River Road v. Chesapeake Display and Packaging

• Decision Date: 13 June 2000
• Docket Number: Civil Action No. 98-3594(SSB).
• Citation: 104 F.Supp.2d 418
• Parties: RIVER ROAD ASSOCIATES, Plaintiff, v. CHESAPEAKE DISPLAY AND PACKAGING COMPANY, INC., Defendant.
• Court: U.S. District Court — District of New Jersey

Page 418

104 F.Supp.2d 418

RIVER ROAD ASSOCIATES, Plaintiff, v. CHESAPEAKE DISPLAY AND PACKAGING COMPANY, INC., Defendant.

Civil Action No. 98-3594(SSB).

United States District Court, D. New Jersey.

June 13, 2000.

David L. Braverman, Janice L. Richter, Fellheimer Braveman & Kaskey, Philadelphia, PA, for Plaintiff.

Glenn P. Callahan, Anthony J. DiMarino, III, McCarter & English, LLP, Cherry Hill, NJ, for Defendant.

OPINION ON PLAINTIFF RIVER ROAD ASSOCIATES' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANT CHESAPEAKE DISPLAY AND PACKAGING COMPANY, INC'S CROSSMOTION FOR SUMMARY JUDGMENT

BROTMAN, District Judge.

Presently before this Court, pursuant to 28 U.S.C. § 1446(a) (removal statute) and 28 U.S.C. § 1332 (diversity of citizenship), is Plaintiff River Road Associates Motion for Partial Summary Judgment seeking the enforcement of ¶ 6(c) of its Lease agreement with Chesapeake Display and Packaging Company, Inc., as well as the Defendant's Crossmotion seeking the dismissal of Plaintiff's claim under ¶ 6(c) of the agreement.

I. FACTUAL AND PROCEDURAL BACKGROUND

On January 21st 1994 Plaintiff River Road Associates ("River Road" or "Landlord") agreed to lease a building located in Pennsauken, New Jersey to Defendant Chesapeake Display and Packaging Company, Inc. ("Chesapeake" or "Tenant"). (See Pl.'s Br. at 2) The lease provided for a one year rental period with renewal options for three additional years. (See Lease at ¶¶ 2, 3(a), attached as Ex. 1 to Pl.'s Br. (hereinafter "Lease")) Exercising its options to renew under the lease, Chesapeake occupied the premises from March of 1994 until June of 1997, when the parties attempted to negotiate an amendment that would provide for a five year lease extension. (See Pl.'s Br. at 3) However negotiations broke down, and the Defendant vacated the premises in February of 1998, at the close of the final lease period. (See id.) The instant dispute arises out of the Defendant's alleged failure to comply with paragraph 6(c) of the Lease, which imposes a duty upon the Tenant to remediate all "material structural defects."

Paragraph 6(c) of the Lease provides, in pertinent part, that:

Tenant shall cause an engineering report ... to be completed and a copy thereof delivered to Landlord by not later than 30 days prior to the termination date of this Lease .... If, as a result of such report, Landlord and the Engineering Firm reasonably determine that a material structural defect exists in the Premises[,] ... or the Premises ... are otherwise not in material compliance with all Laws and Regulations, Tenant shall, at Tenant's expense, cause such defect to be remedied. In the event that this Lease terminates prior to the completion of such remediation, Tenant shall continue such remediation and shall continue to be responsible as though this Lease had continued, and Landlord shall have the option ... to reinstate this Lease ... under the same terms and conditions as were in effect immediately prior to termination until such remediation has, in the reasonable opinion of Landlord and the Engineering Firm, been completed.

(See Lease at ¶ 6(c))(emphasis added)¹

Despite the language of the lease requiring it to do so, Chesapeake elected to vacate the premises without providing River Road with an engineering report. (See Pl.'s Br. at 3; Def.'s Br. at 7) As a result, the Plaintiff conducted a survey of its own. (See Pl.'s Br. at 3) River Road's survey concluded, inter alia, that the roof, railroad siding and parking lot needed repair. (See Ex. 9B, attached to Pl.'s Br.) The report also found various ADA code violations that needed remediation. (See id.) Additionally, a subsequent engineering survey revealed damage to two of the building's support columns. (See Kluk Consultants Report, attached as Ex. 11 to Pl.'s Br.)

Asserting that these conditions constituted "material structural defects," the Plaintiff notified Chesapeake that it elected to reinstate the lease consistent with paragraph 6(c) of the agreement. (See Letter dated April 3rd 1998 from Richard J. Jubanyik, Esq., to Chesapeake Display & Packaging Co., Atty., attached as Ex. 8 to Pl.'s Br.) Shortly thereafter River Road filed suit in New Jersey Superior Court, asserting claims for breach of contract. The matter was removed to this Court on July 31st 1998.

On December 17th 1998 the parties entered into a settlement agreement whereby all of Plaintiff's claims were resolved with the exception of River Road's claim for rent due under Paragraph 6(c) of the lease. The premises were subsequently sold "as is" by the Plaintiff in February of 1999 for $ 2,450,000. (See Supplemental Affidavit of Jack Adler at ¶ 11)

Plaintiff thereafter filed the instant motion, asserting that it is entitled to recovery for past due rent pursuant to the terms of ¶ 6(c) of the Lease. The Defendant has cross-moved, claiming that ¶ 6(c) represents an unenforceable penalty provision.

II. SUMMARY JUDGMENT STANDARD

The standard for granting summary judgment is a stringent but surmountable one. That is, summary judgment is appropriate only when the materials of record "show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Serbin v. Bora Corp., 96 F.3d 66, 69 n. 2 (3d Cir.1996). In deciding whether there is a disputed issue of material fact, the court must grant all reasonable inferences from the evidence in favor of the non-moving party. Serbin, 96 F.3d at 69 n. 2. The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Supreme Court decisions mandate that a motion for summary judgment must be granted unless the party opposing the motion "provides evidence `such that a reasonable jury could return a verdict for the non-moving party.'" Lawrence v. National Westminster Bank of New Jersey, 98 F.3d 61, 65 (3d Cir.1996) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505). Moreover, once the moving party has carried its burden of establishing the absence of a genuine issue of material fact, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Instead, the non-moving party must "by affidavits or by depositions and admissions on file `mak[e] a showing sufficient to establish ... [that a genuine issue of material fact exists as to each] ... element essential to that party's case.'" Equimark Commercial Fin. Co. v. C.I.T. Fin. Servs. Corp., 812 F.2d 141, 144 (3d Cir.1987) (declaring that a non-movant may not "rest upon mere allegations, general denials, or ... vague statements"). Thus, if the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505.

III. DISCUSSION

In order to determine whether the Plaintiff is entitled to summary judgment the Court must first determine whether paragraph 6(c), which grants the Landlord the option to reinstate the lease, is enforceable as a matter of law. Defendant Chesapeake argues that New Jersey caselaw addressing stipulated damage clauses establishes that paragraph 6(c) represents an unenforceable penalty provision. The Plaintiff offers two arguments in response. First Plaintiff claims that 6(c) is not a stipulated damage clause, and thus is not subject to the tests for enforceability established by New Jersey caselaw. Alternatively River Road contends that even if the Court finds that 6(c) represents a stipulated damages clause, it is nonetheless enforceable because it satisfies New Jersey's criterion for enforceability.

A) Nature of Paragraph 6(c)

Initially Plaintiff contends that the enforceability of paragraph 6(c) is not governed by the caselaw relied upon by Defendant. Noting that the paragraph makes no reference to the phrase "liquidated damages," River Road argues that the provision "merely gives the Landlord the option to reinstate the lease .... until Chesapeake completed remediation of material structural defects and brought the property in compliance with all Laws and Regulations[.]" (See Pl.'s Reply Br. at 2) Thus Plaintiff contends that the stipulated damage caselaw cited by Defendant is inapplicable, and the clause should be enforced like any other contract provision. The Court disagrees.

Although Plaintiff stresses the fact that the term "liquidated damages" is not used in the paragraph,² New Jersey caselaw counsels against reliance upon strict adherence to formalistic requirements in examining such clauses. Cf. Wasserman's Inc. v. Township of Middletown, 137 N.J. 238, 645 A.2d 100, 107 (1994)(explaining that New Jersey courts assessing the enforceability of stipulated damages clauses have "relied on the `circumstances of the case and not on the words used by the parties'")(quoting Gibbs v. Cooper, 86 N.J.L. 226, 90 A. 1115, 1116 (1914)); Spialter v. Testa, 162 N.J.Super. 421, 392 A.2d 1265, 1268 (1978)(reasoning that although the "clause at issue does not specifically use the term liquidated damages[, t]hat alone is not determinative, for the court must look to substance as well as form"). As a result, in order to determine whether 6(c) constitutes a stipulated damages clause, and is thereby subject to the caselaw cited by the Defendant, the Court will focus its inquiry upon the overall substance of paragraph 6.

Under New Jersey law, a provision that provides for the payment of specified damages in the event of breach is classified as a stipulated damage clause. See Metlife v. Washington Ave. Assoc., 159 N.J. 484, 732 A.2d 493, 498 (1999). A review of paragraph 6, entitled "Repairs Maintenance," reveals that it...