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In Price Automotive Group v. Dannemann, 2002 WL 31260007 (Superior Court of Delaware, Sept. 25, 2002, No. Civ.A.01C-06-165JRS), a commercial landlord-tenant case, the Delaware Superior Court analyzed "best knowledge" warranty cases both inside and outside of Delaware.
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C.A. No. 01C-06-165 JRS
Date Submitted: June 18, 2002
Date Decided: September 25, 2002
William E. Manning, Esquire, James D. Taylor, Esquire. KLETT, ROONEY, LIEBER SCHORLING, 1000 West Street, Suite 1410, Wilmington, Delaware 19801.
Richard H. Cross, Jr., Esquire. The Law Office of Richard H. Cross, Jr., LLC, 1201 N. Orange Street, Suite 610, Wilmington, Delaware 19801.
Slights, J.
Upon Consideration of Defendants' Motion for Summary Judgment GRANTED in part, DENIED in part.
I. INTRODUCTION
Boiled to its essence, this suit involves a dispute between a landlord and subtenant regarding the condition of leased premises. Royal Import Toyota, Inc. ("Royal," "Subtenant," or "Plaintiff") has filed suit against Ernst Dannemann ("Dannemann"), the Jewish Federation of Delaware ("JFD") and Dover Realty I ("Dover Realty") (collectively "Landlord" or "Defendants") to recover damages for breaches of warranties and other provisions of a lease of commercial property owned by Defendants.
Ernst Dannemann, in his individual capacity, and Price Automotive Group have been dismissed from this action by stipulation of the parties dated April 25, 2002. (D.I. 32).
Compl. ¶ ¶ 1-5.
Pending before the Court is Defendants' Motion for Summary Judgment. For the reasons that follow, Defendants' motion is GRANTED in part and DENIED in part.
Defendants originally filed a motion to dismiss or, in the alternative, summary judgment. The parties have submitted matters (affidavit and deposition testimony) outside of the pleadings. Accordingly, the Court considers the pending motion as a motion for summary judgment. See Shultz v. Delaware Trust Co., 360 A.2d 576, 578 (Del. 1976) (stating that a motion with "affidavits and depositions in addition to the pleadings . . . must be considered a motion for summary judgment").
II. FACTS
In June 1997, Landlord leased property located at 400 Ogletown Road, Newark, Delaware with improvements (the "Property") to Daewoo International Corp. ("Daewoo"). The Lease expressly provided that Defendants were renting the property to Daewoo in its "as is" condition, subject to some limited warranties and representations. An attachment to the Lease stated, in pertinent part:
Compl. ¶ 8.
D.I. 22, at A019.
Landlord represents and warrants to the best of its knowledge as follows:
. . .
B. The Demised Premises are in compliance with all applicable federal, state and local laws, rules, regulations, orders and rulings.
C. Except as set forth on Schedule A: (1) The Demised Premises are serviced by adequate public or readily available private utilities.
. . .
(4) Landlord is not aware of any defect, problem, law, regulation, order, rule or other matter that, if known to Tenant, might adversely affect its decision to enter into this Lease on the terms and conditions set forth herein. In addition, the Lease provided that Daewoo would be responsible for most maintenance and repairs. The only portion of the Property Landlord was required to maintain under the Lease was "the foundation, exterior walls, (not including the signs of Tenant on any portion of the Entire Premises), structural columns and structural beams of the Rental Unit." In a rider to the Lease, Landlord also agreed "to remove the underground storage tank or abandon it in place with the consent of Tenant, remove all friable asbestos and transformers, comply with all applicable laws, rules, and regulations relating to same and Landlord agrees to restore the same and deliver to Tenant, the premises in an environmentally clean condition."
Id. at A046-47.
Id. at A017-19.
Id. at A019.
Id. at A050.
Another rider to the Lease outlined the procedure by which Daewoo could assign or sublet the Property:
IV. Assignment and Subletting
A. Tenant (which term includes the Tenant named in this Lease and its successors and assigns) may from time to time, without any requirement for consent by Landlord, assign this Lease or sublet all or portions of the Demised Premises, provided that:
. . .
(3) In the case of an assignment, the assignee shall assume all of the obligations of Tenant under this lease which first arise from and after the effectiveness of the assignment and, except as provided below, Tenant shall not be released from any of its obligations hereunder.
(4) Promptly after the effectiveness of any sublease or assignment, Landlord shall be provided with a copy thereof and of the assumption required hereby.
Id. at A042.
In July 1997, Daewoo assigned the Lease to Daewoo Motor America Northeast, Inc. ("Daewoo II") and promptly notified Landlord of the assignment. Landlord and Daewoo II later amended the Lease to specify the time frame in which Landlord was to perform its obligations regarding the underground storage tank and asbestos removal. In March 1999, Daewoo II subleased the Property to Royal (the "Sublease"). Royal inspected the Property on two occasions prior to executing the Sublease. In the Sublease, the parties agreed that Royal was renting the Property "as is" and without representations or warranties, except as provided below:
Id. at A056-58.
Id. at A059.
Id. at A04-07.
Id. at A080-88.
2. Representations and Warranties. In order to induce Subtenant to enter into this Sublease, Tenant represents and warrants to Subtenant that: (a) Exhibit "A" constitutes a true, correct and complete copy of the Lease, and comprises the entire understanding and agreement of Landlord and Tenant with respect to the Premises and (b) neither Landlord nor Tenant is in default under the Lease, and there exists no state of facts and no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default by either Landlord or Tenant under the Lease.
3. Sublease: Condition of Premises . . .
. . .
Sublessee acknowledges that it has been given an opportunity to fully inspect the Premises, that no representation has been made to it by Sublessor concerning the condition of the same, and that it is subleasing the Premises in its "as is" condition, without any representation or warranty, express or implied, as to habitability, condition, use for a particular purpose, or otherwise.
Id. at A04.
In a separate document, Landlord and Royal extended the term of the Lease and specifically extended Landlord's obligations in Section 12.3 of the Lease to Royal. Section 12.3 of the Lease discussed Landlord's duties with respect to the foundation, exterior walls, and structural columns and beams:
D.I. 23, at Ex. B.
. . . .
The only property which Landlord is required to maintain and repair is the foundation, exterior walls, (not including the signs of Tenant on any portion of the Entire Premises), structural columns and structural beams of the Rental Unit.
. . .
This lease is intended to be a triple net lease, which shall be deemed to mean that all costs and any other charges of any kind and nature shall be borne by Tenant such that Landlord shall receive Base Annual Rent and Additional Rent indicated herein, without deduction or subtraction for any such items and Landlord shall realize as net rental all of the Base Annual Rent and Additional Rent as indicated in this Lease.
Dissatisfied with the condition of the Property and apparently believing that it was without recourse against Landlord, Royal attempted to obtain an assignment ("the Assignment") from Daewoo II in or about July 2000. Through the Assignment, Royal sought the right to pursue claims against Landlord under the Lease for any causes of action that Daewoo II may have asserted against Landlord directly. In consideration for the Assignment, Daewoo II received rent owing to them from Royal, indemnification from Royal's parent company, and an expanded indemnification from Royal. Landlord did not receive notice of the Assignment until February 1, 2001.
The assignment itself is dated March 1999, but Warren Price, President of Royal Imports Toyota, Inc., later admitted in his deposition that the date that the execution of the assignment was actually about a year later. (Price Depo. at 46). A copy was sent to counsel for Daewoo on July 18, 2000. (D.I. 22, at A061-63).
D.I. 22, at A061.
Id.; Price Depo. at 46.
D.I. 22, at A230.
On June 15, 2001, Royal brought this action against Landlord. Count I of Royal's complaint alleges that Landlord breached its duties under the Lease by failing to remedy code violations in the bathrooms, water and sewer deficiencies, violations of the electrical code, and inadequate fire protection; Count II alleges that Landlord failed to reimburse Royal for the restoration costs relating to the removal of the underground tank and asbestos and failed to replace moldy insulation; Count III states that Landlord failed to repair alleged defects in the structure and foundation of the Property; Count IV alleges that Landlord failed to remedy defects with the water main and sewer line; and Count V alleges that Landlord failed to disclose certain facts that would have adversely affected Daewoo II's decision to lease and sublease the property to Plaintiff.
Compl. ¶ 1.
Id. ¶ ¶ 15-35.
III. DISCUSSION
A. The Parties' ContentionsDefendants have moved for summary judgment on all counts. Defendants first assert that Counts I, IV, V, and portions of Count II are barred by a three-year statute of limitations. In addition, Defendants argue that Royal has no recourse under the terms of the Sublease because the Property was subleased in its "as is" condition, thereby entitling them to summary judgment as to Counts I, IV, V, and portions of Count II. Defendants maintain that no privity exists between Landlord and Royal that would allow Royal to sue Landlord on the Lease and, consequently, summary judgment is appropriate on all counts except for Count III. Defendants further argue that the purported Assignment between Royal and Daewoo II, apparently intended to establish privity between Royal and Landlord, lacked consideration. According to Defendants, even if consideration was adequate, the Assignment was ineffective in any event because neither Daewoo II nor Royal gave the requisite notice, as required by the Lease, and the Assignment did not require Royal to assume all of Daewoo II's obligations under the Lease. Defendants contend that to be effective, the Assignment must transfer both rights and liabilities. Finally, Defendants argue that even if Royal's claims are not barred by the statute of limitations and even if Royal has standing to sue under the terms of the Lease, Royal's claims regarding Landlord's alleged breach of warranties with respect to the poor condition of the Property still must fail because Landlord was not actually aware of any alleged problems with the Property when the parties entered into the Lease.
D.I. 21.
Id. at 24-25.
Id. at 25-27.
Id. at 27. Count III is based upon a separate agreement directly between Landlord and Royal. (D.I. 23, at Ex. B).
Id. at 27-31.
Id. at 31-35.
In response, Royal points to a record which it contends is replete with material disputes of fact. According to Royal, summary judgment is not available to Defendants because issues of fact remain for trial.
D.I. 23.
B. Standard of Review
In considering a motion for summary judgment, the Court is required to examine all pleadings, affidavits and discovery submitted to it in support of or in response to the motion. The Court must view these items, which collectively comprise the record, in the light most favorable to the nonmoving party. Summary judgment may be granted only when the Court's review of the record reveals that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. The moving party bears the initial burden of illustrating the absence of a material factual dispute. Then, if the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that there are material issues of fact that remain in dispute.
Oliver B. Cannon Sons, Inc. v. Dorr-Oliver, Inc., 312 A.2d 322, 325 (Del.Super. 1973).
See United Vanguard Fund, Inc. v. Takecare, Inc., 693 A.2d 1076, 1079 (Del. 1997); Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995).
Dale v. Town of Elsmere, 702 A.2d 1219, 1221 (Del. 1997).
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979) (citing Ebersole v. Lowengrub, 180 A.2d 467 (Del. 1962)).
Brzoska, 668 A.2d at 1364.
C. Royal's Claims For Breach of Warranties
Counts I, IV, V, and the portion of Count II relating to moldy insulation are based on Landlord's alleged breaches of representations and warranties made to its "best knowledge" in the original Lease between Landlord and Daewoo. Landlord maintains that even if Royal can overcome all of Landlord's other arguments with respect to the breach of warranties claims — statute of limitations, privity, ineffective assignment, and the "as is" provision in the Sublease — the undisputed record cannot sustain the claims on their merits. Specifically, Landlord contends that its "best knowledge," by which Landlord's warranties are qualified in the Lease, must be measured by its actual knowledge. Landlord seeks summary judgment on the breach of warranty and representation claims because the undisputed record sub judice reflects that Landlord had no knowledge of any defects on the Property at the time the representations and warranties were made to Daewoo.
D.I. 21, at 32.
Id. The Lease provides: "Landlord represents and warrants to the best of its knowledge as follows. . . ."(D.I. 22, at A046) (emphasis supplied).
Id.
For its part, Royal maintains that Landlord was "overly casual" about its representations and warranties, an approach which Royal contends "hardly constitute[s] `best knowledge [warranties].'" Royal argues that before one warrants information to the best of his knowledge, he must first perform such inquiries or investigations as are reasonably necessary to allow him to give an informed warranty. The Court will address this issue first as it is dispositive of several of Royal's claims.
D.I. 23, at 27.
D.I. 31, at 1-3.
1. The "Best Knowledge" Warranty
The first issue in this analysis is whether a duty of inquiry is associated with an effective "best knowledge" warranty. Delaware has addressed this issue directly, albeit in the context of contracts for insurance.
Dickson-Witmer v. Union Bankers Insurance Co. involved a legal guardian, Diana Dickson-Witmer ("Dickson-Witmer"), who purchased medical insurance for her ward from Union Bankers Insurance Company ("Union Bankers"). After the ward began having behavioral problems, which resulted in expensive psychological treatment, Union Bankers rescinded the policy and refused to pay for the treatment. Dickson-Witmer brought suit alleging breach of contract. Union Bankers argued that Dickson-Witmer did not disclose the ward's previous psychological counseling sessions on the insurance application, and that the false "best knowledge" warranty justified rescission of the policy. The court held that Dickson-Witmer did not make any misrepresentations on the application. As an initial matter, the court observed that the questions on the application did not solicit the information about the previous counseling sessions. The court then concluded that the only question which may have sought such information was limited to Dickson-Witmer's "best knowledge and belief." The court stated:
1994 WL 164554 (Del.Super.).
Id. at *1.
Id.
Id. at *2.
Id.
Id. at *3.
Id. at *3-4.
Id. at *4.
In the context of insurance coverage, this language has the effect of "shifting the focus, in a determination of the truth or falsity of an applicant's statement, from an inquiry into whether the facts asserted were true to whether, on the basis of what he knew, the applicant believed them to be true."
Id. (emphasis in original) (citation omitted).
The court applied this "subjective test" to the facts and determined that the Plaintiff guardian did not make a misrepresentation when she answered the questions on the basis of her actual knowledge of the ward's prior medical history. Of particular moment here is the fact that the court did not impose a duty of investigation upon the applicant before answering the question to her "best knowledge."
Id.
Outside of Delaware, numerous other jurisdictions also have adopted this interpretation of "best knowledge" in the insurance context. In Skinner v. Aetna Life and Casualty, an applicant made certain representations on an application for life and health insurance "to the best of [his] knowledge and belief." When called upon to determine whether the applicant fulfilled his obligation under the language of the contract, the court stated:
804 F.2d 148 (D.C. Cir. 1986).
Id. at 149.
In the case before us, Aetna chose to include language in its group insurance enrollment form that had the effect of shifting the focus, in a determination of the truth or falsity of an applicant's statement, from an inquiry into whether, on the basis of what he knew, the applicant believed them to be true. Thus [his] answer must be assessed in light of his actual knowledge and belief.
Id. at 150 (citation omitted) (emphasis added).
Again, Skinner did not impose a duty of investigation on the applicant. Instead, the court found that the actual knowledge of the applicant at the time he submitted his application was determinative of liability.
Similarly, in Sterling Insurance Co. v. Dansey, the insured filed suit against an insurance company for denial of disability benefits. The insurance company argued that the insured failed to disclose that he had diabetes and other medical history on his application. Although a state statute provided that a false statement on the application may prevent recovery of benefits, the court still held that the "best knowledge" standard in the application was controlling. The court stated that "even though we read the statute into this application, the policy may not be forfeited unless the answers given in the application were knowingly false as agreed in the application." The trial court instructed the jury that the plaintiff was entitled to benefits unless the defendant insurance company proved that the plaintiff intentionally made false statements on the application for coverage. The court held that the jury instruction was proper and that there was sufficient evidence to justify the jury's finding that the insured was not aware that he had diabetes at the time he submitted his application. Notably, the court determined that the "best knowledge" language excused any prevailing (statutory or otherwise) duty to investigate the accuracy of the warranty.
81 S.E.2d 446 (Va. 1954).
Id. at 447.
Id.
Id. at 451.
Id. at 452.
Id. at 449.
Id. at 449-52.
Several other cases involving insurance benefits also support the notion that there is no duty to inquire into a matter warranted to be true to the best of one's knowledge and belief. See, e.g., Green v. Life Health of America, 704 So.2d 1386, 1392 (Fla. 1998) (holding that questions qualified by a "best knowledge and belief" provision on an insurance application require plaintiff's answers to be based on actual, not constructive, knowledge); Kidder v. The Supreme Assembly of the American Starts of Equity, 154 Ill. App. 489, 492-93 (Ill.App.Ct. 1910) (holding that the trial court properly declined to give a jury instruction for breach of warranty when insurance application contained statement of warranty qualified by statement of "best knowledge"); Egan v. The Supreme Council, Catholic Benevolent Legion, 52 N.Y.S. 978 (N.Y.App.Div. 1898) (concluding that in accordance with the language "to the best of my knowledge and belief," only an intentionally false misstatement about insured's age would disallow recovery of insurance benefits).
Even outside of the insurance context, courts that have addressed the question of whether a "best knowledge" warranty implicates a duty to investigate have determined that the warrantor need not investigate the facts before making the warranty. For instance, in Bruce v. Marchesanimplementos e Maquinas Agriculastatu, S.A., the court discussed the effect of certain warranty language proposed by the parties in a stock purchase agreement. The purchasers proposed an agreement which stated that the shareholders (sellers) "represent and warrant" that the company's accounts receivable will be collectible. The shareholders (sellers) counter-proposed that the agreement state "to the best knowledge and belief of the shareholders," the accounts receivable will be collectible. The court noted that "[t]he language is critical because of the proof required by purchaser if the matter is not as represented or warranted." The court continued:
Since insurance contracts generally are considered to be "contracts of adhesion," one might argue that cases which address "best knowledge" warranties in insurance applications are of little value when interpreting similar warranties in arm's-length commercial agreements. See Continental Ins. Co. v. Burr, 706 A.2d 499, 500-01 (Del. 1998) ("Because an insurance policy is a contract of adhesion, however, ambiguous language is construed most strongly against the insurer, and the policy must be read in a way that satisfies the reasonable expectations of the average consumer."). Although the Court would not necessarily buy into such an effort to distinguish insurance cases, it has, nevertheless, sought guidance from cases addressing "best knowledge" warranties in other commercial agreements for completion's sake.
1990 U.S. Dist. LEXIS 18527 (S.D.Iowa).
Id. at *14.
Id. at *15.
Id.
Under the purchasers' draft, the shareholders would be liable for any accounts receivable not collected. Under the version suggested by shareholders, they would be liable only if the purchasers could establish that shareholders knew the accounts were uncollectible or did not believe they were collectible.
Id.
According to Bruce, the "best knowledge" language did not impose a duty of investigation upon the warrantors.
In Nunn v. Chemical Waste Management, Inc., the court contrasted absolute warranties and warranties limited to the warrantor's "best knowledge." The former owners of a corporation sued the purchasers of the stock for breaching a contractual duty to pay on a promissory note. The purchasers counterclaimed for negligence and breach of warranty, among other claims. The purchasers based their breach of warranty counterclaim upon the seller's unqualified warranties in the acquisition agreement that the target corporation was in compliance with all laws and ordinances. The trial court awarded judgment to the purchasers on all claims, including the counterclaims. On appeal, the former owners argued that they did not warrant any condition beyond their actual knowledge. The court disagreed:
856 F.2d 1464 (10th Cir. 1988).
Id. at 1466.
Id.
Id. at 1468.
Id.
Id. at 1469.
Many of the warranties made by the former owners were expressly made "to the best of [their] knowledge." The face of the agreement leaves no doubt but that the former owners well knew how to limit contractual warranties to the best of their knowledge when they so desired. It is significant, then, that the warranties contained in Sections 2.12 and 2.30 are not limited by the former owner's knowledge. In the absence of such a limitation, we conclude that the trial court did not err when it found that the parities intended that such warranties would not be limited by former owners' knowledge.
Id. (emphasis in original).
By distinguishing "best knowledge" and unqualified warranties, the court implicitly imposed a duty of inquiry upon the warrantors in connection with any warranty not expressly limited to the warrantor's "best knowledge."
Augat, Inc. v. Collier involved a merger of several corporations. The plaintiff, Augat, Inc. ("Augat"), alleged, among other claims, that the defendant June Collier, president, chief executive officer, and sole shareholder of National Industries breached a warranty in an amendment to the merger agreement which provided: "[t]o the best of [Collier's] knowledge, neither she nor National" provided misleading information. The court examined Collier's actual knowledge on or before August 30, 1991, to determine if Collier breached this disclosure warranty. The court concluded that Collier was entitled to summary judgment on the breach of warranty count because Augat had not presented any evidence to rebut Collier's sworn testimony that she was unaware that information she provided to Augat prior to the merger agreement was inaccurate. Again, the court declined to impose a duty of inquiry upon the warrantor when construing the "best knowledge" warranty.
1996 U.S. Dist. LEXIS 2702 (D.Mass.).
Id. at *61.
Id.
Id.
As demonstrated above, courts have interpreted the "best knowledge" warranty as a warranty based on actual knowledge. "Best knowledge" warranties reflect the parties' mutual understanding that the warrantor will not bear the risk of defects which may exist unknown to the warrantor. In a sense, then, the "best knowledge" language marks a shift in the risk of loss resulting from unknown (as opposed to unknowable) defects from warrantor to warrantee.
See Nunn, 856 F.2d at 1469 (stating that the different effects of the "best knowledge" warranties and absolute warranties do not yield "unusual results:" "[p]arties to a contract frequently allocate the risks which may arise from uncontemplated or unknown events and conditions through warranties"); Bruce, 1990 U.S. Dist. LEXIS 18527 at *16 (The "best knowledge" warranty represented "the allocation between the parties of the risks on [sic] undisclosed liabilities that might develop.").
2. Landlord Had No Actual Knowledge of the Alleged Defects.
In Count I, part of Count II, and Count IV, Royal alleges a wide range of specific defects in the Property. In Count I, Plaintiff claims code violations, electrical code violations, water and sewer deficiencies, and inadequate fire protection. Count II asserts in part that Landlord failed to replace moldy insulation. In Count IV, Plaintiff argues that Landlord breached the warranty that the "Demised Premises are serviced by adequate public or readily available private utilities."
The Court discusses Count V separately. See infra text accompanying notes 99-102.
Compl. ¶ ¶ 16-17.
Id. at ¶ 21.
Id. at ¶ ¶ 28-29.
To determine whether these Counts survive summary judgment, the Court must be ever-mindful of the parties' respective burdens. The standard bears repeating. Landlord, as the movant, must demonstrate an absence of material factual disputes and an entitlement to judgment as a matter of law. When the movant meets his burden, the other party must then explicate a factual dispute in the record.
Brzoska, 668 A.2d at 1364.
Id.
For its part, Landlord has addressed its actual knowledge of the alleged defects by submitting the affidavit of Ernst Dannemann, attorney-in-fact for Defendants JFD and Dover Realty ("Dannemann"), in which he avers that "Dover Realty I and the Jewish Federation of Delaware had no information when entering into the Lease with Daewoo that any of the representations and warranties made in the Lease were incorrect." Royal alleges that Landlord breached this "best knowledge" warranty by failing to disclose a water main break under the parking lot on the Property and failed to disclose that a prior tenant did not adequately maintain the Property. Answering these specific allegations, Dannemann states in his affidavit that he did not have knowledge of any problems with the previous tenant at the time of the Lease. He also states that while he may have told Price about a broken sprinkler riser, he did not have any information about the break in the water main line about which Plaintiff complains. In fact, at oral argument, Plaintiff appeared to acknowledge that if "actual knowledge" is relevant to the Court's inquiry, the Dannemann affidavit does support the notion that Dannemann had no actual knowledge of any of the alleged defects in the Property. Defendants have met their burden to demonstrate the absence of a factual dispute.
Dannemann Aff. ¶ 6.
D.I. 23, at 27.
Dannemann Aff. ¶ 5.
Dannemann Aff. ¶ 4.
See Tr. at 45 (April 1, 2002) ("Defendants here point to Dannemann's affidavit. . .which indicates he has no knowledge. And that might be important if actual knowledge was the test.").
To meet its rebuttal burden, Plaintiff asserts that Dannemann allegedly made two statements to Warren Price, President of Royal Imports Toyota ("Price"), both of which suggest that Landlord may have had actual knowledge of certain defects in the Property at the time of the Lease. First, Plaintiff points to Dannemann's statement, made sometime after the Sublease, to the effect that Dannemann was aware prior to the Lease that problems with the Property may arise from the previous tenant's lack of maintenance. According to Plaintiff, Dannemann's statement in this regard creates a factual issue as to Landlord's actual knowledge of the defects at the time of the Lease. Dannemann's vague statement that the previous tenant was a "terrible tenant . . . and didn't maintain anything," does not address the issue of whether the Landlord had actual knowledge of the numerous specific defects covered by the warranties referenced in Counts I, II, and IV.
Price acknowledged in his deposition that Royal had no evidence to suggest that Landlord knew of the code violations in the bathroom, the electrical code violations, the collapse of the water and sewer main line, and the inadequate fire protection. (Price Depo. at 68-74). Price admitted that he did not have any evidence to suggest that the moldy insulation was in existence at the time of Lease. ( Id. at 82-86). While discussing Count IV, Price also conceded that he did not have any specific information to indicate whether the water and sewer lines were operable at the time of the Lease and whether Landlord attempted to conceal any information in that regard. ( Id. at 102-03). Therefore, Royal proffers Dannemann's two alleged statements as the only evidence to establish Landlord's state of mind at the time of the Lease with respect to Counts I, part of II, IV, and V.
D.I. 31, at 4.
Price Depo. at 84.
Plaintiff also alleges that Dannemann told Price about a problem with a water pipe under the parking lot. Dannemann stated that he told Price about a broken sprinkler riser, a small water pipe under the parking lot. Price's assumption that a broken water sprinkler is somehow related to the later structural collapse of the water main line is insufficient to meet Plaintiff's burden to demonstrate a material issue of disputed fact regarding Dannemann's actual knowledge of the water main and sewer defects alleged in Counts I and IV. Moreover, the record indicates that the sprinkler riser broke approximately six months after the date of the Lease. Consequently, Dannemann's unequivocal denial in his affidavit of actual knowledge of the defects alleged in Counts I, II, and IV stands unrebutted in the record.
D.I. 23, at 27. Price asserted in his deposition that Dannemann told him something about a water line break under the parking lot. (Price Depo. at 62-66). Dannemann stated that he only told Price about the replacement of a sprinkler riser. (Dannemann Aff. 2). Price admitted in his deposition that the water line break could be completely unrelated to the water deficiency problem that is the gravamen of Counts I and IV. (Price Depo. at 65). Indeed, Price admitted that Dannemann could have been referring to the sprinkler riser problem, as recounted in the Dannemann Affidavit. (Id. at 65-66). Price acknowledged that he was simply assuming that Dannemann was talking about a water main break, even though Danneman never specifically mentioned a water main break. (Id. at 71).
Dannemann Aff. ¶ 4.
D.I. 22, at A211.
Before the Court disposes of the warranty claims, Count V requires closer analysis. Count V concerns Landlord's warranty that, to the best of its knowledge, "Landlord is not aware of any defect, problem, law, regulation, order, rule or other matter that, if known to Tenant, might adversely affect its decision to enter into this Lease on the terms and conditions set forth herein." Plaintiff argues that Landlord violated this warranty by failing to advise Daewoo or Royal of the previous tenant's inadequate maintenance efforts and by failing to disclose the broken sprinkler riser. At first glance, this rather unusual warranty provision raises a preliminary issue of contractual interpretation: whether the "adversely affect" clause should be measured by an objective standard of reasonableness or by the Tenant's purely subjective intent. If afforded a broad, subjective interpretation, the Tenant legitimately could complain about the most ridiculous and trivial of circumstances which, with the benefit of hindsight, would have dissuaded the Tenant from entering the Lease.
D.I. 22, at A047.
D.I. 23, at 11-12.
The Court will pass on the opportunity to decipher this most interesting warranty because, again, the warranty is qualified by "best knowledge" language. And, again, Royal has failed to rebut Dannemann's denial of knowledge of any defects or flaws associated with the Property at the time of the Lease. Instead, Royal points to the same two "adverse" circumstances that the Landlord failed to disclose to the Tenant, Daewoo, at the time of the Lease: the previous tenant's lack of maintenance and the sprinkler riser problem. As previously discussed, with respect to these conditions, Royal has not rebutted Dannemann's unequivocal denials of actual knowledge of these problems. The Assignment of "all claims and causes of actions" does not alter the analysis. The Assignment purported to give Plaintiff only such rights and claims as the Tenant, Daewoo II, would have had under the Lease. The claim for a breach of Count V's disclosure warranty still would relate back to Landlord's state of knowledge at the time of the Lease. Because the two alleged statements by Dannemann do not shed light on Dannemann's knowledge at the time of the Lease, Plaintiff still has not demonstrated a material factual dispute to defeat summary judgment on Count V.
Dannemann Aff. ¶ 5.
D.I. 22, at A061.
Merck Co. v. Smithkline Beecham Pharms. Co., 1999 Del. Ch. LEXIS 242, at *137 (Del.Ch.) ("[A]ssignee steps into the shoes of the assignor.") (citations omitted).
As the moving party, Defendants have met their initial burden of demonstrating the absence of a material factual dispute with respect to the breach of warranty claims. Plaintiff has failed to answer with competent record evidence demonstrating that a factual dispute remains as to Landlord's actual knowledge of the alleged defects at the time the Lease was made. Thus, the Court need not address Defendants' peripheral arguments regarding the statute of limitations, privity, the effectiveness of the Assignment, or the "as is" provision of the Sublease. These arguments are meaningful only to the extent that Plaintiff has viable claims for breach of warranties under the Lease. As stated, no such claims are extant in this record.
Accordingly, summary judgment must be granted for Defendants on Counts I, II (to the extent the claim arises from alleged moldy insulation), IV and V.
D. Royal's Claims for "Restoration Costs" and Structural Defects
In Count II, Royal claims that Landlord has breached its obligations to remove the asbestos and underground storage tank and then restore the Property. The parties agree that Landlord already has paid for the removal of the underground tank and asbestos. The remaining issue is whether the costs to restore the Property include the repaving of the entire parking lot and the installation of a new roof, or merely the costs to restore the portion of the roof and parking lot affected by the removal of the tank and asbestos. Landlord accepts responsibility for the pro rata share of the new roof and new parking lot only, but Plaintiff contends that Landlord should pay for the "full restoration costs incurred."
Price acknowledged that the Landlord has paid to remove the asbestos and the tank. (Price Depo. at 77-78). Plaintiff's counsel also assented to this point: "[W]e'll certainly concede that they did pay to remove and have abated the asbestos and remove the underground storage tanks. . . ." (Tr. at 77 (Apr. 1, 2002)).
See Tr. at 32-38 (Apr. 1, 2002) (discussing the dispute over the restoration costs).
D.I. 23, at 28.
The Court cannot discern a basis to grant summary judgment on the claim for restoration costs in this record. Plaintiff based Count II on Section XV of the Lease's Rider, in which the Landlord agreed to remove the storage tank and the absestos and "to restore the same and deliver to Tenant, the premises in an environmentally clean condition," and on a separate agreement in which Daewoo II and Landlord agreed to the time frame by which Landlord would pay the costs of removal and restoration. In their motion for summary judgment, Defendants state that the parties have agreed to coordinate the removal of the asbestos and the tank, but Defendants do not acknowledge that their obligation arises under the Lease, presumably because that argument would run counter to their other arguments denying the viability of all claims under the Lease. Defendants argue that they have stood "ready to perform their obligation but were prevented from doing so by the Plaintiffs." Consequently, Plaintiff cannot now complain of Defendants' lack of performance. Plaintiff, in its reply memorandum, acknowledges that Defendants have offered to pay the pro rata share of the restoration costs. Yet, Plaintiff argues that Defendants owe more. So, as far as Plaintiff is concerned, the Defendants have not stood "ready to perform their obligation" because the parties have not (and cannot) agree on what the "obligation" is. The Court will not resolve by summary judgment a dispute of fact best left to the ultimate fact-finder. In this case, the parties will be put to their proof at trial. Plaintiff must prove to the jury that a contract was formed, i.e. that a "meeting of the minds" occurred, and the extent of the Landlord's obligation with respect to restoration costs, if any. Defendant's motion for summary judgment on the restoration costs claim in Count II is denied.
D.I. 22, at A050; D.I. 22, at A059-60.
D.I. 21, at 33.
Id.
"In Delaware, `[a] contract comes into existence if a reasonable person would conclude, based on the objective manifestations of assent and the surrounding circumstances, that the parties intended to be bound to their agreement on all essential terms.'" Gillenardo v. Connor Broadcasting Delaware Co., 1999 Del. Super. LEXIS 350, at *11 (Del.Super.) (quoting Leeds v. First Allied Conn. Corp., 521 A.2d 1095, 1101 (Del.Ch. 1986)). "[T]he intent of the parties is generally a question of fact." Id. at *14 ( citing Anchor Motor Freight v. Ciabattoni, 716 A.2d 154, 156 (Del. 1998)).
With respect to Count III, Landlord and Royal reached a separate agreement to adopt and extend Landlord's obligations to repair structural defects under Section 12.3 of the Lease. Therefore, the Court's inquiry must focus on this separate agreement and specifically, whether the parties contemplated in this agreement that the interior and exterior concrete slabs would be included in Landlord's duty to repair the "foundation, exterior walls (not including signs of Tenant on any portion of the Entire Premises), structural columns and structural beams of the Rental Unit." Landlord asserts that the clear language of the Lease obligates the Tenant (or Subtenant) to repair the "floors . . . sidewalks. . .[and] curbs" and that the concrete slabs in issue are a part of the floors, sidewalks, and curbs. In his deposition, Price claimed that the interior and exterior concrete slabs are a part of the "foundation" based on his discussions with an engineer who stated that the claim was "arguable." Whether these particular slabs on this particular property are "foundation," "sidewalks" and/or "floors" is a factual dispute that will be settled by the jury, presumably with the assistance of appropriate expert testimony. Therefore, summary judgment is denied as to Count III.
D.I. 23, at Ex. B.
D.I. 22, at A019.
Id.
D.I. 21, at 34-35.
Price Depo. at 97.
IV. CONCLUSION
For the foregoing reasons, summary judgment is GRANTED in part and DENIED in part. Summary judgment is GRANTED as to Count I, Count II (to the extent it seeks damages for "moldy insulation"), Count IV, and Count V. Summary judgment is DENIED as to Count II (to the extent it seeks "restoration costs") and Count III in its entirety.