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ZEMENCO, INC. v. DEVELOPERS DIVERSIFIED REALTY CORPORATION

October 7, 2005.

ZEMENCO, INC., Plaintiff,
v.
DEVELOPERS DIVERSIFIED REALTY CORPORATION, Defendant.



The opinion of the court was delivered by: SEAN McLAUGHLIN, District Judge

MEMORANDUM OPINION

Presently pending before the Court is the Defendant, Developers Diversified Realty Corporation's Motion for Summary Judgment.

I. BACKGROUND

  Plaintiff, Zemenco, Inc. ("Zemenco"), is a Pennsylvania corporation with its principal place of business in Erie, Pennsylvania. (Amended Complaint ¶ 1).*fn1 At all times relevant herein, Zemenco owned and operated a manufactured home community known as Peachtree Place located in Summit Township, Erie County, Pennsylvania. (Id. at ¶ 5).

  On or about November 14, 1998, Zemenco and another Pennsylvania corporation, Scott's Development Company ("Scott's"), entered into an Agreement of Sale ("the Agreement") whereby Scott's agreed to purchase a 46 acre portion of land within Peachtree Place for $3,980,000. (Amended Complaint ¶ 6). The Agreement required Scott's to make quarterly payments of $20,000 into an escrow account, with each payment being released to Zemenco 90 days thereafter, assuming neither party breached or defaulted on the contract. In the event of a default by the purchaser, the Agreement contemplated that those payments received by Zemenco prior to default would constitute Zemenco's full liquidated damages:
20. DEFAULT: A. If Purchaser defaults hereunder, Seller shall retain any of the Deposit then in its possession as full liquidated damages and Seller shall have no other recourse thereafter.
(Amended Complaint, Exhibit A, Section 20).
  Significantly, the parcel of real estate described in the Agreement included a narrow strip of land (the "intersecting parcel") constituting Zemenco's only frontage on Peach Street, a busy six-lane highway lined with shopping plazas. (Amended Complaint ¶ 26-27). To the west, on the opposite side of Peach Street, a small east/west road called "Downs Drive" pointed directly into the heart of the intersecting parcel. The Agreement contemplated that Downs Drive might eventually be extended to cross Peach Street and bisect the Zemenco property in an easterly direction:
29. DOWNS DRIVE EXTENSION:
As additional consideration from Seller to Purchaser for entering into this Agreement, Seller hereby agrees to allow Purchaser, at any time after the date of mutual execution hereof, to construct an extension of Downs Drive over and upon a portion of the Premises subject to the parties' mutual approval of plans therefor, which approval shall not be unreasonably delayed or withheld.
(Amended Complaint, Exhibit A, Section 20).

  On November 20, 1998, Scott's assigned the Agreement to Defendant, Developers Diversified Realty Corporation ("Diversified"), an Ohio corporation that owned the land immediately to the north of the Zemenco property. (Amended Complaint ¶ 14; Motion for Summary Judgment, Exhibit B). Diversified had been using this land to develop a shopping center known as Peach Street Square. However, unbeknownst to Zemenco, Summit Township had notified Diversified that the township would not issue any more retail occupancy permits for Peach Street Square unless Diversified could provide an additional means of ingress and egress to Peach Street. (Amended Complaint, Exhibit C, ¶ 8). Because of an existing traffic light at the intersection of Downs Drive and Peach Street, Diversified had ascertained that its best solution would be to extend Downs Drive easterly to intersect with a small access road known as "Mandy Lane" that crossed Diversified's property from north to south, ending at the northern border of Zemenco's land. Each of the conceptualized extensions, and the intersection thereby created, were located on Zemenco's property.

  In December of 1998, Diversified made its first $20,000 deposit into escrow. This payment was released to Zemenco from escrow in March, 1999. (Motion for Summary Judgment, ¶ 6).

  On January 11, 1999, Diversified entered into a Development Agreement with Summit Township in which Diversified agreed to construct the extensions of Mandy Lane and Downs Drive in accordance with plans and specifications approved by Summit:
7. Developer agrees to construct (East) Downs Drive to the intersection point with Mandy Lane marginal access road including the extension of Mandy Lane to (East) Downs Drive pursuant to plans and specifications approved by Summit.
8. Developer and Summit agree that Summit will not issue any further occupancy permits for any structure in Peach Street Square, Phase II Project until the above-referenced public road improvements and other public improvements and all other requirements of the paragraph of this Agreement have been met by the Developer to the satisfaction of Summit.
(Motion for Summary Judgment, Ex. E, ¶¶ 7-8).

  On May 25, 1999, Diversified presented Zemenco with a Reciprocal Easement Agreement ("REA") that would have allowed Diversified to begin construction on the Downs Drive and Mandy Lane extensions. (Amended Complaint, ¶ 28; Motion for Summary Judgment, ¶ 7). Zemenco refused to sign, noting that, although Paragraph 29 of the Agreement contemplated a future extension of Downs Drive, the Agreement did not mention Mandy Lane. (Amended Complaint, ¶ 30). Moreover, Zemenco feared that the envisioned extension of Mandy Lane would bisect the area immediately adjacent to Peach Street where Zemenco maintained its sales office and several model manufactured homes. (Id.)

  On May 28, 1999, Diversified terminated the Agreement, asserting that Zemenco had defaulted on the Agreement by refusing to sign the REA. (Amended Complaint, Exhibit F). At that time, only the first of the $20,000 payments made by Diversified to the escrow account had been released to Zemenco.

  On June 4, 1999, Diversified wrote a letter to the Summit Township Board of Supervisors requesting that the township condemn the portion of Zemenco's property necessary for the Mandy Lane extension. (Amended Complaint, Exhibit G). Subsequently, on June 16, 1999, Summit Township unanimously adopted a resolution authorizing its solicitor to file a Declaration of Taking under the Eminent Domain Code so that the Mandy Lane extension could take place. (Amended Complaint, ¶ 42; Motion for Summary Judgment, ¶ 11). Zemenco's owner attended the hearing and, with assistance of counsel, unsuccessfully opposed the resolution. (Motion for Summary Judgment, Exhibit H, Zafiropoulos Deposition, pp. 172-77). Thereafter, Diversified completed construction on the Downs Drive and Mandy Lane intersection in accordance with the January 11, 1999 Development Agreement. Zemenco received compensation of $287,000 for the land taken by the township. (Motion for Summary Judgment, Exhibit H, p. 136).

  On May 28, 2003, Zemenco filed a complaint against Diversified alleging that the latter had breached the Agreement and had acted in bad faith during the condemnation proceedings. Developers moved for summary judgment on January 14, 2005. Following a response by Zemenco, oral argument on the motion was held on February 8, 2005. During arguments, Zemenco expressed a desire to amend the complaint to add a claim of fraud in the inducement. We granted Zemenco leave to amend the complaint, and denied Diversified's motion for summary judgment without prejudice to re-assert the motion following discovery on Zemenco's fraud claim. On March 2, 2005, Zemenco filed the Amended Complaint (Dkt. 25).*fn2

  Diversified filed the instant motion for summary judgment on April 7, 2005. Zemenco responded on April 28, 2005, and Diversified replied on May 13, 2005. A second oral argument took place on ...


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