Clark Distribution Sys., Inc. v. ALG Direct, Inc.
| Decision Date | 31 March 2014 |
| Docket Number | Civil Action No. 1:10–Cr–2575. |
| Citation | 12 F.Supp.3d 702 |
| Parties | CLARK DISTRIBUTION SYSTEMS, INC., Plaintiff v. ALG DIRECT, INC., Defendant. The Clark Group, Inc., Plaintiff v. ALG Direct, Inc., Defendant/Third Party Plaintiff v. Clark Distribution Systems, Inc., Third–Party Defendant. |
| Court | U.S. District Court — Middle District of Pennsylvania |
Michael A. Farnan, The Farnan Law Office, Stephen J. Del Sole, William S. Stickman, Del Sole Cavanaugh Stroyd LLC, Pittsburgh, PA, for Plaintiff.
Daniel C. Sullivan, Ryan A. Mahoney, Sullivan Hincks & Conway, Oak Brook, IL, John J. Barrett, Jr., Reger, Rizzo & Darnall, LLP, Philadelphia, PA, Elisabeth K. H. Pasqualini, Harrisburg, PA, for Defendant/Third Party Plaintiff.
William S. Stickman, Del Sole Cavanaugh Stroyd LLC, Pittsburgh, PA, for Third–Party Defendant.
This is a consolidated civil action filed by plaintiffs Clark Distribution Systems, Inc. (“CDS”) and Clark Group, Inc. (“Clark”) against American Logistics Group, Inc., operating as ALG Direct, Inc. (“ALG”). CDS, a freight forwarder, alleges that ALG, a logistics provider and distributor of printed materials, breached the parties' Transportation Services Agreement. Relatedly, Clark alleges that ALG breached the terms of a sublease executed between the parties. Presently before the court are plaintiffs' omnibus motion (Doc. 65) for summary judgment and the magistrate judge's report (Doc. 99) recommending that it be granted in part and denied in part. ALG filed objections (Doc. 100) to the magistrate judge's report and recommendation (“R & R”), and the parties fully briefed the issues raised by ALG's objections. (See Docs. 101, 102, 105, 108). For the reasons set forth below, the court will adopt the R & R in part and reject it in part.
Clark is the parent company of CDS, a logistics and transportation company that provides freight forwarder services. (Doc. 67 ¶¶ 1, 5; Doc. 71 ¶ ¶ 1, 5). ALG is a logistics company that often works with freight forwarders such as CDS to arrange for the distribution of its clients' freight. (Doc. 67 ¶ 2, 71 ¶ 2).
On June 28, 2010, CDS and ALG entered into a Transportation Services Agreement (“TSA”), wherein CDS agreed to provide freight forwarding services for ALG. (Doc. 67 ¶ 4, 71 ¶ 4). During this same time period, ALG agreed to sublease one-half of Clark's warehouse in Harrisburg, Pennsylvania (“the Harrisburg Site.”). (Doc. 67 ¶ 7, 71 ¶ 7). ALG sought a Pennsylvania facility in which Clark would handle freight forwarding work pursuant to the TSA, while ALG handled separate co-mail and co-palletization operations after installing its own equipment.2 (Doc. 67 ¶ 10, 71 ¶ 10, 68–2 at 3). A Letter of Intent, executed before the sublease agreement, further delineates the parties' plans. (Doc. 67–4, 71 ¶¶ 58–61, 76 ¶¶ 58–61). Somewhat inexplicably, the sublease contains an integration clause and does not reference either the TSA or the Letter of Intent. (Doc. 67 ¶¶ 11–12, 67–1, 71 ¶¶ 11–12).
In October 2010, ALG's clients began submitting freight to the Harrisburg Site for freight forwarding services. (Docs. 67 ¶ 30, 71 ¶ 30). Immediately thereafter, a conflict arose between the parties concerning CDS's handling of the freight of one of ALG's clients, Vertis Incorporated (“Vertis”). (Docs. 67 ¶¶ 14–35, 71 ¶¶ 14–35). As a result, in November 2010, ALG diverted all freight away from the Harrisburg Site while ALG employees attempted to organize the freight that was already there. (Docs. 71 ¶ 82, 76 ¶ 82).
Around Thanksgiving 2010, ALG staged a number of loads for CDS to deliver to CDS's competitor, Nationwide, for ultimate delivery to USPS. (Docs. 71 ¶ 83, 76 ¶ 83). ALG alleges that CDS failed to deliver this freight as staged; instead, the freight was loaded in a largely disorganized manner and sent to Nationwide. (Docs. 71 ¶ 84, 76 ¶ 84). ALG stopped paying invoices to CDS under the TSA in November 2010. (Doc. 67 ¶ 41; Doc. 71 ¶ 41). ALG also made its last rent payment under the Sublease in November 2010, which reflected a pre-payment of rent for the month of December.3 (See Doc. 67 ¶ 42, Doc. 71 ¶ 42, Doc. 67–1; compare Doc. 68–9 at 13–14 with Doc. 68–9 at 15–17). On December 17, 2010, legal counsel for Clark and CDS sent a letter to ALG demanding that ALG “immediately cease shipping of any additional [c]ommodities and make arrangements to collect all [c]ommodities located at CDS facilities.” (Doc. 71 ¶ 85; Doc. 76 ¶ 85).
CDS filed the instant action against ALG and its then-president, Patrick Del Monico4 on December 17, 2010, asserting breach of contract and anticipatory repudiation against ALG. (Doc. 1 at 5–6). On July 29, 2011, 2011 WL 3241348, the court granted ALG's motion to dismiss for lack of subject matter jurisdiction with leave to amend. (Doc. 32). CDS filed a proper amended complaint that same day, which alleges only breach of contract against ALG under the terms of the parties' transportation services agreement (“the TSA case”). (Doc. 33 ¶¶ 30–32).
On January 26, 2012, the court granted a joint motion to consolidate the TSA case with Clark Group, Inc. v. ALG Direct, Inc. (Civ.A. No. 1:11–CV–1299) (“the Sublease case”). In the Sublease case, Clark alleges that ALG breached the terms of the sublease executed between the parties. (Civ.A. No. 1:11–CV–1299, Doc. 1). After answering the complaint, ALG filed a third-party complaint against CDS. (Civ.A. No. 1:11–1299, Doc. 9). In the third-party complaint, ALG claims that CDS tortiously interfered with the sublease through its alleged abandonment of the TSA and that CDS and Clark conspired to cause ALG to default on the sublease. (Id. ) On November 14, 2011, CDS filed its answer to ALG's third-party complaint. (Civ.A. No. 1:11–1299, Doc. 12).
After consolidation, ALG answered CDS's amended complaint from the TSA case. (Doc. 57). In its answer, ALG asserted several counterclaims against CDS for damages allegedly caused by CDS's mishandling of freight. (Id. )
CDS and Clark filed the instant omnibus motion (Doc. 65) for summary judgment on April 15, 2013. With respect to the TSA case, CDS alleges that the court should grant it partial summary judgment on ALG's counterclaims seeking an indemnification obligation for future damages incurred against Vertis. (Doc. 65 at 4, 66 at 20–24). However, while the motion was pending, ALG filed an amended counterclaim removing this claim (Doc. 93).5 Clark also asserts that summary judgment in its favor is warranted in the Sublease case because ALG breached the sublease by withholding payment. (Doc. 66 at 7–9). ALG does not contest that it withheld payment, but instead asserts that it is not liable for damages because Clark breached ALG's covenant of quiet enjoyment by actually and constructively evicting ALG from the Harrisburg Site. (Doc. 72 at 1).
ALG responds by emphasizing the Letter of Intent and the plain language of the TSA. According to ALG, the parties intended for CDS to handle and prepare ALG's clients' commodities for delivery. ALG argues that CDS's failure to complete this task constructively evicted ALG because it constituted an overt restriction on the use of the subleased premises, limiting the premises' utility, and forcing ALG to remove its commodities from the site. (Doc. 72 at 8–11). ALG also contends that it was actually evicted from the Harrisburg Site when Clark's counsel sent the December 17, 2010 letter, demanding that ALG “cease shipping of any additional [c]ommodities and make arrangements to collect all [c]ommodities located at CDS facilities.” (Id. at 11).
Clark avers that there is no factual or legal support for ALG's defenses. Clark contends that the sublease between the parties was fully integrated and that the court cannot look to the letter of intent or the TSA to demonstrate the parties' intent under the sublease. (Doc. 75 at 4–5). Clark alleges that its conduct does not rise to the level of interference with actual possession necessary to constitute a breach of the covenant of quiet enjoyment. (Id. at 5–9). As a factual matter, Clark asserts that the sublease was not limited to ALG's operations under the TSA, but also contemplated ALG implementing co-mail and co-palletization operations at the site. (Id. at 9–11). Clark further contends that its actions did not force ALG to remove its commodities from the site, and that ALG took this action unilaterally. (Id. at 11–12).
The instant motion was referred to Magistrate Judge Susan E. Schwab, who filed an R & R on December 3, 2013. (Doc. 99). The Magistrate Judge recommends that the court deny CDS's motion for partial summary judgment as moot in light of ALG's amended counterclaim. The Magistrate Judge further recommends that the court grant Clark's motion for summary judgment as it relates to the Sublease case. The Magistrate Judge finds that the parties do not dispute ALG's withholding of rent payments and concludes that the record evidence does not support ALG's defenses of constructive or actual eviction.
The Magistrate Judge finds that ALG was not constructively evicted because the sublease contemplated other uses for the Harrisburg Site besides CDS's handling of ALG's clients' commodities. (Id. at 17–18). Specifically, the sublease indicates that ALG's intended use of the Harrisburg Site was for “general warehouse purposes” and other “common and usual purposes pertaining to [its] business.” (Doc. 67–1 at 5). The Magistrate Judge determines that the sublease was fully integrated and that its terms were unambiguous. (Doc. 99 at 15–16). Thus, the Magistrate Judge concludes that it is precluded from considering extrinsic evidence, such as the Letter of Intent or the TSA, in its analysis of the sublease's purpose. (Id. ) Based on the sublease's terms, the Magistrate Judge reasons that “ALG still maintained the right and privilege under the...
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