1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-24-1996

JC Penney Co Inc v. Giant Eagle Inc

Precedential or Non-Precedential:

Docket 95-3054

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Recommended Citation

"JC Penney Co Inc v. Giant Eagle Inc" (1996). 1996 Decisions. Paper 183.

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 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 _______________ 

 No. 95-3054 

 _______________ 

 J. C. PENNEY COMPANY, INC., 

 Appellee 

 

 v. 

 GIANT EAGLE, INC.; GIANT EAGLE MARKETS, 

 INC., and STANLEY R. GUMBERG, individually 

 and as Trustee under those certain 

 Irrevocable Deeds of Trust dated May 9, 

 1969, 

 

 GIANT EAGLE, INC.,

 Appellant 

 _________________________________________________ 

 On Appeal From the United States District Court 

 For The Western District Of Pennsylvania 

 (D.C. Civil No. 92-cv-01769) 

 _________________________________________________ 

 Argued: October 27, 1995 

 Before: STAPLETON, McKEE, Circuit Judges, and 

 JOHN R. GIBSON, Senior Circuit Judge 

 

 (Filed May 24, 1996) 

 RALPH A. FINIZIO, ESQ. 

 (argued) 

 Houston Harbaugh 

 Two Chatham Center 

 12th Floor 

 Pittsburgh, PA 15219 

 Attorney for Appellee 

 BERNARD D. MARCUS, ESQ. 

 DAVID B. RODES, ESQ. 
 (argued) 

 Marcus & Shapira 

 One Oxford Centre 

 35th Floor 

 Pittsburgh, PA 15219 

 Attorney for Appellant 

 

 _____________________________ 

 OPINION OF THE COURT 

 _____________________________ 

JOHN R. GIBSON, Senior Circuit Judge: 

 Giant Eagle, Inc. appeals from an order of the district 

court enjoining it from operating a pharmacy in its Quaker Village 

shopping center store for the duration of J. C. Penney Company's 

1978 lease, including renewals. Giant Eagle argues that Penney's 

exclusive right to operate a pharmacy in Quaker Village ended when 

Penney's 1962 lease ended, and that Penney's exclusive right is 

unenforceable against it because it did not have notice of Penney's 

exclusive right. We affirm. 

 In 1962 the Thrift Drug Company leased a store in the 

Quaker Village shopping center to operate a retail drugstore. The 

lease required that Thrift Drug use the premises only for operation 

of a retail drugstore, and gave it the right to display "such 

articles as are displayed and sold by it in its other retail drug 

stores." The lease further provided that the owner of Quaker 

Village, as lessor, would not permit another tenant to operate a 

pharmacy or fill or sell prescriptions. The lease covenanted that 

other tenants would be Thorofare Markets, Inc., which would operate 

a supermarket, and Triple "A", a national chain variety store. 

These tenants were allowed to sell merchandise customarily sold in 

drugstores, provided that they did not compound or sell 

prescriptions, or sell merchandise limited by state law to licensed 

pharmacies. The lease was for a term of fifteen years, and Thrift 

Drug was given the right to renew and extend the lease for three 

additional five-year terms. Thrift Drug recorded a memorandum of 

the lease which set forth a description of the premises, the term 

of the lease, and Thrift Drug's right to renew, but made no mention 

of Thrift Drug's obligation to operate only a retail drugstore, nor 

of the shopping center's agreement prohibiting other tenants from 

operating a drugstore. In 1969 Penney acquired Thrift Drug and all 

of its rights, including the 1962 lease. 

 In 1977 Giant Eagle entered into a lease at Quaker 

Village, which provided that it was to operate a food and grocery 

supermarket for items "customarily sold in the markets which it 

operates in the Greater Pittsburgh area." Giant Eagle's lease also 

gave Giant Eagle the exclusive right to operate a grocery store in 

Quaker Village with the exception of the existing Thorofare store. 
 Stanley R. Gumberg, the owner of the Quaker Village 

shopping center, negotiated the lease with Giant Eagle, and stated 

that there was no reference to a pharmacy or drugstore in the lease 

provision describing Giant Eagle's use of the premises. He also 

stated that at the time the lease was negotiated there was no 

thought or discussion of a pharmacy in Giant Eagle's store. 

 In 1975 Penney began discussing with Gumberg the 

possibility of relocating its drugstore within Quaker Village. 

Throughout these discussions, Penney insisted on keeping its 

exclusive right to operate a pharmacy. In 1978 Penney and Gumberg 

agreed that Penney would relocate its drugstore within the shopping 

center and continue to have the exclusive right to operate a 

pharmacy. The 1978 lease gave Penney the exclusive right to 

operate a pharmacy in Quaker Village, and provided that the 1962 

lease was to terminate one day after the new lease term started, 

thus providing an overlap between the 1962 and 1978 leases. The 

1978 lease also covenanted that Giant Eagle was to operate a 

supermarket in the shopping center, which was a condition for 

Penney operating its new drugstore. 

 In 1990 Giant Eagle began to make plans to expand its 

supermarket in Quaker Village to include a pharmacy. To 

accommodate Giant Eagle's plans, Gumberg asked Penney several times 

to waive its exclusive right to operate a pharmacy in the shopping 

center. Penney consistently refused to waive its exclusive right. 

Gumberg told Giant Eagle that Penney had the exclusive right to 

operate a pharmacy in Quaker Village and that Penney refused to 

waive that right. Despite this information, Giant Eagle began its 

construction of a pharmacy at its Quaker Village store. Shortly 

thereafter Penney told Giant Eagle and Gumberg that it intended to 

enforce its exclusive right. On August 13, 1992 Giant Eagle opened 

its pharmacy in Quaker Village, and Penney sued Giant Eagle to 

enjoin Giant Eagle's operation of the pharmacy. 

 The district court granted Penney a preliminary 

injunction. J. C. Penney Co. v. Giant Eagle, Inc., 813 F. Supp. 

360 (W.D. Pa. 1992). Giant Eagle appealed the preliminary 

injunction to this court, and we affirmed the injunction in an 

unpublished opinion. J. C. Penney Co. v. Giant Eagle, Inc., 995 

F.2d 217 (3d Cir. 1993). The district court later granted Penney 

a permanent injunction against Giant Eagle for the duration of 

Penney's 1978 lease, including renewals. In granting the permanent 

injunction, the district court stated that under Penney's 1962 and 

1978 leases Penney continuously held the exclusive right to operate 

a pharmacy in Quaker Village. The court also stated that Penney 

could enforce its exclusive right against Giant Eagle because the 

memorandum of the 1962 lease, which was filed for record, gave 

Giant Eagle constructive notice of Penney's exclusive right when 

Giant Eagle entered into its Quaker Village lease. Giant Eagle 

appeals from the district court's grant of the permanent 

injunction. 

 I. 

 Giant Eagle argues that Penney cannot enforce its 

exclusive right against Giant Eagle because Giant Eagle obtained 
its lease in Quaker Village before Penney obtained its 1978 lease 

containing the exclusive right. Giant Eagle argues that the 1978 

lease did not preserve Penney's 1962 exclusive right for two 

reasons. First, Giant Eagle argues that Penney cancelled its 1962 

lease and filed for record a lease cancellation agreement stating 

that the 1962 lease was null and void. Therefore, Giant Eagle 

argues, Penney cannot rely on an exclusive right contained in a 

lease which is null and void. Second, Giant Eagle argues that 

Penney's exclusive right is a form of restrictive covenant or 

negative easement which cannot be transferred from one location 

within Quaker Village to another. Giant Eagle concludes that 

because Penney moved in 1978, it could not take its exclusive right 

with it. 

 A. 

 In this diversity case, we must determine and apply 

Pennsylvania law, and when the issues have not been authoritatively 

determined by the Pennsylvania Supreme Court, we must predict how 

it would decide those issues. Adams v. Madison Realty & Dev., 

Inc., 853 F.2d 163, 168 (3d Cir. 1988). Our review is de novo 

without deference to the district court. Salve Regina College v. 

Russell, 499 U.S. 225 (1991). 

 For many years the Pennsylvania Supreme Court used 

principles of real estate law in interpreting restrictions in 

shopping center leases. In Siciliano v. Misler, 160 A.2d 422 (Pa. 

1960), the court stated, "In restricting real estate a scrivener 

acts at his peril: if his creation is not self-sustaining it is 

nothing." Id. at 425. The court rejected the argument that the 

intent of the parties should govern. Instead, it looked at the 

plain language of the restriction, gleaning the intent of the 

parties from the language alone. Id. See also Food Fair Stores, 

Inc. v. Kline, 152 A.2d 661, 663 (Pa. 1959). 

 There were early rumblings of change in Great Atlantic & 

Pacific Tea Co. v. Bailey, 220 A.2d 1 (Pa. 1966), which did not 

produce a majority opinion. See Mt. Lebanon v. County Bd. of 

Elections, 368 A.2d 648, 650-51 (Pa. 1977) (non-majority opinions 

of the Pennsylvania Supreme Court are non-decisional); Vargus v. 

Pitman Mfg. Co., 675 F.2d 73, 74-75 (3d Cir. 1982) (a majority of 

the justices on the Pennsylvania Supreme Court must join an opinion 

in its entirety or it is not binding precedent). In Great Atlantic 

& Pacific Tea Co., the Baileys, owners of a shopping center, 

granted A & P the exclusive right to operate a grocery store in 

their shopping center. 220 A.2d at 1-2. Later, the Baileys 

purchased land next to their shopping center and rented it to 

another grocery store operator. Id. at 2. A & P, relying on its 

exclusive right, sued to prevent the operation of the competing 

grocery store. Justice Eagen, with two justices joining his 

opinion and another only concurring in the result, wrote that 

courts must strictly construe exclusive rights granted in shopping 

center leases, because they restrict the use of land and such 

restrictions are traditionally not favored. Id. at 2-3. Following 

this reasoning, Justice Eagen concluded that A & P could not 

enforce its exclusive right against land acquired after its lease 

because A & P's exclusive right did not state explicitly that it 
applied to after-acquired land. Id. at 3. 

 Justice Roberts, joined by two other justices, dissented 

in Great Atlantic & Pacific Tea Co. Id. at 4. Justice Roberts 

stated that exclusive rights are important for the development of 

modern shopping centers and that the modern approach was to 

realistically interpret the exclusive right so as to give effect to 

the intent of the parties. Id. at 5-6 (citing Cragmere Holding 

Corp. v. Socony-Mobil Oil Co., 167 A.2d 825, 827 (N.J. Super. Ct. 

App. Div. 1961) and other cases). Justice Roberts rejected the 

uncritical application of the doctrine of strict construction to 

defeat the obvious purpose for which a covenant was included in a 

lease agreement. In ascertaining the intention of the parties, he 

wrote, the restriction should be interpreted in light of the 

apparent purpose of the covenant and the conditions existing at the 

time the lease agreement was executed. Id. at 6. After 

considering the circumstances surrounding execution of the lease, 

Justice Roberts concluded that the parties intended for A & P to be 

the only grocery store in the shopping center and that A & P could 

enforce its exclusive right against land added to the shopping 

center after A & P's lease. Id. at 6-7. In essence, Justice 

Roberts was arguing for the use of contract law, rather than the 

real estate law governing land use restrictions. 

 Shortly after Great Atlantic & Pacific Tea Co., the 

Pennsylvania Supreme Court, with one justice not participating, 

evenly split over the interpretation of exclusive rights in 

shopping center leases. Sun Drug Co. v. West Penn Realty Co., 268 

A.2d 781 (Pa. 1970). Again, three justices argued that exclusive 

rights should be strictly interpreted because they restricted the 

use of land. Id. at 783. Justice Roberts continued to state that 

exclusive rights contained in shopping center leases should be 

realistically interpreted so as to give effect to the intent of the 

parties to the lease. Id. at 785-86. 

 Exclusive rights in the shopping center lease context 

were again considered by the Pennsylvania Supreme Court in Teodori 

v. Werner, 415 A.2d 31 (Pa. 1980). The issue in Teodori was 

whether a tenant had an independent continuing obligation to pay 

rent when the landlord violated the tenant's exclusive right to 

sell jewelry. Justice Roberts wrote the court's unanimous opinion. 

He recognized that the old common law of landlord and tenant 

relations based on real estate principles would recognize the 

independent obligation of the tenant to continue paying rent even 

though the landlord had violated the tenant's exclusive right. 

Teodori, 415 A.2d at 33. Justice Roberts began his discussion by 

stating: "It is now clear, however, that this view of landlordtenant relations, incorrectly resting more on notions of property 

law than on principles of contracts, has no place in modern 

jurisprudence." Id. The court continued that the independent 

obligation approach must be rejected where the landlord breaks a 

promise in the lease which "is a significant inducement to the 

making of the lease by the tenant." Id. at 34 (quoting Restatement 

(Second) of Property, Introductory Note to Chapter 7 (1977)). The 

opinion continues: 

 It is obvious that a landlord's non- 

 competition promise is critical to a 
 commercial lease agreement like the one here. 

 "The mere presence in a lease of a 

 noncompetition promise by the landlord 

 justifies the conclusion that it is essential 

 that the promise be observed if the tenant is 

 to conduct his business on the leased property 

 profitably." 

Id. (quoting Restatement (Second) of Property  7.2 cmt. b (1977)). 

In a lengthy footnote the court reiterated the importance of 

exclusive rights in shopping center leases in assuring the mix of 

quality businesses essential to a shopping center's financial 

success. Id. at 34 n.5 (citing Cragmere Holding Corp. v. SoconyMobil Oil Co., 167 A.2d 825 (N.J. Super. Ct. App. Div. 1961)). 

 Teodori represents a substantial change in the 

Pennsylvania Supreme Court's approach to shopping center leases 

with exclusive rights. Although the court's holding is limited to 

the independent obligation for the tenant's payment of rent, the 

court applied contract-law principles for determining the intent of 

the parties and rejected the strict approach of real estate law, 

which had been the law of Pennsylvania. See also Cimina v. 

Bronich, 537 A.2d 1355, 1358 (Pa. 1988) ("[A] lease is in the 

nature of a contract and is controlled by principles of contract 

law.") (citing Amoco Oil Co. v. Snyder, 478 A.2d 795 (Pa. 1984), 

and Ezy Parks v. Larson, 454 A.2d 928 (Pa. 1982)); Pugh v. Holmes, 

405 A.2d 897, 903 (Pa. 1979) (same). Teodori completed what 

Justice Roberts had argued for in Great Atlantic & Pacific Tea Co., 

and Justice Eagen's joining in Justice Roberts's Teodori opinion 

demonstrates the abandonment of the strict approach to exclusive 

rights which Justice Eagen adhered to in his Great Atlantic & 

Pacific Tea Co. plurality opinion. 

 Accordingly, we must analyze the relationships in this 

case under the rules announced in Teodori. 

 B. 

 Penney is attempting to enforce against Giant Eagle its 

exclusive right to operate a pharmacy in Quaker Village contained 

in its 1978 lease, and thus, we must examine the terms of the lease 

and the circumstances surrounding the lease. Sun Drug Co., 268 

A.2d at 785-87 (Roberts, J., opinion in support of orders); Great 

Atl. & Pac. Tea Co., 220 A.2d at 5-6 (Roberts, J., dissenting). 

 In so doing, we begin with Giant Eagle's 1977 lease, 

because Gumberg negotiated this lease at the same time he 

negotiated Penney's 1978 lease. Giant Eagle's lease stated that 

Giant Eagle "shall use the [rented] premises as a food and grocery 

supermarket for the sale of items customarily sold" in other Giant 

Eagle supermarkets in the greater Pittsburgh area. Giant Eagle's 

lease also gave Giant Eagle, with one exception, the exclusive 

right to operate a grocery store in the Quaker Village shopping 

center. Gumberg testified that he did not in any way contemplate 

giving Giant Eagle the right to operate a pharmacy. Joseph 

Faccenda, Giant Eagle's Vice President, also testified that there 

were no pharmacies in any of Giant Eagle's stores in 1977. This 
testimony, coupled with the clear language of Giant Eagle's lease, 

shows that Gumberg intended to give Giant Eagle the exclusive right 

to operate only a supermarket in Quaker Village. 

 The negotiations behind the 1978 lease between Gumberg 

and Penney, on the other hand, show that Gumberg intended to grant 

Penney an exclusive right to operate a pharmacy. Throughout the 

negotiations concerning the move of its drugstore within Quaker 

Village, which began in the fall of 1975, Penney insisted on 

preserving its exclusive right from the 1962 lease, and insisted 

that the transaction be structured so as to maintain continuity 

with the 1962 lease. When Gumberg submitted one draft of a lease 

to Penney that did not contain the exclusive right, Penney's 

representatives promptly insisted that the exclusive right be 

included in the lease. Penney agreed to move on the condition that 

its exclusive right remain in full force. As a result, the lease 

not only contained the exclusive right Penney wanted, it also 

provided that the 1962 lease would terminate one day after the 

start of the 1978 lease. This overlap ensured the continuity in 

Penney's tenancy and exclusive pharmacy right. Gumberg testified 

that Penney's 1978 lease gave Penney the exclusive right to operate 

a pharmacy in the Quaker Village shopping center. 

 The terms of the 1978 lease are entirely consistent with 

the parties' intent to grant Penney an exclusive pharmacy right. 

The lease stated that during the term of the lease Gumberg would 

"not use or occupy, or permit the use or occupancy of, any space" 

other than Penney's for "the operation of a drug store, or a drug 

department, in which a registered pharmacist is in attendance or 

required by law to be in attendance for any period of time," nor 

would Gumberg enter into any lease which would permit another 

tenant or sub-tenant to use space in Quaker Village for such 

purposes. The exclusive right provision concluded by stating that 

Gumberg "covenants and agrees that rights similar to the rights 

herein granted by [Gumberg] to [Penney] are not held by any other 

tenant or occupant of space within" Quaker Village.

 In addition, Penney's 1978 lease acknowledged that 

Gumberg had entered into a new lease with Giant Eagle to operate a 

food supermarket. Penney's lease provided that Penney "shall be 

under no duty or obligation to open [its] store for business . . . 

unless and until the Giant Eagle food supermarket has opened or is 

about to open its store for business." 

 The circumstances surrounding the negotiation of the 1978 

lease and the language of the lease itself show that Gumberg and 

Penney intended to preserve and continue, in essentially the same 

terms, the exclusive right to operate a pharmacy which Penney 

acquired through the 1962 Thrift Drug lease. 

 The intention of the parties surrounding both leases is 

thus plainly expressed. As Giant Eagle's 1977 lease shows, Giant 

Eagle obtained the exclusive right to operate a supermarket, and 

received Gumberg's promise that, with the exception of the 

Thorofare store, such rights would not be granted to any other 

tenant. Gumberg granted Penney the existing pharmacy right in 

Penney's 1978 lease in the context of Giant Eagle's supermarket 

lease. Penney's intent that it have an exclusive right to operate 

a pharmacy is clearly expressed. While Faccenda, on behalf of 
Giant Eagle, denied knowledge of Penney's exclusive right when 

Giant Eagle executed its lease, he also stated that exclusive-right 

provisions were common in shopping center leases at that time, and 

that there were no pharmacies in Giant Eagle's stores in 1977. In 

addition, Giant Eagle's counsel conceded that Giant Eagle knew that 

there was a 1978 lease with Penney containing exclusive-right 

language. These expressions of intent amply demonstrate that 

Gumberg and Penney intended to preserve Penney's exclusive right 

from the 1962 lease when they entered into the 1978 lease, and that 

the 1978 lease preserves and continues that preexisting exclusive 

right. Because Penney's 1978 lease preserves its 1962 exclusive 

right, we hold that Penney's exclusive right predates Giant Eagle's 

1977 lease. 

 Both of Giant Eagle's arguments against extension of 

Penney's 1962 exclusive right ignore Pennsylvania law which 

requires us to realistically interpret shopping center leases in 

light of the intent of the parties under contract principles. 

While the 1978 lease declared the 1962 lease null and void, this 

provision must be read with the other provisions in the 1978 lease 

and the circumstances surrounding the execution of the 1978 lease. 

The overlap of the two leases shows that although the 1978 lease 

cancelled the 1962 lease, the parties expressly intended to 

continue the exclusive pharmacy right from the 1962 lease. 

 Giant Eagle's second argument is the type of traditional 

property-law argument which the Pennsylvania Supreme Court rejected 

in Teodori. 415 A.2d at 33-34. The court in Teodori decided that 

courts should realistically interpret shopping center leases under 

contract-law principles, rather than traditional property law, to 

give effect to the economic realities at work in shopping centers. 

Id. After Teodori, the intent of the parties governs the 

interpretation of shopping center leases and the traditional 

property-law restrictions on restrictive covenants and negative 

easements do not apply. 

 Thus, we conclude that the district court's finding that 

the exclusive provisions in the 1962 and 1978 leases "have 

expressly, unambiguously, and continuously since 1962" prohibited 

the landlord from using or permitting "the operation of any other 

drugstore or drug department with a registered pharmacist in 

attendance" was a fact not clearly erroneous, and a conclusion well 

drawn from the intent of the parties as expressed in the language 

of the leases, and in the negotiations with respect to the 

execution of the leases. The district court did not err in its 

holding that Penney had the exclusive right to operate a pharmacy 

at the shopping center. 

 II. 

 Giant Eagle argues that even if Penney had an exclusive 

right to operate a pharmacy, it only had notice of the right by way 

of the 1962 lease which, by its terms, would end no later than 

1993. Therefore Giant Eagle contends that to allow Penney to 

extend the exclusive right beyond 1993 violates the rights it 

acquired under its 1977 lease. 

 As long as Giant Eagle had notice of Penney's exclusive 

right when it entered into its Quaker Village lease, it is bound by 
the proper interpretation of that right even though that is not the 

interpretation it placed on that right. 3 Milton R. Friedman, 

Friedman on Leases  28.601 (3d ed. 1990). Accordingly, to decide 

whether Penney could extend its exclusive right beyond 1993, we 

must again look to the parties' intent. See Sun Drug Co., 268 A.2d 

at 785-87 (Roberts, J., opinion in support of orders); Great Atl. 

& Pac. Tea Co., 220 A.2d at 5-6 (Roberts, J., dissenting). 

 Looking at all the leases, it is evident that Gumberg 

intended to grant exclusive rights to tenants operating different 

kinds of retail establishments. The 1962 lease with Penney's 

predecessor specifically warranted that Thorofare Markets, Inc. 

would operate a supermarket and that Triple "A" would operate a 

variety store. Giant Eagle's 1977 lease granted Giant Eagle the 

exclusive right to operate a supermarket subject to the exception 

recognized for the existing Thorofare store, and specifically 

provided that Giant Eagle's exclusive right would not cover 

restaurants or delicatessens. Penney's 1978 lease provided that 

Gumberg had entered into a lease with Giant Eagle, and provided 

that Penney was under no duty or obligation to open, unless and 

until the Giant Eagle store was about to open. It is apparent that 

in each lease, the tenant undertook obligations concerning its 

business, but also received from the lessor assurances about the 

other tenants within the shopping center. Such an 

interrelationship is recognized, particularly in the footnotes, in 

Justice Robert's opinion in Teodori, 415 A.2d at 34 n.5, as well as 

in his dissent in Great Atlantic & Pacific Tea Co., 220 A.2d at 5-6 

nn.2-3. 

 There was just such an interrelationship between Gumberg, 

Penney, and Giant Eagle. Both the 1962 lease and the 1977 Giant 

Eagle lease provided for fixed terms, and gave the tenant the 

option to renew or extend for a stated number of five-year terms. 

Such renewals and extensions would, of course, include the 

exclusive rights granted to each tenant. There is no language in 

any of the leases, nor any testimony about the lease negotiations, 

indicating that any of the parties intended to restrict the 

parties' ability to negotiate a new lease, whether it be referred 

to as a renewal or extension, at the end of the lease term. 

Indeed, the fact that Gumberg and Penney negotiated the 1978 lease 

over a three-year period demonstrates that there was no such 

restriction. 

 Similarly, there is no indication in the record of any 

intent to restrict the landlord's ability to grant exclusive rights 

to tenants, as he had granted in all the earlier leases, or to 

strip the landlord of the ability to control the mix of the 

shopping center, and to grant the exclusive rights to operate 

specific businesses as he chose. Indeed, the evidence about the 

interrelationship between the landlord and the several tenants 

demonstrates that the parties intended to allow the landlord to 

negotiate continuations of existing leases, preserving their 

exclusive rights. If there is any difficulty in reaching this 

conclusion, there is nothing in the 1962 lease, the 1977 Giant 

Eagle lease, or the 1978 Penney lease that permits a conclusion 

that the parties intended to allow Giant Eagle to operate a 

pharmacy, a right that Gumberg had previously granted to Penney. 
 Giant Eagle has failed to explain why the owner of Quaker 

Village would limit his ability to extend or renew an exclusive 

right within his shopping center. Likewise, there is no reason to 

suspect that Thrift Drug agreed to limit its ability to extend or 

renew its exclusive right in the future. The 1962 lease does not 

state that the exclusive right cannot be extended or renewed. On 

the contrary, the language in the lease states that the exclusive 

right shall continue through any extension or renewal of the lease. 

When the several leases in this case are considered, it is evident 

that the landlord demonstrated a clear intent to control the mix of 

establishments in the shopping center, and that each of the tenants 

in entering into leases benefitted from this intent. The 

interrelationship between the tenants, as we have discussed, was 

part of the parties' underlying intent. We see nothing in any of 

the leases that would permit any tenant to presume that after the 

expiration of another tenant's lease, it would gain the right to 

enter into a competing business or a completely unrelated business. 

In light of these circumstances, we hold that the parties to the 

1962 lease intended to allow extension of the exclusive right as 

they might see fit in the future, and that the proper 

interpretation of the 1962 exclusive right permits its extension. 

Gumberg and Penney intended Penney's 1978 lease to extend and renew 

Penney's 1962 exclusive right. Therefore, we also hold that 

Penney successfully extended its exclusive right for the duration 

of its 1978 lease, including any renewals. Our interpretation 

allowing the extension of Penney's exclusive right beyond 1993 is 

binding on Giant Eagle. 

 III. 

 Finally, Giant Eagle argues that it did not have notice 

of Penney's exclusive right when it entered into its Quaker Village 

lease in 1977 and, therefore, Penney cannot enforce that right 

against it. 

 Thrift Drug did not file for record the entire 1962 

lease. Instead, it filed a memorandum of the lease as allowed by 

section 405 of title 21 of the Pennsylvania statutes. Section 407 

of title 21 defines the effect of recording a lease memorandum. 

Section 407, which is titled "Effect of recording lease, sublease, 

agreement or memorandum," provides: 

 The recording of any such lease, 

 sublease, agreement or memorandum in 

 accordance with the provisions of this act 

 shall constitute constructive notice to 

 subsequent purchasers, mortgagees and judgment 

 creditors of the lessor of the making and of 

 the provisions of such lease, sublease or

 agreement, including any purchase or refusal 

 provisions set forth in the lease, sublease or 

 agreement. 

Pa. Stat. Ann. tit. 21,  407 (Supp. 1995) (emphasis added). 

 Giant Eagle argues that under section 407 the recording 

of a lease memorandum results in constructive notice only to 

"subsequent purchasers, mortgagees and judgment creditors of the 

lessor." Giant Eagle contends that it is a lessee, not a 
subsequent purchaser, mortgagee or judgment creditor, and, 

therefore, it received no constructive notice from the recorded 

lease memorandum. Penney responds that Giant Eagle is a 

"purchaser" within the meaning of section 407 because a lease is 

really a sale of land for a term of years. 

 A close examination of section 407 shows that the 

legislature intended the recording of a lease memorandum to give 

constructive notice of the entire lease to subsequent lessees. 

Section 407 not only defines the effect of recording a lease 

memorandum, but also the effect of filing a lease, sublease or 

lease agreement. This is plainly reflected in the terms of section 

407. If we were to accept Giant Eagle's interpretation of section 

407, not even the recording of the entire lease would constitute 

constructive notice to a subsequent lessee. Under Giant Eagle's 

interpretation, there would be no way to give constructive notice 

of the terms of a lease to a subsequent lessee. A more reasonable 

interpretation of section 407 leads to the conclusion that the 

legislature intended the term "purchasers," as used in section 407, 

to include lessees. Indeed, the Supreme Court of Pennsylvania has 

so held. Commonwealth v. Monumental Properties, Inc., 329 A.2d 812 

(Pa. 1974) (holding that a lease of real property is a sale under 

the Pennsylvania Consumer Protection Law). Consequently, the 

district court did not err in holding that Giant Eagle was at least 

constructively, if not actually, aware of the exclusive provision 

in Penney's lease. 

 The record before us supports this conclusion. Giant 

Eagle's Vice President, Faccenda, stated that while he was not 

involved with exclusive rights in 1977, Giant Eagle had a staff of 

real estate and legal people who were expected to handle these 

functions and to ensure that everything that Giant Eagle was doing 

was proper and legal. He would expect them to find a recorded 

document which restricted the use of the premises Giant Eagle was 

about to lease. He was aware when Giant Eagle moved into Quaker 

Village in 1977 that there was a Thrift Drug store there and that 

it was logical for Thrift to have a lease, but he would not have 

paid attention to details like exclusive rights in other leases. 

This testimony is sufficient to raise an inference that when Giant 

Eagle signed the lease in 1977 it knew of Penney's exclusive right 

in the 1962 lease. Also, Faccenda's knowledge that exclusive 

rights were common in 1977, as well as the exclusive right 

contained in Giant Eagle's lease, support the inference that this 

is a subject about which Giant Eagle and its representatives would 

have been interested. The record makes clear that both Penney and 

Giant Eagle were sophisticated lessees, and indeed were involved in 

some three other disputes in which Giant Eagle was seeking to 

enforce exclusive rights to operate pharmacies in other leases. 

While Giant Eagle argues that a single lessee would have no right 

to obtain information from a landlord about other lessees, the 

record is to the contrary. In Penney's letter to Gumberg's 

attorney on January 12, 1978, Penney requested copies of the use 

and exclusive-right provisions from the leases of other tenants 

within the shopping center. There was strong evidence in the 

record to support the district court's finding that Giant Eagle was 

constructively, if not actually, aware of the exclusive-right 
provisions in Penney's leases. 

 We think it also follows that when Giant Eagle decided to 

open a pharmacy in 1990 it was bound by the exclusive rights 

granted to other tenants. Giant Eagle conceded that in 1977 it was 

not operating a pharmacy in any of its stores and its lease 

certainly did not give them a right to operate a pharmacy. In 1977 

Giant Eagle knew of Penney's rights under the 1962 lease. From 

1978, well before Giant Eagle operated pharmacies in its 

supermarkets and in 1990 when it decided to open a pharmacy, it had 

constructive notice of Penney's exclusive right as granted both in 

the 1978 and 1962 leases. 

 Accordingly, we affirm the order of the district court 

granting the permanent injunction. 

J.C. PENNEY COMPANY, INC. V. GIANT EAGLE, INC., ET AL. 

No. 95-3054 

STAPLETON, J., dissenting: 

 I respectfully dissent. 

 I start with the proposition that restrictive covenants 

in prior conveyances are binding only against future lessees with 

actual or constructive notice before the lease is signed. See 

Finley v. Glenn, 154 A. 299, 301 (Pa. 1931); see generally3 M. Friedman, 

Friedman on Leases  28.601 (3d ed. 1990). J.C. 

Penney's lease agreement thus will not support the district court's 

injunction in the absence of actual or constructive notice to Giant 

Eagle. 

 I believe the record contains insufficient evidence to 

permit a finding that Giant Eagle had actual notice of J.C. 

Penney's exclusive when Giant Eagle signed its lease in 1977. In 

any event, as the court acknowledges, the district court made no 

finding that Giant Eagle had actual notice at that time. Based on 

the particular facts of this case, however, we may assume, 

arguendo, that Giant Eagle had actual notice of the exclusive in 

1977. We may also assume, without deciding, that 21 Pa. Stat. Ann. 

 407 applies here and that Giant Eagle had constructive notice in 

1977 of the existence and provisions of J.C. Penney's 1962 lease, 

including the restrictive covenant. Finally, we may also assume 

without deciding that J.C. Penney's 1978 lease effectively 

continued the 1962 pharmacy exclusive in the new location within 

the shopping center--that is, that the restrictive covenant runs 

with the restricted land retained by the landlord (the entire 

shopping center), not with the premises originally leased by J.C. 

Penney in 1962. Thus, had J.C. Penney merely moved to a new 

storefront within the shopping center in 1978 but otherwise 

retained all the provisions of the 1962 lease, including the 

original term and renewal rights provisions, we may assume that 

Giant Eagle could have been bound by the restrictive covenant for 

the maximum 30-year term of the 1962 lease. 

 While the 1978 lease alone, independently of the 1962 

lease, may bind co-tenants who signed leases after 1978, it cannot 

bind a pre-existing tenant such as Giant Eagle. The critical 

issue, then, is whether J.C. Penney's 1978 lease could operate as 
an extension of the restrictive covenant in the 1962 lease beyond 

its original maximum term of 30 years. 

 In 1977, Giant Eagle had notice that J.C. Penney's 1962 

lease would expire, at the latest, 30 years from its effective 

date, or August 31, 1993. Giant Eagle cannot be bound by any 

extension of the restrictive covenant beyond that date because 

J.C. Penney's lease did not include any such extension right at the 

time Giant Eagle signed its lease. 

 Pennsylvania's lease recording statute explicitly 

requires that a memorandum of lease must contain the expiration 

date of the final period for any right of extension or renewal. 21 

Pa. Stat. Ann.  405. Notice of the maximum term of a lease is 

important because the term partly defines or circumscribes the 

rights of a purchaser, mortgagee, or judgment creditor--or, as I 

have assumed, a tenant to be bound by a co-tenant's restrictive 

covenant. A purchaser with notice of a recorded lease takes the 

property subject to that lease only for the maximum term; that is, 

the purchaser has bought the right to hold the property free of the 

leasehold interest after the final expiration date indicated in the 

recorded lease agreement. Similarly, a tenant who enters into a 

shopping center lease agreement, with at least constructive notice 

of a co-tenant's lease containing a restrictive covenant, has 

bought the right to be free from the restrictive covenant at the 

expiration of the co-tenant's lease as recorded. 

 Allowing a tenant to extend a binding restrictive 

covenant by merely extending the term of its lease beyond the 

original, maximum term would operate to bind a co-tenant to a 

restrictive covenant for a period of time during which the cotenant had no notice it could be bound. There is no principled 

difference between binding a co-tenant to such an extension and 

binding a co-tenant to a restrictive covenant of which it had no 

notice at all in the first instance: either way, a co-tenant's 

property rights are more restricted than they were disclosed to be 

at the time the co-tenant entered into its lease agreement. 

 Giant Eagle signed its lease in 1977, half-way through 

the maximum 30-year term of J.C. Penney's 1962 lease, with notice 

that J.C. Penney's pharmacy exclusive would prohibit Giant Eagle 

from operating a pharmacy until 1993 at the latest. The district 

court's holding necessarily implies that Giant Eagle had no right 

to expect, in 1977, that it could operate a pharmacy department 

after 1993 for the remaining 24 years of its lease. In other 

words, the district court's rule would have given J.C. Penney and 

the landlord the right at any time prior to 1993 to decide between 

themselves to bind Giant Eagle to an extension of the restrictive 

covenant without obtaining Giant Eagle's consent. Such a rule 

cannot be correct because it operates retroactively to restrict a 

tenant's property rights under its lease agreement.

 I would accordingly decide that, at least with respect to 

pre-existing tenants such as Giant Eagle, J.C. Penney's 1978 lease 

did not extend the pharmacy exclusive beyond the expiration of the 

maximum term of the 1962 lease on August 31, 1993. We may assume 

that Giant Eagle was thus in violation of the restrictive covenant 

when it opened its pharmacy department in August 1992, and when the 

district court granted J.C. Penney's motion for a preliminary 
injunction the following month. However, by the time the district 

court ordered permanent injunctive relief in January 1995, 

J.C. Penney's exclusive was no longer binding against Giant Eagle. 

J.C. Penney's exclusive, therefore, cannot be a basis for affirming 

the permanent injunction. I would reverse the judgment of the 

district court, thereby vacating the permanent injunction.