J.C. Penney Corp. v. GFM 23 ( 2023 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT OP 65.37
J.C. PENNEY CORPORATION, INC., A: IN THE SUPERIOR COURT OF
DELAWARE CORPORATION : PENNSYLVANIA
:
Appellant :
:
:
v. :
:
: No. 238 WDA 2022
GFM 23, LLC, A PENNSYLVANIA :
LIMITED LIABILITY COMPANY, :
WILLIAM G. MCCONNELL, IN HIS :
CAPACITY AS TRUSTEE OF THE :
WILLIAM G. MCCONNELL FUNDED :
REVOCABLE TRUST AGREEMENT, :
DATED FEBRUARY 1, 2000, EUGENIA :
F. MCCONNELL, IN HER CAPACITY :
AS TRUSTEE OF THE EUGENIA F. :
MCCONNELL FUNDED REVOCABLE :
TRUST AGREEMENT, DATED :
FEBRUARY 1, 2000, G. THOMAS :
MCCONNELL AND CHARLENE S. :
MCCONNELL, HIS WIFE, MARY :
ELEANOR MILHEIM AND IRVINE G. :
MILHEIM, HER HUSBAND, MARTHA :
M. BEEZER AND GENE BEEZER, HER :
HUSBAND, WILLIAM G. MCCONNELL, :
JR., AND JENNIFER S. MCCONNELL, :
HIS WIFE, ANNE M. SHANNON AND :
MICHAEL R. SHANNON, HER :
HUSBAND, JOHN C. MCCONNELL :
AND SHANNON K. MCCONNELL, HIS :
WIFE, CATHERINE M. METTENBURG :
AND JOSEPH M. METTENBURG, HER :
HUSBAND, TERRENCE C. :
MCCONNELL, CYNTHIA M. :
ANDREYKO AND GREGORY M. :
ANDREYKO, HER HUSBAND, :
CATHLEEN L. HERBERGER AND :
TIMOTHY F. HERBERGER, HER :
HUSBAND, MATTHEW B. MCCONNELL :
AND ANGELA M. MCCONNELL, HIS :
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WIFE, MATTHEW B. MCCONNELL, IN :
HIS CAPACITY AS TRUSTEE OF THE :
MCCONNELL FARMS REVOCABLE :
TRUST, DATED DECEMBER 11, 2017, :
STEPHEN G. MILHEIM, IN HIS :
CAPACITY AS TRUSTEE OF THE :
STEPHEN G. MILHEIM REVOCABLE :
TRUST, DATED JULY 11, 2013, :
WILLIAM G. MILHEIM AND :
JACQUELINE B. MILHEIM, HIS WIFE, :
ANNA MARIE MILHEIM, GEORGE H. :
MILHEIM, MARY MICHELE MILHEIM, :
HANNAH LEE MILHEIM, REBECCA B. :
SMITH, AND WILLIAM D. SMITH, :
HER HUSBAND, DAVID G. BEEZER :
AND SHANNON BEEZER, HIS WIFE, :
JOHANNA ELEANOR GIBSON AND :
JOHN RYAN GIBSON, HER HUSBAND
Appeal From the Order Entered January 28, 2022
In the Court of Common Pleas of Mercer County Civil Division at No(s):
2019-3655
BEFORE: KUNSELMAN, J., NICHOLS, J., and McCAFFERY, J.
DISSENTING MEMORANDUM BY KUNSELMAN, J.: FILED: JUNE 23, 2023
I agree with the majority’s conclusion that the plain meaning of the
phrase, “any extension thereof,” is not limited to the extensions specifically
set forth in the 1966 Penney Sublease and that this phrase encompassed the
extensions set forth in the 2003 Penney Sublease. However, I write separately
as I do not agree with the majority’s conclusion that, because the 2003 Penney
Sublease changed various, even material, terms of the 1966 Penney Sublease,
Owner is not bound to assume Crown’s responsibilities or to recognize
Penney’s sublease rights under Paragraph 4a of the Owner’s Agreement.
Majority Opinion, at 17. As such, I would reverse the trial court’s order and
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enter judgment in favor of Penney declaring that there is a contractual
relationship between Penney and Owner under the 2003 Penney Sublease,
which Owner is required to honor, and Penney continues to have possession
of the premises under the terms of 2003 Penney Sublease. For the reasons
set forth below, I respectfully dissent.
The provision in the Owner Agreement at issue states:
4. If Penney shall perform the obligations under the Penney Lease
[(1966 Penney Sublease)] on its part to be performed, Ground
Lessor [(Owner)] further covenants and agrees that:
a. Penney shall have and enjoy during the term of the
Penney Lease and any extension thereof, the quiet and
undisturbed possession of the premises so demised to
Penney with the appurtenances thereto, and Penney's
possession and rights under the Penney Lease shall not be
adversely affected in any way by reason of default by the
Ground Lessee under the ground lease in performing any of
the Ground Lessee's obligations thereunder, or by reason of
the termination or cancellation of the ground lease, or by
reason of any action taken by Ground Lessor with respect to
any default of the Ground Lessee under the ground lease.
Exhibit 2, Penney’s Complaint (emphasis added). Based upon this language,
the majority concludes that Owner was to assume Crown’s responsibilities
under the 1966 Penney Sublease only if there was a modification of the
duration of the 1966 Penney Sublease with the same terms, i.e., “Penney
would simply extend all of the very same terms for an additional period of
time.” Id. Because the 2003 Penney Sublease did not provide that the parties
only would continue to observe the same terms but modified some material
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terms of the 1966 Penney Sublease, it was not an “extension” as contemplated
by Paragraph 4a. I disagree.
First, I believe the majority misinterprets the use of the word
“extension” in the Owner’s Agreement as it relates to the 1966 Penney
Sublease. Instead, considering the language in its entirety and the
grammatical structure of the phrase, “Penney shall have and enjoy during
the term of the Penney Lease and any extension thereof,” I interpret
the word “extension” to correlate with the word “term.” This interpretation is
consistent with the drafter’s intent in using that phrase to establish the time
period during which Owner’s obligations would apply. Indeed, the majority
finds that this language addresses the duration of the lease. In fact, the
majority concludes that the 2003 Penney Sublease extended the term of the
1966 Penney Sublease and that those additional terms were encompassed by
this language. Majority Opinion, at 14.
But the majority then switches gears and concludes that the term
“extension” dictates the form of agreement that the 2003 Penney Sublease
must take to determine whether Owner is liable thereunder. This is counter
intuitive. The form of agreement is not relevant to the length of the lease.
The majority’s conclusion also ignores the provisions of other documents
related to this transaction. “Where several instruments are made as part of
one transaction they will be read together, and each will be construed with
reference to the other; and this is so although the instruments may have been
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executed at different times and do not in terms refer to each other.” Neville
v. Scott, 127 A.2d 755, 757 (Pa. Super. 1957).
Notably, the 1966 Ground Lease between Owner and Crown for the
initial development and construction of the mall provided in relevant part:
Article 13. Assignment and Subletting.
[Crown] shall have the right at all times, without Lessor’s
consent, to assign this Lease or sublet the Demised
Premises or any part thereof . . . .
Exhibit A, Owner’s Answer (emphasis added). This provision demonstrates
that, from the outset, Owner gave Crown complete freedom to sublease the
property without the Owner’s consent at any time.
The 1966 Penney Sublease between Crown and Penney then provided
in relevant part:
No modification of this lease shall be binding unless evidenced by
an agreement in writing signed by Landlord [Crown] and signed
in Tenant’s name by one of Tenant’s duly authorized officers.
Exhibit 1, Penney’s Complaint. This language gave Crown unlimited authority
to modify the 1966 Penney Sublease. It was contemplated that the Owner
would not be involved in any sublease of the property. This language also did
not limit the type of modifications that could be made to the 1966 Penney
Sublease, including any limits on the creation of the Sublease. Notably, this
was consistent with the Ground Lease.
Furthermore, to induce Penney to execute the 1966 Penney Sublease,
Owner entered into a separate Owner’s Agreement with Penney and Crown.
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Importantly, that document provided that “[Owner] hereby consents to and
approves of the Penney Lease.” Exhibit 2, Penney’s Complaint. Thus, Owner
acknowledged and consented to the provisions of the 1966 Penney Sublease
and was aware that unlimited modifications could be made to the 1966 Penney
Sublease. The Owner Agreement did not impose a new requirement that the
Owner be advised of or approve any changes to the 1966 Penney Sublease or
seek to limit the type of modifications that could be made without its consent.
Instead, Owner again freely allowed and accepted that Crown could contract
with its sublessors as needed, in any manner, and in particular with Penney.1
Thus, to conclude that the Owner Agreement obligations only applied if
the 1966 Penney Sublease had the same provisions, except the duration, is
untenable. The majority’s conclusion fails to give effect to these other
documents. By adopting the trial court’s rationale, the majority interjects
limiting terms in these agreements which are not present. My interpretation
recognizes that Crown was free to extend the term of the 1966 Penney
Sublease and/or modify its other provisions without consent of the Owner,
which upholds important principles of contract law (i.e., giving terms their
ordinary meaning and construing multiple agreements together) and
interprets the language of Owner’s Agreement in conjunction with the other
relevant documents.
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1In fact, prior to the 2003 Penney Sublease, the 1966 Penney Sublease had
been modified multiple times without issue.
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Lastly, the majority cites no authority for its conclusion that the 2003
Penney Sublease constitutes a new agreement. In doing so, the majority fails
to apply existing law regarding what constitutes a substituted contract or
novation, and instead heedlessly adopts the trial court’s rationale of what
constitutes a new agreement.
A substituted contract, or a novation, is a method to extinguish one
obligation by establishing another. Nowicki Const. Co., Inc. v. Panar, 492
A.2d 36 (Pa. Super. 1985). A novation is distinguishable from a mere
modification of a contract, which involves the alteration of some details of the
contract, while leaving undisturbed its original purpose.” Summary of
Pennsylvania Jurisprudence 2d § 5:13 (citing Peoples Nat. Bank of Ellwood
City v. Weingartner, 33 A.2d 469 (Pa. Super. 1943); Lamb v. Allegheny
County Inst. Dist., 69 A.2d 117 (Pa. Super. 1949).
To establish that a novation occurred, “the party asserting a novation
must show that: (i) a prior contract has been displaced, (ii) a new valid
contract has been substituted in its place, (iii) there exists sufficient legal
consideration for the new contract, and (iv) the parties consented to the
extinction of the old and replacement of the new.” First Lehigh Bank v.
Haviland Grille, Inc., 704 A.2d 135, 138 (Pa. Super. 1997) (citing
Buttonwood Farms, Inc. v. Carson, 478 A.2d 484, 486 (Pa. Super. 1984)).
“[W]hether a contract has the effect of a novation primarily depends upon the
parties’ intent.” Id. (citation omitted); Citizens Bank Nat’l Ass’n v. Acuite
Consulting Sols., LLC., 256 A.3d 42 (Pa. Super. 2021).
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Here, contrary to the majority and trial court’s conclusion, Owner failed
to establish that a novation occurred. Instead, as Penney argues, the 2003
Penney Sublease was merely an amendment to an existing lease and not a
new lease obligation or new lease agreement.
Notably, the 2003 Penney Sublease provided that, in addition to
extending the terms of the 1966 Penney Sublease, Crown and Penney desired
to “modify the same in certain other respects.” It further provided:
Except as hereby modified and amended, the parties hereto do
hereby ratify and confirm the terms, covenants, provisions and
conditions of the [1966 Penney Sublease] and this Agreement
[(2003 Penney Sublease)]. The [1966 Penney Sublease] is
hereby incorporated by reference into this Agreement made a part
hereof as if fully repeated herein, except as otherwise specifically
provided pursuant to this Agreement.
Exhibit 3, Section 17, Penney’s Complaint (emphasis added). This language
shows that Penney and Crown clearly intended for the 2003 Penney Sublease
to merely amend and modify the existing 1966 Penney Sublease, not to
completely replace it. To constitute a novation, or new agreement as termed
by the majority, there must be more than just a modification of the terms. In
particular, the parties of the existing agreement must agree to the
“displacement and extinction of a valid contract” and “the substitution for it of
a valid new contract.” Here, there is no evidence that the parties had a
“meeting of the minds” to enter into a new contract and discharge the original
contract.
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Furthermore, where an agreement states “except as modified this
agreement shall remain in full force and effect,” we have held that no novation
occurs. Melat v. Melat, 602 A.2d 380 (Pa. Super. 1992). The relevant
language in the 2003 Penney Sublease clearly contemplated that the existing
1966 Penney Sublease would remain in full force and effect, except otherwise
modified in the 2003 Penney Sublease.
Given the clear intentions of Penney and Crown, I believe the trial court
erred in concluding that the 2003 Penney Sublease constituted a new
agreement.
Additionally, the actions of the parties ratified the acceptance of the
extension. Penney and Crown acted in compliance with the 2003 Penney
Sublease for years. Owner never questioned the terms of this agreement or
Crown’s ability to negotiate it. Owner accepted payment of rent from Crown
until the Ground Lease was terminated and accepted payment directly from
Penney. Owner should not now, years later, be able to claim it is not bound
by the modified agreement entered by Crown and Penney.
Accordingly, I would reverse the order entered in favor of Owner and
against Penney, and uphold the parties’ extended contract.
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