KRUEGER ASSOCIATES, INC., Individually and Trading as National Fulfillment
Services, v. THE AMERICAN DISTRICT TELEGRAPH COMPANY OF PENNSYLVANIA; ADT
SECURITY SYSTEMS, INC., ADT SECURITY SYSTEMS INC., Defendant/Third-Party Plaintiff
v. EUGENE KRUEGER, Individually d/b/a HOLMES CORPORATE CENTER d/b/a HOLMES
INDUSTRIAL OFFICE CENTER; SAMUEL MENDICINO, Individually d/b/a HOLMES CORPORATE
CENTER d/b/a HOLMES INDUSTRIAL OFFICE CENTER, Third-Party Defendants/Appellants
(No. 00-1125); Krueger Associates, Inc., Appellant (No. 00-1138)
Nos. 00-1125 / 00-1138
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
247 F.3d 61; 2001 U.S. App. LEXIS 6443
January 19, 2001, Argued
April 13, 2001, Filed
PRIOR HISTORY: [**1] Appeal from the United States District Court for the
Eastern District of Pennsylvania. (D.C. Civil Action No. 93-cv-01040).
(District Judge: Honorable Robert F. Kelly).
PROCEDURAL POSTURE: Plaintiff appealed judgment entered by United States
District Court for Eastern District of Pennsylvania, which granted summary
judgment against plaintiff and denied plaintiff's motions for sanctions against
defendant for alleged discovery violations. Third party defendant appealed order
that defendant was entitled to defense and indemnification under contract,
rejection of its cross-claim against plaintiff and fee determination.
OVERVIEW: Fire occurred at office building owned by third party defendant.
Plaintiff's offices were damaged by fire. Defendant provided fire and burglar
alarm services at corporate center pursuant to agreements with third party
defendant. Plaintiff sought uninsured losses due to fire from defendant. District
court granted summary judgment against plaintiff. Court held that denial of
defendant's initial summary judgment motion did not create bar to later
reconsideration of renewed motion because initial motion was turned down without
opinion so that plaintiff could conduct discovery. Plaintiff's cause of action in
strict liability failed on merits because invocation of restatement's strict
liability provision ran counter to Pennsylvania law. Plaintiff's negligence claim
also failed because defendant owed no legal duty in tort. Plaintiff's breach
of implied warranty claim failed since parties were not in privity with
defendant and claims were not brought under Uniform Commercial Code's warranty
provision or pursuant to restatement.
OUTCOME: Court affirmed grant of summary judgment on plaintiff's claims
against defendant, its denial of sanctions for defendant's alleged discovery
violations, its decision that plaintiff was not required to indemnify third-party
defendant and its determination that third-party defendant was required to pay
defendant pursuant to the contract.
CORE TERMS: indemnification, summary judgment, discovery, lease, alarm, alarm
system, burglar alarm, indemnify, misrepresentation, provider, negligent
misrepresentation, abuse of discretion, strict liability, renewed motion,
third-party, cross-claim, contracted, reverse side, reconsidering, excessive,
boldface, breach of implied warranty, contractual provision, indemnity provision,
conduct discovery, sole shareholder, required to pay, way connected, lawsuit,
Contracts Law > Defenses > Unconscionability
[HN1] Pennsylvania law does countenance certain claims of unconscionability
when based on inconspicuous or unclear contractual language, in particular, if
the parties have unequal bargaining power.
Civil Procedure > Appeals > Standards of Review > Abuse of Discretion
[HN2] A district court's award of attorneys' fees is reversible only for
abuse of discretion.
COUNSEL: Timothy T. Myers, Esquire (Argued), John M. Elliott, Esquire,
Patricia C. Collins, Esquire, Elliott Reihner Siedzikowski & Egan, P.C., Bell PA,
Attorneys for Plaintiff/Appellant.
Howard J. Bashman, Esquire (Argued), Jeremy D. Mishkin, Esquire, Jill
Baisinger, Esquire, Montgomery McCracken Walker & Rhoads, LLP, Philadelphia PA.
Frederick T. Lachat, Jr., Esquire (Argued), Margolis Edelstein, Esquire,
Philadelphia PA, Attorneys for Defendants and Third-Party Plaintiffs/Appellees.
Jeffrey B. McCarron, Esquire (Argued), Swartz Campbell & Detweiler,
Philadelphia PA, Attorneys for Third-Party Defendants/Appellants.
JUDGES: Before: ROTH and BARRY, Circuit Judges, SHADUR, * District Judge.
* Honorable Milton I. Shadur, United States District Judge for the Northern
District of Illinois, sitting by designation.
OPINIONBY: Milton I. Shadur
OPINION OF THE COURT
SHADUR, District Judge:
This appeal stems from a fire that occurred on February 4, 1992 at a
corporate office building owned [**2] by one of the appellants in this action, Holmes
Corporate Center ("Holmes"). Krueger Associates, Inc., individually and
trading as National Fulfillment Services ("National Fulfillment"), a commercial
tenant at the corporate center whose offices were damaged by the fire, is the
other appellant. n1 American District Telegraph Company of Pennsylvania and ADT
Security Systems, Incorporated (collectively referred to as "ADT," treated
hereafter as a singular noun for convenience), which provided fire and burglar
alarm services at the corporate center pursuant to a series of written agreements
with Holmes, are appellees.
n1 Eugene Krueger was one of two general partners in Holmes and was the sole
shareholder of Krueger Associates at the time of the fire. We refer to
appellants as "Holmes" and "National Fulfillment" to avoid any confusion that might
result from the use of the Krueger name to designate either appellant.
National Fulfillment initiated the action on February 26, 1993 via a
multi-count complaint against [**3] ADT, seeking to recover its uninsured losses from
the fire. Federal jurisdiction was invoked under 28 U.S.C. § 1332 based on
the parties' diverse citizenship. At their core, National Fulfillment's claims
rested on the allegation that ADT's alarm system failed to alert fire fighters
of the blaze in a timely manner. That alleged failure supposedly allowed the
fire to burn out of control, causing National Fulfillment to suffer commercial
and property losses for which it was underinsured.
Several factors posed potential problems for National Fulfillment's action
against ADT. For one, National Fulfillment itself had not contracted with ADT
for the provision of alarm services. Instead, ADT provided alarm services to the
office complex pursuant to a written series of agreements with Holmes.
Additionally, when ADT contracted with Holmes to provide alarm service to Holmes (in
the "Holmes-ADT Contract"), it substantially limited the scope of its
undertaking by a contractual provision disclaiming all warranties and expressly
limiting liability. Although National Fulfillment claims to have been unaware of
that provision in the Holmes-ADT Contract, it will be recalled that [**4]
Eugene Krueger held an ownership interest in both Holmes and National Fulfillment
After National Fulfillment sued ADT, the latter brought Holmes into the
litigation by filing a third-party complaint against it. In that third-party
complaint ADT sought defense and indemnification from Holmes against National
Fulfillment's suit pursuant to this provision in Holmes-ADT Contract PE:
IN THE EVENT ANY PERSON, NOT A PARTY TO THIS AGREEMENT, SHALL MAKE ANY CLAIM
OR FILE ANY LAWSUIT AGAINST ADT [*65] FOR FAILURE OF ITS EQUIPMENT OR
SERVICE IN ANY RESPECT, [HOLMES] AGREES TO INDEMNIFY, DEFEND AND HOLD ADT HARMLESS
FROM ANY AND ALL SUCH CLAIMS AND LAWSUITS INCLUDING THE PAYMENT OF ALL DAMAGES,
COSTS AND ATTORNEYS FEES.
Holmes' answer to the third-party complaint asserted a cross-claim against
National Fulfillment, claiming that National Fulfillment had a contractual
obligation to provide a defense of, and indemnification for, ADT's claims against
ADT then moved for summary judgment both against National Fulfillment on the
latter's claims against ADT and against Holmes on ADT's claim for defense and
indemnification. On December 20, 1994 the district court granted summary [**5]
judgment in favor of ADT with respect to its claim for defense and indemnity
from Holmes, but it denied the motion as to National Fulfillment's claims,
apparently to allow National Fulfillment to conduct discovery. In the same order
the district court ruled that the conflict of interest created by Eugene
Krueger's dual role as sole shareholder of National Fulfillment and as one of two
general partners of Holmes precluded Holmes' control of ADT's defense. After
discovery closed almost two years later, in October 1996 the district court
granted ADT's renewed motion for summary judgment on all of National
Holmes and National Fulfillment appealed those decisions, but on June 25,
1997 a panel of this Court dismissed those appeals for lack of jurisdiction
because some issues in the litigation still remained unresolved: quantification of
the amount of attorneys' fees recoverable by ADT pursuant to the Holmes-ADT
Contract and a ruling on Holmes' cross-claim for indemnification from National
Fulfillment based on their lease. Those issues were later ruled on by the
district court. It held that ADT was entitled to an award of $ 313,185.83 in
attorneys' fees, reducing ADT's [**6] original request of $ 403,440.83 by $ 90,255.
It also found that Holmes was not entitled to indemnification from National
Fulfillment based on the lease.
National Fulfillment appeals the grant of summary judgment against it and the
district court's denial of National Fulfillment's motions for sanctions
against ADT for alleged discovery violations. Holmes appeals (1) the district
court's order that ADT was entitled to defense and indemnification under the
Holmes-ADT Contract, (2) the district court's rejection of Holmes' cross-claim
against National Fulfillment and (3) the court's fee determination. We will begin
with the issues raised by National Fulfillment, then turn to those raised by
Holmes. We affirm the orders of the district court in all respects.
National Fulfillment's Appeal
We first examine National Fulfillment's contention that the district court
improperly granted summary judgment on its claims against ADT. National
Fulfillment appeals the dismissal of its five claims sounding in (1) strict liability,
(2) negligence, (3) breach of implied warranty, (4) fraud and (5) negligent
Initially we note, despite National Fulfillment's protestations to the
contrary, [**7] that nothing prohibited the district court from ruling on ADT's
renewed motion for summary judgment. Under the law of the case doctrine the
district court's denial of ADT's initial summary judgment motion did not create
any bar to the court's later reconsideration of the renewed motion (see, e.g.,
Deisler v. McCormack Aggregates Co., 54 F.3d 1074, 1086 n. 20 (3d Cir. 1995),
quoting Schultz v. Onan [*66] Corp., 737 F.2d 339, 345 (3d Cir. 1984)). After
having turned down ADT's first try without opinion in an apparent effort to
allow National Fulfillment to conduct discovery, the district court surely
acted within its discretion in reconsidering the motion post-discovery. n2
n2 Indeed, any claimed error the district court might arguably have made in
reconsidering the motion would have been harmless in any event.
We turn then to National Fulfillment's substantive claims against ADT, with
Pennsylvania law providing the rules of decision. None survives analysis.
First, we agree with the district [**8] court that National Fulfillment has
no cause of action in strict liability against ADT (see Lobianco v. Property
Prot., Inc., 292 Pa. Super. 346, 437 A.2d 417 (Pa. Super. Ct. 1981)). Three
members of the seven-judge court in Lobianco rejected the application of
Restatement (Second) of Torts ("Restatement") § 402A because (just as in this case)
the provider of an alarm system (in that instance a burglar alarm) was not
being sued by an "otherwise defenseless victim" (437 A.2d at 424): There the
homeowner (just like National Fulfillment here) knew everything about the value of
the property at risk (as the alarm system provider did not), could get
insurance against the loss and should not be permitted to shift the risk of loss to
the alarm system provider "as a cost of doing business" ( id. at 424-25). Two
other members of the court joined in holding Restatement § 402A inapplicable,
for the reason that (just as in this case) the harm to the owner's property
was the foreseeable consequence of the alarm system's malfunctioning, not the
result of a product that was itself defectively manufactured and hence unsafe (
id. at 426-27). In sum, National [**9] Fulfillment's attempted invocation of
the Restatement's strict liability provision runs counter to Pennsylvania law.
Nor is there any merit to its negligence claim. ADT owed no legal duty in
tort to National Fulfillment when it contracted to provide Holmes with fire alarm
services (see Gerace v. Holmes Prot. of Phila., 357 Pa. Super. 467, 516 A.2d
354, 358 (Pa. Super. Ct. 1986)). And there is no basis for finding such a duty
under subsection (c) of Restatement § 324A to enable National Fulfillment to
proceed in negligence against ADT, for just as in Gerace (see id.) there is
no evidence of National Fulfillment's harm having come from its reliance on
ADT's undertaking to Holmes. n3 To the contrary, National Fulfillment's nebulous
contention that it suffered harm because it decided to forgo other protective
services in reliance on the ADT system is not only unsupported by the record
but is actually contradicted by the evidence that it, at the recommendation of
its insurance company, installed Halon extinguishers before the fire.
n3 Though National Fulfillment's counsel made a more general reference to
Restatement § 324A during oral argument, its briefs on appeal focused entirely
on its claim of reliance (the subject covered by subsection (c)). It is
scarcely in a position to expand its contentions belatedly in that fashion, but in
any event subsection (b) is plainly inapplicable by its terms, and any
subsection (a) claim would be scotched by the holding in Turbe v. Government of the
Virgin Islands, 938 F.2d 427, 432 (3d Cir. 1991).
Moreover, any actual reliance by National Fulfillment (and none has been
shown) would not have been reasonable. ADT's system was a detection system, not a
fire suppression system. Nothing prevented National Fulfillment from
installing fire suppression devices (as, for example, a sprinkler system). National
Fulfillment cannot use Holmes' purchase of alarm services [*67] from ADT to
excuse its own failure to take steps adequately calculated to protect itself from
National Fulfillment's third claim--breach of implied warranty--similarly
falls flat. Under Pennsylvania law implied warranty claims by parties not in
privity with the defendant may be maintained only in cases governed by the UCC's
warranty provisions or by Restatement § 402A (see Manor Junior Coll. v.
Kaller's Inc., 352 Pa. Super. 310, 507 A.2d 1245, 1249 (Pa. Super. Ct. 1986)). That
alone would suffice to affirm the dismissal of the claim: We have already
found Restatement § 402A inapplicable, and it is at best questionable that the
UCC applies in the present context. n4 But even if we were to adopt the doubtful
premise that UCC's Art. 2 could potentially come into play, it is plain that
ADT [**11] successfully disclaimed all implied warranties in Holmes-ADT
Contract PE, and that the disclaimer was effective against National Fulfillment
(see 13 Pa. C.S. § 2316, § 2318 cmt. 1).
n4 Although National Fulfillment contends that Cucchi v. Rollins Prot. Servs.
Co., 524 Pa. 514, 574 A.2d 565 (Pa. 1990) holds that the UCC applies to
transactions involving the lease of goods (specifically, a burglar alarm system),
that seriously overstates Cucchi's holding. Cucchi involved a plurality opinion
in which only two of the seven justices found that UCC Art. 2 applied to the
lease of the burglar alarm system, while the majority of the justices
disavowed that proposition. Since then the Pennsylvania Supreme Court has emphasized
that Cucci's precedential authority "is limited to the facts of that case" (
Keblish v. Thomas Equip. Ltd., 541 Pa. 20, 660 A.2d 38, 40 n.1 (Pa. 1995))--the
type of damnation by faint praise that signals an exceedingly weak reed on
which to lean.
Finally, National Fulfillment's [**12] fourth and fifth claims--fraud and
negligent misrepresentation--fail as well. Without specific citation to the
record, National Fulfillment asserts in conclusory fashion that ADT made
misrepresentations that could be the basis for such claims. But National Fulfillment's
only predicate for that contention rests on ADT's alleged discovery violations
that occurred after the fire. It goes without saying that an asserted
misrepresentation that post-dated the fire could not have caused any of National
Fulfillment's fire-related injuries.
And any notion that ADT's alleged discovery violations prevented National
Fulfillment from discovering any possible misrepresentations ADT might have made
before the fire is, as the district court noted, absurd. By definition any
representation on which a party has purportedly relied has to be known to that
party--else how could reliance take place? National Fulfillment's total failure
to have identified any such misrepresentations by ADT is fatal to any claim of
reliance, which is an essential component of any claim of fraud or negligent
That leaves just two tag ends to be cleaned up in this part of the appeal.
First, the absence of [**13] any viable substantive claim of course deprives
National Fulfillment's request for punitive damages of any underpinning. We also
affirm the denial of that claim. Second, we likewise affirm the district
court's rejection of National Fulfillment's requests for sanctions based on ADT's
alleged spoliation of evidence. Simply put, National Fulfillment has provided
no basis to conclude that the district court committed an abuse of discretion
in denying those requests. n5
n5 We are relatedly constrained to observe that the presentation of the
"facts" relating to this appeal in National Fulfillment's briefs before us was
improperly one-sided, not at all in conformity with the responsibility of an
appellant to tender an objective portrayal. And National Fulfillment spent an
inordinate amount of time arguing that ADT's alleged commission of discovery
violations should serve as a predicate for liability. Those unsuccessful efforts
seem little more than an attempted papering over of the weakness of its original
As for appellant Holmes, it first challenges on two grounds the district
court's determination that it was required to defend ADT pursuant to a clause in
the Holmes-ADT Contract: n6
1. Holmes contends that the contractual provision on which the defense and
indemnity provision was based was inconspicuous and therefore unenforceable.
2. Even if the provision were found to be enforceable, Holmes argues that it
assertedly did not require Holmes to pay ADT's legal costs associated with
defending against National Fulfillment's suit.
Both of those contentions also fail.
n6 Both sides agree that because there is no judgment against ADT, any issues
involving the validity of the indemnity provision are moot. All that remains
in this portion of the appeal is the question whether the Holmes-ADT Contract
required Holmes to pay ADT's defense costs.
As to Holmes' first argument, [HN1] Pennsylvania law does countenance certain
claims of unconscionability when "based on inconspicuous or unclear
contractual [**15] language, in particular, if the parties have unequal bargaining
power" ( Harris v. Green Tree Fin. Corp., 183 F.3d 173, 182 (3d Cir. 1999)). But
simply to state that proposition confirms its inapplicability here. As the
district court noted, the controlling provision was contained in a boldface
paragraph written in its entirety in capital letters--typography that distinguished
it from other provisions on the reverse side of the contract. And the
contract's text, also in a boldface legend set forth immediately above the signature
line, specifically directed the signer's attention to the terms and conditions
on that reverse side. Nor is there any room for disputing the clarity of the
provision. Finally, nothing in the evidence suggests any material (or indeed
any) difference in bargaining power between ADT and Holmes. In sum, there is no
basis for holding the provision unconscionable.
Holmes also says that it was not required to pay ADT's defense costs
according to the terms of the Holmes-ADT Contract. According to Holmes, the absence of
any judgment against ADT precludes an award of attorneys' fees under the
contract. Not so, for Holmes-ADT Contract PE required Holmes both [**16] to
indemnify and to defend ADT. So when National Fulfillment filed suit against ADT,
that event alone triggered Holmes' obligation to defend ADT. Holmes' assertion
that the contractual defense provision somehow extends only to meritorious
claims has no basis whatever. To the contrary, the provision specifies that
Holmes' obligation extends to "any claim or lawsuit." We therefore hold that Holmes
is expressly obligated by the Holmes-ADT Contract to pay ADT's defense costs.
n7 Holmes also contends that it should be permitted to participate in or
control ADT's defense. Because our disposition ends this case, any such
prospective request for participation or control is rendered moot.
Next, Holmes appeals the district court's determination that National
Fulfillment was not required to indemnify Holmes for Holmes' expenses incurred in
paying ADT's attorneys' fees pursuant to the Holmes-ADT Contract. Holmes contends
that it is entitled to indemnification pursuant to this provision in its
lease to National Fulfillment: [**17] [*69]
Lessee [National Fulfillment] shall defend, indemnify, and hold harmless
Lessor [Holmes] from and against any and all claims, demands, suits, damages,
liability, and costs (including counsel fees and expenses) arising out of or in
any manner connected with any act or omission, negligent or otherwise of Lessee,
third persons, or any of their agents, servants or employees which arise out
of or are in any way connected with the erection, maintenance, use, operation,
existence or occupation of the Demised Premises, hallways, entranceways,
stairs or any other common areas (exterior or interior), and the streets,
driveways, alleys, lawns, sidewalks and curbs adjacent thereto including those
resulting from any work in connection with the alterations, changes, new construction
We agree with the district court that the quoted provision plays no role
here. ADT's suit against Holmes, for which Holmes seeks indemnity, was predicated
upon Holmes' breach of its contract with ADT. As such it does not "arise out
of," nor is it "in any way connected with," the "erection, maintenance, use,
operation, existence or occupation of the Demised Premises" in the normal sense
[**18] of that lease language. Hence that claim by Holmes is also lacking in
That leaves Holmes' final challenge: its assertion that the $ 313,185.83
awarded to ADT in attorneys' fees was excessive. Although Holmes has ignored the
applicable standard of review, [HN2] a district court's award of attorneys'
fees is reversible only for abuse of discretion ( Washington v. Philadelphia
County. Ct. Com. Pl., 89 F.3d 1031, 1034 (3d Cir. 1996)).
In its 14-page order the district court explained its reduction of ADT's
requested fees by $ 90,255, reflecting (1) time spent in reviewing the
indemnification claim against Holmes, (2) time that the court considered excessive or
redundant and (3) expenses considered to be non-reimbursable overhead. Despite
that carefully articulated set of downward adjustments, Holmes charges that the
district court abused its discretion by not reducing the award by a greater
percentage. But that ipse dixit is unaccompanied by any reasoned basis for
labeling the district court's determination an abuse of discretion. We affirm that
final aspect of the district court's decisions.
We AFFIRM the district court's grant of summary judgment on National [**19]
Fulfillment's claims against ADT, its denial of sanctions for ADT's alleged
discovery violations, its decision that National Fulfillment is not required to
indemnify Holmes and its determination that Holmes is required to pay ADT $
313,185.83 pursuant to the Holmes-ADT Contract.
KRUEGER ASSOCIATES, INC., Individually and Trading as National Fulfillment Services, v. THE AMERICAN DISTRICT TELEGRAPH COMPANY OF PENNSYLVANIA; ADT SECURITY SYSTEMS, INC., ADT SECURITY SYSTEMS INC., Defendant/Third-Party Plaintiff v. EUGENE KRUEGER, Indi
KRUEGER ASSOCIATES, INC., Individually and Trading as National Fulfillment