Flight Systems, Inc. v. Electronic Data Systems Corp.

• Decision Date: 29 April 1997
• Docket Number: No. 96-7351,96-7351
• Citation: 112 F.3d 124
• Parties: FLIGHT SYSTEMS, INC., Appellant, v. ELECTRONIC DATA SYSTEMS CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 124

112 F.3d 124

FLIGHT SYSTEMS, INC., Appellant, v. ELECTRONIC DATA SYSTEMS CORPORATION, Appellee.

No. 96-7351.

United States Court of Appeals Third Circuit.

Argued Jan. 22, 1997.

Decided April 29, 1997.

Steven E. Grubb (Argued), Goldberg, Katzman & Shipman, Harrisburg, PA, for Appellant.

Diana S. Donaldson, Paul G. Gagne (Argued), Schnader, Harrison, Segal & Lewis, Philadelphia, PA, for Appellee.

Before: NYGAARD and LEWIS, Circuit Judges, and SCHWARZER, District Judge ^*

OPINION OF THE COURT

NYGAARD, Circuit Judge.

Flight Systems, Inc. appeals an order by the district court adopting the report and recommendation of a magistrate judge and dismissing Flight Systems' suit under Fed.R.Civ.P. 12(b)(6). We will vacate the order and remand for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

This diversity case arises from a contract dispute governed by the laws of Pennsylvania. Because it comes to us after dismissal under Rule 12(b)(6), the facts are presented as alleged by Flight Systems.

In April 1995, Electronic Data Systems ("EDS"), a Texas corporation, contacted Flight Systems, a Pennsylvania corporation, through a broker about renting space in an office building at 505 Fishing Creek Road in Lewisberry, Pennsylvania. Flight Systems was amenable, and the broker sent Flight Systems a letter dated April 20, 1995 outlining the terms of the five-year lease EDS desired. On the same day, Flight Systems removed the property from the rental market.

Intensive negotiations followed, culminating in a 59-page blackline draft lease agreement. On June 28, 1995, Ronald Katzman, the attorney representing Flight Systems, received a memorandum from Donna Merriman, an EDS employee who, Flight Systems alleges, was fully authorized to bind EDS to the terms of the lease. Merriman stated that if one final modification, which she attached, was agreeable, Katzman should contact Barbara Stone of EDS and the lease agreement would be prepared for execution. Katzman approved the proposed modification and conveyed his acceptance of the lease to Stone the same day. Flight Systems contends that a contract was formed at this point.

When Katzman spoke to Stone on June 28, 1995, she told him that the lease agreement would be executed immediately by EDS, and then forwarded by overnight delivery to him for signature by Flight Systems' representatives. Instead, the next day Flight Systems president Robert Shaffner received a telephone message that EDS no longer wished to lease the property at 505 Fishing Creek Road. Katzman tried to find out what had happened, but received no answer until August 15, 1995, when EDS' attorney informed Flight Systems that EDS' acceptance of the lease agreement had been contingent on procuring additional business in the Harrisburg area. Since EDS had not succeeded, it did not need more office space. Flight Systems says that it had never been told of this contingency.

Flight Systems sued EDS in the Pennsylvania Court of Common Pleas, alleging breach of contract and breach of obligation to negotiate in good faith. EDS removed the case to the United States District Court. EDS then made a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the complaint for failure to state a claim upon which relief may be granted. A magistrate judge recommended that the court grant EDS' motion, and the district court issued an order dismissing the complaint.

II. BREACH OF CONTRACT

The district court found that Flight Systems could not prevail on its breach of contract claim because it had not alleged the existence of a signed writing that would satisfy Pennsylvania's statute of frauds governing real property leased for more than three years, 68 Pa. Stat. Ann. § 250.202, although it alleged the existence of a five-year lease. We disagree.

On a Rule 12(b)(6) motion, an affirmative defense, such as the statute of frauds defense raised by EDS, is appropriately considered only if it presents an insuperable barrier to recovery by the plaintiff. See Continental Collieries v. Shober, 130 F.2d 631, 635-36 (3d Cir.1942) (holding that affirmative defenses may be raised on a 12(b)(6) motion "where the defect appears on the face of the pleading"). Applying similar reasoning, the Pennsylvania courts have concluded that a waivable statute of frauds defense may serve as a basis for judgment on the pleadings only when trial would be a "fruitless exercise" because the plaintiff fails to allege facts in his pleadings that take an oral contract outside the statutory prohibition. Keil v. Good, 467 Pa. 317, 356 A.2d 768, 771 (1976).

Allowing this matter to proceed would not be a fruitless exercise. Under Pennsylvania law, a lease of real property for a term of more than three years must be made in writing and signed by the parties creating the lease. 68 Pa. Stat. Ann. § 250.202. However, this statute of frauds is a waivable defense. Blumer v. Dorfman, 447 Pa. 131, 289 A.2d 463, 468 (1972). Consequently, it will not bar recovery if EDS fails to raise the defense in its answer, or admits to the existence of a contract in pleadings or testimony. Zlotziver v. Zlotziver, 355 Pa. 299, 49 A.2d 779, 781 (1946); Target Sportswear Inc. v. Clearfield Foundation, 327 Pa.Super. 1, 474 A.2d 1142, 1150 (1984) (citing cases). Pennsylvania courts have declared that the purpose of the statute of frauds is to shield persons with interests in land from being deprived of those interests by perjury, not to arm contracting parties with a sword they may use to escape bargains they rue. Fannin v. Cratty, 331 Pa.Super. 326, 480 A.2d 1056, 1059 (Pa.Super. Ct.1984) (citing Zlotziver, 49 A.2d at 781 and Gerlock v. Gabel, 380 Pa. 471, 112 A.2d 78, 81 (1955)); accord Sferra v. Urling, 328 Pa. 161, 195 A. 422, 426 (1937); Axler v. First Newport Realty Investors, 279 Pa.Super. 14, 420 A.2d 720, 722 (1980) (citing In re Estate of Beeruk, 429 Pa. 415, 241 A.2d 755, 758 (1968)). If the defendant admits under oath that a contract was formed, the purposes of the statute of frauds are served, Zlotziver, 49 A.2d at 781, and the contract will be afforded full legal effect, Sferra v. Urling, 195 A. at 425. Allowing EDS to dispose of the breach of contract claim before it has even submitted an answer would enable EDS to use the statute of frauds as a sword, in contravention of the statute's purpose. Cf. ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 862-63 (3d Cir.1994) (finding dismissal on a 12(b)(6) motion improper where applicable New Jersey statute of frauds contained an exception for admissions).

Moreover, should EDS raise the statute of frauds as an affirmative defense in its answer, Flight Systems may be able to produce writings that satisfy the statute of frauds. To ensure that the statute of frauds is not used as a sword to perpetrate fraud, the Pennsylvania Supreme Court has stressed that adjudicators should "always be satisfied with 'some note or memorandum' that is adequate ... to convince the court that there is no serious possibility of consummating fraud by enforcement." In re Estate of Beeruk, 241 A.2d at 758 (quoting 2 Corbin on Contracts § 498 (1950)). As for lease agreements, "no particular form of words is necessary to constitute a lease and ... any writing is sufficient which establishes the intention of one party voluntarily to dispossess himself of the premises, for a consideration, and of the other to assume the possession for a prescribed period." Morrisville Shopping Center v. Sun Ray Drug Co., 381 Pa. 576, 112 A.2d 183, 186 (1955) (citations omitted). The writing need not be titled a "lease." Id., 112 A.2d at 187. Furthermore, the statute of frauds can be satisfied by several writings if at least one writing is signed by the party to be charged and refers to the unsigned writing or it appears from examination of all the writings that the signed writing was signed with reference to the unsigned writings. See Target Sportswear, 474 A.2d at 1147 (citing Fleming v. Strayer, 163 Pa.Super. 607, 63 A.2d 122, 124 (1949)). ¹ Because the statute of frauds pertaining to leases, 68 Pa. Stat. Ann. § 250.202, requires that a lease be signed by both the landlord and tenant, Flight Systems must produce writings signed by both parties, see Flomar Corp. v. Logue, 418 Pa. 181, 210 A.2d 254, 255 (1965), although both signatures need not appear on the same writing. Where the writings produced consist of an offer and acceptance, both writings must pertain to the same terms without modification. Target Sportswear, 474 A.2d at 1149-50 (quoting 37 C.J.S. Statute of Frauds § 180(c)).

In a footnote, the district court rejected Flight Systems' contention that the June 28, 1995 memorandum from Donna Merriman of EDS, referring to and annexing a proposed final modification to the draft lease agreement, constituted a signed writing. We agree with the district court that this writing alone would not satisfy the statute of frauds, since § 250.202 requires the signatures of both parties to a lease agreement for more than three years. Flomar, 210 A.2d at 255. However, we do not agree that the memorandum could not satisfy the statute of frauds requirement of a "signed" writing if Flight Systems also produced writings it signed which pertain to the same terms, Target Sportswear, 474 A.2d at 1149-50, and sufficiently state those terms, In re Estate of Beeruk, 241 A.2d at 758. Any mark or symbol--including a typewritten name--will be deemed to constitute a signature for the purposes of the statute if it is used with the declared or apparent intent to authenticate the memorandum. Hessenthaler v. Farzin, 388 Pa.Super. 37, 564 A.2d 990, 993 (Pa.Super.1989) (finding mailgram which stated, "We, Dr. Mehdi and Marie Farzin, accept the offer of $520,000 for our property at 6175 and 6185 Hocker Drive Harrisburg, Pennsylvania," was sufficiently reliable to constitute a "signed" writing) (surveying case law). As the Hessenthaler court n...