McGaffic v. City of New Castle

74 A.3d 306

Robert W. McGAFFIC, Executor of the Estate of Eleanor L. McGaffic, Deceased; Robert W. McGaffic, in his own right; and George G. Love, Appellants

v.CITY OF NEW CASTLE.

Commonwealth Court of Pennsylvania.

Argued Nov. 14, 2012.

Decided July 22, 2013.

Jonathan Solomon, New Castle, for appellants.

Samuel P. Kamin, Pittsburgh, for appellee.

BEFORE: PELLEGRINI, President Judge, and LEADBETTER, Judge, COHN JUBELIRER, Judge, SIMPSON, Judge, LEAVITT, Judge, McCULLOUGH, Judge, and COVEY, Judge.

OPINION BY Judge LEAVITT.¹

Robert McGaffic (as executor of his mother's estate and in his own right) and George Love (collectively, Condemnees) appeal an order of the Court of Common Pleas of Lawrence County (trial court) that denied Condemnees' contract claim against the City of New Castle. Condemnees are the prior owners of the Centennial Building, a commercial building in downtown New Castle, Pennsylvania, which lost its value in the course of New Castle's urban renewal program. Accordingly, Condemnees successfully obtained a judgment against the Redevelopment Authority of New Castle for a de facto condemnation of their property. The Redevelopment Authority cannot pay the judgment, and Condemnees seek to hold the City responsible for its payment under a contract between the City and the Redevelopment Authority by which the City assumed financial responsibility for certain claims against the Redevelopment Authority. Condemnees argue that their de facto condemnation judgment is one of those claims. We agree and reverse the contrary construction of the contract reached by the trial court.

Background

In 1966, the Redevelopment Authority developed a plan for the redevelopment of downtown New Castle, known as the Central Area Urban Renewal Project. This plan called for, inter alia, the Redevelopment Authority's acquisition and demolition of the Centennial Building. In November 1968, the Redevelopment Authority filed this plan with the Lawrence County Recorder of Deeds. The Redevelopment Authority applied for and received funding for the project from the United States Department of Housing and Urban Development (HUD) under the Neighborhood Development Program.

In accordance with the recorded plan, the Redevelopment Authority notified existing and potential tenants of the Centennial Building that the building was expected to be demolished in 1970 and that the Authority would pay for only one move by a tenant. By April 12, 1973, when the Redevelopment Authority contracted with a developer to rebuild downtown New Castle, including a replacement for the Centennial Building, Condemnees did not have rental income sufficient to pay taxes, insurance or utilities; the Centennial Building was rendered useless. McGaffic v. Redevelopment Authority of the City of New Castle (Law. Cnty. Ct. of C.P., No. 160–1978 M.D., filed October 8, 1986), slip op. at 21, aff'd, McGaffic v. Redevelopment Authority of the City of New Castle, 120 Pa.Cmwlth. 199, 548 A.2d 653 (1988).

In July of 1977, the City and the Redevelopment Authority executed a so-called Closeout Agreement to transfer responsibility for the Central Area Urban Renewal Project from the Authority to the City, as required by HUD.² As part of that transfer, the City assumed broad financial responsibility for the Redevelopment Authority's actions. Paragraph 4 of the Closeout Agreement states:

Any costs or obligations incurred in connection with the said [renewal] program with respect to claims which are disputed, contingent, unliquidated or unidentified, and for the payment of which insufficient program funds have been reserved, as set forth in the next above paragraph, shall be borne by the [City].

Reproduced Record at 1014 (R.R.____) (emphasis added).³ The City's assumption of this responsibility was required as a condition of HUD's continuing financial support for the urban renewal of New Castle. In 1978, the Centennial Building was officially removed from the renewal plan, and shortly thereafter Condemnees filed a de facto condemnation action against the City and the Redevelopment Authority. The City's application to be removed as a defendant was granted in 1980.

Condemnees' suit instituted decades of litigation, which has involved four prior appeals to this Court by the Redevelopment Authority and by the City. In each appeal the Condemnees have prevailed.⁴ It has been definitively established, in fact and in law, that the Redevelopment Authority's actions destroyed the value of the Centennial Building as of April 12, 1973. In 1994, a board of viewers valued the Centennial Building at $184,000 as of April 12, 1973, and that award has been augmented by delay damages. McGaffic, 732 A.2d 663. In June 2008, the judgment was revived for a total amount of $2,035,210.53.

In February 1998, Condemnees filed the instant contract claim seeking payment of their de facto condemnation judgment from the City under Paragraph 4 of the Closeout Agreement. The City sought summary judgment on the theory that Condemnees' action was barred by the City's governmental immunity and by the statute of limitations. The City lost. McGaffic, 973 A.2d 1047. Condemnees' contract claim then went to trial on the merits. The City defended on two theories. First, the City contended that Condemnees were not third-party beneficiaries of the Closeout Agreement and, thus, lacked standing to enforce the City's promise in Paragraph 4. Second, the City contended that Condemnees' action was untimely under the doctrine of laches.

At trial, the City presented testimony from Edward Gamble, the attorney for the Redevelopment Authority, and Richard Flannery, a member of City Council. They testified that the Closeout Agreement was not intended to benefit the owners of the Centennial Building. Gamble testified that Exhibit A of the Closeout Agreement listed all the properties that were going to be acquired under the 1968 renewal plan.⁵ The Centennial Building was not on that list.

However, other evidence presented at trial established that the Redevelopment Authority acquired properties not listed on Exhibit A. The Redevelopment Authority acquired the Clara Thomas property by de facto condemnation on September 8, 1977, after the Closeout Agreement was executed. The Redevelopment Authority acquired the David McBride property in June of 1978, one year after the Closeout Agreement was executed. In 1995, the Redevelopment Authority acquired the Centennial Building, pursuant to a stipulation, for a payment of $106,666.66. McGaffic, 732 A.2d at 667. None of these three properties were listed in Exhibit A.

The trial court concluded that Condemnees were not intended third-party beneficiaries of the Closeout Agreement because Condemnees filed their de facto condemnation action after the Closeout Agreement was executed.⁶ The trial court credited the testimony of Gamble and Flannery that there was no intention to acquire the Centennial Building when the City and Redevelopment Authority signed the Closeout Agreement.⁷ The trial court found it noteworthy that the Centennial Building was not named in Exhibit A, which it construed to contain the universe of properties to be acquired under the renewal plan. In accordance with these conclusions, the trial court entered judgment in favor of the City, and Condemnees appealed to this Court.⁸

Appeal

In their appeal, Condemnees present two principal issues for our consideration. First, they contend that the trial court erred in holding that Condemnees lacked standing to enforce the Closeout Agreement; this error was based upon the trial court's misunderstanding of the law on third-party beneficiary rights. Second, they contend that the trial court abused its discretion by accepting testimony, not the actual language of Paragraph 4 of the Closeout Agreement, to reach the conclusion that Condemnees' claim did not fall within the category of “disputed, contingent, unliquidated or unidentified” claims that became the City's responsibility by reason of Paragraph 4. In effect, both issues turn on a single question, i.e., whether Condemnees may enforce the City's promise given in Paragraph 4 of the Closeout Agreement to cover shortfalls in the Redevelopment Authority's funding.

For its part, the City focuses on the fact that the Closeout Agreement does not specifically name Condemnees or the Centennial Building or use the term “third-party beneficiary.” The City claims that this type of explicit expression is a necessary precondition to Condemnees' ability to enforce Paragraph 4 because the parties to the Closeout Agreement were government agencies. The City also argues that the Redevelopment Authority breached another related contract, called the Cooperation Agreement, by not obtaining the City's approval of the Redevelopment Authority's de facto condemnation of the Centennial Building. Because of this breach, the City cannot be held to its promise to the Redevelopment Authority set forth in Paragraph 4. Alternatively, the City contends that Condemnees' action is untimely.

Third–Party Beneficiary Law

We begin with a review of the law regarding third-party standing in Pennsylvania. The general rule is that a contract must express an intention to confer standing on a third-party beneficiary. Scarpitti v. Weborg, 530 Pa. 366, 370, 609 A.2d 147, 149 (1992). In Marsteller Community Water Authority v. P.J. Lehman Engineers, 413 Pa.Super. 387, 605 A.2d 413 (1992), for example, it was held that a contract between a redevelopment authority and an engineering firm to upgrade a water system owned by a water authority expressed an intention to make the water authority a third-party beneficiary of the contract.⁹

In Guy v. Liederbach, 501 Pa. 47, 59–60, 459 A.2d 744, 751 (1983), our Supreme Court adopted Section 302 of the Restatement (Second) of Contracts (1979), which allows a third-party to enforce a contractual promise even though the contract does not explicitly express that intention. Section 302 s...