Keystone Care v. Grossinger, B.

J-A08013-16

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

KEYSTONE CARE ADMINISTRATIVE IN THE SUPERIOR COURT OF
SERVICES, INC., PENNSYLVANIA

Appellee

v.

BRUCE GROSSINGER, D.O.,

Appellant No. 1051 EDA 2015

Appeal from the Judgment Entered March 9, 2015
In the Court of Common Pleas of Montgomery County
Civil Division at No(s): 06-04049

BEFORE: BOWES, OLSON AND STRASSBURGER,* JJ.

MEMORANDUM BY BOWES, J.: FILED NOVEMBER 21, 2016

Bruce Grossinger, D.O. (“Physician”) appeals from the March 12, 2015

judgment entered in favor of Keystone Care Administrative Services, Inc.

(“KCAS”) following a non-jury trial.1 After thorough review, we affirm.

KCAS, a third-party claims administrator for insurance companies,

entered into two retainer agreements with Physician in which it agreed to

prepay him in anticipation of professional services he would provide for

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1
Physician purported to appeal from the March 9, 2015 order denying him
post-trial relief and granting KCAS’s petition for attorneys’ fees and interest.
The appeal is proper from the judgment, which was entered on the docket
on March 12, 2015, not the denial of post-trial relief. We have amended the
caption accordingly.

* Retired Senior Judge assigned to the Superior Court.
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certain personal injury cases. The prepayment arrangement was designed

to assist KCAS in procuring medical expert services on behalf of a financially

ailing Legion Insurance (“Legion”), in anticipation of its release from

rehabilitation.2

Physician’s counsel drafted the first agreement on or about November

1, 2002. It recited that KCAS had received permission and funds from

Legion, then in rehabilitation, “to engage duly qualified physicians to provide

medical services for certain individuals identified by KCAS” and “to

compensate Physician prior to the delivery of such Services.” Agreement,

11/1/02, at 1. Paragraph 7 of the Agreement, entitled Compensation,

provided that, “KCAS had provided Physician with the Funds as payment in

advance for the provision of the Services” with the “Amounts to be earned

by the Physician upon completion of the Services for each individual

identified.” Id. at 4 (emphasis original). The term of the agreement was

one year or until the Physician’s completion of services with respect to all

cases listed, whichever occurred first.

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2
Rehabilitation and liquidation involve the take-over of an insurance
company’s assets and operations by the State Insurance Commissioner
when the company’s annual report reveals it is in substantial financial
difficulty. Where the Commissioner believes that it is possible to save the
company, it generally orders rehabilitation. When the company is deemed
unsalvageable, liquidation is ordered.

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The second agreement was drafted on February 26, 2003, bearing an

effective date of March 1, 2002, but executed one year later. Under its

terms, Physician was retained to provide depositions and trial testimony if

needed in certain designated cases. Again, the funds were characterized as

“payment in advance” for the provision of deposition and expert witness

testimony. Agreement, 3/1/03, at ¶7 (emphasis original). While the

agreements are quite similar, the second agreement additionally provided

that “KCAS may request that Physician return certain of the Funds, as the

services contemplated hereunder may not be required for a given case.” Id.

at ¶2c. It further provided that “Physician shall be obligated to return those

amounts requested by KCAS, within a reasonable time period, so long as

Physician shall not have furnished Services in connection with such case

prior to the request.” Id. The agreement would “automatically terminate

upon the earlier of (i) the provision of Services by Physician with respect to

all cases” or (ii) a period of two (2) years.” Id. at ¶6a.

Legion went from rehabilitation to liquidation and Physician provided

no services under either agreement. By letter dated April 8, 2004, KCAS

asked Physician to remit the prepayments but Physician did not comply with

the demand. KCAS commenced this contract action in March 2006 to

recover the $77,500 it prepaid Physician under the two agreements,

together with attorney’s fees and interest due to Physician’s breach.

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Physician filed an answer and new matter to the complaint on March

31, 2006, in which he admitted that he signed the agreements and received

prepayments totaling $77,500. He alleged, however, that he performed

services ancillary to those identified in the agreements, the value of which

exceeded the amount in controversy. Furthermore, Physician pled that he

suffered a loss of income because he declined other business in order to set

aside dedicated hours for the performance of services under the agreements

that failed to materialize. Answer and New Matter, 3/31/06, at ¶7. He

asserted a counterclaim for $3,500, which he subsequently reduced to

$2,500.

During the course of discovery, KCAS filed several successful motions

to compel Physician to provide answers to interrogatories and responses to

requests for production of documents. In opposition to KCAS’s motion to

compel Physician’s deposition, Physician maintained that his deposition

should be delayed to permit him to investigate his theory that the

agreements herein were calculated to defraud first the insurance carrier, and

then the state liquidator, and that they were void or voidable as against

public policy. By order entered April 19, 2011, the court granted KCAS’s

motion to compel the deposition of Physician.

On November 23, 2011, Physician filed an “Amended Motion to Amend

Defendant’s New Matter,” representing therein that he had only become

aware of the fact that KCAS executed similar prepaid services agreements

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with lawyers and other doctors, the purpose of which was to exhaust

deductibles KCAS had with Legion and Villanova Insurance Companies. He

asserted that KCAS was a defendant in lawsuits filed by Legion and the

Pennsylvania State Guaranty Fund to recoup the monies paid out under

these agreements, raising the question whether KCAS was the real party in

interest in this case. Furthermore, Physician asserted that KCAS used the

prepayments as deductible offsets, and argued that it was fraudulent for

that entity to sue for the return of the prepayments. Physician sought leave

to amend his new matter to plead KCAS’s lack of standing and to assert that

it was not the real party in interest.

In opposition to the proposed amendment, KCAS denied that it was

artificially exhausting deductibles or receiving any offset. Moreover, it

averred that Legion was in liquidation and that the insurance commissioner

was not suing to recoup these monies. Additionally, KCAS contended that

Physician leveled this same charge in correspondence dated March 23, 2006,

prior to filing its original answer and new matter, which was proof that

Physician had long known of this issue but failed to timely plead it. KCAS

contended that since Physician did not file preliminary objections or plead it

in his answer, the issue was waived. Furthermore, KCAS asserted that it

would suffer prejudice if Physician was permitted to amend and raise the

defenses five years into litigation as it would have to re-engage in discovery

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on these new issues and the associated delay would reduce the likelihood of

a disposition by the statutory liquidator.

By order dated May 1, 2011, the trial court denied the Physician’s

motion to amend his new matter, and litigation proceeded. KCAS served

requests for admissions upon Physician on September 2, 2011. The

Physician forwarded responses on September 23, 2011, but they were not

personally verified by him as required by Pa.R.C.P. 4014(b). KCAS twice

requested that the defense provide the proper verification. Defense counsel

agreed on December 1, 2011 to provide Physician’s verification. When no

verification was supplied, counsel for KCAS made a third request on March

21, 2012. Ultimately, KCAS filed a motion to determine the sufficiency of

the answers pursuant to Pa.R.C.P. 4014, and asked the court to order the

matters in the requests to be deemed admitted. The court issued a rule to

show cause directed to Physician, to which Physician did not respond. On

May 11, 2012, the trial court found that Physician failed to verify his answers

to requests for admissions as required under Pa.R.C.P. 4014, and ordered

that all of the requests be deemed admitted.

On June 11, 2012, KCAS filed a motion for summary judgment. It

alleged that there was no genuine issue of material fact in light of the

deemed admissions and Physician’s admissions during his deposition. KCAS

sought judgment in its favor in the amount of $77,500, together with legal

interest from October 1, 2004, and attorney’s fees. Physician filed a cross-

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motion for summary judgment on his $2,500 counterclaim, together with

interest and counsel fees. Following argument on the motions, the trial

court granted partial summary judgment in favor of KCAS as to claims and

defenses related to an alleged scheme to artificially exhaust deductibles

only, and denied Physician’s motion.

On September 24, 2014, following a non-jury trial, the court entered a

$77,500 verdict in favor of KCAS. KCAS sought attorney’s fees, costs, and

interest. Physician filed a timely motion for post-trial relief alleging that: the

verdict was against the weight of the evidence; the trial court erred in

limiting its defenses; KCAS did not have standing to pursue the remedy; he

should have been permitted to amend to plead that KCAS was not the real

party in interest as that defense related to jurisdiction; KCAS’s demand for

return of the money was untimely; KCAS was not entitled to prejudgment

interest or attorney’s fees under the agreements; and the trial court erred in

denying his counterclaim.

The court granted the motion on Physician’s $2,500 counterclaim, but

denied it as to his remaining claims. It also granted KCAS’s petition for

counsel fees and expenses, and amended the verdict to reflect an award of

$74,000, plus interest from October 1, 2004, together with attorney’s fees of

$84,318.22. Order, 3/2/15. By order dated March 9, 2015, the court

corrected a clerical error and entered a verdict in favor of KCAS in the

amount of $75,000 plus interest. KCAS filed a praecipe for entry of

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judgment on March 12, 2015, and Physician timely appealed. He presents

nine issues for our review:

1. Whether the trial court erred in precluding [Physician] from
presenting a real party in interest defense at trial.

2. Whether the trial court erred in finding that all material facts
were deemed admitted because [Physician] failed to verify
the written responses and objections served on KCAS in
response to KCAS’ Request for Admissions when [Physician]
verified the response prior to KCAS’ Motion for Summary
Judgment and trial and it would be against the merits to have
the admissions deemed admitted.

3. Whether the trial court erred in finding that KCAS’s demand
for return of money under the Agreements did not need to be
made before the expiration of the subject Agreements.

4. Whether the trial court erred in discrediting [Physician’s]
testimony about services provided and as a result
determining that he did not perform work in accordance with
the contract.

5. Whether the trial court erred in failing to consider and credit
the doctrine of necessary implication and good faith and fair
dealing.

6. Whether the trial court erred in determining that the
indemnification provision of the Agreements permitted
recovery of legal fees in a dispute between the parties of the
Agreements.

7. Whether the trial court erred in determining KCAS was
entitled to attorney’s fees when the evidence presented at the
post trial hearing on December 12, 2014 failed to establish
that KCAS incurred, paid or had any obligation to pay any
legal fees.

8. Whether the trial court erred in finding that KCAS was entitled
to recover interest, including prejudgment interest on its
judgment.

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9. Whether the trial court erred in not awarding attorney’s fees
and interest on [Physician’s] successful counterclaim.

Appellant’s brief at 10-11.

Our scope of review of a non-jury trial is limited to whether findings of

fact are supported by competent evidence and whether the trial court

committed an error of law. Szymanski v. Dotey, 52 A.3d 289 (Pa.Super.

2012). Regarding the trial court’s factual conclusions, we may reverse only

if the “findings of fact are predicated on an error of law or are unsupported

by competent evidence in the record.” Mastroni-Mucker v. Allstate Ins.

Co., 976 A.2d 510, 518 (Pa.Super. 2009).

Physician initially argues that the trial court erred in denying him leave

to amend his new matter to assert the defense that KCAS lacked standing

and was not the real party in interest. KCAS counters that this issue is

waived for two reasons: 1) Physician did not timely appeal the ruling in

2011; and 2) it was not asserted in Physician’s motion for post-trial relief.

KCAS cites City of Philadelphia v. Spencer, 591 A.2d 5, 7 n.1

(Pa.Cmwlth. 1991), Mineo v. Tancini, 536 A.2d 1323 (Pa. 1988), and Hull

v. Tolentino, 536 A.2d 797 (Pa. 1988), for the proposition that an order

foreclosing assertion of an affirmative defense involving issues of fact as well

as law was immediately appealable.

We find KCAS’s reliance upon Hull, Mineo, and City of Philadelphia

misplaced as those cases were decided prior to the 1992 amendment of

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Pa.R.A.P. 341. Under the present version of the rule, an appeal is proper

from an order denying leave to amend only if it disposes of all claims and all

parties, which was not the case herein. KCAS’s claim of waiver based on the

lack of specificity in the motion for post-trial relief fares no better. Physician

alleged that the trial court erred when it limited the defenses he could

pursue. Since this was presumably a reference to the court’s denial of

Physician’s motion to amend to plead that KCAS lacked standing to maintain

this action and was not the real party in interest, we decline to find waiver

where the gist of Physician’s claim could be discerned from the motion.

We turn now to the merits of Physician’s first issue. Physician

contends that although standing and real-party-in-interest are defenses

generally raised by preliminary objection or new matter, he should have

been permitted to amend his new matter to include these defenses. He cites

Pennsylvania’s liberal policy of permitting amendment of the pleadings and

argues that Pa.R.C.P. 1033 authorized the court to permit such amendment

unless unfair surprise or prejudice to the other party would result, or the

proposed amendment would contravene the law. Appellant’s brief at 21.

Physician contends that KCAS was aware early on in the litigation that he

questioned whether it was the real party in interest, and hence, could not

have been surprised or prejudiced by the proposed amendment.

KCAS correctly cites Huddleston v. Infertility Center of America,

Inc., 700 A.2d 253 (Pa.Super. 1997), for the proposition that Physician’s

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objection to standing is waived as it was not raised by preliminary objection

or in the answer to the complaint. Furthermore, KCAS proffered

correspondence from Physician authored prior to the filing of Physician’s

answer in which he leveled the charge that KCAS was not the real party in

interest to refute Physician’s contention that he did not know of the facts

supporting this claim when he filed his original answer. KCAS maintains that

having failed to timely assert the claim, it is waived. Moreover, according to

KCAS, it demonstrated to the trial court that the timing of the motion

seeking leave to amend prejudiced it in its proceedings with the state

insurance commissioner. Finally, KCAS contends that, although Physician

was not granted leave to amend to challenge its standing and status as the

real party in interest, the trial court addressed the merits of the contention

and properly found it lacked merit.

The law is well-settled that, "Leave to amend lies within the sound

discretion of the trial court and the right to amend should be liberally

granted at any stage of the proceedings unless there is an error of law or

resulting prejudice to an adverse party.” Hill v. Ofalt, 85 A.3d 540, 557

(Pa.Super. 2014). The trial court found that Physician waived any challenge

to standing/real party in interest by failing to preliminarily object on that

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basis. See Pa.R.C.P. 1028(a)(5).3 Nonetheless, the trial court examined

the issue on its merits and found that KCAS had standing to pursue this

breach of contract action by virtue of its status as a contracting party. It

was the real party in interest because it suffered pecuniary loss regardless of

whether it had any obligation to transfer the funds to another entity.

First, we observe that the real-party-in-interest rule is merely a rule of

procedure and does not alter the substantive rights of the parties. Spires v.

Hanover Fire Insurance Co., 70 A.2d 828 (Pa. 1950), overruled on other

grounds, Guy v. Liederbach, 459 A.2d 744 (Pa. 1983). It is not an

affirmative defense enumerated in Pa.R.C.P. 1030, and should generally be

raised by preliminary objection rather than new matter. Furthermore,

standing is not jurisdictional, and if not timely raised, it is waived. In re

Estate of Alexander, 758 A.2d 182, 189 (Pa.Super. 2000). Thus,

Physician’s claim that he should have been granted leave to amend his new

matter to assert defenses that are properly raised by preliminary objection

misses the mark. Regardless, the trial court addressed the issue and found

it to be without merit, and thus, any alleged error in the court’s refusal to
____________________________________________

3
Pa.R.C.P. 1028 provides in pertinent part:

(a) Preliminary objections may be filed by any party to any
pleading and are limited to the following grounds:
....
(5) lack of capacity to sue, nonjoinder of a necessary
party or misjoinder of a cause of action;

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permit the amendment is of no consequence. We agree with the trial court’s

disposition for the reasons that follow.

Generally, a party who is aggrieved has standing. See Fumo v. City

of Philadelphia, 972 A.2d 487, 496 (Pa. 2009). "A party who is not

negatively affected by the matter he seeks to challenge is not aggrieved,

and thus, has no right to obtain judicial resolution of his challenge." In re

Milton Hershey Sch., 911 A.2d 1258, 1261-1262 (Pa. 2006). As our High

Court noted in City of Philadelphia v. Commonwealth, 838 A.2d 566,

577 (Pa. 2003), “A litigant is aggrieved when he can show a substantial,

direct, and immediate interest in the outcome of the litigation[,]” substantial

meaning “a discernable adverse effect to an interest other than that of the

general citizenry.” Id. at 1262.

Even assuming that KCAS prepaid Physician with money supplied by

Legion, KCAS, as a party to the contract, is an aggrieved litigant. In arriving

at its conclusion that the proposed amendment would not afford a basis for

relief, the trial court relied upon Collins v. Allstate Indem. Co., 626 A.2d

1162 (Pa. 1993). The plaintiffs in Collins, insureds under various motor

vehicle insurance policies, commenced actions to recover unpaid no-fault

medical benefits, interest accrued thereon, and attorney’s fees. The insurers

challenged the plaintiffs’ standing to maintain the actions because Medicare

was entitled to reimbursement of any benefits recovered as it had paid their

medical bills. Insurers maintained that the cause of action for the no-fault

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benefits actually belonged to the federal government, which was the real

party in interest, not the plaintiffs, and that since plaintiffs' medical bills

were timely paid by Medicare, they were not "aggrieved" by the non-

payment of no-fault benefits.

Our High Court found that the right of reimbursement did not render

Medicare the real party in interest in the contract action. Even though the

plaintiffs were statutorily required to reimburse the federal government, the

Court found that obligation did not alter the fact that the case involved a

contractual relationship among the plaintiffs and the defendant insurers.

Since the plaintiffs paid money to the insurers in exchange for coverage for

medical expenses, the insurers were contractually obligated to pay for those

expenses, and plaintiffs suffered pecuniary loss regardless of any claim to

those benefits by a third party. Additionally, the plaintiffs’ claims to interest

and attorney’s fees provided were sufficiently direct and pecuniary to

establish standing.

Applying the Collins rationale, the trial court herein first noted that

KCAS’s right to repayment derived from the agreements between Physician

and KCAS. KCAS thus had a pecuniary interest in the refund of its

prepayments, interest thereon, and attorney’s fees that “imbued KCAS with

the requisite authority to pursue the instant litigation to enforce its

contractual rights, and discharge the claim upon payment.” Trial Court

Opinion, 8/20/15, at 21. We agree with the trial court that KCAS had the

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requisite standing to institute suit for breach of contract, that KCAS was the

real party in interest, and that Physician’s claim lacks merit.

Next, Physician alleges the trial court erred in deeming admitted the

requests for admissions based on the lack of his personal verification. His

appellate argument, however, is not directed at the propriety of the trial

court’s imposition of sanctions in the nature of deemed admissions. Rather,

he cites Pa.R.C.P. 4014(c), and represents that, since he provided verified

answers two years prior to trial and made a request to withdraw his

admissions pursuant to Pa.R.C.P. 4014(d) in his summary judgment motion,

the trial court erred in not permitting the withdrawal of the admissions.

Appellant’s brief at 27. KCAS disputes that Physician ever made a

withdrawal motion. Appellee’s brief at 31.

The record supports KCAS’s representation of the facts. In his

response in opposition to summary judgment, Physician stated that

“Simultaneously with this filing, Defendant’s counsel is filing a request for

Reconsideration of the Order deeming the requests admitted and therefore

certainly action on the instant Motion should be denied until that Motion is

decided.” Defendant’s Reply to Plaintiff’s Motion for Summary Judgment,

7/11/12, at 4 ¶26. However, the certified record does not contain a motion

for reconsideration of the order or a request to withdraw or amend the

admissions pursuant to Pa.R.C.P. 4014(d). Since Physician did not move to

withdraw his deemed admissions, Pa.R.C.P. 4014 was not triggered and

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cannot serve as the basis for alleged trial court error. Additionally, on

appeal Physician does not develop his argument that the trial court abused

its discretion in imposing sanctions in the nature of deemed admissions;

thus, any claim in this regard is waived. Pa.R.A.P. 2119; see also Jarl

Invs., L.P. v. Fleck, 937 A.2d 1113 (Pa.Super. 2007) (arguments deemed

waived on appeal where no argument presented in the brief).

Physician’s third claim is that the action is barred as the time expired

to request repayment under the agreements before KCAS made its demand.

Physician alleges that the agreements herein provided for automatic

termination upon the earlier of two events: either the provision of services

by Physician with respect to all cases listed in Exhibit A, or a period of two

years, in the first agreement, and one year, in the second agreement.

Furthermore, although Paragraph 2c of the second agreement provided that

KCAS could request return of unused funds, Physician maintains that there

was no contractual language in that agreement indicating that this provision

survived the termination of the agreement. According to Physician, the only

language in the second agreement that could arguably impose an obligation

to remit funds for services not rendered was paragraph 6b, which provided

that either party could terminate the agreement without cause, and, in that

event, Physician would be obligated to remit all funds for services that were

not rendered to individuals listed as of the date of termination. Since the

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parties did not terminate under 6b, Physician continues there was no

contractual language requiring him to remit unearned monies.

KCAS counters that both agreements provided that Physician was

being paid in advance. See Agreement, 11/1/02, at ¶7(a); Agreement,

3/1/03 at ¶7. The second agreement also provided that “From time to time,

KCAS may request that Physician return certain of the Funds, as the

Services contemplated hereunder may not be required for a given case.”

Agreement, 3/1/03, at ¶2c. “Physician shall be obligated to return those

amounts requested by KCAS, within a reasonable time period, so long as

Physician shall not have furnished Services in connection with such case

prior to the request.” Id. Again, it is recited therein that the funds are

payment in advance for the provision of services. Id. at ¶7.

KCAS counters that the breach of contract claim did not ripen until the

time for performance expired since, until then, Physician could potentially

have earned the prepayments or voluntarily reimbursed KCAS for the

unearned prepayments. The trial court agreed with that interpretation and

found that the contract’s termination provisions did not extinguish KCAS’s

claims for reimbursement of prepayments that were not earned as of that

date.

Physician presents an issue of contract interpretation, which is a

question of law. Jarl Invs., L.P. , supra. Thus, our scope of review is de

novo and our standard of review is plenary. Bair v. Manor Care of

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Elizabethtown, PA, LLC, 108 A.3d 94 (Pa.Super. 2015). It is apparent

from the agreements that Physician was prepaid for services that it was

anticipated he would be called upon to perform with regard to certain

personal injury cases, but was also obligated to return unearned amounts

within a reasonable time after a request to do so. The second agreement

provided that KCAS could request that Physician return certain of the funds,

in writing, in accordance with requirements of Section 11, which provided:

“Physician shall be obligated to return those amounts requested by KCAS,

within a reasonable time period, so long as Physician shall not have

furnished Services in connection with such case prior to the request.”

Paragraph 2c. Hence, the contract did not put a time limit on KCAS’s

request for refund on unearned money.

Physician conflates the expiration of the term of the contract with the

time to request a refund of unearned prepayments. Although the term for

Physician’s performance of services under the contract expired, either party

could sue for breach within the applicable statute of limitations. This claim is

without merit.

Next, Physician alleges that the trial court erred in determining that

Physician did not perform any work contemplated in the Agreements that

would have entitled him to payment. We view this as a challenge to the trial

court’s factual conclusions, and hence, “we may reverse the trial court only if

its findings of fact are predicated on an error of law or are unsupported by

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competent evidence in the record.” Step Plan Servs. v. Koresko, 12 A.3d

401, 408 (Pa.Super. 2010). If there is any support in the record for the

verdict, we must affirm.

Although Physician testified at trial that he set aside two to three days

per week during the first three to six months of the contract to do the work

that never materialized, he admitted that he “did not provide written

documentation to KCAS with respect to any professional services provided

within thirty (30) business days of performing the services, as required by

paragraph E.2.c., page 2 of the November 1, 2002 Professional Services

Agreement.” Request for Admission No. 15. Furthermore, at trial, the court

asked defense counsel, “Is there any factual dispute with regard to the fact

that [Physician] did no work on those files?” Defense counsel responded,

“No, Your Honor.” N.T. Trial, 9/12/14, at 3. KCAS’s witnesses testified that

none of the files was sent to Physician and that he did not perform any

record reviews, independent medical examinations (“IMEs”), or provide any

testimony regarding the individuals identified, and confirmed that Physician

never documented in writing any professional services allegedly provided.

The record supports the trial court’s finding that Physician did not

perform any services contemplated by the agreements. “Services” was

defined in the first agreement as “the provision of Independent Medical

Examinations (“IMEs”) and review(s) of medical records” of certain

individuals. Agreement, 11/1/02, at 2 ¶2(a). Under the second agreement,

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“services” was defined as deposition and trial testimony. Physician’s own

testimony confirmed that he did not provide any services as that term is

defined in either of the agreements.4 Thus, we find no merit in Physician’s

claim that he was entitled to payment under the contracts.

In his fifth issue, Physician alleges that the trial court erred in failing to

consider and credit the doctrine of necessary implication and good faith and

fair dealing. The doctrine of necessary implication imposes a requirement of

good faith in the performance of contractual duties. Somers v. Somers,

613 A.2d 1211, 1213 (Pa.Super. 1992); Frickert v. Deiter Bros. Fuel Co.,

Inc., 347 A.2d 701 (Pa. 1975) (Pomeroy, J., concurring). That doctrine has

been stated as follows:

In 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 for which the contract was made
and to refrain from doing anything that would destroy or injure
the other party's right to receive the fruits of the contract.

Somers, supra, at 1214. It does not, however, trump the express

provisions of the contract.

Frickert involved a shareholder agreement intended to ensure that

certain key employees would succeed to ownership in equal shares in a

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4
Physician’s successful counterclaim for $2,500, representing payment for a
deposition in a workers’ compensation matter, was not a service
contemplated within the agreements herein.

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closely-held corporation. One of the owners frustrated that intent when he

transferred his corporate shares to his sons during his lifetime. The court

held that, although the gift was not expressly prohibited in the agreement, it

violated the implied duty of the contracting parties to “act according to

reason and justice.” Frickert, supra at 1214.

As this Court recognized in John B. Conomos, Inc. v. Sun Co., 831

A.2d 696 (Pa.Super. 2003), 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 for which the

contract was made and to refrain from doing anything that would destroy or

injure the other party's right to receive the fruits of the contract.” Id. at

706. We view the implied covenant as a means “to harmonize the

reasonable expectations of the parties with the intent of the contractors and

the terms in their contract.” Id. at 707.

Physician contends that it was implied in the contract that KCAS would

give him the work described in the contract. He stood ready to perform, but

KCAS frustrated his performance. KCAS counters that the agreements

expressly stated that Legion was in rehabilitation, and further, it advised

Physician that all court cases were stayed, and that no cases would be sent

until the stay was lifted, an event that never occurred.

We note preliminarily that Physician did not file a counterclaim for

breach of contract based on the duty of good faith and fair dealing. Even if

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he had, it would not entitle him to relief. The agreements simply did not

guarantee that Physician would receive cases. It was recited therein that

Legion was in rehabilitation. Furthermore, it was acknowledged that

Physician might not be called upon to perform all of the services, and in that

event, he would be required to return the unearned payments.

The instant case is not about Physician’s failure to satisfactorily

perform case reviews, IMEs, or provide deposition or trial testimony. It is

about his refusal to remit the monies he was paid and that he agreed to

return if he did not provide services on the delineated cases. The parties

contracted with the belief that the stay would be lifted and KCAS would send

certain cases to Physician. It is undisputed that the stay was never lifted

and that Legion went into liquidation. Both agreements provided that

Physician was being prepaid for anticipated services, and that if Physician did

not perform the services, he would remit the unearned prepayments.

Although Physician did not perform any of the services for which he was

prepaid, he refused to return the unearned prepayments. This claim fails.

Next Physician alleges that the indemnification provision did not apply

to first party claims, and thus, the trial court erred in permitting KCAS to

recover its legal fees. In support of his position, he relies upon the

dictionary definition of indemnification, and cites Jalapenos, LLC v. GRC

Gen Contractor, Inc., 939 A.2d 925 (Pa.Super. 2007), and authorities from

other states and the federal courts for the proposition that an indemnity

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clause typically covers only claims by third parties against an indemnitee.

Physician asserts that the indemnity provisions in the agreements were

designed to protect him from claims of Legion and third parties, not to

subject him to attorney’s fees and costs upon a finding of breach. Paragraph

12(g). He argues that under KCAS’s proposed construction, he would also

be entitled to attorney’s fees for defending the lawsuit as there is nothing

that limits indemnification to the prevailing party.

The indemnification provision states:

Indemnification. Each party agrees to fully, completely
and unconditionally indemnify, defend, and hold the other party
harmless from and against any and all claims, actions, liabilities,
losses, costs and expenses (including, without limitation, costs of
judgments, settlements, court costs and attorney’s fees) arising
out of or relating to, or alleged to arise out of or relate to,
negligent or intentional acts or omissions of the indemnifying
party or any breach by the indemnifying party of any
representation, warranty, obligation or covenant under this
Agreement. KCAS also agrees to indemnify Physician from any
and all actions that may be taken by or on behalf of Legions
Insurance Company in Rehabilitation with respect to the Funds.

Agreement, 11/1/02, at ¶12d; Agreement, 3/1/03, at ¶12g.

Under our American Rule, parties usually bear their own costs of

litigation, including attorney's fees. However, a litigant can recover counsel

fees from an adverse party where there is express statutory authorization, a

clear agreement of the parties, or some other established exception.

Trizechahn Gateway LLC v. Titus, et al., 976 A.2d 474, 482 (Pa. 2009)

rev'd in part on other grounds, 976 A.2d 474 (Pa. 2009); see also

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Waynesborough Country Club of Chester County v. Diedrich Niles

Bolton Architects, Inc., 2008 U.S. Dist. LEXIS 93395 (E.D. Pa. 2008)

(enforcing unambiguous contractual provision allowing plaintiff to recover

“‘expenses including reasonable attorneys' fees’ arising from ‘any breach or

default’ of the [agreement] or from ‘a negligent act, error or omissions of

[defendant] arising out of the performance or failure to perform professional

services under’ the contract”). At issue herein is the meaning and scope of

the indemnification clause in the parties’ agreements.

"In interpreting the scope of an indemnification clause, the court must

consider the four corners of the document and its surrounding

circumstances." County of Del. v. J.P. Mascaro & Sons, 830 A.2d 587,

591 (Pa.Super 2003); see also Kripp v. Kripp, 849 A.2d 1159, 1163 (Pa.

2004) ("[T]he words of a contract are to be given their ordinary meaning.

When the terms of a contract are clear and unambiguous, the intent of the

parties is to be ascertained from the document itself.").

Preliminarily, we reject Physician’s position that the heading

“Indemnification” dictates the meaning of the provision, as the agreements

expressly provide that section headings do not affect the construction of any

provision. We look instead to the four corners of the provision. By its

terms, the provision is not expressly limited to third party claims. It states

that each party is required to indemnify the other party from any and all

losses, costs and expenses, including attorney’s fees, arising from or relating

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to “any breach by the indemnifying party of any . . . obligation under this

Agreement.” Agreement, 11/1/02, at ¶12d; Agreement, 3/1/03, at ¶12g.

We find that this language expressly covers first-party claims for breach.

The facts herein contrast sharply with those in Jalapenos, supra,

relied upon by Physician. That case involved the interplay of indemnity and

subrogation provisions in a particular American Institute of Architects (“AIA”)

form contract. The indemnity language in that contract bears no

resemblance to the indemnification clause at issue. We held therein, based

on the AIA contract language, that the indemnification clause was intended

to protect both the owner and the contractor from claims and losses not

covered by insurance, not losses involving the work itself, which was the

subject of the lawsuit. Jalapenos, supra at 929.

The indemnification provision herein unambiguously applies to first-

party claims as well as third-party claims, and thus, KCAS was properly

awarded attorney’s fees. Moreover, we find no merit in Physician’s

argument that such an interpretation would entitle him to recover the

attorney’s fees he incurred in defending the lawsuit. The provision expressly

limits indemnification to the non-breaching party, in this case, KCAS.5

Physician next contends that even if the indemnification provision

applied to first party claims, KCAS would not be entitled to attorney’s fees as
____________________________________________

5
There is no dispute over the amount of the attorney’s fees.

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Walter Strine, a principal of KCAS, was the client who paid the fees.

Furthermore, he contends there was no evidence that KCAS paid any legal

fees.

KCAS directs our attention to Physician’s admissions in his Response to

the Petition for Attorney’s Fees, i.e., that “Plaintiff [KCAS] commenced this

case using the services of the law firm of Riley, Riper, Hollin & Colagreco

until December 2008.” Answer to Petition, at ¶4. Physician also admitted

that, “Plaintiff [KCAS] engaged the services of the law firm of Petrikin,

Wellman, Damico, Brown & Petrosa for all other legal services in this case.”

Id. at ¶9. Such admissions fly in the face of Physician’s present contention

that KCAS was not the client.

In addition, Attorney Green from the Riley firm testified that the bills

were for services rendered in its representation of KCAS. Attorney Denis

Dunn also confirmed that his firm represented KCAS. Since Mr. Strine was

not a party and there was no evidence that the services were rendered on

behalf of anyone other than KCAS, we find no merit in Physician’s

contention. The trial court concluded that KCAS was the client for whom the

legal services were performed and the record supports that finding.

In his penultimate issue, Physician alleges the trial court erred in

awarding prejudgment interest to KCAS on this breach of contract claim. We

review an award of prejudgment interest for an abuse of discretion. Cresci

Const. Servs., Inc. v. Martin, 64 A.3d 254 (Pa. 2013). The essence of

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Physician’s claim is that the money purportedly owed to KCAS was never

KCAS’s money, but money belonging to Legion or Villanova Insurance

Companies. We have already addressed and dismissed Physician’s

contention that KCAS was not the real party in interest. Furthermore,

Physician’s argument ignores the distinction between "contractual interest"

and "prejudgment interest." Where, as here, a contract provides for the

payment of money and one party breaches the contract by failing to pay, the

non-breaching party may recover interest on the amount owed under the

contract in one of two ways. In cases where the contract expressly provides

for the payment of interest, or the payment of interest is implied by the

nature of the promise, the interest is said to become an integral part of the

debt itself, and, therefore, is recoverable as of right under the terms of the

contract. See, e.g., Restatement (Second) of Contracts § 354 cmt. A.

Instantly, the contract expressly provides for the recovery of interest in the

case of breach. Hence, Physician’s claim lacks merit.

Physician’s final claim is that he was entitled to an award of attorney’s

fees and interest on his $2,500 counterclaim. Barium Steel Corp. v.

Wiley, 379 Pa. 38, 54 (Pa. 1954). The trial court disagreed, finding first

that the subject matter of the counterclaim was not covered by the

agreements herein, and thus, there was no contract provision entitling

Physician to attorney’s fees on that claim. Furthermore, the court declined

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to award pre-judgment interest as “interest does not accumulate on a set-off

claim.” Trial Court Opinion, 5/7/15, at 17.

The record establishes that KCAS agreed to pay Dr. Grossinger $2,500

for a deposition he provided in a worker’s compensation case in 2005 that

was unrelated to and not contemplated within the two agreements at issue

herein. Since Physician offered no express contractual basis authorizing an

award of attorney’s fees, the trial court was correct in declining to award

such fees. Similarly, there was no contract providing for the payment of

interest with regard to the $2,500 claim. However, even in the absence of a

contractual provision, a non-breaching party may be entitled to pre-

judgment interest and recovery is based on the amount due under the

contract. See Restatement (Second) of Contracts § 354; see also

Trizechahn Gateway, LLC , supra at 543-44.

The trial court ruled that no prejudgment interest was due on the

$2,500 counterclaim since that claim was set off against the amount

Physician owed KCAS. We agree. Additionally, we note that since Physician

only demanded the $2,500 payment in 2011, any prejudgment interest

calculated on $2,500 at six percent per year from that date is more than

offset by the reduction of interest payable on the net amount awarded to

KCAS calculated from 2004.

For all of the foregoing reasons, Physician is not entitled to relief.

Judgment affirmed.

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Judge Olson joins the memorandum.

Judge Strassburger files a concurring and dissenting memorandum.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 11/21/2016

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