The Hon. Jeffery A. Deller, Chief U.S. Bankruptcy Judge.
The question presented to the Court, in the context of a Motion for Judgment on the Pleadings filed by the plaintiff, is
Given this disposition, and given the nature of notice pleading under the Federal Rules, it is also appropriate for the Court to enter an order which denies a dueling Motion for Judgment on the Pleadings filed by the defendant. It is also appropriate for the Court to stay the prosecution of the remaining counts of the plaintiff's Complaint because the plaintiff is entitled to only one recovery against the defendant.
While this case is quite contested, the facts (as admitted in the pleadings and as contained in the undisputed record) are not complicated.
The plaintiff is the Trustees of Conneaut Lake Park, Inc. (referred interchangeably herein as the "plaintiff" or "TCLP").
The defendant is an entity known as Park Restoration, LLC (referred interchangeably herein as the "defendant" of "Park Restoration"). On or about November 24, 2008, TCLP and Park Restoration entered into a Beach Club Management Agreement, pursuant to which the defendant agreed to provide operational and management services with respect to the Beach Club.
The Beach Club Management Agreement contained various terms and conditions, including provisions whereby for a term of twenty years the defendant agreed to undertake "physical control and security, all maintenance at the facility, ... insuring that the property is fully secured and maintained in a commercially reasonable manner ..."
The Beach Club Management Agreement also provided that the defendant agreed to hold the plaintiff "harmless and fully indemnify the [plaintiff] from any loss, cost or damage with respect to any... damage claimed to ... property ... as a result of [defendant's] use, misuse, occupancy, procession [sic], or abandonment of the Beach Club."
From the inception of the Beach Club Management Agreement through August 1, 2013, the defendant occupied, used and possessed the Beach Club.
After the Beach Club was destroyed by the fire, a dispute arose with respect to the right to insurance proceeds payable by Erie Insurance on account of the calamity. By way of background, TCLP did not insure the Beach Club. Rather, Park Restoration insured the Beach Club building for $611,000.
Ultimately, after the insurance proceeds were deposited into the Court's registry, this Court determined that the defendant had an insurable interest in the Beach Club and that, but for the claims of the tax creditors, all of the insurance proceeds would be payable to the defendant. The Court also determined that the plaintiff was neither an insured nor loss payee under the policy and that the plaintiff was entitled to none of the proceeds.
An appeal was taken by Park Restoration and this Court's determination that the tax creditors were entitled to some of the insurance proceeds was reversed by the District Court. Thus, all of the insurance proceeds are payable to Park Restoration on account of the fire at the Beach Club. A further appeal was taken by the tax creditors to the Third Circuit Court of Appeals, which remains pending.
In any event, this Court determined that TCLP had no direct claim to any of the insurance proceeds payable to Park Restoration on account of the building destroyed by fire. Undaunted by this result, TCLP filed this adversary proceeding on June 13, 2016.
On June 20, 2016 the plaintiff also sought in this adversary proceeding a preliminary injunction enjoining the payment of any insurance proceeds to Park Restoration. In essence, TCLP sought a prejudgment attachment of all insurance proceeds payable to Park Restoration.
Finding that the prejudgment injunction (or attachment) sought by TCLP exceeded this Court's jurisdiction, this Court denied
The current status of the proceeds of insurance is that $132,948.17 has been released to Park Restoration and the remaining balance remains on hand with the Clerk pending the outcome of the appeal lodged by the tax creditors.
As to the instant adversary proceeding, the Complaint alleges, among other things, that the Beach Club Management Agreement was terminated as a result of the cessation of operations occasioned by the fire (for after all the Beach Club ceased to exist).
Indeed, under the Beach Club Management Agreement, Park Restoration was to insure "that the Beach Club is a fully operational and full service club;" but, again, after August 1, 2013 the Beach Club was not operational.
By letter dated March 15, 2015, TCLP advised Park Restoration of the termination of the underlying agreement, and advised Park Restoration that TCLP reserved all rights and remedies that TCLP may have against Park Restoration.
The Complaint also alleges that upon the termination of the agreement, the defendant failed to "ensure" that the Beach Club was left in "broom clean condition without any damage to any equipment or property."
Within each cause of action, TCLP contends that it has been harmed as a result of the destruction of the Beach Club (which the plaintiff alleges is valued of "no less than $611,000").
After the pleadings closed, TCLP moved for judgment on the pleadings as to Count I of its Complaint.
Count I of the Complaint is a cause of action for breach of contract. In its Motion for Judgment on the Pleadings, the plaintiff contends that the admissions contained in the pleadings establish that, upon termination of the Beach Club Management Agreement, Park Restoration had a duty to vacate the Breach Club and return it to the plaintiff in a "broom clean" condition "without damage" for any reason.
The Motion for Judgment on the Pleadings further avers that, due to the fire, the defendant failed to return the property in
The plaintiff further contends that Park Restoration admitted in the insurance litigation that the value of the Beach Club building is at least $611,000. Given this value, the plaintiff contends that $611,000 is the amount of damages it has suffered as a result of Park Restoration's failure to return the Beach Club to TCLP "without any damage."
Park Restoration opposes TCLP's Motion for Judgment on the Pleadings by asserting two primary defenses to the plaintiff's claims.
One, Park Restoration contended at oral argument that termination of the agreement effectively terminated any executory obligation the defendant had to return the premises to the plaintiff in a "broom clean" condition that is "without any damage."
Two, even if Park Restoration's obligation to return the premises in a "broom clean" condition "without any damage" survived the termination of the Beach Club Management Agreement, Park Restoration contends that its obligation to perform should be excused under the doctrine of impossibility. In this regard, the defendant contends that the existence of the Beach Club's premises was necessary to the defendant carrying out the purpose of the Beach Club Management Agreement. According to Park Restoration, once the Beach Club was destroyed by fire, it was simply impossible for Park Restoration to return the building "broom clean" and "without damage to any equipment or property."
In light of these defenses, Park Restoration also filed its own Motion for Judgment on the Pleadings seeking to have Count I of the plaintiff's Complaint dismissed.
Park Restoration's Motion for Judgment on the Pleadings also asserted additional defenses and sought dismissal of Counts II and III of the Complaint.
As to Count II of the Complaint, it is a cause of action for breach of contract and seeks damages as a result of Park Restoration's alleged failure to secure the Beach Club in a "commercially reasonable manner." In its Motion for Judgment on the Pleadings, Park Restoration contends that Count II should be dismissed because the Complaint is devoid of any facts supporting a claim that Park Restoration did not operate the Beach Club in a commercially reasonable manner.
Count III of the Complaint is a cause of action sounding in indemnity. The defendant's Motion for Judgment on the Pleadings argues that this count should be dismissed because the Beach Club Management Agreement's terms do not "clearly" and "expressly" provide that Park Restoration should bear the entire loss of the Beach Club in the event of the building's destruction. Moreover, even if the contract provided as much, Park Restoration contends that any indemnification obligation it had under the contract is void by operation of the doctrine of impossibility.
Suffice it to say, TCLP disputes the contentions of Park Restoration's Motion for Judgment on the Pleadings. After having afforded the parties the opportunity to file briefs and supplemental briefs in support of their respective positions, this matter is now ripe for determination.
Fed.R.Civ.P.12(c), as incorporated by reference in Fed.R.Bankr.P. 7012, permits
Fed.R.Civ.P. 12(b)(6) provides that complaints may be dismissed for "failure to state a claim on which relief can be granted."
In deciding such a motion, the Court "may consider material which is properly submitted as part of the complaint ... without converting the motion to dismiss into a motion for summary judgment."
The Court may also consider: documents the complaint incorporates by reference or are otherwise integral to the claim (
In order "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim for relief that is plausible on its face.'"
"A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
Determining whether a claim for relief is plausible is a "context-specific task" requiring the court to "draw on its judicial experience and common sense."
Additionally, the court need not accept as true bald assertions (or bald conclusions or inferences), legal conclusions couched or masquerading as facts, or conclusions contradicted by the complaint's own exhibits or other documents of which the court may take proper notice.
In examining the dueling Motions for Judgment on the Pleadings, it appears
Given these admissions in the pleadings, the ultimate question before the Court is whether a judgment as a matter of law should be entered in favor of TCLP and against Park Restoration or vice versa? The answer to this question rests upon the resolution of the following four legal issues: One, does the Beach Club Management Agreement impose liability upon the defendant for failure to return the Beach Club to TCLP without damage? Two, if the contract imposes such liability upon the defendant, does the termination of the agreement vitiate the duty of the defendant to compensate the plaintiff for damages to the premises? Three, if the duty owed by the defendant survived termination of the contract, is the duty to perform excused by the doctrine of impossibility of performance? Four, do all or some of the causes of action asserted by the plaintiff fail due to the fact that TCLP has not alleged enough facts to support a claim based on an any alleged failure of Park Restoration to maintain the Beach Club in a commercially reasonable manner?
Count I of the plaintiff's Complaint is a breach of contract action based upon Park Restoration's alleged failure to honor Section 6(c) of the Beach Club Management Agreement, which states: "In the Event of termination for any reason, Park Restoration warrants and represents that it will vacate the premises ensuring that it is in broom clean condition without any damage to any equipment or property."
Park Restoration suggests that the plaintiff's complaint does not state a claim for relief and should be dismissed. Conversely, TCLP suggests that it has stated a claim and that Park Restoration offers no viable defense to it.
As to whether Count I of the Complaint states a claim, the law of Pennsylvania provides that a plaintiff asserting a cause of action for breach of contract must demonstrate three elements to prove its case. These elements are: (1) that there was a contract upon which the defendant owed to duty to the plaintiff; (2) that the defendant breached its contractual duty; and (3) that the plaintiff suffered damages from the breach.
In the instant case before the Court, the admissions contained in the pleadings reflect that, absent one of the defenses analyzed below, TCLP has established a prima facie case for breach of contract against Park Restoration.
In the Complaint and Answer at paragraph 7 the parties admit that the plaintiff owned the Beach Club. At paragraph 8 of both the Complaint and Answer, the parties acknowledge entering into the Beach Club Management Agreement. At paragraphs 18 and 19 of the Complaint and Answer the parties acknowledge that the Beach Club Management Agreement was terminated. And, the parties do not dispute the fact that the agreement expressly provides that upon termination of the agreement Park Restoration was duty bound to "vacate the premises ensuring that it is in broom clean condition without any damage to any equipment or property." Further, the parties admit in paragraph 17 of both
Given this state of the record, the admissions identified above warrant judgment on the pleadings in favor of TCLP and against Park Restoration as to liability for the breach of contract claim set forth in Count I of the Complaint. However, before the Court may enter such judgment it analyzes below the various defenses asserted by Park Restoration.
Park Restoration argues that since it is conceded by the parties that the Beach Club has been terminated, Park Restoration had no executory duty to return the premises to TCLP in a condition that is "broom clean without any damage to any equipment or property."
Absent the applicability of the defense of impossibility of performance, which is discussed more fully below, it appears that Park Restoration's argument is without merit. The Court reaches this conclusion because Park Restoration's argument is contrary to the provisions explicitly contained in the Beach Club Management Agreement.
The fundamental rule in contract interpretation is for the Court to "ascertain the intent of the contracting parties."
Sub judice, the contractual provision at issue is remarkably simple. Section 6(c) of the Beach Club Management Agreement states that "[i]n the Event of termination for any reason, Park Restoration warrants and represents that it will vacate the premises ensuring that it is in broom clean condition without any damage to any equipment or property."
The operative phrase in this section of the agreement is "in the Event of termination."
In fact, Park Restoration's construction is demonstrably at odds with the plain language of the contract which, in no uncertain terms, triggers Park Restoration's duty to "vacate the premises ensuring that it is in broom clean condition without any damage" upon the occurrence of an "Event of termination." Clearly, the obligations imposed upon Park Restoration in this section of the contract survives termination.
This Court's conclusion is consistent with case law in the landlord-tenant context which construes a tenant's obligation to restore premises "at the end of the lease" to mean after the expiration of the term.
For these reasons, the Court finds Park Restoration's "termination" argument to be unavailing and not persuasive.
The plain language of the Beach Club Management Agreement required Park Restoration to return the Beach Club to TCLP in a condition that was "without any damage to any equipment or property." In response to this plain language, Park Restoration contends that the contract does not mean what it plainly states.
A fair reading of Park Restoration's brief is that the defendant suggests that the preceding language merely obligated the defendant to perform ordinary repairs and maintenance to the Beach Club and did not require Park Restoration to return the Beach Club to TCLP in a condition that was free from damage. Unfortunately for Park Restoration, this is not what the Beach Club Management Agreement provides.
What the agreement states is that Park Restoration will, upon an event of termination, vacate the premises in a broom clean condition "without
Because Park Restoration expressly warranted a particular result, Park Restoration was required to strictly comply with it. Absent such strict compliance, Park Restoration is liable for all damages occasioned by its breach. As noted by the Third Circuit Court of Appeals, "[i]n a typical warranty, the warrantor agrees to fulfill a promise, and any failure to comply with the promise would represent a breach of the contract."
Given the plain and unambiguous language of the Beach Club Management Agreement, this Court is generally powerless to re-write it. As Chief Circuit Judge D. Brooks Smith observed when he was a district court judge: "In the overwhelming majority of circumstances, contractual promises are to be performed, not avoided."
The latin phrase pacta sunt servada is operative. It means "agreements must be kept." In common parlance, it means either "a promise is a promise" or, according to Chief Circuit Judge Smith, "a deal is a deal."
In the instant case, Park Restoration contends that its obligation to perform is excused by the doctrine of "impossibility of performance." However, the Court finds that Park Restoration cannot hide behind this defense.
The "impossibility of performance" doctrine is a form of judicial "gap filling" when a contract between the parties fails to allocate risks occasioned by unforeseen events. Because of the unexpected nature of these events:
The doctrine of impossibility of performance has its origins at common-law, and has been adopted in one form or another in the various RESTATEMENT OF CONTRACTS.
At common law, the first general formulation of the doctrine was announced in the landmark English case of
In the United States, courts applying the common law doctrine of impossibility have focused on a number of factors to determine whether, and the extent to which, risk should be allocated between contracting parties. One such factor is whether the agreement between the parties contemplates a risk allocation.
For example, in
The outcome of
Section 261 of the RESTATEMENT (SECOND) OF CONTRACTS describes the workings of the doctrine of impossibility or impractibility.
Comment a. to this section provides helpful guidance, where it states:
Similarly, at Comment c. to Section 261, the drafters of the RESTATEMENT (SECOND) OF CONTRACTS acknowledged:
What can be gleaned from these provisions of the RESTATEMENT is that if the facts and circumstances of the case provide for an agreed upon allocation of risk, that allocation generally will not be disturbed under the doctrine of impossibility of performance.
Under the agreement, TCLP abdicated full control of the premises over to Park Restoration who explicitly agreed to make sure that the "property is fully secured and maintained in a commercially reasonable fashion"
In addition, TCLP agreed to hold the plaintiff "harmless and fully indemnify the [plaintiff] from any loss, cost or damage with respect to any ... damage claimed to... property ... as a result of [defendant's] use, misuse, occupancy, procession [sic],[
Moreover, the plain language of the agreement provides that the duties imposed upon Park Restoration under the Beach Club Management Agreement were far more expansive than ordinary "maintenance." In fact, as described elsewhere in this Memorandum Opinion, Park Restoration warranted and represented that the premises would be returned to TCLP "without any damage to any equipment or property."
The fact that the parties' agreement allocated the risk of damage to Park Restoration is further supported by the parties' course of conduct. That course of conduct, which is admitted by the parties, is that Park Restoration insured both the Beach Club building and its contents against loss occasioned by the fire, and TCLP did not.
That the agreement to allocate risk negates the applicability of the doctrine of impossibility is supported by various cases discussing the doctrine. For example, one court out of Massachusetts explains the doctrine of impossibility as follows:
Similarly, in the case of
With the holding in
Park Restoration cannot at this late hour avoid it because the law provides: "Promisors are free to assume risks, even huge ones, and promisees are entitled to rely on those voluntary assumptions."
This conclusion is neither unfair, nor is it unconscionable for it is precisely what the parties bargained. Had the defendant desired a different result, it could have negotiated a force majeure clause excusing its performance. Having not done so, the Court will not write a force majeure clause into the contract.
In addition, while Park Restoration does not have the capacity to tender the Beach Club to the plaintiff free from damage, Park Restoration does have the capacity to tender insurance proceeds to TCLP (which were paid by the insurance carrier on account of the Beach Club that was destroyed by fire).
That Park Restoration insured the premises against the loss at issue further supports the plaintiff's claim that, while not desirable, the calamity was in the range of possible foreseeable contingencies that could arise during the lengthy term of the agreement thereby precluding the defense of impossibility.
The Court also notes that the outcome of this matter is consistent with the "obligation of a tenant to return the leasehold property in the condition in which it was received, reasonable wear and tear excepted."
For all of these reasons, the Court finds that Park Restoration's defense of impossibility is not persuasive and is without merit.
With respect to Count II of the Complaint, the plaintiff has asserted a breach of contract action against Park Restoration for failure to maintain the Beach Club in a commercially reasonable fashion. Count III of the Complaint asserts a cause of action for breach of indemnity. Park Restoration seeks judgment on the pleadings dismissing these two counts of the Complaint, citing the doctrine of impossibility and that fact that the Complaint lacks alleged specificity regarding Park Restoration's failure maintain the property.
As to the defense of impossibility, this Court has found Park Restoration's defense of impossibility to be without merit. As such, Park Restoration's Motion for Judgment on the Pleadings in this regard will be denied.
As to the defense citing the lack of specificity in Counts II and III of the plaintiff's Complaint, Park Restoration's motion is also untimely. The Court reaches this conclusion because Fed.R.Civ.P. 12(e), as incorporated into Fed.R.Bankr.P. 7012, requires that a motion for a more definite statement be filed "before filing a responsive pleading." Park Restoration has already filed its Answer, and cannot now complain that the Complaint lacks specificity.
The Court would also note that motion practice is not a substitute for discovery. As to the adequacy of pleadings, the Federal Rules of Civil Procedure require only that a pleader serve a short and plain statement showing an entitlement to relief.
TCLP has alleged breach of contract claims and indemnity claims against Park Restoration arising out of, or relating to, Park Restoration's use and/or possession of the Beach Club. It has also cited in detail the relevant contractual provisions giving rise to its claims for relief.
In addition, it is beyond dispute that the Beach Club burned to the ground while it was in Park Restoration's possession and care. It is also undisputed that no accounting has been provided for the loss occasioned by the fire because the cause of the fire is "undetermined." These facts give rise to a presumption that TCLP has met its burden of production and/or proof as to any claim that Park Restoration failed to adequately maintain the Beach Club.
In addition, the extent to which evidence exists supporting (or negating) the claim against Park Restoration for failure to maintain, such evidence will come to light during discovery if, and when, it occurs. The Motion for Judgment on the Pleadings filed by Park Restoration will therefore be denied.
A litigant is entitled to only one recovery.
Inasmuch as the Court is entering judgment on the pleadings in favor of TCLP and against Park Restoration as to Count I of the Complaint, it is appropriate to (a) stay the prosecution of Counts II and III of the Complaint, and (b) proceed to the trial of damages as to Count I.
The Court is mindful that the plaintiff contends that the amount of damages it sustained is undisputed. In support of this proposition the plaintiff cites to the fact that Park Restoration admitted that the value of its "insured interest" is the policy limits of its insurance. Park Restoration, however, has contended that the value of its "insured interest" is different from the value of the Beach Club itself. No party, however, has fully briefed this distinction raised by Park Restoration.
Moreover, at prior hearings in this bankruptcy case, Park Restoration represented that it had made over $700,000 of improvements to the Beach Club before it burned to the ground.
These circumstances warrant an evidentiary hearing on the damages sustained by TCLP as a result of Park Restoration's failure to return the Beach Club to TCLP free from "any damage." A trial will therefore be scheduled on this matter.
For the reasons that are set forth above, judgment on the pleadings shall be entered in favor of the plaintiff, TCLP, and against defendant, Park Restoration, as to liability on account of the breach of contract claim found in Count I of the Complaint. By way of separate order, a trial will be scheduled to determine the amount of damages the defendant is liable to the plaintiff. The Court will also enter an order that denies the dueling Motion for Judgment on the Pleadings filed by the defendant. Notwithstanding this denial, the prosecution of Counts II and III of this adversary proceeding are stayed, pending further order of the Court, because the plaintiff is allowed only one recovery.
For the reasons that are set forth in the Memorandum Opinion issued contemporaneously herewith, judgment on the pleadings is ENTERED and GRANTED in favor of the plaintiff, the Trustees of Conneaut Lake Park, Inc., and against the defendant, Park Restoration, LLC, as to
The dueling Motion for Judgment on the Pleadings filed by the defendant Park Restoration, LLC is DENIED. Notwithstanding this denial, the prosecution of Counts II and III of this adversary proceeding are STAYED pending further order of the Court, because the plaintiff is allowed only one recovery.