agreement) stating as follows:
Agreement between Devereux and Chester County
Intermediate Unit (“the parties”) relative to Educational
Services provided by Devereux to students evaluated by the
CCIU under separate contractual arrangements by the
parties:
1. Beginning with services provided in the 0001
school year, CCIU will collect fees equal to five percent
(5%) of each amount collected from student’s [sic] home or
host school districts. Based upon expected total annual
billings of $500,000 to $600,000, this fee is projected to be
$25,000 to $30,000 assuming collection for all services.
1
Because the facts of this case are set forth at length in our opinion in Devereux I, we will
dispense with a full recitation here.
2
The Foundation is a national organization that provides residential treatment services to
children at its facilities in West Chester, Great Valley, Tredyffrin/Easttown and Downingtown
School Districts (Host Districts). The Host Districts delegated their educational responsibilities
under Section 1372(4) of the Public School Code of 1949 (Code) to the Intermediate Unit which, in
turn, contracted with the Foundation to fulfill the children’s educational needs. Act of March 10,
1949, P.L. 30, as amended, 24 P.S. §13-1372(4). The Host Districts also delegated to the
Intermediate Unit the following responsibilities: “identification of special needs children” and
“administration of billing and reimbursement functions.” (Reproduced Record [R.R.] at 1401a.)
2
2. Fee is to be deducted by the CCIU upon remittance
of collected tuitions to Devereux. Such remittance must
take place within seven (7) business days of the date CCIU
receives funds from the student’s home or host school
district.
3. CCIU is to provide Devereux with a monthly
status of all outstanding amounts under this agreement,
including: Information relative to dates documentation was
sent to and received from the home/host school districts,
dates services were billed by the CCIU, dates of follow up
with key contacts at those districts, etc.
4. Agreement is to remain in place for one school
year, although either party can terminate it without cause
after providing sixty (60) days written notice to the other
party. At the end of the school year, performance will be
evaluated by the parties and a determination will be made
whether or not to continue the Agreement. If there is no
significant improvement in the collection time for these
services, the percentage fee will be adjusted downward in
the subsequent school year. Current Devereux experience
indicates the average collection period for these services is
nine (9) to twelve (12) months from the date services are
rendered.
5. CCIU and Devereux management will meet no less
than quarterly to address issues that arise relative to this
agreement, to ensure activities are coordinated properly,
and evaluate performance of the parties. These meetings
will not be deemed to replace any routine communications
necessary to facilitate day-to-day operations under the
existing contract between the parties.
6. Bills from Devereux to CCIU and, in turn, from
CCIU to home/host school districts, will be done on a
monthly basis.
(Reproduced Record [R.R.] at 1515a.)
3
While the Intermediate Unit remitted all monies it collected from the
students’ districts of residence (Home Districts), less its permitted administrative fee,
it was unwilling to pay for special-education services rendered by the Foundation for
which it had been unable to collect payment from the Home Districts.3 As such, the
Foundation filed a breach of contract action against the Intermediate Unit averring
that: (1) the Intermediate Unit’s obligation to remit payment to the Foundation was
not contingent upon its receipt of payment from the Home Districts and, therefore,
the Intermediate Unit was liable for the shortfall; and (2) the Intermediate Unit
breached the Agreements by failing to provide the Home Districts with
documentation necessary to secure the Home Districts’ approval of the invoices and,
therefore, the Intermediate Unit was liable for the deficit.
3
The Host Districts are entitled to collect from students’ Home Districts “a special
education charge in addition to the applicable tuition charge” when special-education services are
rendered. Section 1309(a)(2) of the Code, 24 P.S. §13-1309(a)(2). Further, Section 1308(b) of the
Code provides:
In the event that the district in which the institution is located
contracts with a third party to provide educational services to children
who are inmates of the institution, the third party may seek payment
of tuition directly from the district of residence. The third party shall
notify the district in which the institution is located of its payment
request to the district of residence, and, if the district of residence
makes payment to the third party, the third party shall notify the
district in which the institution is located. Such payment to the third
party shall satisfy and extinguish the contractual payment obligation
of the district in which the institution is located. The district so
charged with tuition by the third party may file an appeal with the
secretary as set forth in subsection (a).
24 P.S. §13-1308(b).
4
In Devereux I, we upheld the trial court’s determination that under the
plain language of the Agreements, the Intermediate Unit’s obligation to remit
payment to the Foundation was conditioned upon the Intermediate Unit’s receipt of
monies from the Home Districts pursuant to the Agreements’ “pay-if-paid” clauses
and, therefore, we affirmed judgment entered in the Intermediate Unit’s favor in this
regard. However, we remanded the case to the trial court to issue a supplemental
opinion addressing the Foundation’s second claim, namely, that the Intermediate Unit
failed to provide the Home Districts’ parental signatures on individualized education
programs (IEPs), Notice of Recommended Educational Placements (NOREPs), and
other parental consent forms which must be obtained in order to evaluate a child,
thereby resulting in the Home Districts’ refusal to pay special-education rates.4
II.
On remand, the trial court determined that the Foundation failed to
satisfy its burden of proof regarding its second claim because it did not establish the
existence of specific contract provisions requiring the Intermediate Unit to secure the
4
To qualify for special-education services, a child must be evaluated to determine if he has
an intellectual disability, health impairment or specific learning disability that requires special
education. 22 Pa. Code §14.123. Before an initial evaluation may be conducted, parental consent
generally must be obtained on a permission to evaluate (PTE) form. 34 C.F.R.
§300.300(a)(1)(i)(iii). Following administration of the assessments and other evaluation measures,
an IEP team determines whether a child has a qualifying disability. 34 C.F.R. §300.306(a)(1). A
copy of the evaluation report (ER) and supporting documentation must be provided to the child’s
parent. 34 C.F.R. §300.306(a)(2). If a child is determined to have a disability, an IEP must be
developed and parental notice and consent must be provided via a NOREP before the IEP is
implemented. See 34 C.F.R. §300.300(b); 34 C.F.R. §300.320(a). While IEPs were already in
effect for some children before they were referred to the Foundation, this appeal, like the prior one,
concerns the children who did not yet have IEPs and, therefore, did not yet qualify for special-
education services at the time they enrolled at the Foundation.
5
subject signatures or to comply with a particular process in seeking reimbursement
from the Home Districts, and that the Foundation failed to demonstrate a breach of
those terms. In reaching this conclusion, the trial court relied on paragraphs 1321 of
the parties’ stipulated facts, stating as follows:
13. In the context of this litigation, [the Intermediate Unit]
dealt with hundreds of children who were placed at [the
Foundation].
14. Most of the children that [the Intermediate Unit] dealt
with were residents of the School District of Philadelphia
(“SDP”).
15. In many instances, [the Intermediate Unit] sought
educational records and information from PSD [sic] for the
children as such records and information were necessary to
provide the children with educational services. PSD [sic]
did not provide the records at all and/or it was difficult or
impossible for [the Intermediate Unit] to obtain the records
from PSD [sic].
16. In carrying out the Child Find Function and other such
tasks on behalf of the Host School Districts, [the
Intermediate Unit] in many instances encountered families
in crisis due to causes such as mental illness, drug abuse,
and incarceration.
17. Those circumstances presented obstacles to [the
Intermediate Unit] in meeting with, communicating with,
and obtaining signatures from parents/guardians on
NOREPs, IEPs, and other forms.
18. [The Intermediate Unit] took steps to contact the
parents/guardians of the children being placed in [the
Foundation].
19. [The Intermediate Unit] staff attempted to contact the
parents by repeated efforts using the telephone, email,
6
letters, and meeting parents at [the Foundation] facilities
when parents were there.
20. There were multiple [Intermediate Unit] coordinators,
administrative staff and even director level employees
working together to reach parents/guardians that needed to
be reached so that among other things, NOREPs, IEPs and
other documentation could be completed and signed.
21. For a period of several years, [the Intermediate Unit]
hired a private detective to find parents/guardians. Among
the reasons for doing this was to obtain signatures of
parents/guardians on NOREPs and other educational
documents.
(R.R. at 1401a1402a.)
The trial court noted that as per the stipulation, facts were presented
“which demonstrate that [the Intermediate Unit] did fulfill whatever obligations it
might have had to pursue payment from the Home School Districts.” (7/29/15
Supplemental Opinion, at 2.) This appeal followed.
III.
On appeal,5 the Foundation contends that the trial court erred in
determining that neither the Agreements nor the Fee Agreement imposed a duty on
the Intermediate Unit to furnish executed IEPs, NOREPs or other parental consent
forms. In construing these written agreements, we must seek to give effect to the
5
Whether a trial court has correctly interpreted a writing in ascertaining the legal duties
arising from it is a question of law which this Court reviews for legal error. Downingtown Area
School District v. International Fidelity Insurance Co., 769 A.2d 560, 565 n.9 (Pa. Cmwlth.),
appeal denied, 786 A.2d 991 (Pa. 2001).
7
parties’ intent: “The fundamental rule in contract interpretation is to ascertain the
intent of the contracting parties. In cases of a written contract, the intent of the
parties is the writing itself.” Lesko v. Frankford Hospital-Bucks County, 15 A.3d
337, 342 (Pa. 2011) (internal citation and quotation marks omitted). Accordingly,
when a contract’s language is clear and unambiguous, its meaning is determined from
“the terms of the agreement as manifestly expressed, rather than as, perhaps, silently
intended.” Steuart v. McChesney, 444 A.2d 659, 661 (Pa. 1982).
A.
First, the Foundation claims that the Intermediate Unit is in “breach of
its express contracts,” because it assumed the duty imposed upon the Host Districts to
obtain parental signatures for the special-education services pursuant to Section 1306
of the School Code, 24 P.S. § 13-1306. (Supplemental Appellant’s Br., at 8.)
Conversely, the Intermediate Unit argues that the Agreements do not confer upon it
the duty to secure IEPs, NOREPs or parental signatures under the penalty of paying
the shortfall. We agree with the Intermediate Unit.
It is clear from the pleadings and from the Foundation’s own admission
that its second claim pertains to a breach of contract action against the Intermediate
Unit and not an action for the Intermediate Unit’s alleged statutory violation. A
review of the Foundation’s amended complaint belies its argument that its claim is
premised upon a statutory duty. Indeed, the amended complaint avers that “Pursuant
to its express agreements with [The Foundation] and the directives of the Director of
the Pennsylvania Bureau of Special Education, the [Intermediate Unit] had a duty to
obtain all required signatures on either the ‘final’ IEP or parental signatures on…[the
8
NOREP] form with respect to all children receiving special education services at [The
Foundation].” (R.R. at 429a.)
Despite this allegation, the Foundation does not point to any such
express provision, and this Court could identify no contract provision in the
Agreements rendering the Intermediate Unit responsible for obtaining executed IEPs
or NOREP forms. Putting aside the fact that the Foundation has not pointed to any
provision in the School Code authorizing a private cause of action for damages, under
the express language of the contract, the only duties imposed upon the Intermediate
Unit pertain to payment for services the Foundation rendered, its duty to remove
clients in the event of a contract termination, indemnification, and the maintenance of
confidential client information. Further, the Agreements make clear that their text
“constitutes the entire understanding between the parties as to the matters contained
herein and there are no terms, covenants, conditions, representations, warranties or
agreements expressed or implied, oral or written of any nature whatsoever other than
as herein contained.” (R.R. at 1785a.)
Nonetheless, the Foundation attempts to rely on a 1998 letter from Great
Valley School District’s Superintendent, Rita S. Jones, Ed. D., to the Intermediate
Unit’s Executive Director, Dr. John Baillie, in which the Home District “is requesting
that [the Intermediate Unit] act on [its] behalf to provide diagnostic evaluations,
special education programming and related services to specified children who are
identified and reside for non-educational reasons in a private institution within [its]
district.” (R.R. at 1466a.) This letter, however, offers no support for the
Foundation’s argument as it does not, in any way, alter the contract provisions
9
governing the Foundation’s relationship with the Intermediate Unit. Even assuming
that the Intermediate Unit granted this request and entered a contract with the Great
Valley School District to that extent, the Foundation has not argued that it has a right
to enforce the contract between the Home Districts and the Intermediate Unit, such
that it would have standing to pursue a breach of contract action against the
Intermediate Unit for failing to satisfy duties not enumerated in the subject
Agreements.
B.
Alternatively, the Foundation contends that “the many contracts and
agreements between the parties demonstrate that the [Intermediate Unit] was
obligated to carry out and complete the Child Find function by, inter alia, obtaining
parental consent, as a prerequisite to payment by the Home Districts.” (Supplemental
Appellant’s Br., at 20.) In support of this proposition, the Foundation cites the
Agreements’ first and third whereas clauses, providing:
Whereas, [the Intermediate Unit] has determined that
[the Foundation] is able to meet the special educational
needs of individuals for which [the Intermediate Unit] is
obligated to provide services/funding, and
***
Whereas, [the Intermediate Unit] represents that the
parent(s) or guardian of the Client has agreed that [the
Foundation] is able to meet the needs of the client….
10
(R.R. at 1784a.) In this way, the Foundation argues that the Intermediate Unit
breached the subject contract by making a misrepresentation that it had already
obtained the necessary parental approvals.
Nothing in the contract supports this interpretation. The language relied
upon by the Foundation does not discuss any form of parental approvals, and the fact
that the Intermediate Unit has deemed the Foundation able to meet the students’
educational needs is separate and apart from the obligation to secure parental
approvals for performing evaluations and developing IEPs. Moreover, if the
Foundation alleges that the Intermediate Unit made a misrepresentation in the
contract, it should have pursued an action for misrepresentation rather than for breach
of contract.6 Regardless, the Intermediate Unit’s assertion that “the parent(s) or
guardian of the Client has agreed that [the Foundation] is able to meet the needs of
the client” is not the equivalent of an assertion that the Intermediate Unit secured the
necessary parental approvals, in writing, before entering into the Agreement,
particularly where the Agreement cautions that no implied representations, conditions
or agreements arise from it, other than those expressly contained.
6
Compare Liss & Marion, P.C. v. Recordex Acquisition Corp. 983 A.2d 652, 665 (Pa. 2009)
(stating that to succeed in a breach of contract action, a plaintiff must demonstrate that: (1) a
contract existed; (2) the defendant breached the contract; and; (3) the breach caused the plaintiff
damages) with Bortz v. Noon, 729 A.2d 555, 560 (Pa. 1999) (“The elements of intentional
misrepresentation are as follows: (1) A representation; (2) which is material to the transaction at
hand (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false;
(4) with the intent of misleading another into relying on it; (5) justifiable reliance on the
misrepresentation; and, (6) the resulting injury was proximately caused by the reliance.”)
11
Still, the Foundation asserts that the Fee Agreement “made clear that the
[Intermediate Unit] was expected to generate approximately $25,000$30,000 per
year ‘assuming collection for all services,’” and that the Intermediate Unit could not
do so without obtaining the requisite parental signatures. (Supplemental Appellant’s
Br., at 21.) Therefore, the Foundation argues that to give effect to this provision, we
must infer the Intermediate Unit’s duty to furnish completed documentation to the
Home Districts.
A review of the Fee Agreement undermines this argument. While the
Fee Agreement did provide for a five-percent (5%) collection fee, based upon a
presumed collection of $500,000 to $600,000 per year, resulting in a “projected” rate
of “$25,000 to $30,000 assuming collection for all services,” it contemplated a course
of action if collection rates were lower. (R.R. at 1515a.) First, the Intermediate
Unit’s collection fee, based upon a percentage of the monies it collected, obviously
dropped. Additionally, the Fee Agreement provided that at the end of each school
year, the Intermediate Unit’s collection time would be evaluated, and if “significant
improvement” did not result, its five-percent (5%) collection fee would be adjusted
downward. Under no circumstances did the Fee Agreement provide that the
Intermediate Unit was obligated to pay the deficit for uncollectible bills, nor did it
obligate the Intermediate Unit to obtain the requisite parental consents. Rather, the
Fee Agreement merely governed the logistics of fee collection and remittance.
12
C.
Next, the Foundation alleges that the Intermediate Unit breached its duty
of good faith and fair dealing and the doctrine of necessary implication7 by failing to
7
While the Foundation uses the phrases “duty of good faith and fair dealing” and “doctrine
of necessary implication” interchangeably, these terms are not synonymous. The former imposes
upon each party to a contract the duty to act honestly in carrying out the express contract provisions.
See Restatement (Second) of Contracts §205 (1981); see also Section 1201 of the Uniform
Commercial Code, as amended, 13 Pa. C.S. §1201; Department of Transportation v. E-Z Parks,
Inc., 620 A.2d 713, 717 (Pa. Cmwlth.), appeal denied, 627 A.2d 181 (Pa. 1993). As discussed in E-
Z Parks, Inc.:
Pennsylvania courts have recognized a separate duty of good faith
performance of contracts only in limited circumstances. This duty of
good faith is limited to situations where there is some special
relationship between the parties, such as a confidential or fiduciary
relationship. A confidential relationship exists when one person has
reposed a special confidence in another to the extent that the parties
do not deal with each other on equal terms, either because of an
overmastering dominance on one side, or weakness, dependence or
justifiable trust, on the other. A business association may be the basis
of a confidential relationship only if one party surrenders substantial
control over some portion of his affairs to the other.
620 A.2d at 717 (internal citations and quotation marks omitted).
The doctrine of necessary implication differs:
[i]n the absence of an express provision, the law will imply an
agreement by the parties to a contract to do and perform those things
that according to reason and justice they should do in order to carry
out the purpose of the contract and to refrain from doing anything that
would destroy or injure the other party’s right to receive the fruits of
the contract. The doctrine of necessary implication may be applied
only in limited circumstances to prevent injustice where it is
abundantly clear that the parties intended to be bound by the terms
sought to be implied.
Agrecycle, Inc. v. City of Pittsburgh, 783 A.2d 863, 868 (Pa. Cmwlth. 2001) (internal citations and
quotation marks omitted), appeal denied, 796 A.2d 319 (Pa. 2002).
13
provide the Home Districts with the necessary documentation. Even assuming that
the good faith and fair dealing argument has not been waived,8 it fails because the
Foundation has not shown that the duty applies in this context or that the Intermediate
Unit breached such a duty.
Specifically, the Foundation’s argument that it shared a confidential or
fiduciary relationship with the Intermediate Unit simply because the Intermediate
Unit “contracted with [the Foundation] to provide special education services which
the [Intermediate Unit] was statutorily obligated to provide under Section 1306, and
because the [Intermediate Unit] specifically agreed, in a separate contract, to collect
fees for such services from the Home Districts” is insufficient to establish a
confidential or fiduciary relationship. (Supplemental Appellant’s Br., at 27.) By this
standard, any parties to a contract share a confidential or fiduciary relationship.
Moreover, based on the parties’ stipulation, it is clear that the
Foundation did satisfy the duty of good faith and fair dealing by: requesting
educational records and information from the Philadelphia School District;
attempting to meet, communicate with and obtain the requisite signatures from
parents and guardians; making repeated efforts to reach parents and guardians via
8
Contrary to the Intermediate Unit’s assertion, the Foundation raised its duty of good faith
and fair dealing argument in its post-trial motion filed with the trial court. However, it did not raise
the issue regarding the doctrine of necessary implication at the trial court level and, therefore, that
argument is waived. See Pa. R.A.P. 302(a) (“Issues not raised in the lower court are waived and
cannot be raised for the first time on appeal.”); City of Philadelphia v. Fraternal Order of Police
Lodge No. 5, 677 A.2d 1319, 1323 (Pa. Cmwlth.) (en banc) (“A well-established rule in this
Commonwealth is that issues not raised in the court below are waived and may not be raised for the
first time on appeal.”), appeal withdrawn, 682 A.2d 312 (Pa. 1996).
14
telephone, email and letters; meeting parents at the Foundation facilities; and even
hiring a private investigator to locate parents and guardians. The fact that the
Philadelphia School District did not provide the records or that parents or guardians
could not be reached despite numerous attempts at contact is not indicative of the
Intermediate Unit’s bad faith in executing its contract obligations.
D.
Finally, in challenging the trial court’s conclusion that the Intermediate
Unit satisfied its contractual duties, the Foundation characterizes the trial court’s
decision as “concluding that the [Intermediate Unit]’s performance of its contractual
duties was impossible, as demonstrated by the efforts it undertook without success
and, therefore, was excused from performance.” (Supplemental Appellant’s Br., at
30.) In this respect, the Foundation claims that the Intermediate Unit never pled
impossibility of defense or an affirmative defense in its new matter and, thus, waived
the issue. Conversely, the Intermediate Unit urges us to find this issue waived
because the Foundation did not assert it before the trial court and did not include it in
its statement of errors complained of on appeal.
We must reject the Intermediate Unit’s argument. While this issue was
raised for the first time in the Foundation’s supplemental brief before this Court, it
had no opportunity to raise it previously. Indeed, following Devereux I, we remanded
the matter to the trial court to issue a supplementary opinion regarding the
Foundation’s second breach of contract claim. It was not until the trial court rendered
its opinion that the Foundation could identify the basis for the trial court’s ruling, and
by that juncture, its statement of errors complained of on appeal had already been
15
filed. Therefore, the Foundation’s only opportunity to challenge the trial court’s
ruling in this respect was in its supplemental appellate brief.
Nonetheless, we find this issue without merit insofar as the Foundation
mischaracterizes the trial court’s opinion. The trial court did not determine that the
Intermediate Unit’s efforts were sufficient because requiring strict compliance with
the contract terms would be impossible. Rather, the trial court ruled that the
Intermediate Unit satisfied the only requirements imposed by the Agreements to
pursue collections from the Home Districts without regard to the difficulty of actually
obtaining payment. Any discussion regarding the difficulty of collecting the requisite
signatures was germane to the Foundation’s good faith argument, not its claim
regarding the breach of express contract provisions.
Accordingly, because the trial court did not err in determining that the
Foundation failed to satisfy its burden of showing that the subject Agreements
imposed a duty upon the Intermediate Unit to furnish completed IEPs, NOREPs or
other documentation containing parental signatures, that it had a confidential or
fiduciary relationship with the Intermediate Unit subjecting it to the duty of good
faith and fair dealing, or that the Intermediate Unit acted without good faith, we
affirm the trial court’s order entering judgment for the Intermediate Unit.
DAN PELLEGRINI, President Judge
16
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Devereux Foundation, :
Appellant :
:
v. :
:
Chester County Intermediate Unit :
No. 24 : No. 698 C.D. 2014
ORDER
AND NOW, this 3rd day of December, 2015, the order of the Court of
Common Pleas of Chester County in the above-captioned matter is hereby affirmed.
DAN PELLEGRINI, President Judge