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Newman Development Group of Pottstown, LLC v. Genuardi's Family Market, Inc.

Superior Court of Pennsylvania

July 29, 2013


Appeal from the Judgment Entered February 25, 2010 In the Court of Common Pleas of Chester County Civil Division at No(s): 2002-02413.




Genuardi's Family Markets, Inc. and Safeway Inc., appeal a February 25, 2010 judgment entered in the Court of Common Pleas of Chester County in favor of Newman Development Group of Pottstown, LLC.

This matter stems from a dispute over a commercial lease originally entered into by Genuardi's and Newman, pursuant to which Genuardi's was to lease shopping center space from Newman ("Landlord").[1] Genuardi's was subsequently acquired by Safeway ("Tenant"). On February 13, 2002, Tenant informed Landlord that it was terminating the lease due to Landlord's failure to meet certain completion dates. On March 20, 2002, Landlord filed a complaint against Tenant, alleging, in pertinent part, that Tenant had breached the parties' contract. Complaint filed 3/20/02 at ¶¶ 57-59.[2] The shopping center, named Town Square Plaza, was eventually completed in 2005, and replacement tenants Michael's and PetsMart were secured to fill the space slated for Tenant.[3] On December 28, 2005, Landlord sold the shopping center to Inland, a buyer unrelated to this action.

In due course, Landlord's complaint against Tenant resulted in a lengthy non-jury trial before the Honorable William P. Mahon, encompassing ten days of hearings conducted during October and November of 2005, and January 2006. At the conclusion of trial, Landlord requested that Judge Mahon award it damages of $5, 511, 219.00, representing the alleged lesser sale price received by Landlord when it sold the property in 2005 without Tenant in place. Landlord's Proposed Conclusions of Law Filed 4/5/06 at 52.

On August 15, 2006, Judge Mahon issued a Verdict and Opinion. With regard to liability, Judge Mahon determined that when Tenant notified Landlord in February 2002 of its intention to terminate the Lease, it anticipatorily breached the Lease. Opinion filed 8/15/06 at 11.[4] As the result of this breach, Judge Mahon determined that Landlord was entitled to $131, 227.00 in damages, representing the rent Landlord would have received from Tenant during the time period Landlord owned the property, offset by the rent received from the replacement tenants during that time period. Verdict filed 8/15/06; Opinion filed 8/15/06.[5] Both parties filed post trial motions.

In response, Judge Mahon denied Tenant's post trial motion, and refused Landlord's request that the damage award by modified to reflect $5, 511, 219.00 in lost profits, but increased the damage award to $316, 889.92, to reflect that the replacement tenants had not begun to pay rent until December 1, 2005, not June 25, 2005, as previously determined. Order filed 12/19/06 at 1. Both parties appealed to the Superior Court.

Following oral argument and the submission of briefs, the Superior Court issued a memorandum of law on April 25, 2008, affirming Judge Mahon's verdict with regard to liability and the existence of damages, but vacating the judgment and remanding the matter for the determination of the proper measure of damages on the grounds that Judge Mahon erred in failing to enforce the measure of damages set forth in Section 20.2.2. of the parties' Lease. Memorandum filed 4/25/08 at 12, 15, 19.

On January 15, 2010, Judge Mahon issued an Opinion, followed by a Verdict, entering judgment in favor of Landlord in the amount of $18, 489, 221.60 ($10, 494, 490.00 expectation damages; $30, 808.00 reletting expenses; $6, 279, 734.26 interest; $1, 684, 189.34 attorneys' fees, costs and expenses). Opinion dated and filed 1/15/10; Verdict dated 2/25/10.[6]

Tenant has filed a timely appeal, and complied with the lower court's order to file a Statement of Errors Complained of on Appeal.[7] We are now asked to address the following five allegations of error:

1. Must [Landlord's] damages for future lost rent be reduced to present value where: (a) [Landlord] previously conceded that its lost rent damages needed to be reduced to present value and thus waived any claim that they should not be so reduced; (b) such reduction is the only result that is consistent with this Court's decision in the first appeal; and (c) reduction of [Landlord]'s future damages to present value is required in order to avoid conferring a windfall on [Landlord]?
2. Must [Landlord]'s lost future rent damages be reduced to reflect mitigation for the second half of [Tenant]' twenty-year lease term where: (a) the trial court previously had found [Landlord]'s damages submission "highly unreliable" precisely because it assumed no mitigation for the second half of the lease; and (b) [Landlord] did not challenge that finding in either its post trial moving papers or in the first appeal?
3. Must the trial court's award of prejudgment interest to [Landlord] be reduced where: (a) in cases of anticipatory breach, prejudgment interest does not begin to run until the date on which performance would have been due; and (b) performance was not due until June 2005, more than three years after the date from which the trial court awarded prejudgment interest?
4.Must the trial court's award of $536, 629 in reletting expenses to [Landlord] be eliminated where: (a) the trial court previously found that [Landlord]'s testimony regarding that $536, 629 in reletting expenses was not credible; and (b) this Court affirmed that finding in the first appeal?
5. Must the trial court's award of prejudgment interest to [Landlord] on the entirety of its attorneys' fees and costs be eliminated where [Tenant] had no contractual obligation to pay [Landlord]'s attorneys' fees and costs prior to the trial court's entry of final judgment?

Tenants' brief at 2-3.

Generally speaking, our standard of review over a non-jury verdict requires us to determine whether the trial court committed an error of law and whether the trial court's findings of fact are supported by competent evidence of record. Rissi v. Cappella, 918 A.2d 131, 136 (Pa. Super. 2007). Our scope of review requires us to review the factual findings of the trial court with deference and to consider the evidence of record in a light most favorable to the verdict winner. Id.

Trizechahn Gateway LLC v. Titus, 930 A.2d 524, 533 (Pa. Super. 2007) rev'd in part, 976 A.2d 474 (Pa. 2009).

We turn first to Tenant's allegations regarding reduction to present value, mitigation, and reletting expenses. In order to address these claims, it is necessary to set forth in greater detail the positions taken by the parties during this lengthy matter.

Throughout these proceedings, Landlord consistently suggested to the courts that there were three possible damage amounts to which it was entitled. It is undisputed that Landlord's primary damage theory requested damages of $5, 511, 219.00, representing lost profits from the sale of the shopping center. N.T. 11/10/05 at 52, 65, 82; Landlord's Proposed Findings of Fact filed 4/5/06 at 91; Landlord's Proposed Conclusions of Law filed 4/5/06 at 40, 49-50; Landlord's Response to Tenant's Motion to Strike New Damages Figures and Calculations filed 4/27/06 at 2, fn. 1; Landlord's Post Trial Motion filed 9/18/06 at 2. The evidence in support of this theory of damages was presented through Richard Marchitelli, Landlord's expert witness. Landlord held out Mr. Marchitelli's theory of damages to be "the most comprehensive and appropriate measure of damages, " and this is the amount Landlord requested of Judge Mahon at both the trial and post trial levels. Landlord's Proposed Conclusions of Law filed 4/5/06 at 6, 40, 52; Landlord's Post Trial Motion filed 9/18/06 at 2.[8]

As an alternative to its $5, 511, 219.00 damages request, Landlord proffered a lesser figure to which it alleged entitlement under Section 20.2.2 of the "Default & Remedies" section of the parties' Lease.[9] Under this theory, Landlord asserted that Tenant's breach had deprived Landlord of the benefit of the bargain of the twenty year lease. Landlord's Proposed Conclusions of Law filed 4/5/06 at 40-41. Landlord further asserted that pursuant to Section 20.2.2, it properly mitigated its damages by securing replacement tenants, and had incurred reletting expenses in doing so. Id. at 41.

Landlord thus requested at trial that Judge Mahon award Section 20.2.2 damages calculated by:

taking nine (9) months of rent [Tenant] would have already paid ($531, 534)[10]adding the present value of the remainder of [Tenant's] Lease ($6, 616, 978), subtracting the present value of the Michael's lease ($1, 270.409), subtracting the present value of the PetsMart lease ($1, 667, 382) and finally, adding in the reletting expenses ($536, 629), resulting in a total damages figure of $4, 746, 850.

Id. at 42 (underline in original).

In suggesting Section 20.2.2 damages of $4, 746, 850.00, Landlord insisted that despite its best efforts, the replacement tenants only signed ten year leases, and Landlord could not assume they would renew at the end of the ten year period. Landlord's Proposed Conclusions of Law filed 4/5/06 at 42. Thus, the $4, 746, 850.00 figure did not include mitigation for the second ten year term of Tenant's twenty year lease period.

Although disputing that it had an ongoing duty to mitigate during the second ten year period, Landlord proposed a second Section 20.2.2 damage figure in response to testimony from Tenant's expert witness, whereby Landlord suggested that if it was determined that mitigation was required for the second ten year period, damages should be calculated as follows:

adding the nine (9) months of [Tenant's] rent, $531, 534, with the present value of [Tenant's] Lease ($6, 616, 978), subtracting the present value of the PetsMart ($2, 193, 068) and Michael's ($1, 639, 387) leases – both of which assume a fifty percent (50%) renewal for the remaining term of [Tenant's] Lease, and adding in construction costs ($536, 629) for a total of $3, 852, 186.

Id. at 44 (underline in original).

It is thus apparent that Landlord conceded that any Section 20.2.2 damages awarded to it would be reduced to present value.[11] This position is consistent with an exchange that occurred during the presentation of the testimony of Marc Newman in support of Section 20.2.2 damages.

In rebutting the damages calculations made by Mr. Marchitelli and Mr. Newman, Tenant had introduced the testimony and report of Michael Axler. Pertinent to the appeal currently before us, Mr. Axler opined that because Landlord had an ongoing obligation to mitigate after the expiration of the replacement tenants' ten year leases, Mr. Newman erroneously failed to account for rent due during the second ten years of the twenty year term of Tenant's lease. N.T. 1/19/05 at 63. Additionally, Mr. Axler suggested that the damage calculations performed by Mr. Newman should be reduced to present value, resulting in damages of $2, 947, 698.00 (Tenant's rent over 20 years, minus rent from replacement tenants over 20 years, plus construction costs). Id. at 68-69. Exhibit D-100 (Mr. Axler's "Response to Newman Alternate Damages Claim" (in which Mr. Axler used a rate of 9%)). When Tenant sought to introduce Exhibit D-100, Landlord objected and the following discussion over the propriety of reducing the damages to present value occurred:

[Landlord]: My objection is to any testimony or any of these calculations regarding the first ten years of [Tenant's] lease, the PetsMart lease, and the ...

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