Otis Elevator Co. v. George Washington Hotel Corp., 93-3447

• Decision Date: 24 June 1994
• Docket Number: No. 93-3447,93-3447
• Citation: 27 F.3d 903
• Parties: OTIS ELEVATOR COMPANY, Appellee, v. GEORGE WASHINGTON HOTEL CORPORATION, Stanley S. Bazant, Stanley S. Bazant, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 903

27 F.3d 903

OTIS ELEVATOR COMPANY, Appellee, v. GEORGE WASHINGTON HOTEL CORPORATION, Stanley S. Bazant Stanley S. Bazant, Appellant.

No. 93-3447.

United States Court of Appeals Third Circuit.

Argued May 13, 1994.

Decided June 24, 1994.

Albert J. Zangrilli, Jr. (argued), Yukevich, Blume & Zangrilli, Pittsburgh, PA, for appellee.

Steven M. Petrikis (argued), Jeffrey P. Brahan, Rose, Schmidt, Hasley & DiSalle, P.C., Pittsburgh, PA, for appellant.

Before: BECKER, LEWIS, Circuit Judges and POLLAK, District Judge. ^*

OPINION OF THE COURT

LOUIS H. POLLAK, District Judge.

This diversity case arises out of a contractual dispute between Stanley Bazant, a hotel owner, and Otis Elevator Company. Intertwined with certain procedural questions is one substantive question of Pennsylvania law. That question concerns the construction of a so-called "automatic renewal provision"--that is, a contractual provision pursuant to which a contract for a term is renewed automatically for a further term unless, before a specified date, one party gives notice of an intent to terminate. The district court held that Bazant's late notice of his intent to terminate the contract did not suffice to avoid renewal. On appeal, Bazant argues that his late notice ought to have been deemed sufficient since Otis did not demonstrate that it would be prejudiced by Bazant's tardiness. Bazant relies on a Pennsylvania Superior Court decision--Music, Inc. v. Henry B. Klein Co., 213 Pa.Super. 182, 245 A.2d 650 (1968)--which appears to be the only Pennsylvania appellate case directly addressing the question. In Music, the Superior Court was sharply divided. Since Music, and prior to the case at bar, the question has been addressed on at least three occasions by district judges in this circuit, and Music has received mixed reviews. We conclude that in the case at bar the district court correctly declined to follow the prevailing opinion in Music--an opinion which we think is not likely to be followed by the Pennsylvania Supreme Court.

Part I of this opinion describes the background and procedural history of this case. Part II analyzes the issues raised by Bazant's appeal.

I.

Otis Elevator Company ("Otis") entered into an elevator maintenance and service contract with the George Washington Hotel Corporation on December 12, 1980. The contract provided for service from January 1, 1981 until December 31, 1990 at the George Washington Hotel in Washington, Pennsylvania. The contract also provided that the contract would be renewed automatically for a five-year term unless a party gave notice of an intent to terminate at least ninety days before the end of the contract term:

Either party may terminate this agreement at the end of the extended contract term selected above or at the end of any subsequent five year period by giving the other party 90 days prior written notice.

Stanley Bazant ("Bazant") is the successor in interest to the George Washington Hotel Corporation and is the only remaining defendant in this case. On November 30, 1990--thirty-one days before the end of the extended contract term--Robert Bazant, Stanley Bazant's son and the Hotel's controller, sent a letter to Otis stating an intent to terminate the contract as of December 31, 1990. On December 6, 1990, a representative of Otis responded by letter. In Otis' view, the contract had already been automatically renewed for a five-year term.

Stanley Bazant disagreed with Otis' position that automatic renewal had occurred. In addition, Bazant withheld payments for the last three months of the contract term (October through December, 1990). According to Bazant, he withheld payments because of problems with Otis' service.

Otis filed the instant action in the United States District Court for the Western District of Pennsylvania on November 15, 1991. On January 2, 1992, Otis filed an amended complaint alleging two counts against Bazant: (1) count II, seeking damages from Bazant for breach of contract based on Bazant's failure to pay Otis the monthly contract price for the months of October through December, 1990; and (2) count IV, seeking damages from Bazant based on Bazant's failure to honor the renewed contract term.

On February 6, 1992, Bazant filed an answer to the amended complaint that contained a counterclaim. The counterclaim alleged that Otis had failed to follow through on a commitment to give Bazant a twenty-percent discount.

On July 21, 1992, Bazant moved for partial summary judgment. Bazant argued in that motion that he was entitled to summary judgment on count IV of Otis' complaint because Robert Bazant's November 30, 1990 letter terminated the contract with Otis. Otis filed a response to Bazant's motion, but did not file a cross-motion for summary judgment on count IV.

On August 24, 1992, Otis moved for summary judgment on Bazant's counterclaim. Bazant did not file a response.

In an opinion dated October 9, 1992, the district court denied Bazant's motion for summary judgment on count IV and, acting sua sponte, granted summary judgment to Otis on count IV. The district court also granted Otis' motion for summary judgment on Bazant's counterclaim.

Up to that point in the proceedings, Bazant's only substantive defense to Otis' count IV claim had been that, under the terms of the contract and the applicable Pennsylvania case law, Robert Bazant's letter of termination sufficed to avoid automatic renewal. Five months after the district court granted summary judgment in Otis' favor on count IV, Bazant filed a motion to amend his answer to the amended complaint to include the contention that termination was justified due to Otis' substantial non-performance of its contractual duties. By order dated March 17, 1993, the district court granted Bazant's motion to file an amended answer.

At a pre-trial conference on August 4, 1993, Bazant voiced an objection to the district court's proposed jury instructions: Bazant complained that the proposed instructions directed the jury that Bazant's liability with respect to count IV had already been determined, and that the only issue for the jury with respect to that count was the measure of damages. Bazant protested that the proposed instructions did not allow him to raise non-performance as a defense to liability under count IV; he was only allowed to raise non-performance as a defense to liability under count II, the count seeking damages for Bazant's non-payment for services rendered by Otis in October through December of 1990. Bazant argued that, by allowing him to amend his answer, the district court had reopened the issue of Bazant's liability under count IV, notwithstanding the October 9, 1992 order granting summary judgment on that count. The district court disagreed. The district court regarded the issue of liability with respect to count IV as decided by its October 9, 1992 order, and concluded that Bazant could assert non-performance only as a defense to liability under count II.

At trial, on August 5, 1993, Bazant sought to testify about two events relevant to his claim that he was entitled to a twenty-percent discount. At side-bar, Bazant made the following proffer. Bazant said that, if allowed to testify, he would say that he telephoned Otis in October 1990 and asked to speak to an Otis representative regarding the Hotel's account. His call was directed to someone identified as Mr. Mahoney who stated that the Hotel would be given a twenty-percent discount if it agreed to the five-year renewal term. The district court excluded the testimony on the ground that Bazant had not come forward with evidence that the person identified as Mahoney had authority to make admissions for Otis. Bazant was permitted to testify that, at a meeting in December 1990, Otis' account representative for the Hotel, Peter Volmer, reiterated this twenty-percent discount offer. The district court, however, later concluded that this testimony could not support a jury verdict for Bazant on the counterclaim and directed a verdict in Otis' favor on the counterclaim. The district court reasoned that, because the December 1990 meeting occurred after the ninety-day deadline for providing notice of termination, the contract had already been renewed and thus there was no consideration to support a promise to give a twenty-percent discount.

The jury rendered a verdict in favor of Otis and against Bazant, in the amount of $4,000 for the months of October, November and December of 1990 (count II), and $33,194 for the five-year renewal period (count IV).

On appeal, Bazant challenges the rulings of the district court: (1) denying Bazant's motion for summary judgment on count IV; (2) granting summary judgment, sua sponte, in Otis' favor on count IV, and instructing the jury that Bazant's liability had been established with respect to that count; and (3) excluding evidence relevant to Bazant's counterclaim and directing a verdict in Otis' favor on the counterclaim.

II.

A. The denial of Bazant's motion for summary judgment on count IV

In his motion for summary judgment on count IV, Bazant argued that his son's November 30, 1990 letter stating the Hotel's intention to terminate the contract with Otis sufficed to avoid automatic renewal. To support his position, Bazant relied upon Music, Inc. v. Henry B. Klein Co., 213 Pa.Super. 182, 245 A.2d 650 (1968). In Music, the prevailing opinion in the Pennsylvania Superior Court observed that the automatic renewal provision at issue did not contain a "time is of the essence" clause. After making this observation, the Music court refused to enforce the automatic renewal provision because the plaintiff had not shown that it was prejudiced by the late notice. The district court in the present case declined to follow Music and instead endorsed the approach taken in Sungard Services Co. v. Joint Computer Center, 1989 WL 46049, 1989 U.S.Dist. LEXIS 4449, No. 88-8367 (E.D.Pa. April 26, 1989). In Sungard Services v....