Opinion
No. 1111 C.D. 2013
06-27-2014
Allegheny Valley Railroad Company, Appellant v. The Urban Redevelopment Authority of the City of Pittsburgh
BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY PRESIDENT JUDGE PELLEGRINI
Allegheny Valley Railroad Company (AVR) appeals the order of the Court of Common Pleas of Allegheny County (trial court) denying its request for permanent injunctive relief prohibiting the Urban Redevelopment Authority (Authority) of the City of Pittsburgh (City) from taking actions purportedly contrary to a restriction in the deed conveying the Pittsburgh Produce Terminal (Terminal) to the Authority by Consolidated Rail Corporation (Conrail) that the Authority would use its "best efforts" to use the property for some rail oriented use. We affirm.
The Terminal is located in the City's Strip District and was built in 1929 by the Pennsylvania Railroad in what was then a large rail yard. The Terminal is over five blocks long and located in an area that was formerly populated by warehouses and distribution centers. It was designed and built as a "cross-dock" facility intended to transit goods between railway delivery and local truck and vehicular delivery and distribution. Goods were delivered to one side of the Terminal, offloaded from the railway, sorted, packed and bundled and then loaded onto vehicular transport on the other side for distribution.
In 1980, the City sought to purchase the Terminal to provide continued rental space for the wholesale produce industry. In 1981, the Authority acquired the Terminal and the surrounding land including 6,000 feet of railroad tracks from Conrail for $1.1 million on behalf of the City. The deed contained the following provision:
THIS INSTRUMENT is executed, delivered and accepted upon the understanding and agreement:(Reproduced Record (R.R.) at 34a) (emphasis added).
(a) That [the Authority] acknowledges that the basic use of the building located on the land hereby conveyed is as a rail freight facility served directly by rail lines of [Conrail] and [the Authority] further acknowledges that its primary public purpose in acquiring said premises is to provide continued rental space for the wholesale produce industry and agrees to use its best efforts to continue it as such or some other rail oriented use.
At the time the deed was executed, the Terminal was surrounded by railroad tracks in the front and rear and was occupied by wholesale produce tenants who relied upon the direct rail service Conrail provided. In particular, tracks to the south of the Terminal on Smallman Street directly serviced the Terminal and permitted the delivery of goods directly from railcars to the Terminal's platform. In 1984, Conrail formally abandoned the Smallman Street line and ceased all direct rail service to the Terminal. However, Conrail maintained a rail line that terminated approximately 100 yards from the northeast corner of the Terminal, the Valley Industrial Track. At present, all railroad tracks in the vicinity of the Terminal have been abandoned, removed or paved over except for the Valley Industrial Track.
In 1986, the Authority obtained a $1.8 million grant from the federal Economic Development Administration (EDA) to rehabilitate the Terminal and the surrounding eight acres of land to maintain it as a wholesale produce facility. It was agreed that during the Terminal's expected useful life, it would not be used for any other purpose unless with EDA approval. Between its acquisition of the Terminal in 1981 and 1995, the Authority spent nearly $4.5 million to renovate and improve the Terminal and charged below-market rates to its tenants.
While no direct rail deliveries have been made to the Terminal for nearly three decades, Conrail continued to make indirect deliveries via the terminus of the Valley Industrial Track. The deliveries would be transported by short truck delivery from the Valley Industrial Track to the Terminal. Deliveries were consistent enough to warrant the installation of a saw-tooth dock to facilitate truck distribution from the Terminal. In 1995, AVR acquired the Valley Industrial Track from Conrail and a permanent rail easement that crosses property adjacent to the Terminal. AVR formally adopted the stations located on the Valley Industrial Track and the Terminal remains identified as a station on the line.
However, from 1991 to 2010, the delivery of goods from Valley Industrial Track, including produce, declined at an increasing rate. Likewise, the volume of produce distributed from the Terminal decreased as did the demand for produce wholesaler rental space. In 1998, all 129,500 square feet of the Terminal's platform area was occupied by wholesale produce tenants. However, in 1999, a wholesale tenant occupying 17,500 square feet chose to relocate operations to a new facility located between 21st Street and 22nd Street in the Strip District. Likewise, in 2000, another wholesale tenant that occupied 17,500 square feet at one time voluntarily terminated its lease and moved operations to the new facility. The new facility could be directly served by a rail spur operated by AVR.
In 2004, the Terminal's largest wholesale tenant, formerly occupying 35,000 square feet, filed for bankruptcy and vacated the Terminal. In addition, in the late 1990s and early 2000s, three other tenants that formerly occupied a total of 34,500 square feet filed for bankruptcy, went out of business and left the terminal. No new wholesale produce tenants occupying more than 5,000 square feet were added after 1998, and only two such tenants leased space in the Terminal after 1992. By the end of 2007, only 81,000 square feet of the Terminal was leased to produce wholesalers. In 2009, the EDA relinquished its interest in the Terminal on the basis that the Terminal's useful life had been exceeded and the Authority could no longer maintain it as a produce terminal.
In December 2010, the Authority approved a Master Lease Agreement with the Buncher Company (Buncher) wherein Buncher was granted the sole right and option to purchase the Terminal. Buncher is not a wholesale produce distributor or a rail-oriented user and it is Buncher's intention to destroy at least a part of the Terminal to make way for residential and retail building space as part of a larger Lower Strip District redevelopment project. Since December 2010, minimal efforts have been used to lease space to either produce distributors or rail-oriented users at the Terminal and existing leases were not renewed and have expired. AVR terminated its service to the Terminal after the produce wholesale tenants were displaced.
In September 2012, AVR filed a complaint alleging that the Authority violated the 1981 deed restriction to use its "best efforts" to maintain the Terminal as a rail-oriented facility by entering into the Master Lease Agreement with Buncher. AVR sought preliminary and special injunctive relief to enjoin the Authority from implementing any plans contrary to its obligations under the 1981 deed.
During a three-day hearing, AVR presented the testimony of its President and owner, Russell Peterson, and the Authority called its Executive Director, Robert Rubenstein. AVR and the Authority presented the testimony of common witnesses who were deemed to have been called by each: James Malanos, an employee with Baker Young, the real estate company that managed the Terminal for the Authority from 1992 to 2010; Kyra Straussman, the Authority's Director of Real Estate; Robert Stephany, the Authority's former Executive Director; and Michael Kutzer, the Buncher Company's Vice President of Real Estate. The testimony and evidence presented related to the past and present volume of goods delivered to the Terminal; the past and present tenants in the Terminal and the Authority's efforts to keep it occupied; the Terminal's condition, obsolescence and state of repair; and the Lower Strip District redevelopment project including its funding and revenue potential. AVR also presented Joseph Mistick, a professor at Duquense University, and the Authority presented John Murray, Jr., Duquense University's Chancellor, to testify as experts regarding the meaning of the "best efforts" provision of the 1981 deed.
The trial court accepted and adopted the Authority's Proposed Findings of Fact Numbers 34 through 71 relevant to the impossibility of the Terminal's continued use as a "rail freight facility ... wholesale produce facility ... or other rail oriented use" as required by the 1981 deed. (Trial Court 9/16/13 Opinion at 10). As a result, the following relevant facts were adopted by the court:
• while the 1981 deed transfers the Terminal to be used as "a rail freight facility directly served by [Conrail]" and it was acquired by the Authority for a "primary public purpose," there is no evidence or intent that it be annexed as an appurtenance to the land or for the benefit of subsequent owners of other separate rail assets not directly serving the Terminal;
• at the time the Authority acquired the Terminal by the 1981 deed, it was served "directly" by rail;
• in 1984, just three years after it sold the Terminal to the Authority, Conrail abandoned the Smallman Street Tracks by which it directly served the Terminal and those tracks were paved over in 1992;
• by 1993, all rail lines on the Authority's property as well as those on Buncher's adjacent property had been removed or paved over and were no longer in use;
• the viability of the Terminal as "rental space for the wholesale produce industry" has steadily declined with significant changes to the Terminal itself, the Strip District, and the produce industry;(Proposed Findings of Fact and Conclusions of Law at 29-36).
• the 1995 deed by which AVR acquired its interests in certain Conrail assets does not mention the 1981 deed or the Terminal and AVR did not acquire any rights in the Smallman Street Tracks via that deed;
• the 2008 deed purporting to "correct" the 1995 deed does not mention the 1981 deed or the Terminal, but does reference the 1983 deed between Conrail and Buncher;
• in the 17 years between AVR's acquisition of Conrail assets in 1995 and the filing of this lawsuit, AVR never exercised its alleged option to construct a grade crossing across 21st Street to provide direct rail service to the Terminal because it "was not [AVR]'s highest priority" and AVR "had other priorities for its money;"
• AVR's deliveries to Terminal tenants in 2008 through 2010 generated between $30,000.00 and $40,000.00 of AVR's approximately $10 million in annual revenues;
• AVR's own assessment of its alleged "loss" in this case is stated entirely in terms of money damages so to the extent that AVR has suffered any injury, it is uncontroverted that such injury can be compensated in money damages.
Based on the foregoing, regarding whether the Authority had violated the "best efforts" provision of the 1981 deed, the trial court stated, "While AVR points to some limited facts which might suggest that there existed some ongoing hope that, with concentrated 'best efforts' ... the [Terminal] could be operated as a rail freight facility servicing the wholesale produce industry, the significant weight of the testimony and evidence ... supports the conclusion that the [Terminal]'s ongoing viability as either a wholesale produce facility and/or a rail freight facility served directly by rail lines or otherwise had materially passed." (Trial Court 9/16/13 Opinion at 7). The trial court determined that the 1981 deed did not impose a never-ending obligation on the Authority to perpetually protect Conrail's private rail service; rather, the court found that it was an "expression by the [Authority] that its then-present intention was to continue to use its best efforts to support the local wholesale produce industry, which it recognized had historically relied on then-existing direct rail service ... [and] the language ... is an expression of [the Authority]'s commitment primarily to the wholesale produce industry...." (Id. at 8).
The trial court explained that it "specifically did not reach the question of whether AVR is or is not a successor to Conrail for purposes of the 'best efforts' provision of the 1981 deed...." (Trial Court 9/16/13 Opinion at 13).
The trial court noted that the 1981 deed did not impose an absolute duty on the Authority to maintain such uses of the Terminal and concluded, "Even if the relevant language did not incorporate the 'best efforts' language, at some point, the unavailability of rail lines connected to the [Terminal] creates a condition which renders the promise to maintain [it] as 'a rail freight facility served directly by rail lines' or 'some other rail oriented use' a practical impossibility, that relieves [the Authority] of any ongoing 'best efforts' obligation." (Trial Court 9/16/13 Opinion at 10). The court explained that because AVR's predecessor, Conrail, abandoned direct rail service to the Terminal, "No reasonable interpretation of the best efforts provision would require the [Authority] to continue to promote the [Terminal] 'rail freight facility served directly by rail lines ... wholesale produce facility ... or other rail oriented use' for the benefit of a railroad company that, itself, did not maintain rail lines to the facility." (Id. at 11). According to the court, the Terminal is a 100 year-old structure "that is in nearly every respect obsolete, outdated, and ill-equipped for a modern wholesale produce distribution center and which is, coincidentally, not directly connected to any rail line, and the suggestion that the [Authority] is required to do something more than it has attempted to do over the last 30 years in order to continue to maintain a rail oriented wholesale produce distribution center at the [Terminal] becomes patently ludicrous." (Id.).
The trial court also noted that "[n]otwithstanding AVR's contention to the contrary ... [it] does not assert that it suffers any damages that cannot be remedied through the imposition of a compensatory monetary damage award. In short, AVR contends that it will lose money because of its inability to continue a vibrant or robust business of delivering produce to the [Terminal].... In fact, AVR has already estimated the amount of these potential damages as $1,100,000.00." (Trial Court 9/16/13 Opinion at 6). Because AVR can obtain monetary relief, the trial court concluded that injunctive relief could be denied on this basis alone. (Id.).
The trial court further determined that equitable relief was not available because such relief is contrary to the public interest. Specifically, the court found:
Under the facts and circumstances as established by the record in this case, it is plainly contrary to public interest that the [Authority] be saddled with the responsibility to maintain an old, underutilized, and deteriorating building consistent with an outdated and outmoded business model predicated upon conditions which have not existed for over 30 years in an urban location potentially susceptible to enormously valuable and profitable redevelopment and reinvigoration. To do so only for purposes of protecting the pecuniary interests of a private entity that is, itself, fully
capable of seeking compensatory damages for any actually provable damages is unsupportable....(Trial Court 9/16/13 Opinion at 12-13).
[T]he [Authority] has entered into a Master Lease with an option to purchase extended to Buncher as part of a broad based lower Strip District redevelopment project including $15 million in grant money and at least that much in private investment. If enjoined from fulfilling its commitment under the Master Lease, the goals of that undertaking would be materially jeopardized.
Ultimately, the trial court issued an order denying equitable relief because, if proven, compensatory damages are an adequate available remedy; the record did not show that the Authority materially violated the "best efforts" provision of the 1981 deed; and it would be contrary to the applicable public interest considerations under the established facts. AVR then filed this appeal.
As this Court has explained:
In reviewing a grant of a permanent injunction that turns on "whether the lower court properly found that the party seeking the injunction established a clear right to relief as a matter of law," the standard of review for a question of law is de novo and the scope of review is plenary. To prevail on a claim for a permanent injunction, the plaintiff must establish a clear right to relief, that there is an urgent necessity to avoid an injury which cannot be compensated for by damages, and that greater injury will result from refusing rather than granting the relief requested. However, unlike a claim for a preliminary injunction, the plaintiff need not establish either irreparable harm or immediate relief.
AVR claims that the trial court erred in determining that the Authority did not materially violate the "best efforts" clause of the 1981 deed and in denying injunctive relief because the Authority took intentional and concerted actions to eliminate the Terminal's use as a "rail freight facility served directly by rail lines ... wholesale produce facility ... or other rail oriented use" as required by the deed. AVR argues that the conditions have not changed thereby relieving the Authority of this duty; that the injury flowing from the violation of this duty cannot be compensated by damages due to the unique nature of the facility; and that the greater injury will result in refusing the injunction because this station serves as the anchor for the remaining customers served by Valley Industrial Track. We do not agree.
As noted above, the trial court found that injunctive relief was unavailable in this case because: (1) compensatory damages, if proven, constitute an adequate available remedy; (2) the "best efforts" provision of the 1981 deed was not materially violated; and (3) an injunction would be contrary to the public interest. It was demonstrated that AVR's deliveries to Terminal tenants in 2008, 2009 and 2010 generated between $30,000.00 and $40,000.00 of its approximately $10 million in total revenues, and that its replacement loss for the loss of use of the Terminal totaled $1,100,000.00. (See R.R. at 254a-256a; Defendant's Exhibit 17 at 3 n.2; Defendant's Exhibit 21 at 2). This shows that AVR's loss, if proven, is quantifiable in damages. While the trial court rejected AVR's evidence that the loss of the Terminal cannot be compensated by damages, its finding that AVR's losses are compensable as monetary damages is supported by competent evidence and supports the denial of a permanent injunction on this basis alone. See generally Meehan v. Cheltenham Township, 189 A.2d 593, 595 (Pa. 1963) (holding that an adequate remedy at law existed so as to divest equity of jurisdiction of action for alleged unjust enrichment since law courts can provide remedy of money damages).
This Court is bound by the trial court's findings of fact unless they are not based upon competent record evidence. Bold Corporation v. County of Lancaster, 801 A.2d 469, 477 (Pa. 2002). Likewise, this Court is bound by the trial court's credibility determinations. Id.
Second, the trial court properly determined that the restrictive covenant in the 1981 deed expressed the Authority's then-present intention to continue to use its best efforts to support the local wholesale produce industry which historically relied on then-existing direct rail service. As outlined above, the 1981 deed acknowledges that the basic use of the Terminal was as a rail freight facility served directly by Conrail's Smallman Street Tracks. It is uncontroverted that in 1984, Conrail abandoned a number of railroad tracks, including the Smallman Street Tracks which used to provide direct access to the Terminal, and that all railroad tracks in the vicinity of the Terminal were removed or paved over by 1993. As a result, the trial court properly found that the unavailability of rail lines connected to the terminal created a condition that rendered the covenant in the 1981 deed to maintain the Terminal as "a rail freight facility served directly by rail lines" a practical impossibility, thereby relieving the Authority of any purported duty arising thereunder.
"Restrictive covenants are generally disfavored by the law and may lose their utility through the passage of time, but covenants of recent vintage may be enforced by injunction." Big Bass Lake Community Association, 950 A.2d at 1145 n.10.
We agree with the trial court that the Authority gave its best efforts to comply with the deed restriction in this case. As it has been explained:
[A duty to use best efforts] requires a party to make such efforts as are reasonable in light of the party's ability and the means at its disposal and of the other party's justifiable expectations. Although the scope of this duty is not better defined than is the scope of the duty of good faith, it is clear that the duty of best efforts is more onerous than that of good faith.... Good faith is a standard that has honesty and fairness at its core and that is imposed on every party to a contract. Best efforts is a standard that has diligence as its essence and is imposed on those contracting parties that have undertaken such performance.Mark Technologies Corp. v. Utah Resources International, Inc., 147 P.3d 509, 512 (Utah Ct. App.2006) (citations omitted and emphasis in original). By expending $4.5 million renovating and improving the Terminal over the past 30 years, and by maintaining rents at below-market rates during the time that there were wholesale produce tenants using the facility in spite of Conrail's removal of all direct rail access, the Authority exhibited the requisite diligent, reasonable and good faith effort within a reasonable time necessary to meet the "best efforts" duty under the 1981 deed.
* * *
[However, a] "best efforts" obligation does not require [defendant] to accomplish a given objective.... Rather, it requires [defendant] to make a diligent, reasonable[,] and good faith effort to accomplish that objective. The obligation takes into account unanticipated events and the exigencies of continuing business and does not require such events or exigencies be overcome at all costs. It requires only that [defendant] exercise all reasonable efforts within a reasonable time to overcome any hurdles and accomplish the objective. The fact that the objective is not accomplished is no indication that the party had not utilized its "best efforts."
The trial court properly rejected AVR's assertion that the terminus of the Valley Industrial Track 100 yards from the Terminal constitutes the "direct" rail service to that structure referenced in the 1981 deed. (See R.R. at 228-229a). AVR's reliance on Secretary of Agriculture of the United States v. United States, 347 U.S. 645 (1954), for a contrary conclusion is misplaced because that case involved the insufficiency of the Interstate Commerce Commission's findings to support the imposition of special unloading charges in addition to line-haul rates due to unique conditions in New York and Philadelphia because the goods shipped there were not accessible to the consignees until after they had been unloaded by the rail carriers. See id. at 651-654. That case involved "delivery" and "unloading" and not what constitutes "direct" rail service either in the industry in general or under the terms of the instant restrictive covenant in particular.
Moreover, what is "best efforts" has to be undertaken in the context of any change in circumstances from the date of the deed in 1981. In this case, a major impediment to the use of the property as a rail oriented facility was caused when Conrail abandoned direct access to the facility in 1984 making its use of the terminal as a "cross-dock" facility no longer viable. As a result, goods had to be unloaded and transported by truck 100 yards to the facility leading to a number of users building their own facilities so they could have direct access to the rail line.
The credited record evidence also supports the trial court's determination that a change in conditions alleviated the Authority of any "best efforts" duty imposed by the 1981 deed. In 1998, all 129,500 square feet of the Terminal's platform area was occupied by wholesale produce tenants. By the end of 2007, such tenants only occupied 81,000 square feet. The Authority was unable to replace wholesale produce tenants because there were none in the market; no new wholesale produce tenants occupying more than 5,000 square feet of space were added to the Terminal after 1998. From 1998 to 2007, occupancy by wholesale tenants declined from 100 percent to 62 percent filled. Given that and the changing nature of the surrounding area, the Authority properly determined that it could not maintain the Terminal as a wholesale produce facility for the long term and, in 2008, began the process of redeployment. The evidence also demonstrates that if the injunction was issued, the Authority would be left with an obsolete building in need of significant renovation and rehabilitation without the necessary funds to do so.
As the Supreme Court has explained:
[E]quity will not enforce a restriction if the nature of the neighborhood changes has been such as to make it impossible to accomplish the objects for which it was designed, even though such changes may have resulted from circumstances over which neither of the parties had any control. It being a general policy of the law that land shall not be burdened with permanent or long-continued restrictions which have ceased to be of any advantage, equity will not, in such cases, prohibit or retard improvements simply to enforce the literal observance of a condition or covenant. Nor will equity grant injunctive relief if the enforcement of a restriction would make the land unfit or unprofitable for use and development, or result in a far greater hardship to the servient than a benefit to the dominant tenement...."Katzman v. Anderson, 59 A.2d 85, 87 (Pa. 1948) (emphasis in original).
Accordingly, because the credited evidence showed that the changes to the Terminal, its immediate surroundings, the wholesale produce industry, and the Lower Strip District since 1981 relieved the Authority of its obligation under the deed to use its best efforts because to do so would be impractical, if not futile, the trial court's order is affirmed.
While the Authority raised in New Matter that AVR is not a successor to Conrail and that it cannot enforce the "best efforts" provision in the 1981 deed, we will not address that issue because of the way we have resolved this appeal.
/s/_________
DAN PELLEGRINI, President Judge Judge Brobson did not participate in the decision of this case. ORDER
AND NOW, this 27th day of June, 2014, the order of the Court of Common Pleas of Allegheny County is affirmed.
/s/_________
DAN PELLEGRINI, President Judge BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge OPINION NOT REPORTED DISSENTING OPINION BY JUDGE McCULLOUGH
Respectfully, I dissent. When Consolidated Rail Corporation (Conrail) conveyed the Pittsburgh Produce Terminal (Terminal) to the Urban Redevelopment Authority of the City of Pittsburgh (Authority), Conrail protected its interest as a railroad carrier shipping produce to the Strip District in Pittsburgh. The 1981 Deed between Conrail and the Authority contained the following restriction or restrictive covenant:
[The Authority] acknowledges that the basic use of the building located on the land hereby conveyed is a rail freight facility served directly by rail lines of [Conrail,] and [the Authority] further acknowledges that its
primary public purpose in acquiring said premises is to provide continued rental space for the wholesale produce industry and agrees to use its best efforts to continue it as such or some other rail oriented use.(Reproduced Record (R.R.) at 34a) (emphasis added).
Beginning in 2008, the Authority advised tenants in the Terminal that long-term occupancy was not practical and amended all leases to have a common termination date of December 2012. In 2010, the Authority approved a lease agreement with Buncher Company (Buncher) with an option to purchase the Terminal. Buncher is not a wholesale produce distributor or a rail-oriented user, and it is Buncher's intention to demolish at least a part of the Terminal to make way for residential and retail building space as part of a larger redevelopment project in the Strip District. As Conrail's successor-in-interest, Allegheny Valley Railroad Company (AVR) filed a complaint in equity against the Authority seeking to enforce the above restriction. (Trial court op. at 1-2, 4; Maj. op. at 5.)
Conrail and AVR transported produce to the Terminal continuously from the time the 1981 Deed was executed until the Authority's lease agreement with Buncher. Although Conrail removed direct rail access to the Terminal in 1984, Conrail and AVR utilized the Valley Industrial Track for almost 26 years to transport produce and unload it on shipping trucks that would then deliver the produce a short distance (approximately 100 yards) to tenants in the Terminal. However, from 1991 to 2010, produce deliveries to the Terminal declined in unison with the departure of certain wholesale produce tenants in the Terminal, a number of whom relocated to a "state-of-the-art" facility within the Strip District. Nonetheless, AVR's deliveries to the Terminal tenants in 2008 through 2010 generated approximately $30,000.00 to $40,000.00 in annual revenue. (Trial court op. at 3-5.)
Brief for the Authority at 15-16, citing record.
The Majority affirms the trial court's denial of permanent injunctive relief, concluding that: (1) the Authority used its best efforts to atttract and retain wholesale produce tenants in the Terminal; (2) Conrail's removal of direct rail access rendered the restriction in the 1981 Deed a "practical impossibility;" (3) a change in the conditions of the neighborhood nullified the restrictive covenant; and (4) AVR has an adequate remedy at law. (Maj. op. at 11-16.)
In general, "[t]he required elements of injunctive relief are: a clear right to relief; an urgent necessity to avoid an injury that cannot be compensated in damages; and a finding that greater injury will result from refusing, rather than granting, the relief requested." Big Bass Lake Community Association v. Warren, 950 A.2d 1137, 1144-45 (Pa. Cmwlth. 2008).
Pursuant to the plain language of the 1981 Deed, the Authority must provide "rental space for the wholesale produce industry and . . . use its best efforts to continue it as such or some other rail oriented use." The esteemed trial court's conclusion that the removal of direct rail access thwarted the Authority's reason and ability to use its "best efforts," (Trial court op. at 8-9), is belied by the fact that Conrail and later AVR continued to make deliveries to the Terminal, via the Valley Industrial Track and shipping trucks, until the Authority terminated leases of existing tenants. Because the Authority terminated leases with tenants in the Terminal and entered into the lease agreement with Buncher while AVR was still servicing tenants in the Terminal, the Authority did not comply with the best efforts obligation. At these points in time, the Authority effectively abandoned its obligations under the 1981 Deed.
A contract may specifically provide for the occurrence of events subsequent to its execution (a condition subsequent), and upon the happening of such events, may terminate either a party's contractual obligations or extinguish the contract. See Village Beer and Beverage, Inc. v. Vernon D. Cox and Co., Inc., 75 A.2d 117, 122 (Pa. Super. 1984) (stating that "a condition subsequent acts to discharge a contractual duty after it has already occurred" and recognizing that a condition subsequent may act to extinguish a contract); Cambria Savings and Loan Association v. Estate of Gross, 439 A.2d 1236, 1239 (Pa. Super. 1982) (explaining a condition subsequent as follows: "if under the terms of the contract the occurrence of an event is to terminate an obligor's duty of immediate performance . . . that duty is discharged if the event occurs.").
However, there is no condition subsequent (or express set of circumstances) in the 1981 Deed that would allow the Authority to sell the Terminal to Buncher free and clear of the restriction. Therefore, unless there is a legal basis that excuses the Authority's obligations or nullifies the restriction in the 1981 Deed, the Authority remains bound by the restriction.
Contrary to the trial court and the Majority, I would conclude that the Authority's duty of performance was not discharged under the doctrines of impossibility or frustration of purpose. "There is in the law the doctrine of 'frustration,' which holds that under the implied condition of the continuance of a contract's subject-matter, the contract is dissolved when the subject-matter is no longer available." Alvino v. Carraccio, 162 A.2d 358, 361 (Pa. 1960). "Ordinarily, nothing will excuse performance of an absolute promise if the act promised is possible of performance, even though performance in the manner originally contemplated is rendered impossible. . . ." 12 P.L.E. CONTRACTS §455.
Here, the fact that Conrail removed direct rail access to the Terminal in 1984 is essentially irrelevant. The Valley Industrial Track provided (and continues to provide) meaningful access to the Terminal for nearly 26 years, and there is nothing in the 1981 Deed that preconditions the operability of the restrictive covenant or the Authority's obligations thereunder upon the presence of direct rail access. Instead, the overriding subject matter and purpose of the restriction in the 1981 Deed is to ship produce to "a rail freight facility," i.e., the Terminal. Given that this purpose or subject matter continues in effect and was not destroyed, the restriction is not invalid pursuant to the doctrine of legal frustration.
Moreover, as a general rule, "a contractor is presumed, in the absence of an express provision to the contrary, to have assumed the risk of unforeseen contingencies arising during the course of the work, unless performance is rendered impossible by an act of God, the law, or the other party." O'Neill Constr. Co. v. City of Philadelphia, 6 A.2d 525, 526-27 (Pa. 1939). "In order to prevail under the theory of legal impracticability, [the party] must establish that the act contemplated under the contract . . . is incapable of being performed, rather than the fact he is incapable of performing it." Luber v. Luber, 614 A.2d 771, 774 (Pa. Super. 1992). "[F]utility is not the same as impracticability. . . . A party to a contract cannot refuse to perform its obligations merely because it believes that such performance would be fruitless." Prusky v. ReliaStar Life Ins. Co., 474 F. Supp. 2d 695, 700 (E.D. Pa. 2007).
Here, a number of tenants relocated to a "state-of-the-art" facility in the same area, allegedly because the Terminal was not maintained as such. Despite the decline in wholesale produce tenants at the Terminal, AVR's deliveries to the Terminal tenants remained viable in 2010 (62% of the Terminal's platform space was occupied as of 2009) and the loss of tenants is an entirely foreseeable event. The record indicates that the Authority did not attempt to secure new tenants to replace those who did not renew their leases. (Reproduced Record (R.R.) at 380-82a, 392a-93a.) Significantly, there is no evidence that the Authority could not continue seeking tenants, via newspaper or some other means of advertisement, or using its best efforts to convert the Terminal to another rail-oriented use. Although the Authority may have considered the task of securing and maintaining tenants not profitable, this, alone, does not allow the Authority to abandon the covenant in the 1981 Deed in favor of creating residential and retail building space. See Firemen and Oilers, Local 1201, AFL-CIO v. Board of Education of School District of Philadelphia, 457 A.2d 1269, 1274 (Pa. 1983) ("[M]ere inconvenience, although it works a hardship, does not excuse performance and . . . a party who wishes to be excused from performance on the basis of a subsequently occurring condition has a duty so to provide in the contract and will not be excused otherwise if performance is lawful and possible in itself."). Accordingly, the Authority's contractual duty to continue performance under the 1981 Deed was not discharged under the doctrine of impossibility/impracticability.
Brief for the Authority at 20, citing record.
For these same reasons, I cannot agree with the Majority that the Authority's duty of performance was excused on the ground that changes in the nature of the neighborhood made performance impossible or without any benefit to AVR.
Generally speaking, the change in the neighborhood has to be so dramatic that it deprives the beneficiary of the benefit of the restrictive covenant. See Daniels v. Notor, 133 A.2d 520, 523 (Pa. 1957) ("Where the exigencies of altered conditions in a neighborhood render a strict adherence to the terms of the restrictive covenant useless to the dominant tenement, or absurd, or futile, or ineffective to achieve the end desired, it would be an anachronism to interpose equitable relief in support of it."). "[T]he courts will restrain violations of a restrictive covenant so long as it remains of substantial value to the owner of the dominant estate, notwithstanding a change of conditions." 16 P.L.E. COVENANTS §20. See Vernon Township Volunteer Fire Department, Inc. v. Connor, 855 A.2d 873, 881 (Pa. 2004) ("[T]he relevant inquiry concerning changes to the immediate neighborhood is whether such changes alter or eliminate the benefit that the restriction was intended to achieve.").
In this case, the wholesale produce tenants that opted to leave the Terminal, from its full capacity days of 1998 to the mid-2000s, chose to either relocate to a state-of-the-art facility in the Strip District or were experiencing financial difficulties. As the Authority itself noted, in 1999, Pittsburgh Repack, a produce wholesaler that occupied 17,500 square feet on the Terminal, chose to relocate its operations to a new state-of-the-art facility elsewhere in the Strip District; and, in 2000, Consumers Produce Company, also a produce wholesaler that at one time occupied 17,500 square feet on the Terminal, voluntarily terminated its lease in the Terminal and joined Pittsburgh Repack in the state-of-the-art facility. There is no evidence to support a finding that the Strip District's residential and retail development was such as to render the Terminal a useless, isolated island that has no place in the neighborhood; indeed, the evidence shows that a new state-of-the-art terminal was recently built in the Strip District to which tenants of the Terminal moved. More importantly, AVR's deliveries to the Terminal tenants in 2008 through 2010 generated approximately $30,000.00 to $40,000.00 in annual revenue, and, resulting, AVR continued to receive a benefit from the covenant as of those dates. Therefore, I would conclude that the restrictive covenant in the 1981 Deed remains enforceable; the Authority or any subsequent purchaser is bound by that covenant; and AVR established a breach and clear right to relief.
Brief for the Authority at 15-17, citing record.
Id. at 15-16.
Id. at 16. --------
I also disagree with the Majority that AVR is barred from obtaining equitable relief because it possesses an adequate remedy at law. "If a property owner deliberately and intentionally violates a valid express restriction running with the land or intentionally 'takes a chance,' the appropriate remedy is a mandatory injunction to eradicate the violation." Peters v. Davis, 231 A.2d 748, 752 (Pa. 1967). "To restrict the plaintiff to damages is not an adequate remedy." Id. (citations omitted). Here, in plain disregard of the covenant's terms, the Authority cancelled leases with existing tenants in the Terminal and entered into a lease agreement for the construction of residential and retail building space.
Finally, I note that in its opinion, the trial court balanced the equities and hardships that would result if a permanent injunction were granted. (Trial court op. at 13-15). However, Pennsylvania courts do not balance equities where, as here, the defendant "takes a chance" that its action will be permissible under an existing restrictive covenant. Epstein Family Partnership v. Kmart Corp., 13 F.3d 762, 770 (3d Cir. 1994) (applying Pennsylvania law).
Regardless of the potential merits or benefits of the plans for large-scale redevelopment in the Strip District, the Court is obligated to enforce a restrictive covenant unless there is a legal basis that excuses performance or nullifies the validity of the covenant. I would conclude that no such legal basis exists under the circumstances of this case.
Hence, I must respectfully dissent.
/s/_________
PATRICIA A. McCULLOUGH, Judge
Big Bass Lake Community Association v. Warren, 950 A.2d 1137, 1144-45 (Pa. Cmwlth. 2008) (citations omitted).