Parkway Garage, Inc. v. City of Philadelphia

Decision Date17 December 1993
Docket NumberNo. 92-1828,Nos. 92-1828,92-1905,No. 92-1905,92-1828,s. 92-1828
Citation5 F.3d 685
PartiesPARKWAY GARAGE, INC., Appellant in, v. The CITY OF PHILADELPHIA; The Philadelphia Parking Authority; Webster M. Fitzgerald; Donald Kligerman; Andres Perez; The Philadelphia Parking Authority, Appellant in
CourtU.S. Court of Appeals — Third Circuit

Samuel E. Klein (argued), Dechert Price & Rhoads, Harold E. Kohn, Robert J. LaRocca, Joanne Zack, Kohn, Nast & Graf, P.C., Philadelphia, PA, for Parkway Garage, Inc.

Bonnie Brigance Leadbetter (argued), Fineman & Bach, P.C., Philadelphia, PA, for Philadelphia Parking Authority.

Lek Domni (argued), Office of City Sol., Philadelphia, PA, for City of Philadelphia.

Before: GREENBERG, NYGAARD, and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

The primary issue raised by this appeal is what quantity of evidence suffices to prove personal knowledge and improper motive on the part of the principal official of a municipality, under 42 U.S.C.A. Sec. 1983 (West 1981 & Supp.1993), in his decision to terminate a binding written contract. We must also interpret a contractual provision relating to the assessment of the costs of arbitration between the defendants, the City of Philadelphia (City) and the Philadelphia Parking Authority (Authority), and the plaintiff in this case, Parkway Garage, Inc. (Parkway). Finally, the parties to this appeal call upon this court to predict whether the Pennsylvania Supreme Court would allow a cause of action for breach of an implied covenant of good faith under the facts of this case.

Parkway filed this civil rights claim against the City and the Authority as garage owner and landlord, respectively. The complaint alleged that the City and the Authority misused the City's police power of the Licenses and Inspections Department (L & I Department) to benefit themselves in their proprietary and economic capacities as garage owner and landlord in violation of Sec. 1983.

After a fourteen-day trial on the merits, preceded by lengthy preliminary skirmishes, a jury returned a verdict in Parkway's favor for $5 million on its civil rights claim, finding the Authority and the City jointly and severally liable. The jury also found in favor of Parkway on the pendent state claim for breach of the implied covenant of good faith, assessing an additional $1,000,000 in damages against the Authority. Finally, the district court assessed the costs of a prior arbitration between the parties over an alleged breach of the lease between Parkway and the Authority.

The City and the Authority filed motions for judgment notwithstanding the verdict (JNOV) on all claims under Federal Rules of Civil Procedure (Rules) 50 and 59. 1 The district court granted the motions for JNOV on the civil rights verdict, but denied the Authority's motion for JNOV on the breach of the implied covenant of good faith. Parkway timely appealed the grant of the motion for JNOV on the Sec. 1983 claims, and the Authority cross-appealed the verdict on the pendent state claim. Parkway also appealed the assessment against it of the costs of arbitration. We reverse. 2

I.

The City owns valuable land located in Central City at 15th and Arch Streets, which it leases to the Authority. In 1963, the Authority entered into a 36 year sublease with John McShain, Inc. (McShain), under which McShain agreed to build and operate an underground parking garage (the garage). McShain built the garage between 1963 and 1965, with a structural reserve strength far in excess of the City's building code requirements. Dr. Mete Sozen, a nationally known engineer, testified that the garage was constructed with a "live load" capacity of 350 pounds per square foot. Testimony showed that the actual maximum live load that could be physically present in the garage, assuming full capacity, was 20-25 pounds per square foot. Therefore, the garage was constructed to bear 14 to 18 times the live load that could actually occupy it.

Under the terms of the lease between the Authority and McShain, McShain retained 87.5% of the gross receipts, and remitted the remaining 12.5% to the Authority. The Authority in turn paid all of the net revenue to the City. In 1972, Parkway purchased from McShain as assignment of the construction and lease agreement (the lease), for a total of $4,575,000. Over the years, the market value of the property increased substantially, as did the fees for parking. Consequently, Parkway's income stream from the garage increased to $1.25 million by 1980, and reached $2.4 million by 1990.

In 1987, the City commissioned First Boston, its financial advisor, to prepare a report on the feasibility of selling the parking garages owned by the City. The report, dated September 4, 1987, advised the City that Parkway's lease at this garage "would limit [the] sale price of the facility." Thus, stated in terms of feasibility, the City could realize a greater amount of money in selling the garage if it were not burdened with Parkway's lease. However, Parkway's lease would not expire until 1999. Parkway asserts that the City's desire to augment the value of its asset, the garage, represents the real motive behind the City's repeated efforts to break the lease and its ultimate summary closing of the garage.

It is undisputed that the garage suffers from spalling caused by salt from the tires of cars entering it in the winter season. The salt rusted the garage's steel rebars and caused the delamination and deterioration of the surrounding concrete. In 1986, Parkway commissioned an engineering firm to survey the garage and offer suggestions for repair. The engineering firm suggested two solutions: (1) that Parkway rebuild portions of the garage in order to arrest the corrosion over the long term; or (2) that Parkway repair the portions of the garage that have rusted. Such repairs were estimated to last approximately 15 years.

Soon thereafter, Parkway offered the Authority a proposal: it would structurally rebuild portions of the garage at its expense in exchange for an extension of the lease. The Authority rejected this proposal out of hand and refused to negotiate, asserting that Parkway had an obligation to rebuild the garage without the benefit of a lease extension. The Authority asserted that Parkway's lease expressly required the tenant to perform all repairs necessary to keep the garage in good order and repair. Parkway, on the other hand, contended that its responsibility extended only to ordinary maintenance. Therefore, argued Parkway, its responsibility was limited to repairs, and it was thus not obligated to rebuild the garage for the lessor or make structural repairs. Hence, Parkway never contested its obligation to correct the corrosion; rather, the parties' dispute focused on the City and its Authority's insistence that Parkway structurally rebuild the garage.

The Authority thereupon issued an ultimatum that Parkway rebuild the garage or be declared in default of its lease and threatened to terminate possession. To that end, the Authority filed a number of lawsuits in 1987 and 1988 in the Court of Common Pleas of Philadelphia in an attempt to forfeit Parkway's interest in the lease. The Authority's stated reason for the suits was the disagreement with Parkway over its refusal to rebuild the garage. Ultimately, the state court ordered all three actions to arbitration.

In January, 1990, the American Arbitration Association empaneled three arbitrators to decide the dispute. They conducted extensive hearings until October 1990, during which time the panel heard 25 days of expert and layman testimony. They received many reports and hundreds of exhibits, and heard testimony from both parties' expert engineers. The Authority's prayer for relief sought a finding that Parkway had breached the lease. The Authority contended that Parkway's breach of the lease required that Parkway demolish the garage and replace it with a new garage without charge. Failing that, the Authority demanded either a $10,385,225 award to finance the rebuilding of the garage or the termination of Parkway's lease.

The arbitrators, however, did not grant the Authority the relief that it had requested. They did not award the Authority any money damages and they did not find Parkway in breach of its lease. They also did not find that Parkway was required to rebuild the garage. Rather, the arbitrators ordered Parkway to make certain patch and seal repairs and to conduct load tests throughout the remainder of its lease. Significantly, the panel agreed with Parkway that it was obligated to repair but not rebuild the garage.

On October 5, 1990, the City, without notice to Parkway, peremptorily closed three floors of the garage, claiming that those floors were in danger of collapse. This closing took place notwithstanding: (1) the garage had passed extensive load testing in March, 1989; and (2) the opinion of the Authority's expert engineer, Michael Brainerd, that the garage was not in imminent danger of collapse.

Parkway promptly met with City officials and reached what thereafter became known as the "October Agreement." The City promised to reopen the three floors and, in exchange, Parkway agreed to: (1) have an independent engineer issue a letter report stating that the garage was safe; (2) periodically load test the garage; and (3) remove "spoiled" or broken concrete from the ceiling of the garage. Upon Parkway's compliance with these conditions, the City reopened the three floors of the garage.

Despite Parkway's compliance with the October Agreement, on the evening of December 4, 1990, City officials, again without notice to Parkway, summarily closed the entire garage, claiming that it was in "imminent danger of collapse." The closing on December 4 took place pursuant to a meeting of high officials of the City and the...

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