In re Spagnol Enterprises, Inc.

• Decision Date: 29 December 1987
• Docket Number: Adv. No. 84-117.,Bankruptcy No. 82-1739
• Citation: 81 BR 337
• Parties: In re SPAGNOL ENTERPRISES, INC., a Pennsylvania corporation and its wholly owned subsidiaries, Debtors. SPAGNOL ENTERPRISES, INC., a Pennsylvania corporation and its wholly owned subsidiaries, Plaintiffs, v. PENN LEAR DEVELOPMENT CORPORATION, and Westinghouse Electric Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

81 B.R. 337 (1987)

In re SPAGNOL ENTERPRISES, INC., a Pennsylvania corporation and its wholly owned subsidiaries, Debtors SPAGNOL ENTERPRISES, INC., a Pennsylvania corporation and its wholly owned subsidiaries, Plaintiffs, v. PENN LEAR DEVELOPMENT CORPORATION, and Westinghouse Electric Corporation, Defendants.

Bankruptcy No. 82-1739, Adv. No. 84-117.

United States District Court, W.D. Pennsylvania.

December 29, 1987.

COPYRIGHT MATERIAL OMITTED

Christopher A. Beck, Ravick, Beck & Henny, P.C., Pittsburgh, Pa., for Spagnol Enterprises, Inc.

Robert O. Lampl, Pittsburgh, Pa., for Penn Lear Development Corp.

David Posey, Sr. Counsel, Westinghouse Elec. Corp., Pittsburgh, Pa.

Bernhard Schaffler, Schaffler & Böhm, Pittsburgh, Pa., trustee.

ORDER OF COURT

SIMMONS, District Judge.

AND NOW, this 23rd day of December, 1987, it is hereby ORDERED, ADJUDGED and DECREED that:

Judgment is awarded for Spagnol Enterprises, Inc. in the amount of $227,023.69; Judgment is awarded for Penn Lear Development Corporation in the amount of $47,653.33;

The parties are to share proportionately in the escrow fund.

MEMORANDUM OPINION PROPOSED FINDINGS OF FACT and

CONCLUSIONS OF LAW

BERNARD MARKOVITZ, Bankruptcy Judge.

Before the Court is a contract action brought by Spagnol Enterprises, Inc. (hereinafter "SEI") the Debtor, against Penn Lear Development Corporation (hereinafter "Penn Lear"), asserting breach of a Lease Agreement causing the following damages:

                1) Prior rental due and owing:                        $222,149.68
                2) Overruns on agreed-to items:                          2,206.78
                3) Reimbursement for sprinkler system:                  63,004.84
                4) Reimbursement for services performed
                   which allegedly were Penn Lear's responsibility:     99,192.34
                                                                      ___________
                   Total Damages Sought                               $386,553.64
                                                                      ___________
                

Penn Lear has stipulated to the rental figure as stated, but has challenged the validity of the remaining charges. Penn Lear has further raised counterclaims against SEI, also asserting breach of the Lease Agreement, and contends that it has sustained the following damages:

                  1) Reimbursement for buyout of prior tenant's
                     lease:                                                $ 13,000.00
                

                  2) Reimbursement for work done by Penn
                     Lear which allegedly was Spagnol's responsibility:     $96,866.63
                  3) Reimbursement for additional costs associated
                     with roof repairs:                                       7,934.50
                  4) Lost revenues resulting from Westinghouse's
                     decision not to exercise its renewal
                     options:                                               226,378.80
                                                                           ___________
                     Total Damages Claimed                                 $344,179.93
                                                                           ___________
                

SEI acknowledges responsibility for the debt incurred in buying out the previous tenant, but challenges the remaining assertions.

Having taken three and one-half (3½) days of testimony relating to these claims, we have determined that SEI has proved damages totaling $227,023.69 and Penn Lear has proved damages of $47,653.33. Counsel to both parties are the Trustees of an escrow account upon which this litigation is based. We are led to believe that said account contains a sum less than $274,677.02. Therefore, the parties shall divide said escrowed account based upon their percentages of the total award.

This action constitutes a related proceeding; therefore we will submit Findings of Facts and Conclusions of Law to the District Court.

BACKGROUND

On May 17, 1982, three Chapter 11 bankruptcy petitions were filed on behalf of Arthur J. Spagnol (hereinafter "Spagnol"):

1) Spagnol Enterprises, Inc. (hereinafter "SEI")

2) Delmar Leasing Corporation (hereinafter "Delmar")

3) A.J. Spagnol

Spagnol is the president and majority shareholder of SEI, a Pennsylvania corporation which acts as a holding company for various other properties, including a thirty thousand (30,000) square foot shopping center building in Murrysville, Pennsylvania known as Three Murry Center, Inc. (hereinafter "3MC"). Spagnol is also president and twenty percent (20%) owner of Delmar, which owns a thirty thousand (30,000) square foot warehouse building in Monroeville, Pennsylvania. As part of the Chapter 11 proceedings, Spagnol sought and procured buyers and/or tenants for the various properties owned by the debtors-in-possession.

Penn Lear Development Corporation (hereinafter "Penn Lear") is a Pennsylvania corporation owned and operated by Bernard Dickun (hereinafter "Dickun") and Russell Miller (hereinafter "Miller"), and is in the business of real estate development.

Penn Lear represented Westinghouse Electric Corporation (hereinafter "Westinghouse") in its attempt to locate suitable office space for a particular division. Dickun and Miller originally approached Spagnol, regarding the leasing of the Monroeville property and subleasing to Westinghouse. On March 8, 1983, the Bankruptcy Court entered an Order authorizing Delmar to execute such an agreement for its Monroeville property. Said agreement was not finalized because Westinghouse was dissatisfied with the building and the location.

Within a month, Spagnol and Penn Lear had agreed to offer Westinghouse a sublease on the 3MC facility. On April 12, 1983 Westinghouse indicated that the facility would be acceptable, provided certain "building standard" specifications were met. A lease was prepared and executed by Penn Lear, as Lessor, and Westinghouse, as Lessee, on April 29, 1983. Simultaneously, an identical lease, save the name, address and signature pages, was executed by 3MC, as Lessor, and Penn Lear, as Lessee. The altered pages were prepared by Mrs. Spagnol at Spagnol's office upon Dickun's request. Spagnol and Dickun both acknowledge reading and signing same.

Each lease included, as an Exhibit (hereinafter "Exhibit 61"), the Westinghouse list of specifications, which had to be completed prior to its July occupancy. SEI and Penn Lear agreed to share the responsibility for providing these specific services. The delineation of same is indicated on the Exhibit by the initialing of said items with "Spag" or "PL". These markings were handwritten by Dickun.

Once the work was apportioned, construction began. Because of its bankruptcy status, SEI chose to perform those items which appeared to be more labor intensive, while trying to avoid incursion of material costs. SEI performed the work it agreed to do and "extras" outside the Agreement, utilizing the services of its own employees. Penn Lear employed a company called Facility Service, Inc. to provide essentially all of the labor on the items for which it was responsible, and agreed to do more of the work requiring utilization of materials as well as labor.

From the outset, construction ran behind schedule, causing consistent and recurring prompting by Westinghouse. Penn Lear became frustrated by what it perceived to be procrastination by SEI in performing its responsibilities.

It appears that after the Lease began, major problems began to occur. Westinghouse suffered with plumbing and sewage difficulties; when SEI did not rectify the problem, Penn Lear took over. Similarly, during the first winter of its occupancy, Westinghouse sustained damages as a result of a faulty roof. Penn Lear arranged for continuous repairs, apparently because SEI failed to do so. At approximately the same time, Penn Lear began withholding rental payments, claiming a need to apply said money to the repairs performed on SEI's behalf. This lawsuit resulted therefrom.

Having taken substantial testimony, and having had significant opportunity to observe the witnesses' demeanor, the Court finds the testimony of both Spagnol and Dickun to be more incredible than credible. In preparing the following factual findings and legal conclusions, we rely almost entirely on the various writings presented at the evidentiary hearings, giving very little weight to the oral testimony offered.

FINDINGS OF FACT

A. Lease Responsibilities

1) SEI, as Lessor, was responsible for any construction and/or improvement to the property as outlined in Exhibit 61.

2) Penn Lear, as Lessee, was required to reimburse SEI for expenses incurred in excess of those associated with Exhibit 61.

3) SEI was responsible for obtaining all permits for occupancy of the building as an office facility.

4) Penn Lear was responsible for repairing and maintaining the interior of the premises; however, Penn Lear was not responsible for the electrical, heating, air conditioning and plumbing systems.

5) SEI had a duty to maintain and repair the exterior of the premises, including walls, roof, paving and fencing; and, those interior items for which Penn Lear was not responsible.

6) Penn Lear had the right to make any necessary or desirable alterations to the property, as long as they were properly constructed. Upon Lease termination, Penn Lear had the option to either allow same to become SEI's property or to remove the alterations and return the property to its original state, wear and tear excepted.

7) Penn Lear had the right to install lighting and air conditioning equipment; such items were to remain its personal property and were subject to removal by Penn Lear, provided it reasonably restored SEI's property if removal caused any substantial damage.

8) If Penn Lear breached the Lease Agreement, SEI had the right to terminate the Lease and repossess the property, without relinquishing any right to full rental payments, subject to mitigation of expenses.

9) If SEI breached the Lease Agreement, Penn Lear had the right to terminate the Lease, without being required to continue rental payments.

10) Penn Lear had the option to exercise three 1-year renewals, each with 90...