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Firetree, LTD v. Creedon

May 15, 2008

FIRETREE, LTD, PLAINTIFF
v.
JAMES CREEDON, DEFENDANT



The opinion of the court was delivered by: Christopher C. Conner United States District Judge

(Judge Conner)

MEMORANDUM

Presently before the court is the motion (Doc. 2) of plaintiff Firetree, LTD ("Firetree") for preliminary injunctive relief. Firetree leases several buildings from the Pennsylvania Department of General Services ("DGS") where it administers correctional and substance abuse treatment programs. Firetree seeks to enjoin defendant James Creedon ("Creedon"), Secretary of DGS, from refusing to renew the lease agreement for these buildings. Firetree contends that DGS is refusing to renew the lease in retaliation for a Board of Claims action filed by Firetree over disputed lease terms. Firetree alleges that DGS's action violates its First Amendment right to petition the government for redress of grievances. DGS responds that Firetree's legal action played no part in the non-renewal decision and that it needs the space to house organizations unaffiliated with Firetree. For the following reasons, Firetree's motion for preliminary injunctive relief will be denied.*fn1

I. Factual Background

Firetree is a non-profit organization that operates community corrections centers and substance abuse facilities for inmates and indigent individuals throughout eastern and central Pennsylvania. (Doc. 23 at 18, 53-55.) The Federal Bureau of Prisons, the Pennsylvania Department of Corrections, and county correctional institutions refer inmates to Firetree for substance abuse treatment and transitional pre-release programs. (Id. at 18-19.)

One of Firetree's facilities is located in Wernersville, Pennsylvania, where it leases space on the grounds of the Wernersville State Hospital (hereinafter "the Wernersville Hospital" or "the State Hospital"). The State Hospital is owned by the Pennsylvania Department of Public Welfare ("DPW"), which periodically arranges with DGS to offer unused buildings for lease to private entities. DGS is a state agency that, inter alia, performs realtor-like functions for other state agencies such as DPW that have unused property to sell or lease.*fn2 DGS negotiates and executes all leases associated with these transactions. (Id. at 204-06.)

A. The Contractual Dispute Between Firetree and DGS

Firetree executed its current Wernersville lease with DGS on March 22, 2004. (Preliminary Injunction Hearing [hereinafter "Hr'g"] Ex. P-1 recitals para. 1.)*fn3 The lease, which has a four-year term, supercedes and consolidates at least two prior rental agreements between DGS and Firetree. (Id. ¶ D.1; Doc. 23 at 175-76.) It also requires Firetree to pay two forms of rent. (Hr'g Ex. P-1 ¶ A.1.) The first, identified as general rent, grants Firetree possessory rights to use and occupy the leased premises. General rent is payable directly to DGS in the amount of $3.25 per day for each resident housed. (Id. ¶¶ A.1, A.2.) The lease permits Firetree to make improvements to the demised buildings and to offset the cost thereof against general rent payments in cumulative amounts of up to $1.6 million. (Id.) The second, identified as operating rent, covers the costs of utilities provided to Firetree. (Id. ¶ A.4.) The lease obligates DPW to furnish "electricity, steam heating, water, sewer, and grounds keeping" through DPW-controlled infrastructure on the State Hospital campus. (Id.) Firetree's operating rent payments are $18,000 per month and are payable directly to DPW. (Id.)

Pursuant to a prior lease agreement,*fn4 Firetree has occupied one of the buildings, known as Building 30, since at least 2001 and has performed numerous repairs. (Doc. 23 at 31.) Building 30 was vacant prior to Firetree's tenancy and had been declared an environmental hazard due to asbestos contamination. (Id. at 30.) It originally included a steam heating system; however, Firetree's renovations revealed that the building's steam tunnels had collapsed. (Id. at 63.) Firetree installed gas heat to replace the unfunctional steam heat system. (Id. at 64.) The cost of gas heat typically runs between $3,000 and $5,000 per month. (Id.)

A dispute over heating expenses arose during the summer of 2006, when Firetree realized that DPW was not covering the costs of the gas heat. (Id.) Firetree believed that the lease obligated DPW to cover these costs because Building 30 was disconnected from the campus steam system. It began withholding operating rent in July 2006 to recoup its past heating costs. (Id. at 64-65; Hr'g Ex. P-4.) In October 2006, Firetree received a letter from Bradley Swartz ("Swartz"), who is chief of the Land Management Division within DGS.*fn5 (Hr'g Ex. P-4.) The letter stated that Firetree owed the State Hospital $72,000 in unpaid operating rent and that DGS would terminate the lease if the balance remained unpaid. (Id.)

[Firetree's financial manager has] informed me that the basis for the [withheld operating rent] was Firetree's presumption that the utility cost that was used in the formulation of the operating rent included the provision of heat to Building 30.

I informed [Firetree's financial manager] that [the] operating rent calculation . . . did not include the provision of heat to Building 30 in that the building had been retrofitted for gas heat prior to reopening.

I [later met with Firetree's liaison at the State Hospital] and explained the background of the utility cost, providing him with a copy of the formula applied in calculating the 2003 utility cost apportionment. He acknowledged after reviewing the formula[,] which provides separate calculations for developing prorated electric, sewer and heat costs, that there was a lower multiplier used (equal to the reduction for the square footage of Building 30) to establish heating costs attributable to the Firetree lease.

He called Mr. Ertel from my office and explained that he had confirmed the calculation used a different basis for establishing heat related costs in comparison to the formula used for electric and sewer. The feedback that [Firetree's liaison] provided to me is that Mr. Ertel contends that the $18,000 utility cost was intended, when originally established, to apply to the hospital's provision of all utilities to the buildings that comprise the lease. He also indicated that Mr. Ertel believes it appropriate for Firetree to recoup a prorated cost of providing heat to Building 30. . . .

Unless there is background of which I am not aware to support Mr. Ertel's contention/position, I am seeking assistance/intervention in collecting utility costs that are rightfully due our hospital. (Hr'g Ex. P-2 at 3-4.)

Negotiations over the disputed rent followed with Daniel Schranghamer ("Schranghamer"), general counsel for Firetree, and Gary Ankabrandt ("Ankabrandt"), deputy chief counsel for DGS, attempting to reach a resolution. (Doc. 23 at 197; Doc. 30 at 176-78.) During a series of telephone calls, the parties agreed that Swartz's letter overestimated the amount in dispute and that the correct amount was approximately $48,000. (Doc. 30 at 205.) Firetree suggested that the dispute be jointly submitted to the Pennsylvania Board of Claims*fn6 for resolution. (Id. at 177.) Ankabrandt declined the invitation and reiterated DGS's position that the lease covered only steam heating. (Id. at 179, 206.) He informed Schranghamer that the dispute reflected a potential ambiguity in the utility provisions of the lease and stated that any Board of Claims action by Firetree would confirm the parties' disagreement over the operating rent clause. (Id. at 179, 181-83.) He also notified Schranghamer that DGS would be unwilling to renew the lease in a form that contained such an ambiguity, though DGS might be willing to renegotiate the lease terms. (Id.) If, however, Firetree refrained from submitting a Board of Claims action, DGS would interpret Firetree's forbearance as an adoption of DGS's interpretation of the lease. (Id. at 181-82.) DGS would then consider renewing the lease without modification because the parties would have agreed upon the proper interpretation of the operating rent clause. (Id.) On November 22, 2006, Ankabrandt memorialized his discussions with Schranghamer, albeit somewhat unartfully,*fn7 in a letter stating, in pertinent part:

The Operating Rent covers [DPW's] costs and expenses in providing electricity, steam heating, water, sewer, and grounds keeping. No portion of this amount was intended to cover natural gas heating for Building No. 30. . . .

If . . . Firetree does seek relief from the Board of Claims on [the heating] issue, such action will be a serious factor in the Commonwealth's decision as to whether the least should be renewed beyond the March 2008 expiration date.

(Hr'g Ex. P-5.) Ankabrandt forwarded the letter to Swartz, who reviewed it before it was sent to Schranghamer. (Doc. 30 at 180.) Ankabrandt has no decision-making authority with regard to lease renewals. (Doc. 23 at 223.)

Firetree commenced an action with the Board of Claims on January 9, 2007.*fn8

(Doc. 23 at 110; Hr'g Ex. P-6 at 2.) DGS received notice of the claim on January 18. (Hr'g Ex. P-6 at 2.) On January 22 Ankabrandt sent the following email to Swartz and Joanne Phillips ("Phillips"), who is Swartz's supervisor:

Since there is a difference of opinion in regard to the interpretation of the lease, I recommend that DGS immediately send notice to Firetree that the lease will NOT be renewed when it expires next year and any newly-negotiated [sic] lease for the premises will not only ensure that DPW is totally reimbursed for its costs associated with the Firetree lease of the premises but will include a reasonable rental payment as well. (Id. at 1 (emphasis added)). Phillips, who has authority to decide whether to renew Commonwealth leases, determined that DGS would not renew the ambiguous lease. (Doc. 23 at 229; Doc. 30 at 217-18.) She did not eliminated the possibility of negotiating a new lease that resolved the ambiguity. (Doc. 23 at 217-18.) Swartz informed Ankabrandt that he and Phillips had "discussed this issue[,] and we are going to follow your recommendation" that Firetree's lease be permitted to expire to alleviate the ambiguity in the utility provisions. (Hr'g Ex. P-6 at 1.)

Phillips and Swartz informed Creedon of their decision during a late-February 2007 meeting held with personnel from both DGS and DPW. (Doc. 23 at 213; Doc. 30 at 217-19.) Creedon convened the meeting to discuss the pending sale of DPW property near Philadelphia that was hindered by the presence of a tenant unrelated to Firetree. (Doc. 23 at 208-09.) DPW wished to relocate the tenant prior to the sale of the property. (Id. at 282-83.) Phillips and Swartz suggested that DGS allow Firetree's lease to expire and offer the Wernersville Hospital site to the tenant.*fn9 (Doc. 30 at 217-19.) Officials from DGS and DPW assented to their suggestion, and Swartz transmitted a notice of non-renewal to Firetree in accordance with Firetree's lease on May 24, 2007. (Hr'g Ex. P-7; see also Hr'g Ex. P-1 ¶ D.1)

B. DGS and DPW's Avowed Plans for the Wernersville Hospital

The potential tenant, identified during the February 2007 meeting as a replacement for Firetree, is VisionQuest. VisionQuest is a for-profit entity that operates juvenile justice and rehabilitation programs. (Doc. 23 at 268.) Since at least 1994, it has leased space at the Embreeville State Center (hereinafter "the Embreeville Center") near West Chester, Pennsylvania. (Hr'g Ex. D-15 at Lease Agreement recitals para. 1; Doc. 23 at 271.) The Embreeville Center served as a state hospital until it was decommissioned in 1997. (Doc. 23 at 267-68.) DPW leased parts of the facility to various tenants from 1997 through 2005 but posted annual operating losses in excess of $1 million each year. (Id. at 274.) By mid-2005, almost all of the Embreeville Center's tenants except VisionQuest had vacated the premises, and DPW and DGS began efforts to sell the property. (Id. at 273; Doc. 30 at 95-96.) The sale required VisionQuest to relocate, and its officers-along with officials from DPW and DGS-commenced a search for alternate sites. (Doc. 23 at 274.)

Swartz collaborated with Ford Thompson ("Thompson"), who is the executive assistant to the secretary of DPW, on the efforts to relocate VisionQuest. (Doc. 23 at 265, 273; Doc. 30 at 55, 63-64.) In March 2006, VisionQuest considered the feasibility of relocating to the Wernersville Hospital grounds. (Doc. 30 at 66; Hr'g Ex. D-16.) Officials from DPW and VisionQuest examined the hospital grounds,*fn10 (Doc. 23 at 279; Doc. 30 at 66, 93, 99), but VisionQuest initially eschewed the possibility due to the hospital's distance from Philadelphia, where most of its clients resided, (Doc. 23 at 271; Doc. 30 at 69-71; Hr'g Ex. D-18). The following month, VisionQuest's president informed Thompson that he was "extremely concerned that [VisionQuest] will not locate an alternative facility prior to the timeline" for sale of the Embreeville Center, which VisionQuest believed was to occur by November 2006. (Doc. 30 at 62,69; Hr'g Ex. D-2.)

In June 2006, VisionQuest solicited assistance from the Office of the Governor in a letter indicating that VisionQuest could have utilized the Wernersville Hospital were it not occupied by Firetree. (Doc. 30 at 97-100; Hr'g Ex. D-4.) VisionQuest also apprised DGS of its ongoing efforts in a July 2006 letter that stated:

We recently concluded discussions with Firetree, Ltd.-which is leasing several buildings from the Commonwealth at Wernersville- after being told that one of those buildings was empty. Firetree confirmed that it was leasing an empty 50,000 square foot building from the Commonwealth. However, it was evaluating whether it would have a future use for that building. Firetree eventually indicated that it found a use for the building and that it would not be available for VisionQuest.

VisionQuest has also been in contact with Ford Thompson. He has proposed revisiting the feasibility of several state facilities that were previously considered, including those in Norristown and Wernersville. Mr. Thompson was going to touch base with the appropriate persons regarding these facilities[,] but I have yet to hear back from him. . . .

I hope you understand that we are being diligent in our search for alternative sites. I also want you to know that this letter only covers our most recent efforts and is not an exhaustive review of efforts that have spanned more than a year. (Hr'g Ex. D-19.)

Thompson, Swartz, and others continued the search, and from spring through autumn of 2006 narrowed it to three feasible options: Allentown State Hospital in Lehigh County, Norristown State Hospital in Montgomery County, and Wernersville State Hospital. (Doc. 23 at 270-75.) They quickly removed Allentown from consideration because it lacked essential facilities. (Id. at 272) The long-term future of Norristown was uncertain (due to DPW's efforts to cease operations at existing state hospitals), rendering it an undesirable location as well. (Id.) The Wernersville Hospital grounds therefore emerged as the preferred site for relocation of VisionQuest. (Id. at 275.) Thompson testified that by late 2006 DPW had concluded "that the only reasonable option for us to relocate VisionQuest was to ...


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