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OWENS ILLINOIS, INC. v. LAKE SHORE LAND CO.

September 27, 1978

OWENS ILLINOIS, INC.
v.
LAKE SHORE LAND COMPANY, INC.



The opinion of the court was delivered by: KNOX

MEMORANDUM OPINION, FINDINGS OF FACT, DISCUSSION, AND CONCLUSIONS OF LAW

A. Introduction

 The complaint as originally filed March 15, 1977, in this case sought a declaratory judgment with respect to provisions of an option agreement covering real estate in Lake City Borough and Girard Township, Erie County. There followed considerable preliminary skirmishing much of it resulting from failure of defendant to cooperate in discovery, litigation resulting from defendant's demands for jury trial, and arguments with respect to joinder of Jeannette Corporation as a party.

 The date for conveyance of the property, October 1, 1977 having passed plaintiff amended its complaint to include a prayer for specific performance. A late filed counterclaim was dismissed without prejudice to filing a separate action.

 A non jury trial scheduled for December 27, 1977 was frustrated by defendant filing a petition for mandamus in the United States Court of Appeals and seeking a subsequent stay from the U.S. Supreme Court. Non jury trial was finally commenced March 21, 1978.

 The matter has since been briefed and argued and the court makes the following:

 B. Findings of Fact

 (1) Plaintiff Owens Illinois, Inc., is an Ohio Corporation with its principal place of business at 405 Madison Avenue, Toledo, Ohio. (Tr. 281)

 (2) Defendant Lake Shore Land Company, Inc. is a Pennsylvania corporation with its principal place of business at 704 Sassafras Street, Erie, Pennsylvania. (Tr. 102)

 (3) The amount in controversy exceeds the sum of $ 10,000, exclusive of interest and costs. (Tr. 281)

 (4) Lake Shore Land Company, Inc., is a closely-held corporation owned and operated by the families of Robert F. Painter and Douglas Painter. Robert F. Painter is President and Director of Lake Shore Land Company, Inc. Douglas Painter is Vice President, Secretary, and a Director of Lake Shore Land Company, Inc. (Tr. 102, 183)

 (5) Robert F. Painter, age 54, is knowledgeable in the areas of real estate and construction. He is a registered engineer who has been involved in the construction business for 30 years. He is President of United Atkinson, Inc., general contractors of Erie, Pennsylvania. He received a BS in mechanical engineering from Penn State University in 1943. (Tr. 136,9)

 (6) Douglas Painter, age 49, is knowledgeable in the areas of real estate, insurance and law. In addition to his interest in Lake Shore Land Company, Inc., he has a real estate and insurance company in Erie, Pennsylvania, known as Painter and Company, a real estate company in Cleveland, Ohio, known as Painter Realty Company, and a law office in Cleveland, Ohio known as McGuinness, Painter & McGuinness. He also is Secretary of United Atkinson, Inc. of Erie, Pennsylvania. Douglas Painter received a BS in commerce and finance from the University of South Carolina in 1949 and a JD from Western Reserve University in 1967. He has been licensed to practice law in the State of Ohio since 1967. (Tr. 181,3, 225,6)

 (7) On April 19, 1967, Owens Illinois, Inc. and Lake Shore Land Company, Inc. executed a separate Lease Agreement for a term of 15 years with a right of extension for additional five year terms to 1992, covering a 4.078 acre tract partly in Lake City Borough and partly in Girard Township, Erie County, Pennsylvania. (Tr. 25)

 (8) On April 19, 1967, Owens Illinois, Inc. and Lake Shore Land Company, Inc. executed a separate Option Agreement whereby Owens Illinois, Inc. was given the right to purchase from Lake Shore Land Company, Inc. the said 4.078 acre parcel of land situate partly in the Borough of Lake City and partly in the Township of Girard, Erie County, Pennsylvania. (Tr. 25)

 (9) This Option Agreement recites separate consideration of $ 10 cash in hand paid by Owens Illinois, Inc. to Lake Shore Land Company, Inc. in return for the grant of the option, in addition to further consideration of the execution of a separate Lease Agreement covering the same property.

 (10) The term of the Lease Agreement was to commence upon completion of the construction by Lake Shore Land Company, Inc. of a warehouse addition to an existing manufacturing building located on adjoining property owned by Owens Illinois, Inc. The Owens Illinois, Inc. property is to the south and east of the property which is subject to the Option Agreement and the Lease Agreement, and there is a party wall between the warehouse facility to the north on the Lake Shore Land Company, Inc. property and the existing manufacturing building on the south located on Owens Illinois, Inc. property. (Tr. 28-30)

 (11) The warehouse addition was completed by Lake Shore Land Company, Inc. in 1967, and by agreement of the parties the initial lease term commenced on October 1, 1967 and was to run until September 30, 1982. (Tr. 29-31)

 (12) Both the Option Agreement and the separate Lease Agreement were not form agreements, and both were the subject of back and forth negotiations between Robert F. Painter, Douglas Painter and Eugene Brew, Esquire on behalf of Lake Shore Land Company, Inc. and Harvey Minton, Joe D'Italia and Don Koepfler on behalf of Owens Illinois, Inc., which negotiations resulted in substantial page and paragraph changes on the original drafts of the two agreements. The result was an agreement negotiated at arms length on both sides. There was no overreaching. (Tr. 226,7, 231,2, 297-300, 303-305)

 (13) Under paragraph 23 of the Lease Agreement, Owens Illinois, Inc. had the option to require Lake Shore Land Company, Inc. to build an addition to the warehouse facility which had been constructed by Lake Shore Land Company, Inc. in 1967. This option to require additional construction had to be exercised during the first three years of the lease term commencing on October 1, 1967, or prior to September 30, 1970.

 (14) Owens Illinois, Inc. chose not to exercise its option to have Lake Shore Land Company, Inc. construct this addition to the warehouse facility during this three year period. (Tr. 93)

 (15) Under paragraph 15 of the Lease Agreement, Owens Illinois, Inc. could not assign or sublet the 4.078 acre parcel without the written consent of Lake Shore Land Company, Inc. but Lake Shore Land Company, Inc. could not unreasonably withhold its consent. No consent, however, would be necessary if the assignment or subletting were made to a subsidiary or affiliate of Owens Illinois, Inc. or to any corporation in which Owens Illinois, Inc. had a controlling interest but lessee should remain liable.

 (16) On December 7, 1978, George Pavuk of Owens Illinois, Inc. telephoned Robert F. Painter, President of Lake Shore Land Company, Inc., to request permission to sublease the 4.078 acre parcel of property. Pavuk obtained Painter's oral consent on that date. (Tr. 57, 114,5)

 (17) Lake Shore Land Company, Inc. then provided Owens Illinois, Inc. with written permission to sublease the parcel by letter of December 11, 1972, signed by Robert F. Painter, President, and Douglas Painter, Secretary. (Tr. 51, 70)

 (18) On December 21, 1972, Lake Shore Land Company, Inc. sent a letter to Northeastern Ohio National Bank, the mortgagor of their 4.078 acre parcel, advising that Lake Shore Land Company, Inc. had given its consent to sublease the parcel and enclosing newspaper clippings from the Wall Street Journal and Erie Times setting forth the involvement of Jeannette Corporation. (Tr. 144-149)

 (19) Jeannette Corporation (Jeannette) is a publicly-held Pennsylvania corporation of sufficient stature that Northeastern Ohio National Bank was agreeable to any assignment of the mortgage from Lake Shore Land Company, Inc. to Jeannette Corporation, if the need should arise.

 (20) Lake Shore Land Company, Inc. had actual knowledge in December, 1972, that Jeannette Corporation was not a subsidiary, affiliate, or controlled corporation. If Owens Illinois, Inc. and Jeannette were related corporations, there would have been no need for Owens Illinois, Inc. to seek the consent of Lake Shore Land Company, Inc. under paragraph 18 of the Lease Agreement. (Tr. 144-149)

 (21) There was no reason for Lake Shore to withhold consent to a sublease to Jeannette and to withhold such consent would have been unreasonable.

 (23) On January 15, 1973, Owens Illinois, Inc. and Jeannette entered into a separate Plan Lease with Purchase Option covering the property owned by Owens Illinois, Inc. which was to the south and east of the 4.078 acre parcel of land which is subject to the Option Agreement and the separate Lease Agreement between Owens Illinois, Inc. and Lake Shore Land Company, ...


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