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J.C. Penney Co., Inc. v. Giant Eagle

May 24, 1996

J. C. PENNEY COMPANY, INC., APPELLEE

v.

GIANT EAGLE, INC.; GIANT EAGLE MARKETS, INC., AND STANLEY R. GUMBERG, INDIVIDUALLY AND AS TRUSTEE UNDER THOSE CERTAIN IRREVOCABLE DEEDS OF TRUST DATED MAY 9, 1969, AND GIANT EAGLE, INC., APPELLANT



On Appeal From the United States District Court For The Western District Of Pennsylvania

(D.C. Civil No. 92-cv-01769)

Before: STAPLETON, McKEE, Circuit Judges, and JOHN R. GIBSON, Senior Circuit Judge *fn*

JOHN R. GIBSON, Senior Circuit Judge

Argued: October 27, 1995

Filed May 24, 1996)

OPINION OF THE COURT

Giant Eagle, Inc. appeals from an order of the district court enjoining it from operating a pharmacy in its Quaker Village shopping center store for the duration of J. C. Penney Company's 1978 lease, including renewals. Giant Eagle argues that Penney's exclusive right to operate a pharmacy in Quaker Village ended when Penney's 1962 lease ended, and that Penney's exclusive right is unenforceable against it because it did not have notice of Penney's exclusive right. We affirm.

In 1962 the Thrift Drug Company leased a store in the Quaker Village shopping center to operate a retail drugstore. The lease required that Thrift Drug use the premises only for operation of a retail drugstore, and gave it the right to display "such articles as are displayed and sold by it in its other retail drug stores." The lease further provided that the owner of Quaker Village, as lessor, would not permit another tenant to operate a pharmacy or fill or sell prescriptions. The lease covenanted that other tenants would be Thorofare Markets, Inc., which would operate a supermarket, and Triple "A", a national chain variety store. These tenants were allowed to sell merchandise customarily sold in drugstores, provided that they did not compound or sell prescriptions, or sell merchandise limited by state law to licensed pharmacies. The lease was for a term of fifteen years, and Thrift Drug was given the right to renew and extend the lease for three additional five-year terms. Thrift Drug recorded a memorandum of the lease which set forth a description of the premises, the term of the lease, and Thrift Drug's right to renew, but made no mention of Thrift Drug's obligation to operate only a retail drugstore, nor of the shopping center's agreement prohibiting other tenants from operating a drugstore. In 1969 Penney acquired Thrift Drug and all of its rights, including the 1962 lease.

In 1977 Giant Eagle entered into a lease at Quaker Village, which provided that it was to operate a food and grocery supermarket for items "customarily sold in the markets which it operates in the Greater Pittsburgh area." Giant Eagle's lease also gave Giant Eagle the exclusive right to operate a grocery store in Quaker Village with the exception of the existing Thorofare store. *fn1

Stanley R. Gumberg, the owner of the Quaker Village shopping center, negotiated the lease with Giant Eagle, and stated that there was no reference to a pharmacy or drugstore in the lease provision describing Giant Eagle's use of the premises. He also stated that at the time the lease was negotiated there was no thought or discussion of a pharmacy in Giant Eagle's store.

In 1975 Penney began discussing with Gumberg the possibility of relocating its drugstore within Quaker Village. Throughout these discussions, Penney insisted on keeping its exclusive right to operate a pharmacy. In 1978 Penney and Gumberg agreed that Penney would relocate its drugstore within the shopping center and continue to have the exclusive right to operate a pharmacy. The 1978 lease gave Penney the exclusive right to operate a pharmacy in Quaker Village, and provided that the 1962 lease was to terminate one day after the new lease term started, thus providing an overlap between the 1962 and 1978 leases. *fn2 The 1978 lease also covenanted that Giant Eagle was to operate a supermarket in the shopping center, which was a condition for Penney operating its new drugstore.

In 1990 Giant Eagle began to make plans to expand its supermarket in Quaker Village to include a pharmacy. *fn3 To accommodate Giant Eagle's plans, Gumberg asked Penney several times to waive its exclusive right to operate a pharmacy in the shopping center. Penney consistently refused to waive its exclusive right. Gumberg told Giant Eagle that Penney had the exclusive right to operate a pharmacy in Quaker Village and that Penney refused to waive that right. Despite this information, Giant Eagle began its construction of a pharmacy at its Quaker Village store. Shortly thereafter Penney told Giant Eagle and Gumberg that it intended to enforce its exclusive right. On August 13, 1992 Giant Eagle opened its pharmacy in Quaker Village, and Penney sued Giant Eagle to enjoin Giant Eagle's operation of the pharmacy.

The district court granted Penney a preliminary injunction. J. C. Penney Co. v. Giant Eagle, Inc., 813 F. Supp. 360 (W.D. Pa. 1992). Giant Eagle appealed the preliminary injunction to this court, and we affirmed the injunction in an unpublished opinion. J. C. Penney Co. v. Giant Eagle, Inc., 995 F.2d 217 (3d Cir. 1993). The district court later granted Penney a permanent injunction against Giant Eagle for the duration of Penney's 1978 lease, including renewals. In granting the permanent injunction, the district court stated that under Penney's 1962 and 1978 leases Penney continuously held the exclusive right to operate a pharmacy in Quaker Village. The court also stated that Penney could enforce its exclusive right against Giant Eagle because the memorandum of the 1962 lease, which was filed for record, gave Giant Eagle constructive notice of Penney's exclusive right when Giant Eagle entered into its Quaker Village lease. *fn4 Giant Eagle appeals from the district court's grant of the permanent injunction.

I.

Giant Eagle argues that Penney cannot enforce its exclusive right against Giant Eagle because Giant Eagle obtained its lease in Quaker Village before Penney obtained its 1978 lease containing the exclusive right. Giant Eagle argues that the 1978 lease did not preserve Penney's 1962 exclusive right for two reasons. First, Giant Eagle argues that Penney cancelled its 1962 lease and filed for record a lease cancellation agreement stating that the 1962 lease was null and void. Therefore, Giant Eagle argues, Penney cannot rely on an exclusive right contained in a lease which is null and void. Second, Giant Eagle argues that Penney's exclusive right is a form of restrictive covenant or negative easement which cannot be transferred from one location within Quaker Village to another. Giant Eagle concludes that because Penney moved in 1978, it could not take its exclusive right with it.

A.

In this diversity case, we must determine and apply Pennsylvania law, and when the issues have not been authoritatively determined by the Pennsylvania Supreme Court, we must predict how it would decide those issues. Adams v. Madison Realty & Dev., Inc., 853 F.2d 163, 168 (3d Cir. 1988). Our review is de novo without deference to the district court. Salve Regina College v. Russell, 499 U.S. 225 (1991).

For many years the Pennsylvania Supreme Court used principles of real estate law in interpreting restrictions in shopping center leases. In Siciliano v. Misler, 160 A.2d 422 (Pa. 1960), the court stated, "In restricting real estate a scrivener acts at his peril: if his creation is not self-sustaining it is nothing." Id. at 425. The court rejected the argument that the intent of the parties should govern. Instead, it looked at the plain language of the restriction, gleaning the intent of the parties from the language alone. Id. See also Food Fair Stores, Inc. v. Kline, 152 A.2d 661, 663 (Pa. 1959).

There were early rumblings of change in Great Atlantic & Pacific Tea Co. v. Bailey, 220 A.2d 1 (Pa. 1966), which did not produce a majority opinion. See Mt. Lebanon v. County Bd. of Elections, 368 A.2d 648, 650-51 (Pa. 1977) (non-majority opinions of the Pennsylvania Supreme Court are non-decisional); Vargus v. Pitman Mfg. Co., 675 F.2d 73, 74-75 (3d Cir. 1982) (a majority of the justices on the Pennsylvania Supreme Court must join an opinion in its entirety or it is not binding precedent). In Great Atlantic & Pacific Tea Co., the Baileys, owners of a shopping center, granted A & P the exclusive right to operate a grocery store in their shopping center. 220 A.2d at 1-2. Later, the Baileys purchased land next to their shopping center and rented it to another grocery store operator. Id. at 2. A & P, relying on its exclusive right, sued to prevent the operation of the competing grocery store. Justice Eagen, with two justices joining his opinion and another only concurring in the result, wrote that courts must strictly construe exclusive rights granted in shopping center leases, because they restrict the use of land and such ...


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