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UNITED STATES GYPSUM CO. v. SCHIAVO BROS.

May 1, 1978

UNITED STATES GYPSUM CO.
v.
SCHIAVO BROTHERS, INC.



The opinion of the court was delivered by: FOGEL

 FOGEL, J.

 I. INTRODUCTORY STATEMENT:

 
Good name in man and woman, dear my Lord,
 
Is the immediate jewel of their souls; Who steals my purse steals trash; 'tis something, nothing:
 
'Twas mine, 'tis his, and has been slave to thousands;
 
But he that filches from me my good name
 
Robs me of that which not enriches him And makes me poor indeed. *fn1"
 
(Emphasis supplied.)

 Plaintiff, United States Gypsum Company (USG), was the lessor of a tract of land in Southwest Philadelphia under a lease agreement which began in 1966 and ended in 1974. USG seeks to recover from the lessee under that lease, Schiavo Brothers, Inc. (Schiavo), costs incurred by USG in clearing a large amount of trash and debris left on the land by Schiavo at the termination of the lease. The cause of this accumulation of debris was the use to which the property was put; Schiavo, pursuant to the terms of the lease, sublet a substantial portion of the leasehold premises to junk car dealers. When these dealers vacated the property in 1974, they neglected to take with them a substantial amount of the remains of their operations, specifically tires and car seats. Additionally, the property accumulated, during the course of the lease, a large amount of debris which was the result of illegal dumping by third persons.

 When the lease was terminated and Schiavo surrendered the land to USG, Schiavo denied any duty to clear the debris from the land. It based its position on the terms of the 1966 lease, which made no provision for the cleanup of the property at termination; Schiavo contends that such a duty cannot be implied.

 Plaintiff contends that Schiavo is in breach both of its express duty to surrender peaceably the property, and its implied duty, as lessee, to return the property in substantially the same condition which existed at the inception of the lease, reasonable wear and tear excepted.

 Schiavo also filed a counterclaim against USG, pursuant to Fed.R.Civ.P. 13; this counterclaim arises from another lease between USG as lessor and Schiavo as lessee. This lease was signed in 1970, and concerned a tract of land adjacent to the property which was the subject of the 1966 lease between the parties. Schiavo alleges that USG fraudulently misled Schiavo with respect to the duration of this lease; it contends that it expended a large sum of revenue in the purchase of new equipment, and in improving a road leading to the property in reliance on USG's misrepresentation; Schiavo claims USG then wrongfully terminated the lease, causing damage to it.

 The trial, which was non-jury, took ten days, eight of which were devoted to trial of the main claim. Following the trial, the parties submitted extensive briefs and requests for findings of fact and conclusions of law. Thorough oral argument was heard. We are now prepared to issue our Findings of Fact and Conclusions of Law, pursuant to Fed.R.Civ.P. 52(a).

 With respect to the main claim, we find that plaintiff has failed to prove, by a preponderance of the evidence, that Schiavo is in breach of either an express covenant to peaceably surrender the property, or an implied covenant to return the land in substantially the same condition as existed at the inception of the lease, (reasonable wear and tear excepted). With respect to the counterclaim, we find that Schiavo has also failed to meet its burden of proof.

 II. FINDINGS OF FACT -- MAIN CLAIM:

 We will present our findings of fact, made pursuant to Fed.R.Civ.P. 52(a), in narrative form:

 A. Introduction:

 USG is a corporation engaged in the manufacture of gypsum building products; it is incorporated in Delaware, and its principal place of business is in Chicago, Illinois. Schiavo is in the business of waste disposal; its state of incorporation is Pennsylvania, and its principal place of business is located in Philadelphia. In January, 1966, the parties entered into a leasehold agreement for a tract of land located in Southwest Philadelphia which was owned by USG *fn2" ; it is that lease which is the center of the dispute before us.

 The leasehold property consisted of approximately 26 acres of territory, divided into two areas: Area A comprised slightly more than 23 of these acres, while Area B accounted for the remaining two-plus acres. *fn3" This property is adjacent to Essington Avenue, and covers both sides of 67th Street in Philadelphia, an industrial area in Southwest Philadelphia which is near the Philadelphia International Airport and consists of much undeveloped land.

 B. Pre-1966 Background:

 The primary benefit which USG derived, over the years, from its ownership of the leasehold property, was the disposal of the company's waste through the operation of a landfill on the property. USG has a manufacturing plant located in Philadelphia, which produces a great amount of waste material that must be eliminated; USG's ownership of the leasehold property provided the necessary means for this disposal. Prior to 1959, the property was entirely below grade, and was, therefore, suitable for a landfill operation. In summary form, this operation consists of dumping successive layers of waste in trenches dug on the land, and covering each layer with a layer of dirt; this procedure is continued until the land is brought up to grade. In this fashion, a properly operated landfill can last for many years.

 USG began to use the leasehold property for waste disposal approximately in 1959; USG leased Area B to a Mr. Archer, a waste hauler, who was to conduct a landfill operation on the property, using primarily USG waste material to bring the land up to grade; it took approximately one year to accomplish this. At that time, in 1960, Area B was leased by USG to a Mr. Spence and a Mr. Montgomery for the purpose of operating an automobile junk dealership on the property.

 In the meantime, while Area B was being brought up to grade, USG also began to have its waste dumped on another part of the leasehold property; it leased a small section of Area A, which has been designated as Area F (this section has roughly the shape of a finger), to a Mr. Neely; Area F covers approximately 718 feet along Essington Avenue, to a depth of about 100 feet. Mr. Neely agreed to conduct a landfill on Area F, again using primarily waste material of the lessor, USG. When Area F was brought up to grade (within about a year), Neely began to operate a used truck business on the property, a use specifically permitted under the terms of his lease with USG.

 In 1961, Neely had a heart attack, and he assigned his rights and obligations under the lease for Area F to Joseph Adiletto, who continued to conduct a used truck business on the land. Soon, however, Adiletto went beyond the uses permitted under the lease, and not only began to deal in automobile scrap himself, but also to sublet a part of Area F to two automobile junk dealers. When USG became aware of Adiletto's activities, it did not order removal of the junk car dealer operation, (Spence and Montgomery were already operating a junk car dealership on Area B), but increased the rental which Adiletto was to pay under the lease. Thus, the junk car dealers continued to occupy Area F.

 By 1963, however, USG had become very unhappy with the manner in which Adiletto supervised the junk car dealers. The junk cars had expanded beyond the boundaries of Area F, and were constantly sprawling onto Essington Avenue, a public thoroughfare. In addition, the property was generally in an unkempt condition, with junk scrap and debris spread throughout the area; this generally poor maintenance of the property had prompted frequent complaints from the City of Philadelphia. For these reasons, USG cancelled the lease with Adiletto in 1963.

 Throughout this period, defendant Schiavo had been carrying on a waste haulage and landfill operation on a parcel of land which it owned, and which was adjacent to the USG property. The real estate business relationship between plaintiff and defendant began in 1963 after USG had terminated the Adiletto lease. Area F was then leased to Schiavo by USG; *fn4" USG believed that Schiavo would exercise more aggressive, and therefore, more effective supervision over the junk car dealers, and thus not only keep them within the confines of their areas, but also police them so that junk cars would not be placed on Essington Avenue.

 The natural expansion of junk car dealers beyond their boundaries seems, however, to be an inevitable occurrence, and the junk car sublessees gradually began to encroach on Area A, beyond Area F. Rather than force the dealers back onto their property, seemingly a fanciful idea at best, USG agreed to lease to Schiavo a further part of Area A (beyond Area F), encompassing in part the land onto which the junk dealers had expanded. This area, the subject of a second 1963 lease, *fn5" covered approximately 200 feet along Essington Avenue, to a depth of approximately 100 feet. Thus, after the signing of the second lease agreement, Schiavo had under lease from USG a section of Area A (encompassing Area F), extending a little more than 900 feet along Essington Avenue, to a depth of about 100 feet.

 After the unhappy experience with Adiletto, USG had been somewhat wary of continuing to allow junk car dealers on the property; USG leased to Schiavo hoping that defendant would keep the property in better condition. While there is conflicting evidence on the extent to which this was accomplished, it is at least clear that Schiavo maintained the land in better condition than had Adiletto. Nevertheless, the junk car dealers were an extremely difficult group to control; Michael Schiavo, who was the president of Schiavo Brothers, Inc. from 1962 to 1968, would periodically instruct the junk car dealers to clean up their properties if the land had become too messy, and he would demand that they keep their goods within their particular boundaries. It was, however, a constant struggle.

 Whatever the degree of success of Schiavo at the supervision of the subtenants, the evidence establishes that the City of Philadelphia did not want the junk car dealers on the land. The junk car operations produced recurrent fire calls which had to be answered by the City; they also produced several air pollution violations, the result of open burning on the land. Thus, in February, 1965, the City recommended to USG that the Schiavo lease be extended only on condition that the junk car dealers be removed from the land, and that a lease term be added which would specifically forbid the lessee from subletting to junk car dealers.

 USG, however, was advised by C.J. Mitchell Co., Inc. (Mitchell), its real estate agent with respect to the leasehold property, that Schiavo was making "a real effort to compel his tenants to operate according to the terms of the lease agreement." (Trial Exhibit D-94.) Mitchell counselled USG to oppose the City's attempts to eliminate the junk car dealers; this advice was followed by USG, culminating in the lease of January 1, 1966, which is now before us for interpretation. *fn6"

 C. The 1966 Lease:

 In recognition of their mutual needs, USG and Schiavo, in January, 1966, entered into two separate contracts: a waste haulage agreement and a lease; it is only the latter document with which we are concerned in the matter before us. We note that this lease cannot be characterized in any sense as an adhesion contract; both parties were represented by counsel in the negotiation of its terms.

 The leasehold property encompassed all of Areas A and B (including, of course, Area F, the subject of the first 1963 lease, and the other portion of Area A which had been the subject of the second 1963 lease). The 1966 lease superseded and terminated both 1963 leases between the parties. *fn7" USG terminated its lease with Spence and Montgomery which covered this property. Spence and Montgomery had, since the inception of its tenancy in 1960, been using the property for the operation of a junk car dealership, similar to the use to which Schiavo's subtenants had put Area F and the other portion of Area A. The remainder of the leasehold area, on Area A, was still below grade and suitable for landfilling. Thus, while the 1966 lease was designed primarily to memorialize Schiavo's future operation of a landfill on the property, the lease nevertheless encompassed, in part, areas which had already been brought up to grade, and which were being used as junkyard sites. The lease specifically provided for the further expansion of these junkyards as the land was gradually brought up to grade; paragraph 20 of the lease states, in relevant part:

 
20. Subject to the written approval of Lessor's Works Manager, Philadelphia Plant, which shall not be unreasonably withheld, Lessee reserves the right and privilege to sublet that portion of the subject premises already filled to grade level and of no use to Lessee in conducting a landfill operation, provided that subletting shall be only to so called "Automobile Wrecking Yards.

 When Schiavo took over the tenancy of Area B under the 1966 lease, this property was not vacant; to the contrary, Spence and Montgomery had left a substantial amount of debris on the property upon vacating it. Thus, in order to prepare the land for the further subleasing to junk car dealers, Schiavo was forced to expand the sum of at least $2,500.00. *fn8" Schiavo initially attempted to recover this amount from USG, but USG directed Schiavo to pursue Spence and Montgomery under the terms of the 1966 lease, under which USG had assigned to Schiavo all rights to rent under the lease between USG and Spence and Montgomery. Since this assignment covered only rental rights, however, Schiavo could not force Spence and Montgomery to pay for the cleanup of the property. *fn9" After negotiations between plaintiff and defendant, USG agreed to pay Schiavo a $1,400 rental credit for the cleanup of Area B. Since we find that Schiavo paid at least $2,500 to have the land cleared, defendant was not wholly compensated for the expense of removing the debris.

 With the exception of those areas which were the sites of junkyards, the leasehold property was, in January, 1966, generally clear of debris, with the exception of some waste which was the result of fugitive dumping on the property. *fn10" During the term of the lease (which was a year-to-year lease, to be automatically continued unless terminated by either party), the land was developed as contemplated by the parties. *fn11" Schiavo, through the operation of the landfill, gradually brought the land up to grade; as a portion of Area A was raised to grade level, it would be sublet to an automobile junk car dealer. In the meantime, junk car dealers continued to operate on Areas F and B, and that portion of Area A which had housed these dealers before 1966. Needless to say, as the number of junk car dealers on the leasehold property increased, the number of junk cars on the property likewise increased. The general nature and upkeep of these junkyards was, however, gradually improved as the years progressed, for the reason that the junk car industry was generally improving its image; in addition, the City began to put greater pressure on the dealers to keep their properties clean. *fn12"

 There was also evidence that Michael Schiavo made periodic efforts to keep the junk car dealers in line, and to force them to keep their properties clean. Along with his verbal attempts to control his subtenants, Schiavo also required each dealer, as part of the terms of his lease, to pay a security deposit to cover the cost of any rent deficiency, as well as the cost of any necessary cleanup at the termination of the dealer's lease. *fn13" Generally, if this escrow money was forfeited, it was for failure to pay rent, although there was at least one instance in which it was forfeited for failure to clean up the property. Michael Schiavo also testified that if a sublease was terminated, and the dealer left debris on the property, Schiavo would bear the expense of cleanup; the purpose of the cleanup was primarily economic: Schiavo could not sublet a piece of land which was strewn with debris. Michael Schiavo testified that if another tenant was not coming onto property which a dealer had vacated, he would not clean up the property, and we accept this testimony.

 In 1972, the landfill operation on the leasehold property was completed, and Schiavo continued its operations on the land only in its status as master tenant for the junk car dealers. After 1972, the number of dealers continued to increase, and the number of junk cars thus continued to multiply. In addition, the amount of debris left by fugitive dumpers increased after the close of the landfill, because Schiavo could no longer dump this waste in the landfill.

 D. The Termination of the 1966 Lease and the Removal of the Subtenants:

 The 1966 lease provided that either party could terminate the lease upon 120 days written notice; the lease was properly terminated by Schiavo on August 1, 1973, effective January 1, 1974. *fn14" The termination was acknowledged by USG by letter dated September 7, 1973; this letter, from Frank Hansen, Real Estate Manager of USG, to ...


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