Applecross Club v. Pulte Homes of PA.

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
APPLECROSS CLUB OPERATIONS, LLC IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
PULTE HOMES OF PA, LIMITED
PARTNERSHIP, PULTE HOME
CORPORATION OF THE DELAWARE
VALLEY, PH 50 LLC AND PGP TITLE OF
FLORIDA, INC.
Appellants No. 791 EDA 2016
Appeal from the Judgment Entered February 18, 2016
In the Court of Common Pleas of Chester County
Civil Division at No(s): 2012-09804
BEFORE: PANELLA, J., SHOGAN, J., and RANSOM, J.
MEMORANDUM BY PANELLA, J. FILED JUNE 13, 2017
Appellant, Pulte Homes of PA, Limited Partnership (“Pulte”)1 engages
in the business of developing and building residential communities
throughout Pennsylvania and the United States. Over the course of several
years starting in 2001, Pulte acquired equitable ownership of several tracts
____________________________________________
1
The remaining appellants are all business entities associated with Pulte.
Applecross’s complaint alleged the following relationships, none of which
were specifically denied by Pulte in its answer: Until June 20, 2012, Pulte
Home Corporation of the Delaware Valley was the general partner of Pulte,
and was the signatory to the agreements at dispute in this appeal; after
June 20, 2012, PH 50 LLC became the general partner of Pulte; and PGP
Title of Florida, Inc., is the sole member of Pulte Home Corporation of the
Delaware Valley and PH 50 LLC.
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of land in East Brandywine Township and West Brandywine Township,
Chester County, pursuant to a desire to build an integrated community. The
community would be organized around a country club.
The country club, as proposed, was to include an 18-hole golf course,
a 20,000 to 25,000 square foot clubhouse, a sports center, a fitness center,
an outdoor pool, two tennis courts and a community center. The clubhouse
would house casual, grill, and family dining restaurants, as well as banquet
space.
Pulte’s plan involved building the community, of up to approximately
1,000 homes, over the course of several years. As it was not in the business
of running country clubs and golf courses, Pulte initially agreed to sell these
facilities to ClubCorp, Inc., a company with experience managing golf
courses throughout the United States.
Starting in 2006, Pulte began construction of the golf course and
temporary clubhouse facilities to serve the community while it also built the
community. In 2008, ClubCorp exercised an option in its contract with Pulte
to terminate the agreement. In response, Pulte sought out Appellee,
Applecross Club Operations, LLC (“Applecross”), to take over ClubCorp’s
obligations to purchase and manage the country club.
On March 3, 2009, Pulte and Applecross entered into a Development
and Acquisition Agreement. In broad strokes, the 34-page agreement,
drafted after extensive negotiations between the parties, provided for
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Applecross to acquire and manage the country club for a purchase price of
up to $6,500,000. The agreement required the deed to each home in the
community to include an obligation to purchase a membership in the country
club.
In June 2010, Pulte was eager to close on the sale of the country club
to Applecross. After further negotiations between the parties, an amendment
to the original Development and Acquisition Agreement was executed on
June 30 to address issues of ongoing concern. The parties closed on the sale
that same day.
Throughout 2011 and early 2012, Pulte attempted to negotiate a
reduction in contract price for some of the community property located in
West Brandywine Township, known as the “Anderson” or “Del Webb” tract.
The seller ultimately rejected Pulte’s offers, and Pulte breached the purchase
contract. Pulte paid the seller an agreed upon amount in damages and
notified Applecross that the Del Webb tract portion of the community had
been cancelled.
Applecross responded by noting that it believed the loss of the Del
Webb tract constituted a material change from the conditions of the
amended Development and Acquisition Agreement. Pulte disagreed, and
Applecross initiated this litigation shortly thereafter.
After significant motion practice and discovery, the trial court
determined that the amended Development and Acquisition Agreement was
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ambiguous. As a result, the case went before a jury starting on September
14, 2015. Applecross presented evidence that the inclusion of the Del Webb
tract into the community was always considered part of the agreement by
the parties. Pulte presented countervailing evidence, and argued that the
explicit terms of the amended agreement were contrary to Applecross’s
claims. The jury entered a verdict in favor of Applecross in the amount of
$20,000,000. Pulte filed post-trial motions, which were denied by operation
of law after 120 days. This timely appeal followed.
On appeal, Pulte raises four issues. The first two issues differ only in
the relief requested by Pulte, but are premised upon the same legal theory:
that the trial court erred in determining that the amended Development and
Acquisition Agreement was ambiguous. In its first argument, Pulte asserts
that it is entitled to judgment notwithstanding the verdict (“JNOV”) due to
this conclusion, while in its second issue, it argues that it is entitled to a new
trial.
Pulte’s request for JNOV centers upon an alleged error of law
committed by the trial court. Our scope of review of such a challenge is
plenary. See Griffin v. Univ. of Pittsburgh Med. Center-Braddock
Hosp., 950 A.2d 996, 999 (Pa. Super. 2008). In reviewing the trial court’s
denial of JNOV, “we must consider all of the evidence admitted to decide if
there was sufficient competent evidence to sustain the verdict.” Id. (citation
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omitted). Furthermore, we must view all the evidence and draw all
inferences in a manner favorable to the verdict winner. See id.
In contrast, “[o]ur standard of review from an order denying a motion
for a new trial is whether the trial court committed an error of law, which
controlled the outcome of the case, or committed an abuse of discretion.”
Mirabel v. Morales, 57 A.3d 144, 150 (Pa. Super. 2012) (citation omitted).
“A trial court commits an abuse of discretion when it rendered a judgment
that is manifestly unreasonable, arbitrary, or capricious, has failed to apply
the law, or was motivated by partiality, prejudice, bias, or ill will.” Id.
(citation omitted).
Unless an error of law controls the outcome of a case, we will not
reverse an order denying a new trial. See Lockley v. CSX Transp. Inc., 5
A.3d 383, 388 (Pa. Super. 2010). “[A] litigant is entitled only to a fair trial
and not a perfect trial.” Id. at 392 (citation omitted).
Under either theory of relief, Pulte tasks us with determining whether
the trial court properly construed the amended Development and Acquisition
agreement. Interpretation of a contract poses a question of law and our
review is plenary. See Charles D. Stein Revocable Trust v. General Felt
Industries, Inc., 749 A.2d 978, 980 (Pa. Super. 2000). “In construing a
contract, the intention of the parties is paramount and the court will adopt
an interpretation which under all circumstances ascribes the most
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reasonable, probable, and natural conduct of the parties, bearing in mind the
objects manifestly to be accomplished.” Id. (citation omitted).
To discern the parties’ intent, we must start with the language used by
the parties in the written contract. See Szymanski v. Brace, 987 A.2d 717,
722 (Pa. Super. 2009). Generally, courts will not imply a contract that differs
from the one to which the parties explicitly consented. See Kmart of
Pennsylvania, L.P. v. M.D. Mall Associates, LLC, 959 A.2d 939, 944 (Pa.
Super. 2008). We are not to assume that the language of the contract was
chosen carelessly or in ignorance of its meaning. See id.
Where the language of the contract is clear and unambiguous, a court
is required to give effect to that language. See Prudential Prop. and Cas.
Ins. Co. v. Sartno, 903 A.2d 1170, 1174 (2006). Contractual language is
ambiguous “if it is reasonably susceptible of different constructions and
capable of being understood in more than one sense.” Hutchison v.
Sunbeam Coal Co., 519 A.2d 385, 390 (Pa. 1986) (citation omitted). “This
is not a question to be resolved in a vacuum. Rather, contractual terms are
ambiguous if they are subject to more than one reasonable interpretation
when applied to a particular set of facts.” Madison Constr. Co. v.
Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999) (citations
omitted).
When a contract is found to be ambiguous, “extrinsic or parol evidence
may be considered to determine the intent of the parties.” Z & L Lumber
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Co. of Atlasburg v. Nordquist, 502 A.2d 697, 700 (Pa. Super. 1985).
“While unambiguous contracts are interpreted by the court as a matter of
law, ambiguous writings are interpreted by the finder of fact.” Kripp v.
Kripp, 849 A.2d 1159, 1163 (Pa. 2004) (citation omitted).
Pulte argues that the trial court erred in determining that the
agreement was ambiguous, thereby allowing the admission of parol
evidence, or evidence concerning negotiations and prior promises between
the parties. Furthermore, Pulte asserts that the trial court erred in allowing
the jury to determine what the rights and obligations of the parties were
under the agreement.
Specifically, Pulte asserts that the agreement’s integration clause
establishes that parol evidence was not admissible. “Where the parties to an
agreement adopt a writing as the final and complete expression of their
agreement, alleged prior or contemporaneous oral representations or
agreements concerning subjects that are specifically covered by the written
contract are merged in or superseded by that contract.” Blumenstock v.
Gibson, 811 A.2d 1029, 1035 (Pa. Super. 2002) (citation omitted). The trial
court found that the Development and Acquisition Agreement was
ambiguous despite the integration clause because exhibits to the agreement
were missing.
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To determine whether the trial court’s ruling was correct, we turn to
the relevant portions of the agreement. In the preamble to the agreement,
the first whereas clause sets forth the following purpose:
Whereas, [Pulte] is the owner and/or contract purchaser of
certain land in East and West Brandywine Townships, Chester
County, Pennsylvania as described on Exhibit_____(the
“Development Property”) on which [Pulte] is developing a
residential community known as Applecross Country Club (the
“Community”)[.]
(omission of exhibit number in original). It is undisputed that the exhibit
referenced in this clause was not attached to the executed agreement.
Pulte cites several non-controlling precedents to support its proposition
that the preamble should not be given precedence in construing a contract.
See Appellant’s Brief, at 47. However, even if we were to agree that the
cited authority was controlling, it would not be dispositive of the case before
us. For example, Pulte quotes an unpublished memorandum of the Eastern
District of Pennsylvania: “Recitals in a contract, such as ‘whereas’ clauses,
are merely explanations of the circumstances surrounding the execution of
the contract, and are not binding obligations unless referred to in the
operative provisions of the contract.” Mozdzierz v. Accenture, LLP., 2010
WL 4273323 (E.D. Pa. 2010) (quoting 17A C.J.S. Contracts § 317 (2010)
(emphasis supplied).
In the present case, under Article I, “Definitions,” the agreement
provides that “Community” is to be defined as having “the meaning set forth
in the Preamble.” Furthermore, the agreement defines “Development
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Property” as having “the meaning set forth in the Preamble.” Thus, the
preamble is referred to in at least two important definitions in the operative
provisions of the agreement. As a result, even under Pulte’s asserted
paradigm, the preamble to the Development and Acquisition Agreement
would be capable of supporting a binding obligation.
Furthermore, the missing exhibit directly affects the issue that was a
primary focus of litigation in this case: the intended size of the community
which Pulte was to build to support the country club. Pulte contends that the
exhibit was never meant to provide a scope for the development of the
community. However, this supposition is precisely the point. In the absence
of the exhibit itself, there is no way to know what the exhibit would have
shown without reference to parol evidence. The agreement was not clear
and unambiguous on this issue.
Pulte also argues that the agreement does not explicitly provide for a
“guaranteed” number of homes in the community. While undoubtedly true,
once the agreement was found to be ambiguous as to the scope of the
development, it was for the trier of fact to determine what the intent of the
parties had been on the issue. Pulte presented a strong case that it never
intended to be bound to build a certain number of homes. The jury,
however, rejected Pulte’s assertions and instead found that Applecross had
established that the parties had agreed that the community would consist of
approximately 1,000 homes and included the Del Webb tract.
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Therefore, we cannot conclude that the trial court erred in ruling that
there was an ambiguity, that parol evidence would be admissible to address
the ambiguity, and that the resolution of the ambiguity was for the jury.
Pulte is not entitled to either JNOV or a new trial on this basis.
Next, Pulte argues that the trial court erred in permitting Applecross’s
economics experts, John E. Mitchell and Jeffrey R. Dugas, to testify as to
their opinions on the lost profits suffered by Applecross pursuant to Pulte’s
breach of the agreement. Pulte contends that these experts’ testimony was
unreliable and lacking in foundation.
“[T]he admission of evidence is within the sound discretion of the trial
court and will be reversed only upon a showing that the trial court clearly
abused its discretion.” Commonwealth v. Fransen, 42 A.3d 1100, 1106
(Pa. Super. 2012), (citation omitted). A trial court abuses its discretion if it
misapplies the law or rules in a manner lacking reason. See
Commonwealth v. Rega, 856 A.2d 1242, 1244 (Pa. Super. 2004).
Pulte focuses on its belief that the country club was a new business
with no history of profitability. Thus, it believes that Mitchell’s and Dugas’s
expert testimony was “speculative and not founded in fact.” Appellant’s
Brief, at 51.
Lost profits are recoverable when, among other requirements not
relevant here, their scope can be established with reasonable certainty. See
Quinn v. Bupp, 955 A.2d 1014, 1021 (Pa. Super. 2008). Pulte contends
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that Mitchell and Dugas based their opinions regarding lost profits on mere
speculation from Applecross’s principal, Bob Levy. “Speculative profits are
those the evidence of which is so meager or uncertain as to afford no
reasonable basis for inference.” Birth Center v. St. Paul Cos., Inc., 727
A.2d 1144, 1162 (Pa. Super. 1999) (citation omitted).
Pulte’s argument that the country club profits were speculative is
premised on its belief that it was a “new business with no history of
profitability.” Appellant’s Brief, at 52. New businesses face a higher burden
in establishing lost profits, as they have no historical basis to establish
profitability. See Delahanty v. First Pa. Bank, N.A, 464 A.2d 1243, 1260
(Pa. Super. 1983). However, as a general rule, we do not require parties to
prove damages with high standards of precision, but merely a reasonable
level of certainty. See Smith v. Penbridge Assocs., Inc., 655 A.2d 1015,
1022 (Pa. Super. 1995). More importantly, we have consistently held that
“the breaching party should not be allowed to shift the loss to the injured
party when damages, even if uncertain in amount, were certainly the
responsibility of the party in breach.” Id. (citations omitted).
Here, as a matter of logic, it is clear that the reduction in the number
of homes that were required to purchase memberships in the country club
and golf course caused some damage to Applecross’s business. Indeed,
Pulte’s appraisal expert, Shaun Henry, opined that the reduction in the
number of homes in the community reduced the value of the golf course by
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$3,300,000. See N.T., 9/25/15, at 155-156. Thus, Applecross was not
required to prove its lost profits damages to a mathematical certainty, but
merely to a reasonable level of certainty.
In these circumstances, expert testimony is an appropriate form of
proof. See Bolus v. United Penn Bank, 525 A.2d 1215, 1226 (Pa. Super.
1987).
The facts or data in the particular case upon which an expert
bases an opinion or inference may be those perceived by or
made known to the expert at or before the hearing. If of a type
reasonably relied upon by experts in the particular field in
forming opinions or inferences upon the subject, the facts or
data need not be admissible in evidence.
Pa.R.E. 703. Assertions of flaws in an expert’s calculations “go[] only to
weight jury should accord it and not to its admissibility.” Bolus, 525 A.2d at
1226 (citation omitted).
Pulte’s argument, at its core, is a complaint that Applecross’s experts,
Dugas and Mitchell, relied heavily upon numbers given to them by
Applecross’s principal, Levy. Pulte was given the opportunity to cross-
examine Levy on how he arrived at these numbers. It was able to cross-
examine Dugas and Mitchell regarding their reliance on Levy’s numbers, and
the extent and depth of their independent assessments on the issue of
damages. Finally, as noted, Pulte had its own experts testify to their own
opinions and to critique Levy’s numbers as well as the methodology used by
Dugas and Mitchell.
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The trial court did not abuse its discretion in permitting Dugas and
Mitchell to testify as to their opinions on the issue of damages. The flaws
highlighted by Pulte were an issue for the jury to weigh in evaluating the
credibility of the experts’ opinions, and not grounds for finding Applecoss’s
experts’ opinions inadmissible. Pulte’s third issue on appeal therefore merits
no relief.
In its final issue, Pulte argues that the trial court erred in failing to
enforce a limitation on damages contained in the Development and
Acquisition Agreement. Section 23.3 of the agreement is entitled “Event of
Default by Seller,” and provides, in relevant part:
If [Pulte] fails to complete any Closing or perform any act
required of [Pulte] hereunder, or otherwise is in breach of any of
its representations or warranties or covenants hereunder in a
material respect hereunder, then [Applecross] shall deliver to
[Pulte] written notice of such default or breach and [Pulte] shall
have a period of ten(10) days to cure such default … If such
default or breach remains uncured beyond the cure period
described above, …, [Applecross] shall be entitled to either (i)
specific performance by [Pulte] or (ii) if specific performance is
not available, to terminate this Agreement in which event [Pulte]
shall promptly reimburse [Applecross] for [Applecross’s] actual
out-of-pocket costs incurred in connection with this Agreement
and the performance of [Applecross’s] obligations hereunder, but
in no event shall such amount exceed FIVE HUNDRED
THOUSAND DOLLARS ($500,000).
(emphasis supplied). Pulte contends that this section acts to limit
Applecross’s claim for damages arising from any breach to a maximum of
$500,000.
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Applecross argues, and the trial court concluded, that section 23.3 is a
provision that applies only to remedies for pre-closing breaches. Viewed in
context of the entire agreement, this conclusion is compelling. However, we
conclude that the language of the section itself defeats Pulte’s argument.
Pulte’s argument requires a strained reading of section 23.3. The
highlighted language, which includes the $500,000 limitation, does not
contain the term “damages” at all. Nor does it explicitly refer to lost profits.
It refers solely to “actual out-of-pocket costs” borne by Applecross. It does
not purport to limit any other form of damage, such as consequential or
incidental, that Applecross might suffer. It therefore merely acts to limit
Applecross’s claim for damages based upon “out-of-pocket costs” to
$500,000. Pulte’s request was to reduce the entire award, which included
lost profits, to $500,000. Pulte does not identify any amount of the jury’s
award which is traceable to “out-of-pocket costs.” As such, we conclude that
the trial court did not err in refusing to mold the verdict to $500,000.
Judgment affirmed. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/13/2017
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