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Township of Bensalem v. American Fidelity Fire Insurance Co.

decided: March 30, 1981.



Before Adams, Rosenn and Hunter, Circuit Judges.

Author: Per Curiam


In this appeal, American Fidelity Fire Insurance Company ("American Fidelity" or "Surety") seeks review of an order of the district court denying American Fidelity's motion for leave to amend its counterclaim. We conclude that we do not have jurisdiction to review such an order and the appeal will therefore be dismissed.


This action was originally commenced by the Township of Bensalem ("Township") against American Fidelity as surety for E. J. Alten Bensalem Condominium Developers ("Developer") to recover on a surety bond.*fn1 As a condition for the Township's permission to build a condominium complex, the Developer agreed to build a road providing access to the complex. To provide security for that obligation in accord with state law, Pa.Stat.Ann. tit. 53, ยง 10509 (Purdon 1980), the Developer obtained an improvement bond from American Fidelity providing that, in the event the Developer failed to build the road, American Fidelity would pay the Township the cost of constructing it, approximately $81,000. The Developer experienced financial difficulties and its mortgagee, Central Penn National Bank ("Central Penn"), undertook to foreclose on the project. The Developer sought protection under Chapter XII of the Bankruptcy Act but was unable to accomplish a reorganization. Central Penn thereupon foreclosed on the property.

When the Developer defaulted in building the road, the Township instituted suit on the surety bond. American Fidelity counterclaimed, naming Central Penn as an additional defendant on the counterclaim, asking for a declaration that American Fidelity was liable to neither the Township nor Central Penn on the bond. It also filed a third-party action against Eugene J. Alten, a general partner in the Developer, claiming a right to indemnity pursuant to an agreement executed contemporaneously with the bond. The Township then moved for summary judgment against the Surety. American Fidelity, in turn, moved for summary judgment against Alten. While these motions were pending, American Fidelity moved for leave to amend its counterclaim.

American Fidelity's proposed amended counterclaim added to its original requests for declaratory relief several counts containing claims for affirmative relief from Central Penn. American Fidelity alleged that the Developer's financial difficulties, and thus any liability of its surety, were occasioned by the wrongful conduct of Central Penn as mortgagee. Claiming to be a subrogee of the Township,*fn2 American Fidelity urged that Central Penn was under a statutory obligation,*fn3 as successor in interest to the Developer,*fn4 to construct the improvements secured by the surety bond. Under this theory, American Fidelity urged that the Township should proceed against Central Penn rather than American Fidelity, or that the court should require Central Penn to indemnify American Fidelity for the amounts paid over to the Township pursuant to the bond provisions. American Fidelity also urged that Central Penn would be unjustly enriched by requiring American Fidelity to bear the entire cost of the improvements and that, at a minimum, those costs should be equitably distributed between the Surety and the Bank.

On July 23, 1980, the district court entered an order granting the Township's motion for summary judgment against American Fidelity, granting American Fidelity's motion for summary judgment against Alten, and denying American Fidelity's motion for leave to amend its counterclaim. In support of the latter action, Judge Green in an accompanying memorandum opinion noted that "(a)n amendment may be denied ... for reasons of undue delay, bad faith, dilatory motive on the part of the movant, prejudice to the opposing party or futility of amendment." In evaluating the case before him, the judge found that American Fidelity sought the amendment, which pleaded no new facts, almost eighteen months after instituting the action and nearly four years after the occurrence of the events at issue. Further, the Surety had offered no justification for the delay. Judge Green concluded that the motion to amend was a "dilatory maneuver" and therefore refused to allow it.

The court also considered the merits of the proposed amendment and, finding the amendment to be legally insufficient, refused to allow it on grounds of "futility" as well as delay. The court essentially held that American Fidelity could make no recovery against Central Penn in the absence of a legal duty owing from the Bank to the Surety. The existence of such a duty, the court found, was not alleged in the proposed amendment nor could the court find one in its review of the parties' circumstances. Those claims against Central Penn arising out of alleged misconduct in its role as mortgagee for the Developer, the court held, were barred because they should have been raised in the foreclosure proceedings. Finally, the district court held that to absolve American Fidelity of liability and impose liability on Central Penn would unjustly enrich American Fidelity and thus allow it to keep its premiums without ever having placed anything at risk.

American Fidelity filed a "Motion for Reconsideration" on August 5, 1980, asking Judge Green to reform his memorandum opinion by deleting his references to the legal insufficiency of the proposed amendment. While that motion was pending in the district court, American Fidelity filed its notice of appeal from Judge Green's order of July 23.*fn5 On September 25, 1980, the district court denied the Surety's motion for reconsideration as untimely and without substantive merit.

This appeal was brought out of concern that principles of res judicata would preclude any future legal action by American Fidelity against Central Penn on the causes of action contained in the proposed amendment because Judge Green appears to have ruled on the merits of those contentions. The Surety argues that because the denial of the motion to amend may be sustained solely on the ground of "dilatory motive," which American Fidelity is willing to concede for purposes of this appeal, Judge Green should not have reached the merits and this court should direct a reformation of his opinion to delete references to the merits of the legal theories advanced in the proposed amendment.


In the closing paragraph to his opinion of July 23, ...

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