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Northwest Savings Bank and Financial Services v. Ns First Street LLC and 2200 South Atherton Street LLC

July 15, 2011


The opinion of the court was delivered by: Chief Judge Kane


This case concerns a dispute over a lease agreement between Plaintiff Northwest Savings Bank and Defendants NS First Street LLC and 2200 South Atherton Street LLC for property located at 2200 South Atherton Street, State College, Pennsylvania. Pending before the Court is a motion for partial summary judgment filed by Plaintiff. (Doc. No. 43.) In its motion, Plaintiff seeks judgment on its second cause of action, namely a declaratory judgment from the Court finding that Plaintiff did not default under the terms of the parties' lease agreement. For the following reasons, the Court will grant the relief sought by Plaintiff's motion.


A. Factual History

Taken in a light most favorable to the non-moving party, the salient facts are as follows. Plaintiff Northwest Savings Bank, an entity organized under the Commonwealth of Pennsylvania, has a place of business located at 100 Liberty Street, Warren, Pennsylvania. (Doc. No. 1, Ex. A ¶ 1.) Defendants NS First Street LLC and 2200 South Atherton Street LLC are limited liability companies organized under the laws of New Jersey. (Doc. No. 1 ¶ 6.) Defendant NS has a registered office located at 2200 South Atherton Street, State College,Pennsylvania. (Doc. No. 1, Ex. A ¶ 2.) Defendants are owned by principals David Ross and Richard Becker. (Doc. No. 15 ¶¶ 12-13.)

On July 14, 2005, Plaintiff entered into a lease agreement ("Lease") with DWEK Branches, LLC ("DWEK") for the 2200 South Atherton Street property (the "Property"). (See Doc. No. 45, Ex. 1.) Pursuant to the terms of the Lease and Lease Rider, Plaintiff leased the Property from DWEK for a term of ten years with an option to extend such term for three additional five year periods.

The Lease provides that the Property is "to be used and occupied only and for no other purpose than retail branch bank and general office use." (Doc. No. 45, Ex. 1 at 1.) However, pursuant to the Lease Rider, Plaintiff agreed not to use the Property as a bank until after March 15, 2009.*fn1 The Lease mandates that Plaintiff "take good care of the Premises and will, at the Tenant's own cost and expense, make all repairs." (Id.) However, the Lease also states that "[n]o alterations, additions or improvements may be made . . . without the written consent of the Landlord." (Id.) The Lease defines "Events of Default," which allow Defendants to seek a remedy as, inter alia:

(a) a default by the Tenant in the payment of rent, or any additional rent when due or within 10 days thereafter; (b) a default by the Tenant in the performance of any of the other covenants or conditions of this Lease, which the Tenant does not cure within 20 days after the Landlord gives the Tenant written notice of such default; . . . (i) if the Premises are or become abandoned, deserted, vacated or vacant for more than thirty (30) consecutive days . . . . (Doc. No. 45, Ex. 1 at 4-5.) In the event of a default, the Lease allows the Landlord to re-enter and possess the Property. (Id. at 5.) Additionally, if a default occurs, "the Landlord may, at any time thereafter, terminate this Lease and the term hereof, upon giving to the Tenant five (5) days' notice in writing of the Landlord's intention so to do." (Id.)

In 2007, DWEK filed for bankruptcy. On November 28, 2007, the United States Bankruptcy Court for the District of New Jersey approved the sale of the property at issue to Defendants as tenants in common and subject to the lease with Plaintiff. (Doc. No. 45, Ex. 3.) After Defendants acquired the Property in the bankruptcy proceeding, Plaintiff continued to make rental and other payments required by the Lease. Defendants were aware of the use restriction on the Property and the fact that Plaintiff was not occupying the Property. (Doc. No. 49 ¶ 35.)

Plaintiff was interested in the possibility of expanding the building, and had discussed this possibility with Defendants. On June 27, 2008, representatives of Plaintiff met with Defendants. Although the parties dispute whether it was a priority of the meeting, the parties agree that a review of different plans for the building made up "a very small part of the meeting." (Doc. No. 49 ¶ 13.) The parties discussed several options of renovating the Property. (Id. ¶ 16.) Plaintiff contends that it reviewed with Defendants plans for an extensive building renovation estimated to cost anywhere from 1.0 to 1.5 million dollars.*fn2 (Doc. No. 46 ¶ 15.) Defendants state that the renovations referenced by Plaintiff were only one option discussed at the meeting. (Doc. No. 49 ¶ 16.)

The condition of the building is a source of disagreement among the parties. Plaintiff claims that, when DWEK left the Property, all utilities except electricity were turned off; water damage to walls and ceilings was evident; other portions of the building, including the teller line, were damaged; and animals had caused further damage. (Doc. No. 46 ¶ 14.) On the other hand, Defendants state that these observations by an employee of Plaintiff occurred "at an unspecified time." (Doc. No. 49 ¶ 14.) Defendants state that a substantial amount of the building's deterioration has occurred since the initiation of the Lease on July 14, 2005. (Id.) As noted above, Plaintiff admits that it has not occupied the Property.

Plaintiff states that Defendants proposed to pay for renovation work to the Property by restructuring Plaintiff's Lease payments. (Rec. Doc. No. 46 ¶ 16.) Plaintiff states that it refused Defendants' proposal in light of the concomitant rent increase Plaintiff would be required to bear. (Id. ¶ 17) On the other hand, Defendants state that, in light of the numerous renovation plans discussed by the parties, any reference by the Plaintiff to "renovations" is overly vague. (Doc. No. 49 ¶ 16.). Defendants also deny the existence of any proposal of a rent increase. (Id.¶ 17.) However, in his deposition, Ross acknowledged an email in which he wrote to Becker, the following:

We just jack the rent to whatever we want it. It just looks bad. We need to push in a nice way. Maybe we go to 225 a year, and if they say yes, we scale back the site work. If they say 225 is too high, we drop the funding to 600 and come in at 175. (Doc. No. 50, Ex. F at 102.) In a September 29, 2008 exchange, Ross and Becker emailed the following:

We may have a problem because the lease in the rider requires the tenants maintain the HVAC. I thought we might have something with signage, but again the rider over road [sic] this and allows forsignage without landlord's permission. I think you are already using this stick, and it is our best threat. . . . Our best option is to make them say, okay, we simply will not open. In the medium term two to five years, they will reconsider and perhaps be willing to make the improvements at that point. If they open now with the paint over branch, the odds that they ever spent on the improvements drop dramatically. . . . Need some more ammo. Told Lowery that we do not want that. (Doc. No. 45, Ex. 4 at 128-129.) In another email sent on October 28, 2008, Ross wrote, "We have nothing to lose, either we push hard and they soften up or they get pissed and just keep us in the same lease." (Id. at 140.)

On or about March 23, 2009, Plaintiff hired CE Woods Contracting and Hoffman Architecture. (Doc. No. 46 ¶ 24.) Although Plaintiff did not obtain written authorization from Defendants for any construction that it intended to perform, Plaintiff began to undertake work on the Property, including repairing the building, making it compliant with the Americans with Disabilities Act and local building code, repairing the HVAC system, and renovating the interior. (Doc. No. 46 ¶ 20; Doc. No. 49 ¶ 20.) Plaintiff obtained municipal approvals and permits for the project; however, its architect identified Plaintiff as the Property owner on the building permit application. (Doc. No. 46 ¶ 27.) The parties dispute whether Plaintiff correctly represented the scope of the job to the Zoning Department. (See Doc. No. 49 ¶ 27.)

At around the same time that renovations were underway, the parties were engaged in discussions to allow Plaintiff to purchase the Property. (Doc. No. 46 ¶ 23; Doc. No. 49 ¶ 23.) Although the parties disagree as to why negotiations broke down, the parties came to an impasse over the price of the Property in late May 2009. (Doc. No. 46 ¶ 29; Doc. No. 49 ¶ 29.) In a telephone conversation between Plaintiff's representative and Ross, Ross demanded that the renovation work be stopped and that a meeting be arranged between Ross, Becker, and Plaintiff's representatives. (Doc. No. 46 ¶ 31.) However, a meeting was never scheduled. (Doc. No. 49 ¶31.)

On or about May 22, 2009, without prior written notice to Plaintiff, Defendants contacted the Centre Region Code Administration ("CRCA") and demanded that the CRCA withdraw the previously issued permit based on the misidentification of the Property owner by the architects on the building permit application. (Doc. No. 46 ΒΆ 32.) As a result, the CRCA issued a stop-work order to Plaintiff. (Doc. No. ...

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