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Wilmington Trust Co. v. County of Allegheny

March 31, 2009

WILMINGTON TRUST COMPANY, AS TRUSTEE AND ON BEHALF OF ALL RECORD HOLDERS AND BENEFICIAL OWNERS OF 1991 A BONDS, PLAINTIFF,
v.
COUNTY OF ALLEGHENY, ALLEGHENY COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, AND ALLEGHENY COUNTY AIRPORT AUTHORITY, DEFENDANTS.



The opinion of the court was delivered by: David Stewart Cercone United States District Judge

Electronic Filing

MEMORANDUMOPINION

I. INTRODUCTION

Plaintiff, Wilmington Trust Company ("Wilmington Trust"), filed a four (4) count complaint raising state law claims of breach of contract, trespass and possession against Defendants, Allegheny County Industrial Development Authority ("ACIDA"), the County of Allegheny (the "County"), and the Allegheny County Airport Authority (the "Airport Authority")(collectively "Defendants"). Wilmington Trust has filed a motion for partial summary judgment, and the Defendants have filed motions for summary judgment. Responses have been filed, and the matters are now before the Court.

II. STATEMENT OF THE CASE

In 1980, the County entered into a Ground Lease Agreement (the "Ground Lease") with the National Transportation Center (the "NTC") under which the County leased certain real property at the Pittsburgh International Airport (the "Airport") as well as all its right title and interest in certain facilities to be constructed on the leased property. Pretrial Stipulation ¶ 5. The 1980 Ground Lease, which was to expire on December 20, 2001, contemplated that the leased property, including the facilities to be constructed thereon, were to be the subject of a sublease by the NTC to US Airways, Inc. ("US Air"). Pretrial Stipulation ¶ 6, County's and Airport Authority's Statement of Undisputed Material Facts ¶ 2 (hereinafter "County's SUMF"). The County's consent to sublease, however, did not "vary or modify the terms, covenants and conditions to be observed and performed by NTC and [US Air] pursuant to [the] Lease." See County's Appendix in Support of Motion for Summary Judgment, Exhibit 1 -Ground Lease ¶ 1(b)(hereinafter "Ground Lease"). The Ground Lease provided that, at the time of execution of the Ground Lease, the sublease between NTC and US Air would be executed, and US Air would assume all rights, privileges and obligation of NTC thereafter. See Ground Lease ¶ 1(b). Further, the County had the right to terminate the Ground Lease upon an uncured "Event of Default," including the filing of a voluntary petition in bankruptcy by US Air. See Ground Lease ¶ 21(a)(I).

Construction of the facilities to be leased by US Air in accordance with the 1980 sublease, a maintenance hangar and a jet engine assembly building, was financed in part by a series of revenue bonds (the "1980 bonds"). County's SUMF ¶ 3, Pretrial Stipulation ¶ 3. Payments on the 1980 bonds were to be derived from the sublease of the hangar, Hangar 5, from NTC to US Air. Pretrial Stipulation ¶ 8. In 1991, the County and the NTC executed an Amendment to the Ground Lease which gave NTC the right, subject to certain terms and conditions and at the direction of US Air, to extend the term to March 1, 2021. Pretrial Stipulation ¶¶ 14 & 15. The NTC, with the County's consent, then assigned all its right, title and interest in the Ground Lease to ACIDA. Pretrial Stipulation ¶ 16. At the same time, ACIDA entered into a Sublease and Security Agreement (the "Sublease") with US Air under which US Air was to sublease the property and facilities. County's SUMF ¶ 24. The Sublease incorporated all the terms, conditions and covenants of the Ground Lease. Id. Pursuant to the Sublease, US Air was obligated, no later than August 22, 2001, to direct the ACIDA to exercise its right to extend the term of the Ground Lease to March 1, 2021. Pretrial Stipulation ¶ 18.

In June of 1991, the ACIDA refinanced the 1980 bonds by issuing Airport Special Facilities Revenue Refunding Bonds, Series 1991A (the "1991A Bonds). Complaint ¶ 31. The 1991A Bonds were issued pursuant to a Trust Indenture dated June 1, 1991, entered between ACIDA and Wilmington Trust as Trustee. Complaint ¶ 32. The Official Statement, published in connection with the issuance of the 1991A Bonds, provides:

The 1991A Bonds will be secured by an assignment of all right, title and interest of the [ACIDA] in and to the 1980 Ground Lease and the 1991A Sublease... Payments of rent by [US Air] under the 1991A Sublease will be sufficient, together with the other funds available for such purpose, to provide for payment of the principal of and premium, if any, and interest on the 1991A Bonds at or prior to their maturity. The obligation of [US Air] to make payment of such rent pursuant to the 1991A Sublease is absolute and unconditional.

Complaint ¶ 37.

In recognition that bonds were to be issued to finance construction of certain facilities at the Airport, the Ground Lease authorized ACIDA to assign its interest in the Ground Lease "to the Trustee as security under the Trust Indenture for the payment of the principal of, and premium if any, and interest on the Bonds..." See Ground Lease ¶ 30(c). In accordance with the Trust Indenture, ACIDA granted, conveyed and assigned to Wilmington Trust all its right, title and interest in the Ground Lease and the Sublease. Complaint ¶ 45, ACIDA's Statement of Undisputed Material Facts ¶ 22 (hereinafter "ACIDA's SUMF"). The County was not a party to the Trust Indenture. See County's Appendix in Support of Motion for Summary Judgment, Exhibit 7 - The Trust Indenture (hereinafter "Trust Indenture").

Under the Trust Indenture, the principal of and premium, if any, as well as the interest on the 1991A Bonds were payable "solely out of the Revenues... and shall not be general obligations of the [ACIDA] and shall never constitute or give rise to a pecuniary liability of the [ACIDA], the County or the Commonwealth of Pennsylvania or any political subdivision thereof." Trust Indenture § 2.01. Pursuant to the Sublease, US Air agreed to make semi-annual rental payments to Wilmington Trust in an amount sufficient to pay, when due, the principal and interest on the 1991A Bonds. Pretrial Stipulation ¶ 34, ACIDA's SUMF ¶ 20.

On or about September 23, 1999, the County transferred all of its interests, rights and obligations with regard to the Airport, including the land and facilities subject to the Ground Lease, to the Airport Authority. Pretrial Stipulation ¶ 35, Complaint ¶ 49.

On or about August 11, 2002, US Air filed a voluntary petition in bankruptcy pursuant to Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia. Pretrial Stipulation ¶¶ 36 & 37. Under Paragraph 21(a)(I) of the Ground Lease, US Air's filing constituted an Event of Default. See Ground Lease ¶ 21(a). Wilmington Trust was a creditor of US Air and was informed of the bankruptcy on or about August 11, 2002. Pretrial Stipulation ¶ 67. Wilmington Trust issued a notice to the holders of the 1991A Bonds dated August 14, 2002, advising that US Air's filing of a bankruptcy petition was an Event of Default under the Trust Indenture, and therefore the bondholders were entitled to exercise certain rights and remedies as set forth in the Trust Indenture. See County's Appendix in Support of Motion for Summary Judgment, Exhibit 23.

In the course of the bankruptcy, US Air filed a Notice of Designation of Unexpired Leases and Executory Contracts which gave notice that it was rejecting the Ground Lease and the Sublease effective January 5, 2004. See County's Appendix in Support of Motion for Summary Judgment, Exhibit 27. Wilmington Trust issued a notice to the holders of the 1991A Bonds dated April 8, 2003, stating that US Air had filed "a notice of designation of over 100 leases and contracts relating to the Pittsburgh Airport, including the 1991A Sublease, which were being rejected on the earlier of their normal expiration date or January 5, 2004." See County's Appendix in Support of Motion for Summary Judgment, Exhibit 28. On March 16, 2003, the United States Bankruptcy Court for the Eastern District of Virginia confirmed US Air's Plan of Reorganization effective March 31, 2003. Pretrial Stipulation ¶ 37.

As a result of US Air's bankruptcy and rejection of the Ground Lease, the Airport Authority, by letter dated December 17, 2003, asked ACIDA to waive the required thirty (30) day prior written notice provision required to terminate the Ground Lease. Complaint ¶ 52; ACIDA's Appendix in Support of Motion for Summary Judgment (hereinafter "ACIDA Appx."), Exhibit 13. By letter dated January 2, 2004, ACIDA waived the thirty (30) day notice requirement under the Ground Lease and agreed that the Amended Ground Lease would be terminated effective 12:02 a.m. on January 5, 2004. Complaint ¶ 53; ACIDA Appx. Exhibit 15.

On January 6, 2004, the Airport Authority notified Wilmington Trust that because the Ground Lease had never been extended, and because US Air had rejected the Ground Lease in the bankruptcy proceedings, the Ground Lease was terminated. Complaint ¶ 54. On January 5, 2004, the Airport Authority and US Air entered into a Hangar Facility Lease Agreement (the "2004 Lease") under which the premises which were subject to the Amended Ground Lease and the 1991A Sublease and Security Agreement were leased to US Air for a period of three (3) years*fn1. Complaint ¶ 55. No reference to the 1991A Bonds was made in the 2004 Lease, nor was any provision made for the payment of rents and revenues to the Trustee, Wilmington Trust, for payment in turn to the bondholders. Id.

III. LEGAL STANDARD FOR SUMMARY JUDGMENT

Pursuant to FED. R. CIV. P 56(c), summary judgment shall be granted when there are no genuine issues of material fact in dispute and the movant is entitled to judgment as a matter of law. To support denial of summary judgment, an issue of fact in dispute must be both genuine and material, i.e., one upon which a reasonable fact finder could base a verdict for the non-moving party and one which is essential to establishing the claim. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). When considering a motion for summary judgment, the court is not permitted to weigh the evidence or to make credibility determinations, but is limited to deciding whether there are any disputed issues and, if there are, whether they are both genuine and material. Id. The court's consideration of the facts must be in the light most favorable to the party opposing summary judgment and all reasonable inferences from the facts must be drawn in favor of that party as well. Whiteland Woods, L.P. v. Township of West Whiteland, 193 F.3d 177, 180 (3d Cir. 1999), Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987).

When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). In the language of the Rule, the nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." FED. R. CIV. P 56(e). Further, the nonmoving party cannot rely on unsupported assertions, conclusory allegations, or mere suspicions in attempting to survive a summary judgment motion. Williams v. Borough of W. Chester, 891 F.2d 458, 460 (3d Cir.1989) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). The non-moving party must respond "by pointing to sufficient cognizable evidence to create material issues of fact concerning every element as to which the non-moving party will bear the burden of proof at trial." Simpson v. Kay Jewelers, Div. Of Sterling, Inc., 142 F. 3d 639, 643 n. 3 (3d Cir. 1998), quoting Fuentes v. Perskie, 32 F.3d 759, 762 n.1 (3d Cir. 1994).

IV. DISCUSSION

A. Trespass Action Against the County and the Airport Authority At Count III of its Complaint, Wilmington

Trust alleges an action in trespass against the County and the Airport Authority based upon Wilmington's alleged security interest in the Ground Lease, and a leasehold interest in the premises and facilities conveyed under the Amended Ground Lease. In support of its claims, Wilmington Trust further alleges that the County and the Airport Authority denied Wilmington's interest under the Ground Lease and Amended Ground Lease, and have "taken action inconsistent with ACIDA's and [Wilmington's] rights as lessee under the Amended Ground Lease." See Complaint ¶ 74.

Because Wilmington's trespass claim arises from alleged breach of duties under the Ground Lease and Amended Ground Lease, the County and the Airport Authority argue that this claim must be dismissed under the "gist of action*fn2 " doctrine.

Under the "gist of action" doctrine, a plaintiff is precluded from recovering in tort for claims that actually sound in contract. The doctrine bars tort claims: (1) arising solely from a contract between the parties; (2) where the duties allegedly breached were created and grounded in the contract itself; (3) where the liability stems from a contract; or (4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract. eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 19 (Pa. Super. 2002). The doctrine is "designed to maintain the conceptual distinction between breach of contract claims and tort claims." Id. at 14.

The purpose of the "gist of action" doctrine is to preclude plaintiffs from pleading ordinary breach of contract claims as tort claims. Id. The difference between the two has been explained as follows:

Tort actions lie for breaches of duties imposed by law as a matter of social policy, while contract actions lie only for breaches of duties imposed by mutual consensus agreements between particular individuals.... To permit a promisee to sue his promisor in tort for breaches of contract inter se would erode the usual rules of contractual recovery and inject confusion into our well-settled forms of actions.

Bash v. Bell Tel. Co., 601 A.2d 825, 829 (Pa. Super. 1992) (citing Iron Mountain Sec. Storage Corp. v. Am. Specialty Foods, Inc., 457 F. Supp. 1158 (E.D. Pa. 1978)). In determining whether the "gist of the action" doctrine applies then, a court must determine whether the source of the duties breached were intertwined with obligations under the contract, or if they were merely collateral. Sunquest Info. Sys., Inc. v. Dean Witter Reynolds, Inc., 40 F. Supp. 2d 644, 651 (W.D. Pa. 1999).

If, in fact, the County and the Airport Authority owed any duty to Wilmington Trust based upon Wilmington's alleged interest in the premises and facilities at issue in this action, such duties clearly arise out of the myriad of transactions and written agreements set forth in the Complaint, particularly the Ground Lease and the Amended Ground Lease. Any claims Wilmington may have against the County and the Airport Authority must arise from a breach of duties imposed as a matter of contract.

The Court finds Wilmington Trust's tort claim is "inextricably intertwined" with the alleged failure to perform certain obligations under the terms of the contract, i.e., the Ground Lease and the Amended Ground Lease. The Court cannot find the contracts to be merely collateral, but rather finds that contract issues are at the heart of the tort claim. Accordingly, the Court finds ...


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