Nationwide Life Ins. Co. v. Commonwealth Land Title Ins. Co.
| Decision Date | 17 February 2011 |
| Docket Number | CIVIL ACTION NO. 05-281 |
| Parties | NATIONWIDE LIFE INSURANCE COMPANY, Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
_MEMORANDUM
Currently pending before the Court are Defendant Commonwealth Land Title Insurance Company's Motion for Summary Judgment and Plaintiff Nationwide Life Insurance Company's Cross-motion for Summary Judgment. For the following reasons, Plaintiff's Motion is granted in part and denied in part, and Defendant's Motion is denied in its entirety.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 1988, the Franklin Mills Mall (the "Mall") in Philadelphia County was being developed by Liberty Mills Limited Partnership ("Liberty Mills"). On June 28, 1988, in connection with that development, Liberty Mills entered into a Master Declaration and Agreement of Easements, Covenants, Conditions and Restrictions with Liberty Mills Residual Limited Partnership (the "Master Declaration"). (Am. Compl. ¶ 7; Answer ¶ 7.) This Master Declaration governed all stores in the Mall, including the property at issue in this case, located at 1933 Franklin Mills Circle, a/k/a 4301 Byberry Road Unit M3, Philadelphia, Pennsylvania (the "Property"). (Def.'s Mot. Summ. J., Ex. 5.) The Master Declaration provided that "[n]o Occupant shall use or permit the use of its Property within the Total Parcel for any use or operation which is... substantially inconsistent with and/or materially detrimental to the operation of a shopping center and other complementary developments." (Id.. at 36.) Included among such "detrimental" uses or operations were: (a) any use which emits an obnoxious odor, noise or sound; (b) any use which is physically damaging to other portions of the Franklin Park Development or which is dangerous; (c) any assembly or manufacturing operation; (d) any trailer court, mobile home park, junk yard, stock yard, or animal raising operation (other than pet shops and veterinarians); (e) any dump or disposal; (f) any warehouse; (g) any central laundry, dry cleaning plant, or laundromat (not including a facility providing on-site services oriented to pickup and delivery by the ultimate consumer); (h) a mortuary; (i) an establishment selling or exhibiting pornography; (j) a flea market; and (k) an activity which unreasonably physically interferes with the business of any party or other occupant. (Id.. at 36-37.) In addition, no occupant of the Mall was to use or permit the use of its property for: (a) a night club, disco, or dance hall; (b) a lot for the sale of new or used cars; (c) a motor vehicle repair or service shop, or a car wash; or (d) a pool or billiards hall (unless operated as a part of a large-scale recreation or entertainment facility). (Id.. at 37.)
Thereafter, on August 15, 1988, a company by the name of PMI Associates ("PMI") purchased a parcel of the Mall from Liberty Mills. (Am. Compl. ¶ 8; Answer ¶ 8.) At that time, PMI and Liberty Mills entered into a Declaration of Restrictions (the "Declaration of Restrictions"). (Am. Compl. ¶ 9; Answer ¶ 9; Def.'s Mot. Summ. J., Ex. 6.) The Declaration of Restrictions set forth an "Operating Covenant, " which applied to a period of three years after theopening of the business on the Property. (Def.'s Mot. Summ. J., Ex. 6, 6-7.) Such restrictions required that the Property be operated as a Phar-Mor variety or general merchandise retail store, which would include the sale of health and beauty aids, pharmaceuticals, video tapes, housewares, pre-packaged food items, greeting cards, automotive supplies, books and magazines, and school supplies and stationary. (Id.) After the expiration of this Operating Covenant period, the Declaration of Restrictions provided the following:
Buyer shall have the right to use the Property and/or the building for any single retail use which is (1) permitted under all applicable laws, ordinances, orders, rules, regulations and requirements of all governmental authorities having jurisdiction over the Shopping Center Project, (2) consistent with and permitted under the Master Declaration, and (3) compatible with an enclosed super-regional discount specialty retail shopping center (or such other type of shopping center as may be operated by Seller within the Shopping Center Project in the future); provided, however, that in no event shall Buyer use the Property and/or the building for any of the purposes listed on Exhibit 3 [listing the types of stores already in the Mall]; and provided further, however, that Buyer shall not change the use of the Property from a variety or general merchandise store (as described above) without prior written consent of Seller (which shall not be unreasonably withheld or delayed if the proposed use otherwise satisfies the foregoing requirements of this sentence.) In no event shall the Property be used or occupied for any purpose or in any manner other than as set forth in this [paragraph]. With respect to the foregoing restrictions on the use of the Property, Buyer hereby acknowledges and agrees that the Property is part of the larger Shopping Center Project, and that Seller has a substantial interest in the ownership and operation of the Shopping Center Project. Accordingly, Seller desires to insure that the Property being conveyed to Buyer will be used in a manner consistent with the plans and designs of Seller (for both the appearance and the operation of the Shopping Center Project) and not in a manner that would injure or adversely affect the remaining portions of the Shopping Center Project and/or the operation thereof. Buyer hereby further acknowledges the legitimacy of these objections, and acknowledges and agrees that its acceptance of the use restrictions set forth in this Sub-paragraph 2(A) is a material inducement to Seller to convey the Property to Buyer, by virtue of its need to protect the legitimate objectives more particularly described above.
(Id. at 7 (emphasis added).)
Aside from the foregoing language, the Declaration of Restrictions contained several other provisions pertinent to the present dispute. First, it set forth a "Repurchase Option, " which granted Franklin Mills Associates Limited Partnership ("Franklin Mills"), the successor-in-interest to Liberty Mills, (Def.'s Mot. Summ. J., Ex. 3, Dep. of Gregg Goodman, 11:1-17:5, Aug. 18, 2010 ("Goodman Dep.")), the right to buy back the property from PMI under certain circumstances. (Def.'s Mot. Summ. J., Ex. 6, 9-12.) It stated specifically that "[i]f at any time after the expiration of the Buyer's three (3) year covenant to operate its building as provided in Sub-paragraph 2(B) above, Buyer or any occupant of the Property desires to cease conducting business to the public in its building on the Property, then Seller may, at its sole option, repurchase the property..." (Id. at 10.) In addition, the Declaration required PMI to pay to Franklin Mills annual assessments for the purpose of (1) contributing to the funding of the Promotion Fund used to advertise and promote businesses in the Mall and (2) maintaining the Common Areas ("CAM charges"). (Id.. at 13-15.) According to the Declaration, "[n]o sale or transfer shall relieve the owner of the Property... from liability for any Annual Assessments." (Id. at 14.) Finally, the Declaration of Restrictions provided that "[a]ll of foregoing covenants, conditions, restrictions and easements shall be covenants running with the land, and shall be binding upon the parties hereto and their respective representatives, successors and assigns, and all subsequent owners and occupants of the Property...." (Id. at 30.)
In 2001, PMI took out a $3.5 million loan from Plaintiff Nationwide Life Insurance Company ("Nationwide") using the above Property as security (the "Mortgage"). (Am. Compl. ¶¶ 13-14; Answer ¶¶ 13-14; Defs Mot. Summ. J., Ex. 4.) The Mortgage explicitly stated that PMI "covenants and warrants with and to Lender that, subject to the Permitted Exceptions (ashereinafter defined), Borrower is indefeasibly seized of the Property and has good right, full power, and lawful authority to convey and encumber all of the same as aforesaid." (Def.'s Mot. Summ. J., Ex. 4, at Bates No. 3608.) In the "Permitted Exceptions" attachment, the Mortgage explicitly referenced both the Master Declaration and the Declaration of Restrictions.1 (Id.. at Bates No. 3642.)
In connection with this Mortgage, Nationwide purchased a title insurance policy (the "Policy") from Defendant Commonwealth Land Title Insurance Company ("Commonwealth"). (Def.'s Mot. Summ. J., Ex. 2.) The Policy contained several crucial provisions. First, it encompassed what is known as an American Land Title Association 9 Endorsement (the "ALTA 9 Endorsement"), covering Nationwide against, among other things, loss or damage sustained by reason of:
1. The existence at Date of Policy of any of the following:
(a) Covenants, conditions or restrictions under which the lien of the mortgage referred to in Schedule A can be divested, subordinated or extinguished, or its validity priority or enforceability.
(b) Unless expressly excepted in Schedule B
(2) Any instrument referred to in Schedule B as containing covenants, conditions or restrictions on the land which, in addition, (i) establishes an easement on the land; (ii) provides a lien for liquidated damages; (iii) provides for a private charge or assessment; (iv) provides for an option to purchase, a right of first refusal or the prior approval of a future purchaser or occupant.
(Id. at Bates No. 591.) Second, it contained the referenced Schedule B, entitled "Exceptions from Coverage, " which stated as follows:
SCHEDULE B
EXCEPTIONS FROM COVERAGE
This policy does not insure against loss or damage (and [Commonwealth] will not pay costs, attorney's fees or expenses) which arise by reason of
4. Master Declaration and Agreement of Easements, Covenants, Conditions and Restrictions between Liberty Mills...
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