Gamesa Energy USA v. Ten Penn Center ( 2018 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
GAMESA ENERGY USA, LLC AND : IN THE SUPERIOR COURT OF
GAMESA TECHNOLOGY : PENNSYLVANIA
CORPORATION INC. :
:
:
v. :
:
:
TEN PENN CENTER ASSOCIATES, : No. 1635 EDA 2016
L.P. AND SAP V TEN PENN CENTER :
NF G.P. L.L.C. :
:
Appellant :
Appeal from the Judgment Entered May 20, 2016
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): March Term, 2013 No. 03678
BEFORE: PANELLA, J., LAZARUS, J., and STEVENS*, P.J.E.
MEMORANDUM BY PANELLA, J. FILED FEBRUARY 06, 2018
This appeal involves a commercial landlord/tenant dispute. Appellants,
Ten Penn Center Associates, L.P. and SAP V Ten Penn Center NF G.P. L.L.C
(collectively, “TenPC”), appeal from the judgment entered in favor of Appellee,
Gamesa Energy USA, LLC and Gamesa Technology Corporation, Inc.
(“Gamesa”), by the Philadelphia Court of Common Pleas following a nonjury
trial. We affirm in part and reverse in part.
In 2008, Gamesa signed a contract (the “Lease”) with TenPC to lease
approximately 35,000 square feet of office space in TenPC’s building, located
at 1801 Market Street, Philadelphia (the “Premises”). The Lease, which was
scheduled to run until September 1, 2018, provided Gamesa with a credit,
named the tenant improvement allowance, for Gamesa to use to construct the
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* Former Justice specially assigned to the Superior Court.
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office space to its specifications. The Lease also permitted Gamesa to enter
into subleases for portions of the premises, provided Gamesa received TenPC’s
prior approval.
In May 2011, TenPC approved Gamesa’s request to sublet
approximately 15,000 square feet of office space to Viridity Energy, Inc.
Gamesa’s sublease with Viridity was scheduled to run until August 30, 2018.
TenPC permitted Gamesa to use a portion of its tenant improvement allowance
to outfit the office space for Viridity’s needs.
Subsequently, after giving one month’s notice to TenPC, Gamesa
vacated the Premises in May 2012. Viridity remained at the Premises under
the terms of its sublease with Gamesa. Additionally, while Gamesa submitted
its June rent payment late, neither party disputed the fact that Gamesa
continued to make rent payments after it vacated the Premises.
On June 12, 2012, Gamesa submitted a request for TenPC’s consent to
sublet a portion of its remaining office space to Business Services
International, LLC (“BSI”). TenPC’s initial response to this request was to
inform Gamesa that its action in defaulting on the terms of the Lease, by
vacating the Premises and making a late rent payment, absolved TenPC of the
responsibility of entertaining any requests for subleases; however, TenPC
requested additional information concerning BSI’s financials from Gamesa to
evaluate the sublease request under the terms of the Lease.
Gamesa responded to TenPC’s letter on July 5, 2012, denying the
alleged default, once again requesting the approval of the BSI sublease, and
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providing TenPC with the requested information about BSI. In response,
TenPC reiterated its belief that it was not required to entertain the proposed
sublease, and proposed Gamesa waive its right to use its remaining tenant
improvement allowance in exchange for TenPC’s approval of the sublease.
Following this correspondence, negotiations between the parties stalled.
On March 23, 2013, Gamesa filed a complaint against TenPC, asserting
claims including breach of contract, unlawful interference in business
relations, and unjust enrichment. Gamesa alleged TenPC breached the Lease
by failing to accept or reject the proposed sublease with BSI within 30 days,
pursuant to the terms of the lease. As a result, Gamesa alleged that TenPC
had materially breached the terms of the Lease and asked for damages arising
from the breach, as well as a declaration that the Lease had been terminated
as of the date TenPC failed to accept or reject the sublease. Further, through
its claim for unjust enrichment, Gamesa requested the return of the rent paid
following the alleged material breach. TenPC denied these allegations in its
response.
The matter proceeded to a nonjury trial. Only two witnesses were called:
Jamie Rodriguez, Gamesa’s general services manager, and Daniel Busch, a
managing member of one of TenPC’s limited partners. Rodriguez testified the
sublease with BSI was never consummated due to TenPC’s actions in delaying
its approval or denial of the proposed BSI sublease. Rodriguez also confirmed
Gamesa was continuing to pay rent under the Lease, had used its remaining
tenant improvement allowance to improve space within the building, and, at
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the time of trial, was looking for a subtenant with TenPC’s approval. And he
confirmed Viridity continued to pay Gamesa rent under the terms of the
sublease from the time it vacate the Premises until the time of trial.
Busch established the course of action TenPC took, as described above,
and reiterated that Gamesa was in default in the summer of 2012 after
vacating the premises. Busch also claimed TenPC’s reluctance in approving
the proposed sublease with BSI stemmed partially from TenPC’s belief that
BSI did not appear to be a financially stable company. Therefore, he did not
believe TenPC’s action in conditioning approval of the sublease upon Gamesa’s
waiver of the remaining tenant improvement allowance was unreasonable.
Ultimately, the trial court ruled in favor of Gamesa. The court found Ten
PC had materially breached the lease by advising Gamesa it was in default
and by failing to approve or reject the proposed BSI sublease within 30 days
of its presentation. Because of this breach, the court awarded Gamesa
damages equal to the amount it would have received under the three-year
BSI sublease. And the court found TenPC’s material breach was sufficient to
terminate the lease as of July 22, 2012. As a result, the court found TenPC
was unjustly enriched in the amount of rent Gamesa paid to TenPC from that
date through December 2015. Lastly, the trial court found that despite the
termination of the lease, Viridity’s sublease was to remain in effect until its
August 30, 2018 expiration date.
Both Gamesa and TenPC filed post-trial motions. Gamesa requested the
court mold the verdict to include pre- and post-judgment interest. In contrast,
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TenPC requested the court vacate its judgment against it. And it presented a
motion to supplement the trial record with evidence that Gamesa had
subleased space in the building after trial. The trial court granted Gamesa’s
request to mold the verdict and denied TenPC’s motions.
After the entry of judgment, this timely appeal followed. TenPC presents
seven issues for our review. See Appellant’s Brief, at 4-6.
We apply the following standard of review to a nonjury trial verdict:
Our appellate role in cases arising from nonjury trial verdicts
is to determine whether the findings of the trial court are
supported by competent evidence and whether the trial court
committed error in any application of the law. The findings of fact
of the trial judge must be given the same weight and effect on
appeal as the verdict of the jury. We consider the evidence in a
light most favorable to the verdict winner. We will reverse the trial
court only if its findings of fact are not supported by competent
evidence in the record or if its findings are premised on an error
of law. However, [where] the issue … concerns a question of law,
our scope of review is plenary.
The trial court’s conclusions of law on appeal originating
from a non-jury trial are not binding on an appellate court because
it is the appellate court’s duty to determine if the trial court
correctly applied the law to the facts of the case.
Allegheny Energy Supply Co., LLC v. Wolf Run Min. Co., 53 A.3d 53, 60-
61 (Pa. Super. 2012) (citation and quotation marks omitted; brackets and
ellipses in original). The trial court, as the finder of fact, is free to believe “all,
part or none of the evidence presented.” Ruthrauff, Inc. v. Ravin, Inc., 914
A.2d 880, 888 (Pa. Super. 2006) (citation omitted). “Issues of credibility and
conflicts in evidence are for the trial court to resolve; this Court is not
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permitted to reexamine the weight and credibility determination or substitute
our judgment for that of the fact finder.” Id. (citation and internal quotation
marks omitted).
TenPC’s first two issues center upon the trial court’s determination it
breached the terms of the lease.
“[A] lease is in the nature of a contract and is to be controlled by
principles of contract law.” Pugh v. Holmes, 405 A.2d 897, 903 (Pa. 1979).
The interpretation of any contract is a question of law and this
Court’s scope of review is plenary. Moreover, we need not defer
to the conclusions of the trial court and are free to draw our own
inferences. In interpreting a contract, the ultimate goal is to
ascertain and give effect to the intent of the parties as reasonably
manifested by the language of their written agreement. When
construing agreements involving clear and unambiguous terms,
this Court need only examine the writing itself to give effect to the
parties’ understanding. This Court must construe the contract only
as written and may not modify the plain meaning under the guise
of interpretation.
Loughman V. Equitable Gas Co., LLC, 134 A.3d 470, 474 (citation omitted).
To prove a breach of contract, a party must establish the following: “(1)
the existence of a contract, including its essential terms, (2) a breach of duty
imposed by the contract, and (3) resultant damages.” McCausland v.
Wagner, 78 A.3d 1093, 1101 (Pa. Super. 2013) (citation and internal
quotation marks omitted).
TenPC first contends the trial court misconstrued the evidence and the
terms of the Lease when it concluded TenPC breached its duties under the
Lease by incorrectly declaring Gamesa in default and conditioning its consent
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to sublet. Instead, TenPC argues Gamesa was in default under the Lease when
they requested the BSI sublease.
The analysis of the trial court and the arguments of the parties in general
center on the default and subletting provisions in the Lease. The first provision
at issue is provision 22, the default provision. Under this provision, “[i]t shall
be an ‘Event of Default’ under th[e] Lease if … [Gamesa] vacates the
Premises….” Lease, ¶ 22.
The trial court concluded Gamesa had not defaulted under this section
of the Lease because it did not show an intent to abandon the premises.
Whether Gamesa abandoned the Premises is not at issue. The Lease did not
use the term “abandon.” It used “vacate.” The trial court was required to
interpret the contract the parties expressly adopted, not something of its own
design. We therefore conclude the trial court’s analysis was incorrect.
And by using the correct term “vacate,” it is clear that the trial court
erred as a matter of law in finding breach on this basis. The Lease clearly
specified Gamesa would be in default if it vacated the Premises. Gamesa
vacated the Premises when it moved from the bulding in May of 2012. As
such, TenPC’s correctly asserted Gamesa defaulted under the terms of the
Lease. While TenPC was entitled to pursue legal remedies as a result of this
breach, it acknowledged at trial that it chose not to terminate the lease or
pursue damages, and therefore waived these remedies.
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Turning to the trial court’s next finding of breach, that TenPC
unreasonably withheld consent to sublet, we look to the Lease’s sublease
provisions. In relation to its conditional offer, TenPC claims the offer
constituted a rejection of Gamesa’s request within the required 30-day time
period. Additionally, TenPC justifies its conditional offer based on BSI’s poor
financials.
Pursuant to the terms of the Lease, Gamesa was not permitted to sublet
portions of the Premises to another party “without [TenPC’s] prior written
approval, which approval shall not be unreasonably withheld, conditioned or
delayed.” Lease, ¶ 20.1. And after Gamesa submitted a written request,
including “the name, address, and description of the proposed … subtenant,
its most recent financial statement and other evidence of financial
responsibility,” to TenPC’s for its review, TenPC was required to approve or
deny the request within 30 days. See Lease, ¶ 20.2.
Here, the trial court found TenPC breached its duties under both
provisions 20.1 and 20.2 of the Lease. The court found TenPC breached
provision 20.2 by failing to accept or reject Gamesa’s sublease request with
BSI by July 22, 2012—30 days after the request was initially made.1 However,
TenPC argues, and we agree, that under the terms of the Lease, the 30-day
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1 The trial court’s calculations appear to be inaccurate. Gamesa’s first request
to TenPC for approval of its BSI sublease was made on June 12, 2012. Using
this date, the 30-day time period for approval would be July 12, 2012.
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time period does not begin to run until Gamesa supplied TenPC with all of the
information required by provision 20.2. The evidence adduced at trial, and not
disputed by Gamesa, shows Gamesa did not include the most recent financials
for BSI, a necessary document under provision 20.2, until its July 5, 2012
letter and renewed request for the BSI sublease. Therefore, under the 30-day
deadline in provision 20.2, TenPC was required to approve or deny this request
by August 4, 2012.
Despite the trial court’s finding otherwise, it is evident TenPC denied this
request on July 13, 2012, when it proposed that Gamesa waived its remaining
tenant improvement allowance in exchange for approval of the proposed
sublease. This proposal clearly constituted a counter-offer. A counter-offer
extinguishes the original offer and places a new offer on the table for the
parties to review. See, e.g., Yarnall v. Almy, 703 A.2d 535, 539 (Pa. Super.
1997). Thus, TenPC rejected Gamesa’s sublease request through its counter-
offer on July 13, 2012, within the 30-day period provided under the Lease.
Therefore, the trial court committed an error of law when it found that TenPC
failed to accept or reject the sublease within 30 days.
However, we find no error in the trial court’s conclusion that TenPC
unreasonably conditioned its approval of the BSI sublease, and therefore
breached one of its duties under the Lease. While TenPC claims it reasonably
conditioned its sublease approval based upon Gamesa’s default under the
Lease and BSI’s poor financials, the trial court found otherwise. Specifically,
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the trial court found that Gamesa’s request was a “good faith and reasonable
sublease application.” Findings of Fact and Conclusions of Law, 2/23/12, at 5-
6 ¶ 21. The trial court clearly did not believe the evidence presented by TenPC
at trial that TenPC’s decision to deny the sublease application was based upon
Gamesa’s default and BSI’s poor financials. As an appellate court, we will not
challenge a trial court’s credibility determinations. Thus, we find no error in
the trial court’s determination that TenPC unreasonably conditioned its
sublease approval.
TenPC bases its next argument concerning the trial court’s error in
finding a breach of contract on Gamesa’s alleged inability to prove damages.
Specifically, TenPC alleges Gamesa cannot prove damages based on an
unexecuted sublease, and cannot rely on the inadmissible testimony of
Gamesa’s representative that BSI “moved on” due to Gamesa’s inability to
obtain approval from TenPC.
In relation to the damages prong of a breach of contract analysis, our
Supreme Court has provided that
[w]here one party to a contract, without any legal justification,
breaches the contract, the other party is entitled to recover,
unless the contract provided otherwise, whatever damages he
suffered, provided (1) they were such as would naturally and
ordinarily result from the breach, or (2) they were reasonably
foreseeable and within the contemplation of the parties at the time
they made the contract, and (3) they can be proved with
reasonable certainty.
Ferrer v. Trustees of the Univ. of Pennsylvania, 825 A.2d 591, 610 (Pa.
2002) (quotation marks and citation omitted). A damage award should “place
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the non-breaching party as nearly as possible in the same position [it] would
have occupied has there been no breach.” Helpin v. Trustees of the Univ.
of Pennsylvania, 10 A.3d 267, 270 (Pa. 2010) (citation and internal
quotations omitted; brackets in original).
Despite TenPC’s claims the only evidence of damages Gamesa adduced
was an unexecuted sublease, Gamesa provided the terms of its BSI sublease
to the court. Rodriguez testified BSI had agreed to a term of three years with
a total rent of $265,460. This information was also contained within Gamesa’s
July 5, 2012 letter to TenPC. And Rodriguez testified the sublease remained
unexecuted as Gamesa never received consent from TenPC for the sublease
with BSI.
While TenPC claims the court relied on inadmissible hearsay from
Rodriguez that BSI “moved on” when it could not get sublease approval from
TenPC, the court found this statement was offered to explain a course of
conduct, and thus did not constitute hearsay. We find no error with this
evidentiary ruling. See Commonwealth v. Tselepis, 181 A.2d 710, 712
(1962) (finding a statement is properly qualified as an explanation of a course
of conduct if it is “evidence as to the reason action is taken[]”).
Based upon this evidence of record, the trial court found TenPC’s breach
resulted in reasonably certain damages of $265,460, or the amount due under
the BSI sublease. We find no error in this finding, as the evidence presented
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was legally sufficient. So, TenPC’s claim that the trial court’s finding of
damages was unsupported by the record, fails.
Next, TenPC challenges the trial court’s decision to terminate the lease
following its finding of a material breach. TenPC argues Gamesa elected its
remedy by continuing under the terms of the Lease. As such, Gamesa should
not be allowed to benefit from retroactive termination of the Lease. We agree.
The doctrine of election of remedies denotes “the act of choosing
between two or more different and coexisting modes of procedure and relief
allowed by the law on the same state of facts.” Wedgewood Diner, Inc. v.
Good, 534 A.2d 537, 538 (Pa. Super. 1987) (citation omitted). Once a party
has unequivocally chosen “one of two or more inconsistent remedial rights,”
the application of the doctrine precludes them from benefitting from the
others. Id. (citation omitted). And,
[i]n a breach of contract suit, the plaintiff either may rescind the
contract and seek restitution or enforce the contract and recover
damages based on expectation. In such a case, the inconsistent
nature of those actions is obvious—one cannot attempt to
terminate his contractual obligations and, at the same time, seek
to enforce the contract and enjoy its full benefits in an action for
breach.
McCausland v. Wagner, 78 A.3d 1093, 1102 (Pa. Super. 2013) (citations
omitted; emphasis in original).
Here, Gamesa elected its remedy by continuing under the terms of the
Lease. Following the breach, Gamesa continued to pay rent to TenPC and
received rent from Viridity for the sublease. Both parties agreed at trial that
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Gamesa requested, and received, the use of the remaining tenant
improvement allowance to build out its leased space in the Premises. Further,
Gamesa’s representative testified that it was searching for tenants to sublease
its space in the Premises as recently as the time of trial. Despite Gamesa’s
contentions that TenPC’c actions in the summer of 2012 justified the rescission
of the Lease, all of the evidence points to its continued benefit from the terms
of the Lease following summer 2012.
Based upon these actions, the remedy Gamesa had chosen for trial was
to enforce the contract and recover based on expectation, i.e., recover the
expected rent from the BSI sublease. Thus, the trial court’s actions in
retroactively terminating the contract and awarding Gamesa damages based
upon a theory of unjust enrichment was clearly in error.
Judgment affirmed in part and reversed in part.2
Judge Lazarus joins the memorandum.
President Judge Emeritus Stevens files a concurring statement.
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2 Given our resolution, we need not address the remainder of Appellant’s
issues on appeal.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 2/6/18
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