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Schulman v. J.P. Morgan Inv. Management

filed: September 13, 1994.


Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Action No. 92-cv-02853).

Present: Hutchinson, Roth and Rosenn, Circuit Judges.

Author: Hutchinson


HUTCHINSON, Circuit Judge.

Appellant, Robert D. Schulman ("Schulman"), t/a Maxi's Express ("Maxi's"), appeals an order of the United States District Court for the Eastern District of Pennsylvania granting summary judgment in favor of appellees, J.P. Morgan Investment Management, Inc. ("J.P. Morgan") and Widener Funding Corporation, Inc. ("Widener") (collectively "mortgagee"), on Schulman's claim that the mortgagee intentionally interfered with contractual relations between him, as tenant of a commercial building, and Widener Associates Limited Partnership ("WALP"), the landlord.*fn1 The order also granted summary judgment to the mortgagee on its counterclaim for a declaratory judgment that no valid, enforceable lease existed.

For the reasons that follow, we hold the district court had subject matter jurisdiction over the question raised in Count I of Schulman's complaint and the portion of J.P. Morgan's amended pleading styled as a counterclaim despite WALP's absence as a party. On the merits of that issue, we conclude that the district court correctly determined there was no existing lease with which the mortgagee could have tortiously interfered. No lease existed between WALP and Schulman because the draft leases on which all of the negotiations between Schulman and WALP were based explicitly required execution by the landlord, an event that never happened. In addition, even if we assume Schulman had a reasonable probability of obtaining a lease absent J.P. Morgan's and Widener's interference, Schulman's alternate claim for interference with a prospective contractual relation between himself and WALP fails as a matter of law because Morgan and Widener were acting in good faith to protect their legal and financial interests as mortgagee of the premises Schulman sought to lease from WALP. Accordingly, we will affirm the district court's order in all respects.


In 1990 WALP, the owner of the Widener Building in Philadelphia, began a major renovation of the building to attract upscale tenants. Jeffrey Kelter ("Kelter") was the principal acting on WALP's behalf regarding the renovation.*fn2 Equitable Life Assurance Society of the United States ("Equitable Life") began funding the building's renovation under a construction loan agreement with WALP dated June 8, 1990. The agreement included among other documents a Mortgage and Assignment of Leases and Rents, both of which were publicly recorded on June 15, 1990 under Pennsylvania's recording laws, 21 Pa. Cons. Stat. Ann. §§ 321-471 (deeds), 621-28 (mortgages) (1955 & Supp. 1994). Equitable Life assigned these documents to Widener under an "Assignment of Loan Documents" which was also publicly recorded on July 24, 1990. As recited in the Mortgage, WALP and Widener also executed a Permanent Loan Agreement dated June 8, 1990 in which Widener agreed to loan WALP up to $72 million for renovations, including a take-out of Equitable Life's construction financing. Both the Assignment of Leases and the Permanent Loan Agreement provided WALP would not lease any part of the building without the prior written consent of Widener, the assignee.

As of April 1, 1992, Widener had loaned WALP approximately $63 million to finance the renovations. Anne Pfeiffer, Vice President of both Widener and J.P. Morgan,*fn3 supervised the loan and was responsible for approving new leases on Widener's behalf.*fn4

In the summer of 1990 Kelter and Schulman began discussing plans for Schulman to operate Maxi's, a food establishment in the lobby of the Widener Building.*fn5 It is undisputed that both Kelter and Schulman anticipated that a lease would be executed for Schulman's establishment at some later date. Under the construction arrangement, the tenants received the first year's rent free of charge, which in Schulman's case amounted to $56,280. Schulman agreed to "contribute" this amount personally to Kelter for construction and obtained an offsetting construction allowance from Kelter. Schulman invested an additional $35,000 towards construction costs.

Kelter participated in and approved the design plans for Maxi's before construction began and forwarded them to Pfeiffer. According to Schulman, Kelter told him that he alone made decisions concerning the premises to be leased and that he never told Schulman that Widener and J.P. Morgan had to approve the lease. Schulman admits, however, that he knew Pfeiffer was connected with the lender and that she wanted to review the draft leases prior to execution. Construction began in September of 1991 despite the fact no lease had yet been signed.

Kelter sent Schulman three draft leases dated June 4, 1990, March 19, 1991 and August 6, 1991 respectively prior to commencing construction. Schulman reviewed these drafts himself and his counsel, Martin Herring & Associates and later Drinker, Biddle & Reath, also reviewed at least two of the drafts. Schulman noted several objections on the drafts, some of which were incorporated into subsequent drafts. According to Schulman, the third draft lease dated August 6, 1991, set forth all of the material agreed-upon terms. Schulman never objected to a provision appearing in all of the draft leases that expressly required WALP's approval and signature, as well as delivery of a fully executed lease, before any binding lease agreement would arise.

As construction continued, Schulman repeatedly tried to obtain an executed lease. Kelter reassured him each time that Schulman had a lease and had nothing to worry about. Though neither WALP nor Widener executed any of the draft leases, Schulman contends that a ten-year lease for the premises commenced in October or November 1991 when Schulman began construction of his establishment and the terms of this lease, agreed upon by August 6, 1991, are embodied in a fourth draft dated January 31, 1992 which FKB sent to Schulman on February 4, 1992.

Maxi's opened for business on December 2, 1991 despite the absence of an executed lease. After the renovated Widener Building's official grand opening celebration on December 12, 1991, Pfeiffer told Kelter she did not like Maxi's appearance and called it her "worst nightmare." Appendix to Brief of Robert D. Schulman ("App.") at A-91. Shortly thereafter, according to Schulman, Kelter began, for the first time, to express displeasure about Maxi's aesthetics and appearance and suggested physical and operational improvements.*fn6 Schulman agreed to the suggestions but could not implement them because of a lack of sufficient funds. Kelter agreed to provide funding for the improvements but never did so.

On February 3, 1992, FKB employee Stephen Butte sent Schulman a letter confirming the amount of rent he now owed "pursuant to the terms of your lease." App. at A-200. On February 4, 1992, another FKB employee, Jennifer Pancoast, sent Schulman a second letter enclosing three "approved execution copies of the Lease Agreement for your space at The Widener Building." App. at A-97.

In March of 1992 Kelter told Schulman he had no lease and ordered him to vacate the premises. Kelter offered to compensate Schulman for his out-of-pocket expenses and prior rent checks. Schulman refused the offer. WALP filed suit for ejectment in the Philadelphia Court of Common Pleas on May 18, 1992.*fn7 Kelter also moved for a preliminary injunction. After four days of hearings, Kelter abandoned that motion.

In May of 1992 Schulman filed a complaint in the district court against J.P. Morgan and Widener alleging intentional interference with existing or prospective contractual relations. On January 19, 1993, J.P. Morgan and Widener moved to amend their answer to include what they called a counterclaim for a declaratory judgment that Schulman did not have a valid, enforceable lease. Ten days later they moved for summary judgment and sanctions.

On April 22, 1993, the district court granted J.P. Morgan's and Widener's motions to amend their answer and also concluded WALP was not an indispensable party on the counterclaim under Federal Rule of Civil Procedure 19. On August 19, 1993, the court granted the mortgagee's motion for summary judgment against Schulman on all claims, including the so-called counterclaim for a declaratory judgment, but declined to impose sanctions. In its opinion the district court held Schulman could not prevail on his Count I claim for intentional interference with an existing contract because both WALP and Widener were required to consent to any lease and therefore Schulman had no existing lease with WALP. It also held Schulman had no reasonable prospect of obtaining a lease. Alternately, the district court held any interference was privileged because J.P. Morgan and Widener, as mortgagee and assignee of the leases, had both a legal and financial interest in the transaction. Finally, the district court declared Schulman had no valid, enforceable lease for the premises. Schulman filed a timely notice of appeal.


Because Schulman is a Pennsylvania citizen while J.P. Morgan and Widener are New York corporations with their principal places of business in New York and the claimed damages exceed $50,000, the district court had subject matter jurisdiction under 28 U.S.C.A. § 1332(a) (West 1993) when Schulman filed this case. We have appellate jurisdiction over the district court's final order granting summary judgment under 28 U.S.C.A. § 1291 (West 1993). Accordingly, all facts in the record, and all reasonable inferences deduced therefrom, will be construed in the light most favorable to Schulman, the non-moving party. Mellon Bank Corp. v. First Union Real Estate Equity and Mortgage Invs., 951 F.2d 1399, 1404 (3d Cir. 1991).

The district court's Conclusion that WALP is not an indispensable party under Federal Rule of Civil Procedure 19(b) is reviewed for abuse of discretion. Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 403 (3d Cir. 1993).*fn8 We exercise plenary review over the district court's grant of summary judgment. Mellon, 951 F.2d 1399, 1404 (3d Cir. 1991); see Fed. R. Civ. P. 56(c). We also review a district court's decision to review or dismiss an action under the Declaratory Judgment Act, 28 U.S.C.A. §§ 2201, 2202 (West 1982 & Supp. 1994), for abuse of discretion. See United States v. Pennsylvania, Dep't of Envtl. Resources, 923 F.2d 1071, 1073 (3d Cir. 1991).


In response to the mortgagee's motion to amend its answer to assert as a counterclaim for a declaratory judgment its argument that no lease existed, Schulman argued in the district court that WALP was an indispensable party because its presence was essential to resolving the mortgagee's counterclaim. He also argued that a decision on the mortgagee's counterclaim would expose him to a substantial risk of inconsistent rulings if WALP were not joined because he would be collaterally estopped in the pending state court ejectment action by a declaratory judgment that no lease exists, but WALP would not be collaterally estopped if the district court decided a lease did exist.

The district court granted the mortgagee's motion to add the attack on the lease's existence that was called a counterclaim, expressly rejecting Schulman's contention that WALP was an indispensable party. The district court first noted Schulman would not be prejudiced by the proposed counterclaim because all questions relating to the existence of Schulman's lease were already at issue in Schulman's own claim of intentional interference with contractual relations. It also stated its ruling on the counterclaim would not interfere with or complicate the pending eviction action against Schulman in state court:

Whether Mr. Schulman had an enforceable lease or not is an entirely separate question from the one now in state court of whether Mr. Schulman has any rights against the landlord. Moreover, my ruling need not prompt those parties to dispute the ruling's collateral estoppel effect. If I find, after full and fair litigation on the merits, that there was no lease, Mr. Schulman cannot re-litigate that issue in state court. See Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 328, 58 L. Ed. 2d 552, 99 S. Ct. 645 (1979). If, on the other hand, Mr. Schulman is concerned that the landlord will try to re-litigate the issue should I find there ...

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