MacE v. Atlantic Refining & Marketing Corp.

785 A.2d 491, 567 Pa. 71, 2001 Pa. LEXIS 2656

• Court: Supreme Court of Pennsylvania
• Decided: December 12, 2001
• Docket: 5 EAP 2000
• Status: Published

Opinions

OPINION

NIGRO, Justice.

Appellee Bassam Barqawi, t/a A-Plus Mini Market, (“Barqawi”) operated an A-Plus convenience store and gas station (“A-Plus”) in Philadelphia pursuant to a franchise agreement and a real estate lease with Appellant Atlantic Refining & Marketing Corporation (“Atlantic”). Under the franchise agreement and real estate lease (collectively “Agreement and Lease”) signed by the parties, Barqawi took sole possession and control of the premises on April 1, 1992. The terms of the Agreement and Lease required Barqawi to indemnify and defend Atlantic from all personal injury lawsuits arising out of Barqawi’s operation of the store, unless the injury was caused solely by the negligence of Atlantic. The indemnity provision in the franchise agreement provided:

SECTION 12 Indemnity and Insurance

12(A) Franchisee [Barqawi] agrees to indemnify, hold harmless and defend ATLANTIC from and against all claims losses and damages for personal injury or death, or damage to property, occurring on the Premises, or arising out of Franchisee’s use or occupancy of the Premises, or arising out of Franchisee’s use, custody or operation of the Store, Store equipment, Loaned Store Equipment, or any other equipment on the Premises excepting any damage or loss caused solely by the negligence of Company [Atlantic] or solely by Company’s failure to peifomi its obligations hereunder.

A-Plus Mini Market Franchise Agreement, p. 13, R.R. at 127a (emphasis added).¹ The indemnity provision in the real estate lease provided:

15 Indemnity and Insurance

a. Indemnity. Lessee [Barqawi] agrees to indemnify, hold harmless and defend Lessor [Atlantic] from and, against all claims, losses and damages for personal injury or death or damage to property or clean up costs and fines occurring on the Premises, arising out of Lessee’s use or occupancy of the Premises, or arising out of Lessee’s use, custody or operation of the Store Equipment, Loaned Equipment, or any other equipment on the Premises excepting any damage or loss caused solely by the negligence of Lessor or solely by Lessor’s failure to perform its obligations hereunder.

A-Plus Mini Market Premises Lease, p. 10, R.R. at 152a (emphasis added).²

Barqawi employed Bobby Perry (“Perry”) as a stock clerk at A-Plus. Perry was working during the early morning hours of May 31, 1992, when he got into an altercation with a customer, Edward Keyse Mace (“Mace”). Although the parties disagree about how the altercation actually evolved, it is undisputed that Perry severely beat Mace with an aluminum baseball bat in the A-Plus parking lot. Mace subsequently commenced a personal injury action against Perry, Barqawi and Atlantic for injuries resulting from the attack. In his complaint, Mace alleged that Perry committed assault and battery wThen he attacked him with the baseball bat. Mace further alleged that Barqawi was vicariously liable as Perry’s employer, and that Barqawi failed to provide a safe facility and negligently hired, supervised and trained Perry. Finally, Mace alleged that Atlantic was vicariously liable as the franchisor of A-Plus, and was negligent for failing to properly supervise the operations of the franchise. Atlantic filed cross-claims against Barqawi for contractual indemnity and breach of contract, asserting that Barqawi had an obligation under the Agreement and Lease to defend Atlantic against the claims asserted by Mace. Barqawi then filed a cross-claim against Atlantic pursuant to Pa.R.C.P 2252(d).³

Relying on the terms of the Agreement and Lease, Atlantic filed a motion for summary judgment arguing that, as a matter of law, Atlantic was not liable in any manner to Mace for the injuries he sustained when Perry beat him with a baseball bat in the A-Plus parking lot. On May 29, 1996, the trial court granted Atlantic’s motion for summary judgment and dismissed all claims and cross-claims against Atlantic. Atlantic, however, continued to pursue its cross-claims against Barqawi for defense costs and legal fees that it expended in defending itself in the underlying personal injury action. On March 14, 1997, the trial court concluded as a matter of law that, under the Agreement and Lease, Barqawi had no obligation to defend Atlantic in the personal injury action instituted by Mace. Based on this ruling, the trial court dismissed Atlantic’s cross-claims against Barqawi.⁴

On appeal, a majority of the Superior Court affirmed. In finding that Barqawi was not obligated to defend Atlantic, the Superior Court majority relied on the Perry-Ruzzi rule, which provides that if a party seeks to indemnify itself against its own negligence, the language seeking to do so in the indemnification provision must be clear and unequivocal. See Ruzzi v. Butler Petroleum Co., 527 Pa. 1, 7, 588 A.2d 1, 4 (1991)(reaffirming Perry v. Payne, 217 Pa. 252, 66 A. 553 (1907)). Judge Hester dissented, taking the position that the Perry-Ruzzi rule was not applicable to the instant case because Atlantic was not attempting to recover for its own negligence. Judge Hester concluded that, under the Agreement and Lease, Atlantic was entitled to be reimbursed for Barqawi’s failure to defend Atlantic.

On appeal to this Court, Atlantic argues that the Superior Court erred when it affirmed the trial court’s decision that Barqawi had no obligation to defend Atlantic when Mace sued Atlantic for injuries caused by Barqawi’s employee on the A-Plus premises.⁵ Atlantic argues that the Perry-Ruzzi rule is not applicable to the instant case, and that the indemnity provisions in the Agreement and Lease are enforceable against Barqawi. Atlantic asserts that when basic contract principles are applied to the Agreement and Lease, it is clear that Barqawi is responsible for paying the costs that Atlantic incurred in defending itself from the personal injury suit instituted by Mace. We agree with Atlantic, and therefore reverse.

In Perry v. Payne, a building contractor (“Contractor”) agreed to construct a building for a property owner (“Owner”). 217 Pa. at 254, 66 A. at 553. The terms of the contract required Contractor to execute and deliver an indemnity bond, thereby indemnifying Owner for injuries or damages sustained by laborers or third parties during construction. Before Contractor completed construction of the building, Owner regained partial possession of the property and placed his employees in charge of the building, including the elevators. While an employee of Contractor’s subcontractor was painting a wall inside an elevator shaft, an employee of Owner negligently lowered the elevator, killing the employee inside the elevator shaft. The estate of the decedent recovered a judgment against Owner, who then tried to recover on Contractor’s bond for indemnity. On appeal, this Court held that the indemnity provision of the contract did not apply to injuries resulting from the negligence of Owner or his employees while Owner was in possession of the building. Id. at 262-63, 66 A. at 556-57. In so holding, the Court stated that an indemnity contract against personal injuries “should not be construed to indemnify against the negligence of the indemnitee, unless it is so expressed in unequivocal terms.” Id. at 262, 66 A. at 557. This rule of construction was subsequently reaffirmed by this Court in Ruzzi v. Butler Petroleum Co., which made clear that the rule is reserved only for instances where a party seeks indemnification for its own negligence. Ruzzi, 527 Pa. at 9, 588 A.2d at 5.

As Judge Hester concluded in his dissent below, the PerryRuzzi rule is simply not applicable to the instant case because Atlantic is not seeking to relieve itself of responsibility for its own negligence. Atlantic did not fail to perform any. of its obligations under the Agreement and Lease. Instead, Atlantic was merely charged with negligence based on the actions of Perry, one of Barqawi’s employees. As the Superior Court recognized, Atlantic was “loosed of all tort responsibility in the underlying case” when the trial court granted Atlantic’s motions for summary judgment, thereby dismissing with prejudice all claims and cross-claims against Atlantic. Mace v. Atlantic Refining & Marketing Corp., 717 A.2d 1050, 1051 (Pa.Super.1998). Since Atlantic was adjudicated a non-negligent party, the Perry-Ruzzi rule is, by definition, not relevant here.

Barqawi argues, however, that the Pei'ry-Ruzzi rule should be expanded to become an overarching principle that is applied every time a potential indemnitee, such as Atlantic in this case, is charged with negligence. According to Barqawi, whenever an indemnitee is charged with negligence, the indemnification agreement must pass muster under the Perry-Ruzzi rule regardless of whether the indemnitee is actually found to be negligent.⁶ Barqawi argues that such a rule would allow litigants to determine from the outset of a claim the nature and extent of their indemnification and defense obligations and their expectations for recovery of indemnification and defense costs. We disagree.

We rejected a similar attempt to extend the scope of the Perry-Ruzzi rule in Topp Copy Products, Inc. v. Singletary, 533 Pa. 468, 473-74, 626 A.2d 98, 100-01 (1993). In Topp Copy, the appellee maintained that the Superior Court properly applied the Perry-Ruzzi rule when interpreting the validity of an exculpatory clause in a commercial lease. We disagreed and explained that the Perry-Ruzzi rule is a rule of contract interpretation for clauses that relieve a party of responsibility for its own negligence, which is applied only in the unique circumstances of an indemnity arrangement. Topp Copy, 533 Pa. at 474, 626 A.2d at 101. Thus, Topp Copy essentially reaffirmed that the Perry-Ruzzi rule should be limited to those situations where an indemnitee is attempting to recover for its own negligence.

In addition to the fact that our Court has consistently limited the applicability of the Perry-Ruzzi rule, we note that expanding the rule in the manner suggested by Barqawi would also unfairly preclude innocent indemnitees from obtaining indemnification under standard indemnity language. Parties simply charged with negligence, even though subsequently found not liable, would be precluded from recovering defense costs. In effect, expanding the Perry-Ruzzi rule to encompass situations where a party is merely alleged to have been negligent would render indemnification meaningless, as even a completely frivolous negligence action filed against an indem-nitee would automatically eradicate an otherwise valid indemnification provision. Thus, we reject Barqawi’s argument that the Perry-Ruzzi rule should be expanded and instead find that the rule should continue to be applied only in those instances where a party seeks indemnification for its own negligence.

Since the Perry-Ruzzi rule is not applicable here, we must look to general principles of contract interpretation to determine whether Barqawi had an obligation under the Agreement and Lease to defend Atlantic from the personal injury lawsuit initiated by Mace. A franchise agreement is a contract to be interpreted under contract principles. See Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 507-12, 351 A.2d 207, 210-13 (1976)(analyzing franchise agreement under Pennsylvania contract law). Likewise, a lease is a contract and is also to be interpreted according to contract principles. Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 200, 519 A.2d 385, 389 (1986). A fundamental rule in construing a contract is to ascertain and give effect to the intent of the contracting parties. Shovel Transfer & Storage, Inc. v. Pennsylvania Liquor Control Bd., 559 Pa. 56, 65, 739 A.2d 133, 137 (1999) (citations omitted). “It is firmly settled that the intent of the parties to a written contract is contained in the writing itself.” Id., 739 A.2d at 138. When the words of a contract are clear and unambiguous, the meaning of the contract is ascertained from the contents alone. Steuart v. McChesney, 498 Pa. 45, 49, 444 A.2d 659, 661 (1982). See J.K. Willison, Jr. v. Consolidation Coal Co., 536 Pa. 49, 54, 637 A.2d 979, 982 (1994)(con-tract terms must be construed as manifestly expressed by the parties and according to the accepted arid plain meaning of the language used by the parties).

Here, the clear and unambiguous language of the Agreement and Lease provided that Barqawi must defend Atlantic in all claims for personal injuries arising out of Barqawi’s use, occupancy, custody or operation of A-Plus, unless the injuries were caused solely by the negligence of Atlantic. There is no question that Mace’s claim arose out of Barqawi’s use, occupancy, custody or operation of A-Plus. Barqawi was in sole possession of the premises and operated A-Plus as a franchisee of Atlantic. Moreover, Barqawi controlled the hiring and supervision of all employees, including Perry, who severely beat Mace with a baseball bat in the A-Plus parking lot. It is also clear that Mace’s injuries were not caused by the sole negligence of Atlantic. As noted above, the trial court granted Atlantic’s motion for summary judgment in Mace’s underlying personal injury action, thereby holding as a matter of law that Atlantic was not negligent. Given these circumstances, and the plain language of the Agreement and Lease, Barqawi was clearly required to defend Atlantic in Mace’s personal injury suit. Since Barqawi failed to do so, Atlantic is entitled to recover the costs expended in defending the lawsuit. See Restatement (Second) of Contracts § 346 (1981)(injured party has a right to damages for any breach by a party); id. § 347 (contract damages normally are based on party’s expectation interest and put the injured party in a position as if the breaching party had performed as required); see, e.g., Gedeon v. State Farm Mutual Automobile Ins. Co., 410 Pa. 55, 59, 188 A.2d 320, 322 (1963)(based on usual contract remedy of expectation damages, recovery for breach of duty to defend will ordinarily be costs of defense).⁷

Based on the above analysis, we conclude that the Superior Court erred when it construed the indemnity provisions in the Agreement and Lease under the Perry-Ruzzi rule. Atlantic is not seeking indemnification for its own negligence but rather, is only seeking reimbursement for Barqawi’s failure to defend it as required by the Agreement and Lease. , Applying basic contract principles, we find that Barqawi failed to perform its obligations under the Agreement and Lease and is therefore responsible for reimbursing Atlantic for the counsel fees that Atlantic was forced to expend in defending itself from the lawsuit initiated by Mace. Accordingly, the Order of the Superior Court is reversed, and this matter is remanded to the trial court for a determination of reasonable counsel fees for Atlantic. Jurisdiction relinquished.

Justice CAPPY files a dissenting opinion in which Justice CASTILLE joins. Justice SAYLOR files a dissenting opinion.

1 . Section 12(B) of the franchise agreement also required Barqawi to procure and maintain various types of insurance, including a general liability policy with contractual liability, insuring the indemnity provision set forth in Section 12(A) of the franchise agreement. See Section 12(B)(2), A-Plus Mini Market Franchise Agreement, p. 13, R.R. at 127a. The franchise agreement further required Barqawi to name Atlantic as an additional named insured under the general liability insurance policy. Id.

2 . Like the franchise agreement, the premises lease required Barqawi to procure and maintain a general liability insurance policy naming Atlantic as an additional insured and insuring the liability provisions set forth in Paragraph 15(a) of the premises lease. See Paragraph 15(b), A-Plus Mini Market Premises Lease, p. 10, R.R. at 152a.

3 . Pa.R.C.P. 2252(d) provides that a cross-claim against a co-defendant may include a claim that such pai'ty is alone liable to the plaintiff, or ■, jointly or severally liable to the plaintiff, or is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.

4 . On that same date, immediately after ihe court issued its decision regarding Atlantic’s cross-claims against Barqawi, Perry and Barqawi finalized a pre-trial settlement with Mace for $100,000.

5 . Whether a court has correctly interpreted a writing and properly determined the legal duties that arise therefrom is a question of law. Riccio v. American Republic Ins. Co., 550 Pa. 254, 263, 705 A.2d 422, 426 (1997). Questions of law are afforded full appellate review and are not limited to abuse of discretion review. In re Estate of Livingston, 531 Pa. 308, 317 n. 2, 612 A.2d 976, 981 n. 2 (1992). Thus, as with any review of a question of law, our scope of review in the instant case is plenary. Phillips v. A-Best Products Co., 542 Pa. 124, 130, 665 A.2d 1167, 1170 (1995).

6 . Thus, Barqawi argues that he was not obligated to defend Atlantic when Mace charged Atlantic with negligence because the Agreement and Lease did not clearly provide that Barqawi must indemnify and defend Atlantic when it is charged with negligence.

7 . Barqawi attempts to evade liability for Atlantic's defense costs by arguing that Atlantic "voluntarily” incurred legal expenses due to its decision to pursue its cross-claims against Barqawi. This argument completely ignores the fact that Atlantic incurred the expenses only after Barqawi breached its duty to defend Atlantic in the lawsuit initiated by Mace, thereby forcing Atlantic to defend itself in order to avoid summary judgment being entered against Atlantic in favor of Mace. Rather than "voluntarily” incurring unnecessary costs of extended litigation, Atlantic simply pursued its cross-claims after Barqawi refused to comply with the terms ol the Agreement and Lease.