McGaffic v. City of New Castle

• Decision Date: 14 May 2009
• Docket Number: [DO] No. 407 C.D. 2008.
• Citation: 973 A.2d 1047
• Parties: Robert W. McGAFFIC, Executor of the Estate of Eleanor L. McGaffic, Deceased, and Robert W. McGaffic, in his own right, and George G. Love v. CITY OF NEW CASTLE, Appellant.
• Court: Pennsylvania Commonwealth Court

973 A.2d 1047

Robert W. McGAFFIC, Executor of the Estate of Eleanor L. McGaffic, Deceased, and Robert W. McGaffic, in his own right, and George G. Love v. CITY OF NEW CASTLE, Appellant.

No. 407 C.D. 2008.

Commonwealth Court of Pennsylvania.

Argued January 28, 2009.

Decided May 14, 2009.

Samuel P. Kamin, Pittsburgh, for appellant.

Jonathan Solomon, New Castle, for appellee.

BEFORE: LEADBETTER, President Judge, McGINLEY, Judge, SMITH-RIBNER, Judge, PELLEGRINI, Judge, SIMPSON, Judge, LEAVITT, Judge, and BUTLER, Judge.

OPINION BY Judge SIMPSON.

In this interlocutory appeal by permission, the City of New Castle (City) seeks review of a verdict in favor of Robert W. McGaffic, Executor of the Estate of Eleanor L. McGaffic, Deceased, and Robert W. McGaffic, in his own right, and George G. Love (Property Owners), from a non-jury trial conducted in the Court of Common Pleas of Lawrence County (trial court). The bifurcated trial was limited to two questions: 1) whether the Property Owners' complaint alleging breach of contract was timely filed within the four-year statute of limitations, and 2) whether the City entered into an enforceable contract where the contract was not signed by the City Controller.¹ Following a verdict for the Property Owners on both issues, the City sought an interlocutory appeal, which the trial court certified pursuant to Pa. R.A.P. 1311. Thereafter, this Court granted the City's petition for permission to appeal. Upon review, we affirm the trial court.

I. Background

A. Redevelopment

The Centennial Building (Property) was a commercial rental property owned by the Property Owners in the downtown section of the City. In 1958, the New Castle City Council (City Council) created the Redevelopment Authority of the City of New Castle (RANC) to conduct urban renewal activities in the City. RANC participated in redevelopment activities with financial assistance from the United States Department of Housing and Urban Development (HUD), the Commonwealth of Pennsylvania, and the City.

In 1968, RANC filed a development plan for the City's downtown area. Subsequently, RANC informed the Property Owners and their tenants that the Property would be acquired, the tenants relocated, and the building demolished as part of the redevelopment of the City. By 1973, RANC acquired 96% of all properties located within the redevelopment area and had taken and destroyed all but five of the 212 buildings scheduled for demolition. At this time, RANC had neither acquired nor destroyed the Property.

By the end of 1974, HUD funds were no longer available to RANC. In 1977, the City and RANC entered into the Urban Redevelopment Closeout Agreement (Closeout Agreement). The Closeout Agreement, which is the basis for the present controversy, stated, "[a]ny costs or obligations incurred in connection with the said program with respect to claims which are disputed, contingent, unliquidated or unidentified, and for the payment of which insufficient program funds have been reserved ... shall be borne by the [City]." Reproduced Record (R.R.) at 878a. The Closeout Agreement required the City to assume debts and liabilities for RANC and allowed the City to receive HUD funds directly. The City Council approved and the Mayor signed the Closeout Agreement, though the City Controller did not.

B. De Facto Taking Litigation

In 1978, RANC publicly announced it no longer intended to take the Property. Subsequently, the Property Owners filed a Petition of Appointment of Viewers against RANC and the City to determine if a de facto taking of the Property occurred. At the time, the Property Owners failed to raise the existence of the Closeout Agreement, and the City was dismissed from the action. However, the trial court left open the possibility of later review of the City's liability if it found a de facto taking occurred and RANC could not pay just compensation because the City withheld the funds.

The de facto taking litigation continued against RANC alone. In 1986, the trial court found a de facto taking of the Property occurred.

In 1994, the Board of View issued a report valuing the Property at $184,000 at the time of the taking. After a series of appeals and motions by RANC, the trial court awarded delay compensation resulting in a final damage award of $ 1,254,-007.92.² RANC appealed, and this Court affirmed the trial court with minor adjustments. See McGaffic v. Redev. Auth. of the City of New Castle, 732 A.2d 663 (Pa. Cmwlth.1999).

C. Contract Litigation

RANC lacked funds to pay the de facto taking award, and the City refused to honor its obligation under the Closeout Agreement. Property Owners, as third-party beneficiaries of the Closeout Agreement, subsequently filed suit against the City.

Following a non-jury trial, limited to the issues of whether the Property Owners timely filed their complaint and whether the Closeout Agreement was enforceable, the trial court ruled in favor of the Property Owners on both issues. Thereafter, the trial court certified its order for permissive interlocutory appeal. We granted that permission.³

II. Statute of Limitations

The City argues the trial court erred in finding the Property Owners' suit was timely filed. Citing Wachovia v. Ferretti, 935 A.2d 565 (Pa.Super.2007), the City argues the statute of limitations began running in 1989, before the close of the de facto taking litigation, when the Property Owners' right to institute and maintain a cause of action for payment of just compensation first accrued. Therefore, the current contract litigation is time-barred. The City contends by 1989 the Property Owners knew the following: (1) a de facto taking was conclusively established, (2) RANC appraised the property in the amount of $160,000, and (3) RANC did not have sufficient funds to pay the appraisal amount. Therefore, the Property Owners should have filed a claim against RANC and the City for payment of just compensation in 1989. Instead, the Property Owners allowed their claim against the City to expire by waiting for a final judgment and determination of de facto taking damages against RANC.

Most breach of contract actions are governed by a four-year statute of limitations. Section 5525 of the Judicial Code, 42 Pa. C.S. § 5525.⁴ Generally speaking, the statute of limitations begins to run as soon as the right to institute and maintain the suit arises. Sevast v. Kakouras, 591 Pa. 44, 915 A.2d 1147 (2007). In an action for breach of contract, the statute begins to run on the date the action accrues—the date of the breach. Packer Soc. Hill Travel Agency, Inc. v. Presbyterian Univ. of Pa. Med. Ctr., 430 Pa.Super. 625, 635 A.2d 649 (1993). The breach occurs when payment under the contract is demanded and not made. Id. The City argues that because the Property Owners knew of the Closeout Agreement and were aware of the likelihood RANC would be unable to satisfy the judgment, their claim against the City accrued when the de facto taking judgment was finalized.

The City argues the Superior Court's holding in Wachovia stands for the proposition that the Property Owners' claim accrued on the date they had notice of the fact of harm, not the specific damage amount. In Wachovia, the Superior Court held a legal malpractice claim accrues at the occurrence of an attorney's breach of duty, not when damages were finalized resulting in actual loss. There, the Superior Court reasoned,

[I]n Pennsylvania, the occurrence rule (i.e., the occurrence of the breach of a duty) governs when the statute of limitations begins to run in a legal malpractice action, and the statute of limitations is tolled only until the injured party should reasonably have learned of this breach. Accordingly, we reject[] the plaintiff's argument that the pendency or potential pendency of an appeal in the underlying case would toll the statute of limitations in the legal malpractice action.

Id. at 574 (citations and internal quotation marks omitted). Based on this holding, the City argues, the Property Owners allowed the statute of limitations to expire by waiting for a final determination of damages against RANC before seeking payment from the City. We disagree.

The current breach of contract action deals with payment of money by the City for liabilities under the former Eminent Domain Code incurred by another entity, RANC. Thus, unlike the situation in Wachovia, the predicate liability does not arise from a common law cause of action; rather, the predicate liability is statutory and is based on a constitutional limitation of government,⁵ the procedures are strictly governed by statute, and statutory damages are the measure of loss. In the case of a de facto taking, those damages include attorney's fees and reimbursement for costs and expenses of litigation through trial.⁶ Also, delay compensation up to the date of payment of the award is recoverable.⁷ These damages can only be ascertained at the end of the eminent domain proceedings, here not earlier than September, 1997. Under these circumstances, the common law principles of Wachovia are inapplicable. Further, no error is evident in a determination that a 1998 breach of contract suit initiated to compel payment of statutory damages fixed no earlier than 1997 is timely.

Moreover, under the terms of the Closeout Agreement, the City was required to pay eminent domain liabilities of RANC. A breach occurs when the City refuses to honor that contractual obligation. This is the initial point at which Property Owners could maintain an action against the City under the Closeout Agreement. Here, the party asserting the affirmative defense of the statute of limitations, the City, failed to prove that its refusal to honor a demand for payment under the Closeout Agreement occurred more than four years before the 1998 commencement of suit. For this additional reason we discern no legal or factual basis to afford the City relief from the verdict against it on the statute of limitations...