DEMPSEY UNIFORM & LINEN SUPPLY, INC., Plaintiff vs. GRACIE
BASEBALL, L.P. d/b/a LEHIGH VALLEY IRON PIGS, Defendant
BASEBALL, L.P. d/b/a LEHIGH VALLEY IRON PIGS, Defendant
NO. 11 CV 3504
COMMON PLEAS COURT OF LACKAWANNA COUNTY, PENNSYLVANIA
2011 Pa. Dist. & Cnty. Dec. LEXIS 594
September 22, 2011, Decided
COUNSEL: [*1] For Plaintiff: Lawrence S. Durkin, Esquire, Durkin, McDonald,
LLC, Scranton, PA.
LLC, Scranton, PA.
For Defendant: Steven E. Hoffman, Esquire, Tallman Hudders & Sorrentino,
Allentown, PA.
Allentown, PA.
JUDGES: Terrence R. Nealon, J.
OPINION BY: Terrence R. Nealon
OPINION
CIVIL ACTION - LAW
MEMORANDUM AND ORDER
NEALON, J.
A uniform and textile supply company has filed a breach of contract action
against a limited partnership doing business as a Triple-A baseball franchise,
and seeks to enforce an automatic renewal provision in their rental service
contract based upon the partnership's failure to provide timely notice of
termination of the agreement. The partnership has filed preliminary objections
seeking to dismiss this action on the ground that the supply company has not
alleged any prejudice that it suffered from the late notice of termination.
Assuming arguendo that Pennsylvania law requires such an averment, the supply
company has properly alleged that as a result of the partnership's breach it has
incurred certain costs related to the contract renewal term. Since the supply
company has averred that it suffered financial prejudice in reliance upon the
partnership's failure to serve timely notice of its termination of the contract
which expressly [*2] states that "[t]ime is of the essence for all notices in
this agreement," the partnership's demurrer will be overruled. For the same
reason, the partnership's motion to strike the complaint or to require a more
specific pleading will likewise be overruled.
against a limited partnership doing business as a Triple-A baseball franchise,
and seeks to enforce an automatic renewal provision in their rental service
contract based upon the partnership's failure to provide timely notice of
termination of the agreement. The partnership has filed preliminary objections
seeking to dismiss this action on the ground that the supply company has not
alleged any prejudice that it suffered from the late notice of termination.
Assuming arguendo that Pennsylvania law requires such an averment, the supply
company has properly alleged that as a result of the partnership's breach it has
incurred certain costs related to the contract renewal term. Since the supply
company has averred that it suffered financial prejudice in reliance upon the
partnership's failure to serve timely notice of its termination of the contract
which expressly [*2] states that "[t]ime is of the essence for all notices in
this agreement," the partnership's demurrer will be overruled. For the same
reason, the partnership's motion to strike the complaint or to require a more
specific pleading will likewise be overruled.
I. FACTUAL BACKGROUND
Plaintiff Dempsey Uniform & Linen Supply, Inc. ("Dempsey") has instituted
this breach of contract action against Defendant Gracie Baseball, L. P. d/b/a
Lehigh Valley Iron Pigs ("the Iron Pigs") based upon a rental service agreement
that was executed by the parties on October 17, 2007. As per the well pleaded
allegations of the complaint, the parties' contract provided that Dempsey would
furnish certain merchandise and services to the Iron Pigs for 156 "revenue
weeks" beginning on March 20, 2008. (Plaintiff's Complaint, ¶¶ 5-7, Exhibit A, ¶
B). After identifying the initial term of the agreement as three years,
paragraph (B) of the contract states that "[t]hereafter, this agreement shall
continue in force for an additional two hundred sixty weeks unless either party
shall give written notice of termination at least ninety (90) days prior to the
expiration of the then current term." (Id., Exhibit A, ¶ B).
this breach of contract action against Defendant Gracie Baseball, L. P. d/b/a
Lehigh Valley Iron Pigs ("the Iron Pigs") based upon a rental service agreement
that was executed by the parties on October 17, 2007. As per the well pleaded
allegations of the complaint, the parties' contract provided that Dempsey would
furnish certain merchandise and services to the Iron Pigs for 156 "revenue
weeks" beginning on March 20, 2008. (Plaintiff's Complaint, ¶¶ 5-7, Exhibit A, ¶
B). After identifying the initial term of the agreement as three years,
paragraph (B) of the contract states that "[t]hereafter, this agreement shall
continue in force for an additional two hundred sixty weeks unless either party
shall give written notice of termination at least ninety (90) days prior to the
expiration of the then current term." (Id., Exhibit A, ¶ B).
Under the [*3] terms of the agreement, the contract was renewable for an
additional five year period unless Dempsey or the Iron Pigs provided written
notice of its termination by no later than December 20, 2010. Dempsey contends
that neither party furnished notice of termination by December 20, 2010 in
compliance with paragraph (B), as a result of which the agreement was renewed
for an additional five year term from March 20, 2011 through March 20, 2016.
(Id., ¶¶9-11). However, on March 1, 2011, the "Iron Pigs refused to accept the
goods and services from Dempsey in accordance with the contract terms" and
instead "began accepting the merchandise and services previously provided by
Dempsey from a Dempsey competitor, in violation of the exclusivity provisions of
the Dempsey contract." (Id., ¶¶15-16).
additional five year period unless Dempsey or the Iron Pigs provided written
notice of its termination by no later than December 20, 2010. Dempsey contends
that neither party furnished notice of termination by December 20, 2010 in
compliance with paragraph (B), as a result of which the agreement was renewed
for an additional five year term from March 20, 2011 through March 20, 2016.
(Id., ¶¶9-11). However, on March 1, 2011, the "Iron Pigs refused to accept the
goods and services from Dempsey in accordance with the contract terms" and
instead "began accepting the merchandise and services previously provided by
Dempsey from a Dempsey competitor, in violation of the exclusivity provisions of
the Dempsey contract." (Id., ¶¶15-16).
Dempsey asserts that the Iron Pigs have breached the parties' contract and
seeks to recover damages for such alleged breach. (Id., ¶¶17-18). In Count I of
the complaint, Dempsey requests liquidated damages of $28,116.00 pursuant to the
liquidated damages clause set forth in paragraph 7 of the contract. (Id.,
¶¶20-28). Alternatively, Dempsey demands "actual damages" in Count II and seeks
"compensatory damages [*4] in the form of lost profit and incurred costs over
the remainder of the term of the contract or until March 20, 2011." (Id., ¶30).
seeks to recover damages for such alleged breach. (Id., ¶¶17-18). In Count I of
the complaint, Dempsey requests liquidated damages of $28,116.00 pursuant to the
liquidated damages clause set forth in paragraph 7 of the contract. (Id.,
¶¶20-28). Alternatively, Dempsey demands "actual damages" in Count II and seeks
"compensatory damages [*4] in the form of lost profit and incurred costs over
the remainder of the term of the contract or until March 20, 2011." (Id., ¶30).
The Iron Pigs have filed preliminary objections in the nature of a demurrer
and a motion to strike. In their demurrer, the Iron Pigs argue that Dempsey has
failed to state a viable cause of action since Dempsey has not alleged that it
was prejudiced by the Iron Pigs' late notice of termination. (Defendant's
Preliminary Objections, ¶¶1-8). The Iron Pigs also seek to strike the complaint
or compel a more specific pleading on the ground that Dempsey has not alleged
facts demonstrating how it was prejudiced by the Iron Pigs' late notice.
Following the completion of oral argument on September 14, 2011, the Iron Pigs'
preliminary objections became ripe for resolution.
and a motion to strike. In their demurrer, the Iron Pigs argue that Dempsey has
failed to state a viable cause of action since Dempsey has not alleged that it
was prejudiced by the Iron Pigs' late notice of termination. (Defendant's
Preliminary Objections, ¶¶1-8). The Iron Pigs also seek to strike the complaint
or compel a more specific pleading on the ground that Dempsey has not alleged
facts demonstrating how it was prejudiced by the Iron Pigs' late notice.
Following the completion of oral argument on September 14, 2011, the Iron Pigs'
preliminary objections became ripe for resolution.
II. DISCUSSION
(A) STANDARD OF REVIEW
Preliminary objections in the nature of a demurrer test the legal sufficiency
of the complaint. Wayne M. Chiurazzi Law. Inc. v. MRO Corp., 2011 WL 3505477 at
* 3 (Pa. Super. 2011). When considering preliminary objections, all material
facts set forth in the challenged pleading are admitted as true, as well as all
reasonable inferences which may be drawn from those [*5] facts. Rodgers v.
Lorenz, 2011 WL 2990989 at * 2 (Pa. Super. 2011). Preliminary objections which
seek the dismissal of a cause of action may be sustained only in cases that are
clear and free from doubt. Stoloff v. Neiman Marcus Group. Inc., 24 A.3d 366,
369 (Pa. Super. 2011). To be clear and free from doubt that dismissal is
appropriate, it must appear with certainty that the law would not permit
recovery by the plaintiff based upon the facts averred. Rodgers, supra; Stoloff,
supra. If any doubt exists as to whether a demurrer should be sustained, it
should be resolved in favor of overruling the preliminary objections. Wayne M.
Chiurazzi Law, Inc., supra; Feingold v. Hendrzak, 15 A.3d 937, 941 (Pa. Super.
2011).
of the complaint. Wayne M. Chiurazzi Law. Inc. v. MRO Corp., 2011 WL 3505477 at
* 3 (Pa. Super. 2011). When considering preliminary objections, all material
facts set forth in the challenged pleading are admitted as true, as well as all
reasonable inferences which may be drawn from those [*5] facts. Rodgers v.
Lorenz, 2011 WL 2990989 at * 2 (Pa. Super. 2011). Preliminary objections which
seek the dismissal of a cause of action may be sustained only in cases that are
clear and free from doubt. Stoloff v. Neiman Marcus Group. Inc., 24 A.3d 366,
369 (Pa. Super. 2011). To be clear and free from doubt that dismissal is
appropriate, it must appear with certainty that the law would not permit
recovery by the plaintiff based upon the facts averred. Rodgers, supra; Stoloff,
supra. If any doubt exists as to whether a demurrer should be sustained, it
should be resolved in favor of overruling the preliminary objections. Wayne M.
Chiurazzi Law, Inc., supra; Feingold v. Hendrzak, 15 A.3d 937, 941 (Pa. Super.
2011).
With respect to the Iron Pigs' alternate request for a more specific
pleading, it is important to note that "[u]nder Pennsylvania's fact pleading
system, the complainant need only state the material facts upon which a cause of
action is based." Grossman v. Barke, 868 A.2d 561, 569 (Pa. Super. 2005), app.
denied, 585 Pa. 697, 889 A.2d 89 (2005). "To determine if a pleading is
sufficiently specific, a court must ascertain whether the facts alleged are
sufficiently specific to [*6] enable a defendant to prepare his defense."
Unified Sportsmen of Pennsylvania v. Pennsylvania Game Commission, 950 A.2d
1120, 1134 (Pa. Cmwlth. 2008). Accord, Rambo v. Greene, 906 A.2d 1232, 1236 (Pa.
Super. 2006). When considering whether the allegations of the complaint have
been stated with adequate specificity, one portion of the complaint should not
be examined in isolation and should instead "be read in context with all other
allegations in that complaint." Rachlin v. Edmison, 813 A.2d 862, 870 (Pa.
Super. 2002); Yacoub v. Lehigh Valley Medical Associates, 805 A.2d 579, 589 (Pa.
Super. 2003), app. denied, 573 Pa. 692, 825 A.2d 639 (2003). "Only then can the
court determine whether the defendant has been put upon adequate notice of the
claim against which [s]he must defend." Grossman, 868 A.2d at 569.
pleading, it is important to note that "[u]nder Pennsylvania's fact pleading
system, the complainant need only state the material facts upon which a cause of
action is based." Grossman v. Barke, 868 A.2d 561, 569 (Pa. Super. 2005), app.
denied, 585 Pa. 697, 889 A.2d 89 (2005). "To determine if a pleading is
sufficiently specific, a court must ascertain whether the facts alleged are
sufficiently specific to [*6] enable a defendant to prepare his defense."
Unified Sportsmen of Pennsylvania v. Pennsylvania Game Commission, 950 A.2d
1120, 1134 (Pa. Cmwlth. 2008). Accord, Rambo v. Greene, 906 A.2d 1232, 1236 (Pa.
Super. 2006). When considering whether the allegations of the complaint have
been stated with adequate specificity, one portion of the complaint should not
be examined in isolation and should instead "be read in context with all other
allegations in that complaint." Rachlin v. Edmison, 813 A.2d 862, 870 (Pa.
Super. 2002); Yacoub v. Lehigh Valley Medical Associates, 805 A.2d 579, 589 (Pa.
Super. 2003), app. denied, 573 Pa. 692, 825 A.2d 639 (2003). "Only then can the
court determine whether the defendant has been put upon adequate notice of the
claim against which [s]he must defend." Grossman, 868 A.2d at 569.
(B) AUTOMATIC RENEWAL PROVISION
The Iron Pigs demur to Dempsey's contract claim and assert that "Dempsey has
not set forth any facts to establish that they were prejudiced by the Iron Pigs'
action such as hiring new employees, purchasing new product, or cancelling
another contract in order to better service the Iron Pigs." (Defendant's Brief
in Support, pp. 3-4). Relying upon Music. Inc. v. Henry B. Klein Co., 213 Pa.
Super. 182, 245 A.2d 650 (1968) [*7] which they characterize as the "seminal
case" governing "the validity and enforceability of automatic renewal provisions
in contracts," (Id., p. 5), the Iron Pigs submit that Dempsey's suit must be
dismissed inasmuch as "Dempsey has not pled that it changed its position to its
detriment because of the alleged late notice or was in any manner damaged
because of the alleged late notice." (Id., p. 7). In response, Dempsey argues
that Music is distinguishable since the notice of termination in that case was
mailed prior to the contract renewal date, but received one day after that date,
whereas the Iron Pigs provided their belated notice of termination two and
one-half months after the automatic renewal deadline. (Plaintiff's Brief in
Opposition, pp. 2-3).
not set forth any facts to establish that they were prejudiced by the Iron Pigs'
action such as hiring new employees, purchasing new product, or cancelling
another contract in order to better service the Iron Pigs." (Defendant's Brief
in Support, pp. 3-4). Relying upon Music. Inc. v. Henry B. Klein Co., 213 Pa.
Super. 182, 245 A.2d 650 (1968) [*7] which they characterize as the "seminal
case" governing "the validity and enforceability of automatic renewal provisions
in contracts," (Id., p. 5), the Iron Pigs submit that Dempsey's suit must be
dismissed inasmuch as "Dempsey has not pled that it changed its position to its
detriment because of the alleged late notice or was in any manner damaged
because of the alleged late notice." (Id., p. 7). In response, Dempsey argues
that Music is distinguishable since the notice of termination in that case was
mailed prior to the contract renewal date, but received one day after that date,
whereas the Iron Pigs provided their belated notice of termination two and
one-half months after the automatic renewal deadline. (Plaintiff's Brief in
Opposition, pp. 2-3).
In Music, the contract provided for an automatic renewal term unless either
party furnished sixty days written notice of its termination, i.e., by no later
than October 1, 1966. In an attempt to terminate the contract, Klein "wrote a
letter of termination which was posted on Friday, September 30, 1966, sixty-one
days prior to the termination date of November 30." Id., at 184, 245 A.2d at 651
. Additionally, Klein contacted Music by telephone [*8] on September 30 to
advise Music that Klein desired to discontinue the service contract. Id., at
185, 245 A.2d at 652. However, the written letter of termination was not
received by Music until Monday, October 3, 1966. In a subsequent suit by Music
to collect the additional monthly payments due under the extended contract, the
trial court rendered judgment for Klein and concluded "that the notice given by
[Klein] was adequate under the contract." Id., at 184, 245 A.2d at 651.
party furnished sixty days written notice of its termination, i.e., by no later
than October 1, 1966. In an attempt to terminate the contract, Klein "wrote a
letter of termination which was posted on Friday, September 30, 1966, sixty-one
days prior to the termination date of November 30." Id., at 184, 245 A.2d at 651
. Additionally, Klein contacted Music by telephone [*8] on September 30 to
advise Music that Klein desired to discontinue the service contract. Id., at
185, 245 A.2d at 652. However, the written letter of termination was not
received by Music until Monday, October 3, 1966. In a subsequent suit by Music
to collect the additional monthly payments due under the extended contract, the
trial court rendered judgment for Klein and concluded "that the notice given by
[Klein] was adequate under the contract." Id., at 184, 245 A.2d at 651.
On appeal, three members of the Superior Court panel noted that "[t]here was
no specific provision in the contract making time of the essence and no
circumstances have been demonstrated which clearly indicate that both parties
intended that time should be of the essence." Id. Consequently, the plurality
opinion in Music held:
no specific provision in the contract making time of the essence and no
circumstances have been demonstrated which clearly indicate that both parties
intended that time should be of the essence." Id. Consequently, the plurality
opinion in Music held:
There was, according to uncontradicted evidence, a telephone call
one day before the 60 day period, from [Klein] to [Music] to the
effect that [Klein] wished to discontinue the service; actual receipt
of the notice occurred on the first business day within that 60 day
period; and, finally, [Music] can demonstrate no prejudice stemming
from the short delay in its receipt of the belated termination [*9]
notice....Under the circumstances of this case we hold that notice of
cancellation received on the first business day after that literally
required by the contract was adequate to effect a termination of the
contract.
Id., at 185-186, 245 A.2d at 652 (footnotes omitted).1
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1 The Music
appeal was heard by an en banc panel comprised of seven judges. Three of the
panel members, Judge Spaulding, President Judge Wright and Judge Jacobs, joined
in the majority Opinion. Judge Montgomery concurred in the result while Judge
Hannum did not participate in the decision. Id., at 186, 245 A.2d at 652-653.
Judge Hoffman authored a dissenting Opinion in which Judge Watkins joined. Id.,
at 186-190, 245 A.2d at 653-654 (Hoffman, J., dissenting).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
appeal was heard by an en banc panel comprised of seven judges. Three of the
panel members, Judge Spaulding, President Judge Wright and Judge Jacobs, joined
in the majority Opinion. Judge Montgomery concurred in the result while Judge
Hannum did not participate in the decision. Id., at 186, 245 A.2d at 652-653.
Judge Hoffman authored a dissenting Opinion in which Judge Watkins joined. Id.,
at 186-190, 245 A.2d at 653-654 (Hoffman, J., dissenting).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
The decision in Music has never been cited by a Pennsylvania appellate court
and our research has disclosed only a single state trial court ruling which has
referenced the holding in Music. See, Ferrick Const. Co. v. One Beacon Ins. Co.,
2008 WL 4176745 (Phila. Co. 2008), aff'd, 986 A.2d 1289 (Pa. Super. 2009), app.
denied, 606 Pa. 672, 996 A.2d 492 (2010). The federal district courts in
Pennsylvania were originally divided in their acceptance or rejection of the
[*10] reasoning in Music. See e.g., Sungard Services Company v. Joint Computer
Center, Inc., 1989 WL 46049 at * 5 (E.D. Pa. 1989) (adopting the rationale of
the dissenting opinion in Music and stating that "[t]o the extent that the
court's holding conflicts with the Pennsylvania Superior Court's holding in
Music, Inc., I respectfully disagree with that court."); Schindler Haughton
Elevator Corp. v. America College, 1986 WL 1926 at * 1 (E.D. Pa. 1986) ("Under
Music, such untimely notice is effective, provided 'the terminating party acted
reasonably under the circumstances and there is no demonstrable prejudice
resulting from the delayed notice.'"); Eastern Milk Producers Cooperative
Association, Inc. v. Lehigh Valley Cooperative Farmers, 568 F. Supp. 1205,
1208-09 (E.D. Pa. 1983) (citing Music with approval, but concluding that the
untimely notice was ineffective even though the contract did not contain a "time
is of the essence" clause since the plaintiff demonstrated prejudice by "showing
that it was damaged by the forced sale of large volumes of milk at distress
prices.").
and our research has disclosed only a single state trial court ruling which has
referenced the holding in Music. See, Ferrick Const. Co. v. One Beacon Ins. Co.,
2008 WL 4176745 (Phila. Co. 2008), aff'd, 986 A.2d 1289 (Pa. Super. 2009), app.
denied, 606 Pa. 672, 996 A.2d 492 (2010). The federal district courts in
Pennsylvania were originally divided in their acceptance or rejection of the
[*10] reasoning in Music. See e.g., Sungard Services Company v. Joint Computer
Center, Inc., 1989 WL 46049 at * 5 (E.D. Pa. 1989) (adopting the rationale of
the dissenting opinion in Music and stating that "[t]o the extent that the
court's holding conflicts with the Pennsylvania Superior Court's holding in
Music, Inc., I respectfully disagree with that court."); Schindler Haughton
Elevator Corp. v. America College, 1986 WL 1926 at * 1 (E.D. Pa. 1986) ("Under
Music, such untimely notice is effective, provided 'the terminating party acted
reasonably under the circumstances and there is no demonstrable prejudice
resulting from the delayed notice.'"); Eastern Milk Producers Cooperative
Association, Inc. v. Lehigh Valley Cooperative Farmers, 568 F. Supp. 1205,
1208-09 (E.D. Pa. 1983) (citing Music with approval, but concluding that the
untimely notice was ineffective even though the contract did not contain a "time
is of the essence" clause since the plaintiff demonstrated prejudice by "showing
that it was damaged by the forced sale of large volumes of milk at distress
prices.").
The United States Court of Appeals for the Third Circuit resolved that
dissonance in Otis Elevator Company v. George Washington Hotel Corp., 27 F.3d
903 (3rd Cir. 1994) [*11] in which an elevator servicer sought to enforce an
automatic renewal provision after a hotel provided late notice of its intention
to terminate the contract. The Third Circuit expressly found that the elevator
servicer was not prejudiced by the late notice since "the harm to the plaintiff
in the present case is harm caused by the breach of contract, not harm caused by
the late notice" in that "even if the notice had been timely, Otis would have
suffered the same harm (loss of profits expected under the contract)." Id., at
908. Notwithstanding the absence of any demonstrable prejudice, the Otis
Elevator court concluded that the elevator servicer was entitled to enforce the
automatic renewal provision and reasoned:
dissonance in Otis Elevator Company v. George Washington Hotel Corp., 27 F.3d
903 (3rd Cir. 1994) [*11] in which an elevator servicer sought to enforce an
automatic renewal provision after a hotel provided late notice of its intention
to terminate the contract. The Third Circuit expressly found that the elevator
servicer was not prejudiced by the late notice since "the harm to the plaintiff
in the present case is harm caused by the breach of contract, not harm caused by
the late notice" in that "even if the notice had been timely, Otis would have
suffered the same harm (loss of profits expected under the contract)." Id., at
908. Notwithstanding the absence of any demonstrable prejudice, the Otis
Elevator court concluded that the elevator servicer was entitled to enforce the
automatic renewal provision and reasoned:
We are persuaded, however, by the district court's decision to
enforce the automatic renewal provision without requiring a showing of
prejudice - - that is, by the district court's rejection of Music in
favor of the approach taken...in Sungard Services v. Joint Computer.
We do not believe that the Pennsylvania Supreme Court, if it has
occasion to address this issue, will acquiesce in the rationale
adopted by the plurality opinion in Music. Instead, we conclude that
the analysis [*12] pursued by Judge Hoffman in his dissent is
confirmed by the reasoning of Brakeman v. Potomac Insurance Company,
472 Pa. 66, 371 A.2d 193 (1977), decided by the Pennsylvania Supreme
Court nine years after the Superior Court's decision in Music.
Id., at 908-909. See also, "The Third Circuit Places Automatic Renewal
Provisions in Line with Other Contract Principles under Pennsylvania Law: Otis
Elevator Company v. George Washington Hotel Corp., 27 F.3d 903 (3rd Cir. 1994),"
68 Temp. L. Rev. 891 (Summer 1995). Subsequent to Otis Elevator, the federal
district courts in this state have consistently held that "notice provided after
the contractual deadline for providing termination is ineffective to avoid
renewal of a contract among sophisticated commercial entities pursuant to an
automatic renewal provision." Mextel, Inc. v. Air-Shields, Inc., 2005 WL 226112
at * 19 (E.D. Pa. 2005).
Although no state appellate court has cited or referenced Music, the
Commonwealth Court of Pennsylvania has discussed the federal district court
ruling in Eastern Milk Producers which adopted the rationale of Music prior to
the Third Circuit holding in Otis Elevator. In Com., Department of
Transportation v. Brozzetti, 684 A.2d 658 (Pa. Cmwlth. 1996), [*13] the
Department of Transportation (DOT) relied upon Eastern Milk Producers in
"argu[ing] that, under Pennsylvania law, 'it is unconscionable to give effect to
an automatic renewal provision of a contract on the ground that a termination
notice was untimely in the absence of a clause which deems that time is of the
essence and a showing that the party which suffered the untimely notice was
damaged or had changed its position to its detriment.'" Id., at 666 n. 18. The
Commonwealth Court found the Eastern Milk Producers holding distinguishable from
the facts at issue in Brozzetti since the "award of damages in [Brozzetti] does
not depend upon DOT'S untimely notice of termination, but, rather, upon DOT's
improper grounds for termination." Id. (emphasis in original). To that end, the
court remarked:
Commonwealth Court of Pennsylvania has discussed the federal district court
ruling in Eastern Milk Producers which adopted the rationale of Music prior to
the Third Circuit holding in Otis Elevator. In Com., Department of
Transportation v. Brozzetti, 684 A.2d 658 (Pa. Cmwlth. 1996), [*13] the
Department of Transportation (DOT) relied upon Eastern Milk Producers in
"argu[ing] that, under Pennsylvania law, 'it is unconscionable to give effect to
an automatic renewal provision of a contract on the ground that a termination
notice was untimely in the absence of a clause which deems that time is of the
essence and a showing that the party which suffered the untimely notice was
damaged or had changed its position to its detriment.'" Id., at 666 n. 18. The
Commonwealth Court found the Eastern Milk Producers holding distinguishable from
the facts at issue in Brozzetti since the "award of damages in [Brozzetti] does
not depend upon DOT'S untimely notice of termination, but, rather, upon DOT's
improper grounds for termination." Id. (emphasis in original). To that end, the
court remarked:
This distinction is significant in that it removes the case sub
judice from the rationale underlying Eastern Milk Producers. In
Eastern Milk Producers, the court essentially held that it was unfair,
in the absence of a clause providing that time is of the essence or a
showing of prejudice, to hold a party to an additional one-year
contract term simply because the termination letter was untimely,
[*14] where the termination itself was otherwise valid.
Id. (emphasis added). Thus, the Brozzetti court interpreted Eastern Milk
Producers as requiring either the existence of a "time is of the essence" clause
or some proof of prejudice in order to compel the enforcement of an automatic
renewal provision based upon untimely notice of termination.
More than twenty years after Music, the Superior Court of Pennsylvania
indicated that an automatic renewal provision is enforceable due to late notice,
but did not reference a requirement of prejudice as a condition to its
enforcement. In Accu-Weather, Inc. v. Prospect Communications, Inc., 435 Pa.
Super. 93, 644 A.2d 1251 (1994), the parties' agreement was automatically
renewable for an additional two year term unless either party furnished written
notice of termination at least 120 days prior to its August 16 expiration date.
Id., at 96, 644 A.2d at 1252-53. Defendant initially attempted, albeit
unsuccessfully, to terminate the agreement in the midst of the first year of a
renewal period. Id., at 97, 644 A.2d at 1253. Approximately sixteen months
later, the defendant notified the plaintiff on June 1, 1992 "of its intent to
terminate at the next [*15] expiration date of the agreement, August 16, 1992."
Id. In its subsequent breach of contract action, the plaintiff asserted, inter
alia, "that effective notice of termination had not been given one hundred and
twenty days prior to the expiration date of the agreement." Id., at 98, 644 A.2d
at 1253. In reversing the lower court's entry of summary judgment in favor of
the defendant, the Superior Court stated:
indicated that an automatic renewal provision is enforceable due to late notice,
but did not reference a requirement of prejudice as a condition to its
enforcement. In Accu-Weather, Inc. v. Prospect Communications, Inc., 435 Pa.
Super. 93, 644 A.2d 1251 (1994), the parties' agreement was automatically
renewable for an additional two year term unless either party furnished written
notice of termination at least 120 days prior to its August 16 expiration date.
Id., at 96, 644 A.2d at 1252-53. Defendant initially attempted, albeit
unsuccessfully, to terminate the agreement in the midst of the first year of a
renewal period. Id., at 97, 644 A.2d at 1253. Approximately sixteen months
later, the defendant notified the plaintiff on June 1, 1992 "of its intent to
terminate at the next [*15] expiration date of the agreement, August 16, 1992."
Id. In its subsequent breach of contract action, the plaintiff asserted, inter
alia, "that effective notice of termination had not been given one hundred and
twenty days prior to the expiration date of the agreement." Id., at 98, 644 A.2d
at 1253. In reversing the lower court's entry of summary judgment in favor of
the defendant, the Superior Court stated:
We note that the notice of June 1, 1992 did not legally terminate
the agreement under provision 27. The notice of that date was given
only seventy-six days prior to the natural expiration date of the
agreement, and, therefore, did not conform to the one hundred and
twenty day requirement for termination.
Id., at 99 n. 3, 644 A.2d at 1254 n. 3. The above-quoted holding in Accu-Weather
makes no reference to proof of prejudice as a condition to the enforceability of
an automatic renewal clause.
Assuming, as the Iron Pigs contend, that the plurality opinion in Music
constitutes the controlling precedent governing automatic renewal provisions, it
does not warrant dismissal of Dempsey's complaint. Unlike the contract in Music,
the Dempsey-Iron Pigs agreement distinctly states that "[t]ime [*16] is of the
essence for all notices in this agreement." (Plaintiff's Complaint, Exhibit A, ¶
10). Furthermore, in addition to seeking damages for lost profits, Dempsey also
advances a claim for "incurred costs over the remainder of the term of the
contract or until March 20, 2016." (Plaintiff's Complaint, ¶30). Therefore,
Dempsey has averred that it suffered financial prejudice in reliance upon the
Iron Pigs' failure to timely serve notice of its termination of the contract.
See, Music, 213 Pa. Super. at 186, 245 A.2d at 652 (declining to enforce
automatic renewal provision absent a showing that plaintiff "was damaged in any
way" by receipt of the late notice "or that he changed his position to his
detriment...."). To the extent that Music can be construed as requiring a
specific averment of prejudice, Dempsey has satisfied that requirement.
constitutes the controlling precedent governing automatic renewal provisions, it
does not warrant dismissal of Dempsey's complaint. Unlike the contract in Music,
the Dempsey-Iron Pigs agreement distinctly states that "[t]ime [*16] is of the
essence for all notices in this agreement." (Plaintiff's Complaint, Exhibit A, ¶
10). Furthermore, in addition to seeking damages for lost profits, Dempsey also
advances a claim for "incurred costs over the remainder of the term of the
contract or until March 20, 2016." (Plaintiff's Complaint, ¶30). Therefore,
Dempsey has averred that it suffered financial prejudice in reliance upon the
Iron Pigs' failure to timely serve notice of its termination of the contract.
See, Music, 213 Pa. Super. at 186, 245 A.2d at 652 (declining to enforce
automatic renewal provision absent a showing that plaintiff "was damaged in any
way" by receipt of the late notice "or that he changed his position to his
detriment...."). To the extent that Music can be construed as requiring a
specific averment of prejudice, Dempsey has satisfied that requirement.
Preliminary objections in the nature of a demurrer may be sustained only if
it appears with certainty that the law will not permit recovery by the plaintiff
based upon the facts averred. In light of the "time is of the essence" clause
contained in the contract at issue and Dempsey's allegation that it has incurred
costs related to the contract renewal [*17] term through March 20, 2016, it is
not clear and free from doubt that Dempsey may not enforce the automatic renewal
provision and seek compensatory damages.2 Accordingly, the Iron Pigs' demurrer
will be overruled.
it appears with certainty that the law will not permit recovery by the plaintiff
based upon the facts averred. In light of the "time is of the essence" clause
contained in the contract at issue and Dempsey's allegation that it has incurred
costs related to the contract renewal [*17] term through March 20, 2016, it is
not clear and free from doubt that Dempsey may not enforce the automatic renewal
provision and seek compensatory damages.2 Accordingly, the Iron Pigs' demurrer
will be overruled.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2 Dempsey
alternatively seeks to recover damages pursuant to the liquidated damages clause
set forth in paragraph 7 of the parties' agreement. (Plaintiff's Complaint,
¶¶21-26). Liquidated damages denote "the sum a party to a contract agrees to pay
if he breaks some promise, and which, having been arrived at by a good faith
effort to estimate in advance the actual damage that will probably ensue from
the breach, is legally recoverable if the breach occurs." Pantuso Motors. Inc.
v. Corestates Bank. N.A., 568 Pa. 601, 608, 798 A.2d 1277, 1282 (2002).
Liquidated damages are designed to "compensate a party for difficult-to-prove
losses" and "are enforced where they are reasonable and fair attempts to fix
just compensation for anticipated loss caused by breach of contracts." Wayne
Knorr. Inc. v. Department of Transportation, 973 A.2d 1061, 1091 (Pa. Cmwlth.
2009). However, if no measure of compensation is intended or the liquidated
damages provision fixes unreasonably large liquidated [*18] damages, the clause
is deemed a penalty to secure compliance and, therefore, unenforceable on
grounds of public policy. See, Geisinger Clinic v. DiCuccio, 414 Pa. Super. 85,
101, 606 A.2d 509, 517 (1992), app. denied, 536 Pa. 625, 637 A.2d 285 (1993),
cert. denied, 513 U.S. 1112(1995). In Dempsey Uniform and Linen Supply. Inc. v.
SPD. Inc., 2001 WL 35927834 (Lacka. Co. 2001), aff'd, 809 A.2d 969 (Pa. Super.
2002), app. denied, 573 Pa. 666, 820 A.2d 704 (2003), Judge Michael J. Barrasse
declared an earlier version of Dempsey's liquidated damages clause to be an
unenforceable penalty intended to compel customer compliance, particularly since
Dempsey's damages were capable of being calculated with reasonable certainty.
Id., at *4. More recently, Judge Robert A. Mazzoni awarded liquidated damages
pursuant to Dempsey's current liquidated damages clause based upon the evidence
produced during a non-jury trial. See, Dempsey Uniform and Linen Supply. Inc. v.
Wakefield Valley Golf Club. Inc., 09 CV 5934, Mazzoni, J. at pp. 4-6, 12-13
(Lacka. Co. July 27, 2011 ).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
alternatively seeks to recover damages pursuant to the liquidated damages clause
set forth in paragraph 7 of the parties' agreement. (Plaintiff's Complaint,
¶¶21-26). Liquidated damages denote "the sum a party to a contract agrees to pay
if he breaks some promise, and which, having been arrived at by a good faith
effort to estimate in advance the actual damage that will probably ensue from
the breach, is legally recoverable if the breach occurs." Pantuso Motors. Inc.
v. Corestates Bank. N.A., 568 Pa. 601, 608, 798 A.2d 1277, 1282 (2002).
Liquidated damages are designed to "compensate a party for difficult-to-prove
losses" and "are enforced where they are reasonable and fair attempts to fix
just compensation for anticipated loss caused by breach of contracts." Wayne
Knorr. Inc. v. Department of Transportation, 973 A.2d 1061, 1091 (Pa. Cmwlth.
2009). However, if no measure of compensation is intended or the liquidated
damages provision fixes unreasonably large liquidated [*18] damages, the clause
is deemed a penalty to secure compliance and, therefore, unenforceable on
grounds of public policy. See, Geisinger Clinic v. DiCuccio, 414 Pa. Super. 85,
101, 606 A.2d 509, 517 (1992), app. denied, 536 Pa. 625, 637 A.2d 285 (1993),
cert. denied, 513 U.S. 1112(1995). In Dempsey Uniform and Linen Supply. Inc. v.
SPD. Inc., 2001 WL 35927834 (Lacka. Co. 2001), aff'd, 809 A.2d 969 (Pa. Super.
2002), app. denied, 573 Pa. 666, 820 A.2d 704 (2003), Judge Michael J. Barrasse
declared an earlier version of Dempsey's liquidated damages clause to be an
unenforceable penalty intended to compel customer compliance, particularly since
Dempsey's damages were capable of being calculated with reasonable certainty.
Id., at *4. More recently, Judge Robert A. Mazzoni awarded liquidated damages
pursuant to Dempsey's current liquidated damages clause based upon the evidence
produced during a non-jury trial. See, Dempsey Uniform and Linen Supply. Inc. v.
Wakefield Valley Golf Club. Inc., 09 CV 5934, Mazzoni, J. at pp. 4-6, 12-13
(Lacka. Co. July 27, 2011 ).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
(C) MOTION TO STRIKE
The Iron Pigs also assert that "Dempsey's complaint is insufficiently
specific as it fails to allege how it was [*19] prejudiced by the Iron Pigs'
alleged late notice." (Defendant's Brief in Support, p. 8). The Iron Pigs seek
to have the complaint dismissed on that basis or to compel Dempsey "to file a
more specific pleading setting forth facts to establish prejudice." (Id.).
specific as it fails to allege how it was [*19] prejudiced by the Iron Pigs'
alleged late notice." (Defendant's Brief in Support, p. 8). The Iron Pigs seek
to have the complaint dismissed on that basis or to compel Dempsey "to file a
more specific pleading setting forth facts to establish prejudice." (Id.).
As noted above, Dempsey has averred that as a result of the Iron Pigs'
untimely notice, Dempsey has suffered compensatory damages in the form of
"incurred costs over the remainder of the term of the contract or until March
20, 2016." Viewing the allegations of the complaint in their entirety, they are
sufficiently specific to enable the Iron Pigs to prepare a defense and
responsive pleading. The exact details of those "incurred costs" are proper
subjects for discovery, but do not warrant the striking of the complaint or a
more specific pleading. See, Unified Sportsmen of Pennsylvania, 950 A.2d at 1134
("...in pleading its case, the complaint need not cite evidence but only those
facts necessary for the defendant to prepare a defense"); Maleski by Taylor v.
DP Realty Trust, 653 A.2d 54, 65 (Pa. Cmwth. 1994) ("...a plaintiff is not
required to plead evidence in his or her complaint, and need not allege all of
the factual details [*20] underlying the claim of fraud."). Hence, the Iron
Pig's preliminary objections in the nature of a motion to strike, or in the
alternative, for a more specific pleading will be overruled.
untimely notice, Dempsey has suffered compensatory damages in the form of
"incurred costs over the remainder of the term of the contract or until March
20, 2016." Viewing the allegations of the complaint in their entirety, they are
sufficiently specific to enable the Iron Pigs to prepare a defense and
responsive pleading. The exact details of those "incurred costs" are proper
subjects for discovery, but do not warrant the striking of the complaint or a
more specific pleading. See, Unified Sportsmen of Pennsylvania, 950 A.2d at 1134
("...in pleading its case, the complaint need not cite evidence but only those
facts necessary for the defendant to prepare a defense"); Maleski by Taylor v.
DP Realty Trust, 653 A.2d 54, 65 (Pa. Cmwth. 1994) ("...a plaintiff is not
required to plead evidence in his or her complaint, and need not allege all of
the factual details [*20] underlying the claim of fraud."). Hence, the Iron
Pig's preliminary objections in the nature of a motion to strike, or in the
alternative, for a more specific pleading will be overruled.
CIVIL ACTION - LAW
ORDER
AND NOW, this 22nd day of September, 2011, upon consideration of "Defendant's
Preliminary Objections to Plaintiff's Complaint," the memoranda of law submitted
by the parties and the oral argument of counsel on September 14, 2011, and based
upon the reasoning set forth in the foregoing Memorandum, it is hereby ORDERED
and DECREED that:
Preliminary Objections to Plaintiff's Complaint," the memoranda of law submitted
by the parties and the oral argument of counsel on September 14, 2011, and based
upon the reasoning set forth in the foregoing Memorandum, it is hereby ORDERED
and DECREED that:
1. Defendant's preliminary objections to plaintiff's complaint are OVERRULED;
and
and
2. Within the next twenty (20) days, defendant shall file a responsive
pleading to the complaint.
pleading to the complaint.
BY THE COURT:
/s/ Terrence R. Nealon, J.
Terrence R. Nealon