Penna Warehouse Beverage v. Brookhaven MZL ( 2015 )

J-A09041-15
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
PENNSYLVANIA WAREHOUSE BEVERAGE IN THE SUPERIOR COURT OF
STORES, INC. PENNSYLVANIA
Appellee
v.
BROOKHAVEN MZL, LP
Appellant No. 2614 EDA 2014
Appeal from the Orders entered August 27, 2014
In the Court of Common Pleas of Delaware County
Civil Division at No: 2013-3306
BEFORE: BOWES, DONOHUE, and STABILE, JJ.
MEMORANDUM BY STABILE, J.: FILED MAY 12, 2015
Brookhaven MZL, LP, owns a shopping center in Delaware County.
Pennsylvania Warehouse Beverage Stores, Inc., (PA Beverage), a beer
distributor, is Brookhaven’s tenant. This action emanates from a dispute
over the terms of the parties’ commercial lease. On August 27, 2014,1 the
trial court entered an order granting PA Beverage’s motion for summary
judgment, and declaring that PA Beverage validly exercised its option to
extend the lease to March 31, 2018. The trial court entered a second order
denying Brookhaven’s motion for summary judgment on its counterclaim for
double holdover rent. Because the trial court erred as a matter of law in
construing the commercial lease, we reverse both orders.
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1
The orders are dated August 26, 2014, but were entered the following day.
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PA Beverage is a Pennsylvania corporation that operates a single-
location beer distributor on Edgemont Avenue, Brookhaven Borough.
Brookhaven, a Delaware limited partnership, is the current owner of the
shopping center in which PA Beverage is located, Plaza 352. On December
31, 1991, PA Beverage entered into a commercial lease (the 1991 Lease)
with Brookhaven’s predecessor, First Republic Corporation of America, to
rent space in Plaza 352 for five years. Article I of the 1991 Lease2 allowed
PA Beverage to renew the lease under the following terms:
Provided that [PA Beverage] has complied with the terms and
conditions of this lease applicable to it, [PA Beverage] shall have
three (3) five (5)-year options under the same terms and
conditions hereof . . . .
1991 Lease, art. I. The renewal option included increases in rent and
common-area maintenance fees. Id. PA Beverage and First Republic later
agreed to one-page modifications to the 1991 Lease in 2002 and 2008
(Modifications). The 2002 and 2008 Modifications granted PA Beverage
additional extension options, and changed the rent and common-area
maintenance fees. Both Modifications contained the following clause:
All other terms, conditions, covenants and agreements contained
in [the 1991] Lease, as heretofore modified not inconsistent with
this Agreement, shall remain unchanged and hereby ratified and
confirmed and incorporated herein by reference.
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2
Copies of the 1991 Lease, the 2002 Modification, and the 2008 Modification
are attached as exhibits A, A-1, and A-2 to PA Beverage’s amended
complaint.
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It is expressly agreed that, if prior to the effective date of the
terms provided in this Agreement, [PA Beverage] shall default in
any of the terms, conditions, covenants and agreements
contained in the aforementioned Lease, this agreement, at the
option of Landlord and without prior notice to [PA Beverage],
shall be void, null and of no effect, as though the same had
never been made.
2002 Modification; 2008 Modification.
This case concerns PA Beverage’s exercising of the extension option
contained in the 2008 Modification, which extended its lease until March 31,
2018. The 2008 Modification required PA Beverage to provide notice of
intent to exercise this option no later than October 1, 2012, by certified mail,
return receipt requested.
Also pertinent to this dispute is Article II of the 1991 Lease, unaffected
by the 2002 and 2008 Modifications:
[PA Beverage] hereby agrees to pay the Landlord without
demand at its office, or at such other place or places as Landlord
may from time to time designate in writing, the following rents
for the aforesaid leased premises for the terms of this lease, to
wit
Minimum Rent: the fixed minimum annual rent during the term
of this lease shall be payable by [PA Beverage] in equal monthly
installments on or before the first day of each month in advance,
and without any deduction or set-off whatsoever . . . .
1991 Lease, art. II. The 1991 Lease further provides that PA Beverage is to
pay the landlord the real estate tax as additional rent, due ten days after the
real estate taxes are payable to the relevant taxing authority.
On August 15, 2012, Brookhaven bought Plaza 352 from First
Republic. On August 28, 2012, Brookhaven sent a letter to PA Beverage,
informing it of the money it owed First Republic in the amount of $4,043.72,
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and to Brookhaven in the amount of $9,124.62, as of August 15, 2012. The
money PA Beverage owed to First Republic included July and August rent,
and 2011 and 2012 real estate taxes. The money PA Beverage owed to
Brookhaven included August rent and 2012 real estate taxes.
On September 20, 2012, PA Beverage attempted to exercise its option
to extend the lease to 2018 per the terms of the 2008 Modification.
Brookhaven received PA Beverage’s letter on September 24, 2012.
As of October 1, 2012, PA Beverage allegedly owed its current and
former landlords more than $16,000.00 in past-due rent. On October 1,
2012, Brookhaven’s agent sent a letter to PA Beverage entitled “NOTICE OF
DEFAULT/ NON-EXERCISE OF OPTION.” In the letter, Brookhaven’s agent
informed PA Beverage that it was in default of the lease, because it owed
past due rent and real estate taxes.3 The letter further informed PA
Beverage that “according to Article I, Renewal Option, Tenant must comply
with all terms and conditions to be in good standing in order to exercise a
renewal option.” Id. Brookhaven stated that PA Beverage could not
exercise the extension option allowed by the 2008 Modification, because it
had failed to comply with the lease by not timely paying rent.
On March 28, 2013, Brookhaven notified PA Beverage that its lease
expired on March 31, 2013, and it thereafter would be a holdover tenant,
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3
A copy of the letter is attached to PA Beverage’s amended complaint as
exhibit D.
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liable for double rent under Articles II and XXIV of the 1991 Lease. On April
4, 2013, Brookhaven again notified PA Beverage that it was in default,
because it did not pay the double rent, and did not vacate and surrender the
premises.
On April 10, 2013, PA Beverage filed suit against Brookhaven seeking
declaratory relief and damages. In its amended complaint, PA Beverage
requested the trial court to declare that it was not in default of the lease
agreement or a holdover tenant. PA Beverage also sought damages for
breach of the modified terms of the lease and for breach of the covenant of
good faith and fair dealing. Brookhaven answered and counterclaimed for
double holdover rent and attorneys’ fees as provided by the 1991 Lease and
2002 and 2008 Modifications.
On July 18, 2014, the parties filed motions for summary judgment.
On July 26, 2014, the trial court issued two responsive orders. The first
order granted PA Beverage’s motion for summary judgment, and the second
order denied Brookhaven’s motion for summary judgment on its
counterclaim. Brookhaven timely appealed.4 The trial court did not order
Brookhaven to file a concise statement, but did issue an opinion under
Pa.R.A.P. 1925(a). In the Rule 1925(a) opinion, the trial court explained
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4
We have jurisdiction over this appeal under 42 Pa.C.S.A. § 742, because
the trial court’s two orders disposed of all claims and of all parties. See
Pa.R.A.P. 341(b)(1).
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that PA Beverage cured its default and therefore validly exercised its option
to extend the lease.
On appeal, Brookhaven presents two questions for review:
1. Did the [t]rial [c]ourt err in declaring that the term of the
commercial lease was extended until March 31, 2018?
2. Did the [t]rial [c]ourt err in denying Brookhaven summary
judgment on its counterclaim for holdover rent?
Appellant’s Brief at 4.
Entry of summary judgment is proper:
(1) whenever there is no genuine issue of any material fact as to
a necessary element of the cause of action or defense which
could be established by additional discovery or expert report, or
(2) if, after the completion of discovery relevant to the motion,
including the production of expert reports, an adverse party who
will bear the burden of proof at trial has failed to produce
evidence of facts essential to the cause of action or defense
which in a jury trial would require the issues to be submitted to a
jury.
Pa.R.C.P. No. 1035.2. In response:
the adverse party may not rest upon the mere allegations or
denials of the pleadings but must file a response within thirty
days after service of the motion identifying
(1) one or more issues of fact arising from evidence in the
record controverting the evidence cited in support of the
motion or from a challenge to the credibility of one or
more witnesses testifying in support of the motion, or
(2) evidence in the record establishing the facts essential
to the cause of action or defense which the motion cites as
not having been produced.
Pa.R.C.P. No. 1035.3(a) (Note omitted).
On appeal from an order granting or denying summary judgment:
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[O]ur scope of review is plenary, and our standard of review is
the same as that applied by the trial court. Our Supreme Court
has stated the applicable standard of review as follows: [A]n
appellate court may reverse the entry of a summary judgment
only where it finds that the lower court erred in concluding that
the matter presented no genuine issue as to any material fact
and that it is clear that the moving party was entitled to a
judgment as a matter of law. In making this assessment, we
view the record in the light most favorable to the non-moving
party, and all doubts as to the existence of a genuine issue of
material fact must be resolved against the moving party. As our
inquiry involves solely questions of law, our review is de novo.
Thus, our responsibility as an appellate court is to determine
whether the record either establishes that the material facts are
undisputed or contains insufficient evidence of facts to make out
a prima facie cause of action, such that there is no issue to be
decided by the fact-finder. If there is evidence that would allow
a fact-finder to render a verdict in favor of the non-moving
party, then summary judgment should be denied.
Reinoso v. Heritage Warminster SPE LLC, 108 A.3d 80, 84 (Pa. Super.
2015) (en banc). Furthermore, “in reviewing an issue of law in a declaratory
judgment action, our scope of review is plenary and our standard of review
is de novo.” Missett v. Hub Int'l Pa., LLC, 6 A.3d 530, 534 (Pa. Super.
2010).
This case turns on the interpretation of the 1991 Lease and the 2008
Modification. Contract law and general contract principles govern the
interpretation of lease agreements. Newman Dev. Group of Pottstown,
LLC v. Genunardi’s Family Mkt., Inc., 98 A.3d 645, 653 n.4 (Pa. Super.
2014) (en banc).
The fundamental rule in interpreting the meaning of a contract is
to ascertain and give effect to the intent of the contracting
parties. The intent of the parties to a written agreement is to be
regarded as being embodied in the writing itself. The whole
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instrument must be taken together in arriving at contractual
intent. Courts do not assume that a contract’s language was
chosen carelessly, nor do they assume that the parties were
ignorant of the meaning of the language they employed. When
a writing is clear and unequivocal, its meaning must be
determined by its contents alone.
Murphy v. Duquesne Univ. of the Holy Ghost, 777 A.2d 418, 429 (Pa.
2001) (internal quotations and citations omitted).
In this case, the 2002 and 2008 Modifications refer to and incorporate
the 1991 Lease. “It is a general rule of law that where one contract refers to
and incorporates the provisions of another[,] both shall be construed
together.” Shehadi v. Ne. Nat’l Bank of Pa., 378 A.2d 304, 306 (Pa.
1977) (quoting Chicago Pneumatic Tool Co. v. Ziegler, 151 F.2d 784,
795 (3d Cir. 1945)). A court should not read clauses in a contract as
independent agreements haphazardly thrown together without considering
the clauses’ combined effects. Sw. Energy Prod. Co. v. Forest Res., LLC,
83 A.3d 177, 187 (Pa. Super. 2013); see also Haywood v. Univ. of
Pittsburgh, 976 F. Supp. 2d 606, 640-41 (W.D. Pa. 2013) (quoting In re
Alloy Mfg. Co. Emp. Tr., 192 A.2d 394, 396 (Pa. 1966)) (“[T]he intention
of parties to a written instrument is to be garnered from a reading of the
entire writing and not from detached portions, it being necessary to consider
every part thereof in order to resolve the meaning of a particular part as well
as that of the whole.”). Thus, a court should never interpret terms in one
section of a contract in a way that nullifies other terms in the same
agreement. Sw. Energy Prod., 83 A.3d at 187. Furthermore, in
interpreting a contract, specific terms control over general terms. Id.
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In addition, the issue in this case is the construction of PA Beverage’s
option to extend the lease. Although ambiguous terms in a lease are
construed against the lessor/landlord, optional portions of leases are
construed against the person holding the option. W. Penn Realty Co. v.
Acme Mkts., Inc., 303 A.2d 836, 837 (Pa. Super. 1973) (per curiam); see
also W. Sav. Fund Soc’y of Phila. v. SEPTA, 427 A.2d 175, 181 (Pa.
Super. 1981) (en banc) (stating “fairness militates against demanding more
from the optionor than he lawfully agreed to give and instead obligates us to
strictly enforce the agreement to insure that neither party is prejudiced by a
judicially authored revision of the agreement”).
Succinctly stated, we must decide whether PA Beverage’s right to
exercise the extension option was contingent (1) on being in compliance
with the terms of the lease, as Brookhaven argues; or (2) on merely not
being in default, as PA Beverage argues. For the following reasons, we hold
the former construction is correct, because the 1991 Lease and 2008
Modification unambiguously required PA Beverage to be in compliance to
exercise the extension option.
Article I of the 1991 Lease makes PA Beverage’s exercise option right
dependent on the condition “[p]rovided that Tenant has complied with the
terms of the lease applicable to it.” 1991 Lease, art. I. Both the 2002 and
2008 Modifications state, “all other terms, conditions, covenants, and
agreements contained in the [lease] as heretofore modified not inconsistent
with this Agreement, shall remain unchanged and hereby ratified and
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confirmed and incorporated herein by reference.” 2002 Modification; 2008
Modification. The 2008 Modification required PA Beverage to notify the
landlord of its exercising of the extension option before October 1, 2012.
Accordingly, to exercise the extension option, PA Beverage must have been
in compliance with all the applicable conditions of the lease. We find this
provision to be unambiguous, meaning we need not employ other rules of
construing leases.
Article II of the 1991 Lease requires PA Beverage to pay rent without
demand. Rent is the fixed minimum annual rent due on the first of each
month without any setoff. Further, PA Beverage agreed to pay the landlord
the applicable real estate taxes in full as additional rent within ten days after
the taxes were due to the relevant governmental authority. PA Beverage
cannot dispute that, as of October 1, 2012, it was behind on its rent
payments. Thus, it was not in compliance with Article II, and therefore the
terms of the lease applicable to it. Because PA Beverage was not in
compliance with the lease, it could not validly exercise the option.
The trial court and PA Beverage incorrectly overlay language regarding
“event of default” from Article XV onto Article II. It is true that Article XV
defines “event of default” as, inter alia, the failure to pay rent, and requires
the landlord to give notice of default and allow PA Beverage to cure the
default. Article XV, however, does not govern the extension option. Article
II does, and nothing in the 2008 Modification changes the material term
conditioning exercise of the option on PA Beverage “compl[ying] with the
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terms of the lease applicable to it.” By the 1991 Lease’s very terms, “not
being in default” is not the same as “being in compliance.” Finally, importing
the “event of default” language into the option provision impermissibly alters
the parties’ agreement.
PA Beverage attempts to avoid the lease’s clear language by quoting
the following passage from the 2008 Modification:
It is expressly agreed that, if prior to the effective date of the
terms provided in this Agreement, [PA Beverage] shall default
in any of the terms, conditions, covenants and agreements
contained in the aforementioned Lease, this agreement, at the
option of the Landlord and without prior notice to Tenant, shall
be void, null and of no effect, as though the same had never
been made.
Appellee’s Brief at 12 (quoting 2008 Modification) (first emphasis added by
the Court; second emphasis in original). This argument is a red herring.
The language quoted above, i.e., “this Agreement,” plainly refers to the
2008 Modification—not the terms of Article II regarding exercise of the
extension option.5
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5
PA Beverage’s variance argument is similarly meritless. A variance exists if
there is a material difference between the causes of action pleaded and the
proof provided at trial. See Reynolds v. Thomas Jefferson Univ. Hosp.,
676 A.2d 1205, 1209 (Pa. Super. 1996). Here, PA Beverage disputes the
amount of money it owed to its current and former landlords as of October
1, 2012. But the amount of money owed has nothing to do with the cause
of action, and it cannot defeat a summary judgment motion. To the extent
that PA Beverage owed any back rent to its current or former landlords on
October 1, 2012, it was not in compliance with the terms of the lease.
Brookhaven has taken this position since at least the inception of litigation.
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In sum, to exercise the extension option as provided by the 2008
Modification and the 1991 Lease, PA Beverage had to be in compliance with
the terms of its lease, i.e., among other things, it had to be current on its
financial obligations. Because PA Beverage was not in compliance with the
terms of its lease on October 1, 2012, it could not exercise the option to
extend the lease term.
Further, because the trial court erred in ruling that PA Beverage validly
exercised the extension option, it also erred in ruling that Brookhaven was
not entitled to holdover rent. The trial court’s second ruling was necessarily
contingent on its finding that PA Beverage validly exercised the extension
option. Because PA Beverage could not exercise the extension option, it
became a holdover tenant when the lease term expired. Under the 1991
Lease, it became liable for double rent. Therefore, Brookhaven is entitled to
summary judgment on its counterclaim regarding liability.
PA Beverage argues that material issues of fact exist regarding its
liability for holdover rent. PA Beverage contends that its and First Republic’s
agents orally modified the 1991 Lease to allow for installments of yearly real
estate tax payments, instead of a single lump sum payment. This argument
is without merit. The 1991 Lease specifically forecloses oral modifications:
[T]he failure of Landlord to insist in any one or more instances
upon a strict performance of any covenant of this lease or to
exercise any option or right herein contained shall not be
construed as a waiver or relinquishment for the future of such
covenant, right, or option, but the same shall remain in full force
and effect unless the contrary is expressed in writing by
Landlord.
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1991 Lease, art. XXIII (emphasis added). Moreover, to support its
argument, PA Beverage cites only the allegations of its amended complaint.
Claiming a factual dispute from the mere allegations of the pleadings is
insufficient to overcome a summary judgment motion. See Bank of Am.,
N.A. v. Gibson, 102 A.3d 462, 464 (Pa. Super. 2014) (citing Pa.R.C.P.
No. 1035.3) (“In response to a summary judgment motion, the nonmoving
party cannot rest upon the pleadings, but rather must set forth specific facts
demonstrating a genuine issue of material fact.”); see also DeWeese v.
Anchor Hocking Consumer & Indus. Prods. Group, 628 A.2d 421, 424
(Pa. Super. 1993) (plurality opinion) (“It is well-settled that a party may not
defeat a motion for summary judgment by relying on the allegations of his
complaint.”). Assuming, arguendo, that PA Beverage and First Republic
modified the lease, it was incumbent on PA Beverage to place supporting
evidence of this in the record.6 PA Beverage did not, so it failed to raise a
factual dispute. Also, because Brookhaven is entitled to judgment as a
matter of law, the trial court should have granted its motion for summary
judgment regarding PA Beverage’s liability for holdover rent.
In sum, the trial court erred as a matter of law in concluding that PA
Beverage validly exercised the extension option contained in the 2008
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6
PA Beverage pled in its amended complaint that an exchange of emails
between it and First Republic confirmed the oral modification. Am. Compl.,
11/22/13, ¶¶ 36-37. As already stated, PA Beverage could not rely on its
pleadings to defeat summary judgment.
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Modification to the 1991 Lease. Because PA Beverage failed to extend its
lease, it became a holdover tenant after the lease expired. Therefore,
Brookhaven was entitled to summary judgment both on the claims of PA
Beverage’s amended complaint, and on its counterclaim for holdover rent.
We reverse both orders entered August 27, 2014.
Orders reversed. Case remanded. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 5/12/2015
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