Huang v. BP Amoco Corp.

Decision Date02 August 2001
Docket NumberNo. 00-3607,00-3607
Citation271 F.3d 560
Parties(3rd Cir. 2001) JOSEPH HUANG; JULIA Y. HUANG, v. BP AMOCO CORPORATION JOSEPH HUANG; JULIA HUANG, APPELLANTS Argued:
CourtU.S. Court of Appeals — Third Circuit

On Appeal From the United States District Court for the Eastern District of Pennsylvania (D.C. No. 00-CV-01290) District Judge: Honorable Clarence C. Newcomer

Kenneth J. Fleisher (Argued) E. Harris Baum, Zarwin, Baum, DeVito, Kaplan, O'Donnell & Schaer 1515 Market Street, Suite 1200 Philadelphia, PA 19102, for Appellants.

William A. DeStefano (Argued), Jeffrey M. Viola Maura F. Ratigan Saul Ewing

LLP 1500 Market Street Centre Square West, 38th Floor Philadelphia, PA 19102, for Appellee.

Before: Mckee, Ambro, and Greenberg, Circuit Judges

OPINION OF THE COURT

Ambro, Circuit Judge

In this diversity action alleging breach of a commercial property lease under Pennsylvania law, appellants Joseph and Julia Y. Huang (collectively, the "Huangs" or "Lessor") appeal an order by the United States District Court for the Eastern District of Pennsylvania ("the District Court") granting summary judgment in favor of appellee BP Amoco Corporation ("BP Amoco"), the successor in interest of Amoco Oil Company ("Amoco" or "Lessee"). We conclude that by making the unsupported factual assumption that Amoco could not apply for contractually required Government approvals until it procured satisfactory agreements with third-party co-developers, the District Court unjustifiably allowed BP Amoco to flout its implied covenant of good faith and fair dealing.

I. Factual and Procedural History

On September 21, 1998, Amoco by written agreement ("the Lease") leased a commercial property in Philadelphia from the Huangs for fifteen years. The Lease allowed Amoco to make improvements to the property for the purpose of operating a "retail gasoline facility" or "for any [other] lawful purpose." Under section 2 of the Lease, no rent was due until Amoco sold gasoline from the property.

The crucial provisions for our purposes are in subsections 7(b) and 7(c), and S 19, of the Lease. Subsection 7(b) gave Amoco 180 days to obtain "approvals" from various government authorities for any improvements to the property, subject to thirty-day extensions at the Huangs' option:

Lessee shall apply for appropriate zoning and for issuance from the proper municipal, county, state and other duly constituted authorities such unconditional Approvals and permits... (collectively "the Approvals") satisfactory to Lessee, in its sole discretion, for the razing of improvements, construction of improvements and installation of equipment for a retail gasoline facility and for the operation and maintenance of such facility.... Lessee shall not be deemed to be in default of any provision relating to the Approvals as long as the pursuit of the administrative, legal or equitable proceedings shall be diligently carried out by Lessee.

. . . .

It is agreed by Lessee that it shall obtain the Approvals, or denial, within 180 days of the full execution of the Lease. In the event the Approvals, or denial, are not received by Lessee within the 180 days, Lessor shall have the option, at his sole discretion, of extending the period for an additional thirty (30) days, and granting additional thirty (30) day periods thereafter until the Approvals or denial are received, or canceling this Lease.

Section 19 reiterated that Amoco was required to obtain the Approvals: "In reliance on Lessor's representations, warranties and covenants set forth herein, Lessee will obligate itself to expend sums to, without limitation,... obtain the Approvals."

Subsection 7(c)1 listed situations in which Amoco could terminate the Lease without incurring liability. Three of these situations are relevant here. First, it could terminate the Lease if one of the required Approvals were denied. Second, Amoco could terminate the Lease if it were "unable to enter into an agreement satisfactory to Lessee, in its sole discretion, for the co-development with a third party quick- service restaurant...." Third, "[i]f for any reason [Amoco] has not obtained the Approvals within six (6) months after the date of execution of this Lease by both Lessor and Lessee, then Lessee may, at Lessee's discretion, terminate this Lease as though the Approvals, of any thereof, had been denied."

Six months after signing the Lease, BP Amoco had made no efforts to obtain the required Approvals. On March 19, 1999, BP Amoco and the Huangs agreed to extend the 180- day period for obtaining Approvals to April 20, 1999. On April 19, 1999, still having made no effort to obtain any Approvals, BP Amoco sent a letter to the Huangs stating that it "has not obtained the Approvals required by Section 7... within the prescribed 180-day period as extended to April 20, 1999," and "[a]ccordingly, pursuant to Section 7(c)... hereby exercises its privilege of terminating[the Lease]." On neither March 19 nor April 19 did BP Amoco claim that its ability to seek the Approvals was contingent upon its procuring satisfactory third-party co-developer agreements. Indeed, on neither occasion did BP Amoco even mention its inability to reach such agreements.

After BP Amoco announced that it was terminating the Lease despite occupying the property rent-free for seven months, the Huangs brought suit in the District Court and filed a motion for summary judgment. BP Amoco responded with a cross-motion for summary judgment, and the District Court entered summary judgment for it. The District Court found that subsection 7(c), "in clear and unambiguous terms, allowed [BP Amoco] to terminate the contract" in two situations: "if [BP Amoco] failed to reach any agreements, suitable to [BP Amoco] in its sole discretion, with third parties regarding the development of the property" or "if, for any reason, [BP Amoco] failed to obtain [the required] Approvals within six months of executing the contract." Huang v. BP Amoco Corp., No. 00- 1290, slip op. at 1, 7 (E.D. Pa. July 13, 2000).

The District Court recognized that despite subsection 7(c)'s "clear and unambiguous terms," BP Amoco was--like any party to a contract--"bound by an implied covenant of good faith and fair dealing." Id. at 8. But reasoning that "common sense dictates that [BP Amoco] would not have been required to apply for zoning permits, variances, or other Approvals until [it] had determined with specificity how it would develop and operate the property," the District Court found that "any obligation on [BP Amoco] to pursue Approvals was contingent upon [its] success on procuring satisfactory agreements [with] third-party co-developers." Id. at 12 (emphasis added).

In other words, the District Court found, based on its "common sense" assumption, that BP Amoco's duty to act in good faith did not include a responsibility to seek and obtain the Approvals until it first reached acceptable agreements with third-party co-developers. Because BP Amoco "made earnest [though unsuccessful] efforts to negotiate and reach suitable agreements with third parties," it satisfied its covenant to act in good faith. Id. at 9. Therefore, the District Court concluded, BP Amoco could--as its April 19, 1999, letter did--terminate the Lease without ever trying to obtain the Approvals. Id.

Following the District Court's grant of summary judgment to BP Amoco, the Huangs filed a motion for reconsideration. The District Court denied the Huangs' motion, again insisting that BP Amoco could not seek Approvals without first reaching agreements with third- party co-developers, Huang v. BP Amoco Corp., No. 00- 1290, slip op. at 1, 4 (E.D. Pa. October 12, 2000), and this appeal followed. We have jurisdiction under 28 U.S.C. S 1291.

II. Legal Analysis

We review the District Court's grant of summary judgment de novo. Armbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994). Rule 56 of the Federal Rules of Civil Procedure provides that a moving party is entitled to summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the initial burden of demonstrating the absence of any genuine issue of material fact, though the non-moving party must make a showing sufficient to establish the existence of each element of his case on which he will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The standard for granting summary judgment under Rule 56 "mirrors the standard for a directed verdict under Federal Rule of...

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