1 All citations to the “Complaint” in this opinion are to Plaintiff’s Amended

Complaint, Dkt. #25, filed on February 28, 2005.

1

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

ZEMENCO, INC., )

)

Plaintiff, )

)

v. ) Civil Action No. 03-175 Erie

)

DEVELOPERS DIVERSIFIED )

REALTY CORPORATION, )

)

Defendant. )

MEMORANDUM OPINION

McLAUGHLIN, J.

Presently pending before the Court is the Defendant, Developers Diversified Realty

Corporation’s Motion for Summary Judgment. 

I. BACKGROUND

Plaintiff, Zemenco, Inc. (“Zemenco”), is a Pennsylvania corporation with its principal place

of business in Erie, Pennsylvania. (Amended Complaint ¶ 1).1 At all times relevant herein,

Zemenco owned and operated a manufactured home community known as Peachtree Place located

in Summit Township, Erie County, Pennsylvania. (Id. at ¶ 5). 

On or about November 14, 1998, Zemenco and another Pennsylvania corporation, Scott’s

Development Company (“Scott’s”), entered into an Agreement of Sale (“the Agreement”) whereby

Scott’s agreed to purchase a 46 acre portion of land within Peachtree Place for $3,980,000.

(Amended Complaint ¶ 6). The Agreement required Scott’s to make quarterly payments of $20,000

into an escrow account, with each payment being released to Zemenco 90 days thereafter, assuming

neither party breached or defaulted on the contract. In the event of a default by the purchaser, the

Agreement contemplated that those payments received by Zemenco prior to default would constitute

Zemenco’s full liquidated damages:

20. DEFAULT:

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2

A. If Purchaser defaults hereunder, Seller shall retain any of the

Deposit then in its possession as full liquidated damages and

Seller shall have no other recourse thereafter.

(Amended Complaint, Exhibit A, Section 20). 

Significantly, the parcel of real estate described in the Agreement included a narrow strip of

land (the “intersecting parcel”) constituting Zemenco’s only frontage on Peach Street, a busy six-lane

highway lined with shopping plazas. (Amended Complaint ¶ 26-27). To the west, on the opposite

side of Peach Street, a small east/west road called “Downs Drive” pointed directly into the heart of

the intersecting parcel. TheAgreement contemplated thatDowns Drive might eventually be extended

to cross Peach Street and bisect the Zemenco property in an easterly direction:

29. DOWNS DRIVE EXTENSION:

As additional consideration from Seller to Purchaser for entering into

this Agreement, Seller hereby agrees to allow Purchaser, at any time

after the date of mutual execution hereof, to construct an extension of

Downs Drive over and upon a portion of the Premises subject to the

parties’ mutual approval of plans therefor, which approval shall not

be unreasonably delayed or withheld.

(Amended Complaint, Exhibit A, Section 20). 

On November 20, 1998, Scott’s assigned the Agreement to Defendant, Developers

Diversified Realty Corporation (“Diversified”), an Ohio corporation that owned the land

immediately to the north of the Zemenco property. (Amended Complaint ¶ 14; Motion for Summary

Judgment, Exhibit B). Diversified had been using this land to develop a shopping center known as

Peach Street Square. However, unbeknownst to Zemenco, Summit Township had notified

Diversified that the township would not issue any more retail occupancy permits for Peach Street

Square unless Diversified could provide an additional means of ingress and egress to Peach Street.

(Amended Complaint, Exhibit C, ¶ 8). Because of an existing traffic light at the intersection of

Downs Drive and Peach Street, Diversified had ascertained that its best solution would be to extend

Downs Drive easterly to intersect with a small access road known as “Mandy Lane” that crossed

Diversified’s property from north to south, ending at the northern border of Zemenco’s land. Each

of the conceptualized extensions, and the intersection thereby created, were located on Zemenco’s

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3

property. 

In December of 1998, Diversified made its first $20,000 deposit into escrow. This payment

was released to Zemenco from escrow in March, 1999. (Motion for Summary Judgment, ¶ 6).

On January 11, 1999, Diversified entered into a Development Agreement with Summit

Township in which Diversified agreed to construct the extensions of Mandy Lane and Downs Drive

in accordance with plans and specifications approved by Summit:

7. Developer agrees to construct (East) Downs Drive to the intersection point with

Mandy Lane marginal access road including the extension of Mandy Lane to (East)

Downs Drive pursuant to plans and specifications approved by Summit.

8. Developer and Summit agree that Summit will not issue any further occupancy

permits for any structure in Peach Street Square, Phase II Project until the abovereferenced public road improvements and other public improvements and all other

requirements of the paragraph of this Agreement have been met by the Developer to

the satisfaction of Summit.

(Motion for Summary Judgment, Ex. E, ¶¶ 7-8).

On May 25, 1999, Diversified presented Zemenco with a Reciprocal Easement Agreement

(“REA”) that would have allowed Diversified to begin construction on the Downs Drive and Mandy

Lane extensions. (Amended Complaint, ¶ 28; Motion for Summary Judgment, ¶ 7). Zemenco

refused to sign, noting that, although Paragraph 29 of the Agreement contemplated a future extension

of Downs Drive, the Agreement did not mention Mandy Lane. (Amended Complaint, ¶ 30).

Moreover, Zemenco feared that the envisioned extension of Mandy Lane would bisect the area

immediately adjacent to Peach Street where Zemenco maintained its sales office and several model

manufactured homes. (Id.)

On May 28, 1999, Diversified terminated the Agreement, asserting that Zemenco had

defaulted on the Agreement by refusing to sign the REA. (Amended Complaint, Exhibit F). At that

time, only the first of the $20,000 payments made by Diversified to the escrow account had been

released to Zemenco. 

On June 4, 1999, Diversified wrote a letter to the Summit Township Board of Supervisors

requesting that the township condemn the portion of Zemenco’s property necessary for the Mandy

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2 Because Diversified was not a party to the original Agreement between Scott’s

and Zemenco, Zemenco, in order to reach Diversified on the fraudulent

inducement claim, also alleged that a conspiracy existed between Scott’s and

Diversified as to the purpose and formation of the Agreement. 

4

Lane extension. (Amended Complaint, Exhibit G). Subsequently, on June 16, 1999, Summit

Township unanimously adopted a resolution authorizing its solicitor to file a Declaration of Taking

under the Eminent Domain Code so that the Mandy Lane extension could take place. (Amended

Complaint, ¶ 42; Motion for Summary Judgment, ¶ 11). Zemenco’s owner attended the hearing and,

with assistance of counsel, unsuccessfully opposed the resolution. (Motion for Summary Judgment,

Exhibit H, Zafiropoulos Deposition, pp. 172-77). Thereafter, Diversified completed construction

on the Downs Drive and Mandy Lane intersection in accordance with the January 11, 1999

Development Agreement. Zemenco received compensation of $287,000 for the land taken by the

township. (Motion for Summary Judgment, Exhibit H, p. 136).

On May 28, 2003, Zemenco filed a complaint against Diversified alleging that the latter had

breached the Agreement and had acted in bad faith during the condemnation proceedings.

Developers moved for summary judgment on January 14, 2005. Following a response by Zemenco,

oral argument on the motion was held on February 8, 2005. During arguments, Zemenco expressed

a desire to amend the complaint to add a claim of fraud in the inducement. We granted Zemenco

leave to amend the complaint, and denied Diversified’s motion for summary judgment without

prejudice to re-assert the motion following discovery on Zemenco’s fraud claim. On March 2, 2005,

Zemenco filed the Amended Complaint (Dkt. 25).2

Diversified filed the instant motion for summary judgment on April 7, 2005. Zemenco

responded on April 28, 2005, and Diversified replied on May 13, 2005. A second oral argument

took place on July 29, 2005. This issue is thus ripe for resolution. 

II. STANDARD OF REVIEW

Summary judgment is proper “if the pleadings, depositions, answers to interrogatories and

admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any

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3 The Agreement contains a choice-of-law clause dictating that the terms of the

Agreement be construed in accordance with Pennsylvania law. (Motion for

Summary Judgment, Exhibit A, ¶ 27(A)).

5

material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P.

56(c). In order to withstand a motion for summary judgment, the non-moving party must “make a

showing sufficient to establish the existence of [each] element essential to that party’s case, and on

which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986). In evaluating whether the non-moving party has established each necessary element, the

Court must grant all reasonable inferences from the evidence to the non-moving party. Knabe v.

Boury Corp., 114 F.3d 407, 410, n.4 (3d Cir. 1997) (citing Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574 (1986)). “Where the record taken as a whole could not lead a reasonable

trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.’” Id. (quoting

Matsushita, 475 U.S. at 587).

III. DISCUSSION

A. Fraud in the Inducement

Zemenco’s amended complaint asserts that Diversified fraudulently induced it to enter into

the Agreement by conspiring with Scott’s to misrepresent Diversified’s true intentions for the

property to Zemenco. Specifically, Zemenco alleges that Scott’s feigned interest in acquiring the

property for development purposes when, in actuality, Scott’s and Diversified sought the property

solely to construct the Mandy Lane extension. Diversified contends that, even assuming arguendo

that Zemenco could prove these allegations, Zemenco is barred from raising its fraud claims by the

Pennsylvania statute of limitations.3 

The statute of limitations in Pennsylvania for actions based on fraud is two years. 42

Pa.C.S.A. § 5524(7); Powell v. First Republic Bank, 274 F.Supp.2d 660, 677 (E.D. Pa. 2003). A

cause of action for fraud accrues, and the two-year limitations period begins to run, when the

“plaintiff learns or reasonably should have learned through the exercise of due diligence of the

existence of the claim.” Beauty Time, Inc. v. Vu Skins Sys., Inc., 118 F.3d 140, 148 (3rd Cir. 1997)

Case 1:03-cv-00175-SJM Document 45 Filed 10/07/05 Page 5 of 20
6

(applying Pennsylvania law). This so called “discovery rule” arises “from the inability of the

injured, despite the exercise of due diligence, to know of the injury or its cause.” Pocono Int’l.

Raceway, Inc. v. Pocono Produce, Inc., 468 A.2d 468, 471 (Pa. 1983) (emphasis in original) (cited

by Beauty Time, 118 F.3d at 143-44). “The question of whether a plaintiff has exercised due

diligence in discovering his own injury is usually a question for the jury, see e.g., DeMartino v.

Albert Einstein Medical Center, Northern Div., 313 Pa.Super. 492, 460 A.2d 295 (Pa.Super.1983),

but when it appears that no factual question has been presented, the court may conclude that the

statute of limitations operates as a bar to the claim.” State Farm Mut. Auto. Ins. Co. v. Midtown

Medical Center Inc., 2005 WL 627969, *4 (E.D.Pa. 2005) (quoting Noyes v. General Am. Life Ins.

Co., 1998 WL 54347 (E.D.Pa. 1998)); see also Cathcart v. Keene Indus. Insulation, 471 A.2d 493,

502 (Pa.Super.1984) (overturned on other grounds). 

All that is required to trigger the running of the statute of limitations is sufficient information

to “awaken inquiry and direct diligence in the channel in which it would be successful.” Bohus v.

Beloff, 950 F.2d 919, 925 (3d Cir.1991) (quoting Deemer v. Weaver, 324 Pa. 85, 90 (1936)).

Indeed, “a claimant need only be put on inquiry notice by ‘storm warnings’ of possible fraud.”

Ciccarelli v. Gichner Systems Group, Inc., 862 F.Supp. 1293, 1301 (M.D.Pa. 1994) (citing In re

Asbestos School Litigation, 1991 WL 175848 at *3 (E.D.Pa. 1991)).

As it pertains to the present case, Zemenco contends that it remained ignorant as to

Diversified’s involvement in the Scott’s/Zemenco negotiations until receiving discovery materials

generated in connection with this lawsuit. We conclude, however, that several “storm warnings”

should have been apparent to Zemenco by, at the latest, June, 1999. On November 20, 1998, only

six days after signing the Agreement, Scott’s transferred the Agreement to Diversified. In January

of 1999, Zemenco and Diversified disagreed as to whether the Agreement granted Diversified the

right to a reciprocal easement over Zemenco’s property. Shortly thereafter, Diversified cancelled

the Agreement and began petitioning Summit Township to condemn the strip of Zemenco’s land

where the Mandy Lane extension would run. It is not disputed that each of these facts was known

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4 The non-disclosure clause read:

Purchaser has not and will not disclose or discuss this Agreement, nor its

contents and parties, nor any aspect of the negotiations had between the

parties hereto prior to or after the mutual execution hereof, to any third

party . . . without the specific written permission of the Seller.

(Amended Complaint, Exhibit A, ¶ 9(B)). 

7

to Zemenco; indeed, they eventually lead Zemenco to file this lawsuit in 2003.

Of particular significance is the short period of time between when Scott’s and Zemenco

signed the Agreement and when Scott’s assigned the Agreement to Zemenco. A non-disclosure

clause in the Agreement prohibited Scott’s from disclosing or discussing the Agreement with any

third parties, yet Scott assigned the Agreement to Diversified less than a week after signing.4 Given

the timing of this event, a reasonable party would have been alerted to the possibility that

Diversified’s interest in the Agreement pre-dated its signing. This factor, coupled with the

subsequent quarrel over the reciprocal easement, cancellation of the contract, and condemnation

petition should have been sufficient to “awaken inquiry and direct diligence in a channel in which

it would be successful.” Beauty Time, 118 F.3d at 149 (quoting Urland v. Merrell-Dow

Pharmaceuticals, 822 F.2d 1268, 1273 (3rd Cir. 1987)); see also Bohus, 950 F.2d at 925; Deemer v.

Weaver, 324 Pa. at 90. Thus, Zemenco’s fraud in the inducement claim is dismissed as time-barred.

B. Breach of Duty of Good Faith Dealing

The second count of the Complaint asserts that Diversified breached the general duty of good

faith and fair dealing that attaches to the performance of every contract under Pennsylvania law. See,

e.g., Somers v. Somers, 613 A.2d 1211, 1213 (Pa. Super. Cot. 1992). However, Pennsylvania courts

have declined to allow for an independent claim of action for breach of the duty of good faith and

fair dealing, instead noting that the breach of this duty should properly be brought as a breach of

contract action:

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A breach of [the covenant of good faith and fair dealing] is a breach

of contract action, not an independent action for breach of a duty of

good faith and fair dealing . . . [and thus] separate causes of action

cannot be maintained for each, even in the alternative.

JHE, Inc. V. SEPTA, 2002 WL 1018941, *5 (Pa. Com. Pl. 2002); see also Pennsylvania Business

Bank v. Franklin Career Services LLC, 2005 WL 637456, *2 (Pa. Com. Pl. 2005); MRED General

Partner, LLC v. Tower Economics Company, Inc., 2005 WL 957707, *1 (Pa. Com. Pl. 2005). As

Zemenco has properly plead a breach of contract claim, Zemenco’s good faith dealing claim is

dismissed as redundant.

C. Breach of Contract

Zemenco’s Amended Complaint asserts that Diversified breached the contract when

Diversified declared Zemenco to be in default and terminated the Agreement on May 28, 1999. As

previously discussed, Diversified’s termination of the Agreement stemmed from Zemenco’s refusal

to sign a reciprocal easement agreement allowing Diversified to constructtheMandy Lane extension.

However, Zemenco denies that it had any obligation to agree to the proposed reciprocal easement

agreement or the extension of Mandy Lane. The relevant contractual provision, paragraph 29 of the

Agreement, required Zemenco to “allow Purchaser, at any time after the date of mutual execution

hereof, to construct an extension of Downs Drive over and upon a portion of the Premises subject

to the parties’ mutual approval of plans therefore. . .”. (Complaint ¶ 29). Because this provision

makes no mention of Mandy Lane, Zemenco denies that the contract obligated them to agree to an

easement for the Mandy Lane extension. 

It is unnecessary, however, that we address the merits of either parties’ arguments insofar as

they focus on the appropriate construction to be given to paragraph 29. This is because the

Agreement contains a liquidated damages clause that provides as follows:

If Purchaser defaults hereunder, Seller shall retain any of the Deposit

then in its possession as full liquidated damages and Seller shall have

no other recourse thereafter. 

(Amended Complaint, Exhibit A, Section 20). Because we conclude, infra, that this provision is

Case 1:03-cv-00175-SJM Document 45 Filed 10/07/05 Page 8 of 20
5 To wit: if Zemenco breached the Agreement by refusing to sign the reciprocal

easement proposal, as Diversified contends, then Zemenco’s own breach of

contract claim clearly must fail. If, on the other hand, Diversified breached the

Agreement, Zemenco cannot recover anything beyond the $20,000 deposit which

it had already received from Diversified prior to the breach.

9

valid and enforceable, it is unnecessary for us to determine which party, if any, breached the

Agreement.5 

Under Pennsylvania law, “a party that retains legally enforceable liquidated damages will be

barred from seeking actual damages.” Blue Mountain Mushroom Co., Inc. v. Monterey, 246

F.Supp.2d 394, 400 (E.D. Pa. 2002) (citing Carlos R. Leffler, Inc. v. Hutter, 696 A.2d 157, 162 (Pa.

Super. 1997) (“[P]arties who agree to include a liquidated damages clause in their contract, and do

so properly, cannot later claim entitlement to actual damages; rather, in keeping with the law of

contracts, the parties must be bound by their bargain.”)). 13 Pa. Cons. Stat. Ann. § 2718(a) states:

Liquidated damaged in agreement. - Damages for breach by either

party may be liquidated in the agreement but only at an amount which

is reasonable in light of the anticipated or actual harm caused by the

breach, the difficulties of proof of loss, and the inconvenience or

nonfeasibility of otherwise obtaining an adequate remedy. A term

fixing unreasonably large liquidated damages is void as a penalty.

In the real estate context, Pennsylvania courts have noted that “[t]raditionally, a seller may

elect to retain deposit money as liquidated damages pursuant to a contractual stipulation . . . insofar

as the amount retained was the sum agreed upon.” Olmo v. Matos, 653 A.2d 1, 4 (Pa. Super. 1994).

A liquidated damages clause that limit a seller’s recovery to those funds paid as a deposit or towards

a purchase price will be upheld provided that the liquidated damage amount is not so large as to

constitute an unenforceable penalty, Palmieri v. Partridge, 853 A.2d 1076, 1080-81 (Pa. Super.

2004), and the clause reasonably approximates expected loss at the time the parties enter into the

contract, Leffler, 696 A.2d at 162. In the instant case, Zemenco, the seller, is the party challenging

the liquidated damages clause; thus, there is no dispute as to whether the $20,000 retained by

Zemenco was so large as to constitute a penalty. Rather, Zemenco asserts that the $20,000 in

liquidated damages is unreasonable under the circumstances.

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10

In support of this position, Zemenco argues that, as a result of Diversified’s purported

contractual breach, Zemenco has suffered actual damages in excess of $1,000,000. However, “once

a court finds a legally enforceable liquidated damages clause, any evidence of actual damages is

inadmissable under Pennsylvania contract law as irrelevant to the action.” Blue Mountain, 246

F.Supp.2d at 400 (citing, e.g., Commonwealth v. Mitchell, 517 Pa. 203, 216 n. 2 (1987)). This rule

governs even where actual damages exceed the liquidated damage amount retained. Id. (“Holding

plaintiffs to the liquidated amount when a plaintiff alleges actual damages exceed liquidated

damages mirrors the rule that the breaching party must pay liquidated damages despite the fact that

actual damages may be lower.”). Thus, we must focus on whether the liquidated damages clause was

reasonable at the time the contract was signed, rather than on what actual damages may have resulted

from the breach. See Leffler, 696 A.2d at 162. 

We conclude that the liquidated damages clause in the Agreement is valid. Provisions such

as paragraph 20 are common to real estate contracts and have been upheld by Pennsylvania courts.

See Palmieri, 853 A.2d at 1081; Laughlin v. Baltalden, Inc., 159 A.2d 26, 29 (Pa. Super. 1960);

Kraft v. Michael, 70 A.2d 424, 425-26 (Pa. Super. 1950). As noted in Laughlin:

Real estate transactions, involving breaches in performance, are

peculiarly within that class of cases where the measure of damages is

difficult to ascertain. It is for that very reason that the practice has

developed of inserting in sales agreements a sum certain, agreed to by

the parties, as the amount which will be considered as compensation

for a breach in performance. This may be the amount of the deposit

or hand money, or it may be a sum in a lesser or greater amount,

depending upon the consideration involved. Generally, we have held

that where a purchaser repudiates an agreement of sale of real estate

containing a provision for liquidated damages, the vendor is entitled

to the sum agreed upon as liquidated damages. 

Laughlin, 159 A.2d at 29 (citing Tudesco v. Wilson, 60 A.2d 388 (1948)). 

Moreover, as discussed in Section D of this opinion, infra, the damages claimed by Zemenco

resulted from Summit Township’s condemnation of the property and the subsequent construction

of Mandy Lane rather than from Diversified’s cancellation of the contract. Indeed, the contract, by

providing for periodic $20,000 payments to escrow, release of those payments to the seller after a

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11

certain amount of time, and retention of those deposits by the seller in the event of a breach,

contemplated precisely the scenario which occurred here: that one party’s breach or failure to

perform would invalidate the contract. That Zemenco did not foresee the damages arising from an

intervening act, Summit Township’s decision to condemn the necessary land for the Mandy Lane

extension, does not obviate the reasonableness of the liquidated damages clause at the time the

contract was signed. Indeed, Zemenco’s counsel conceded this point at oral argument:

THE COURT: Were you (Zemenco) damaged in any other way - - let me put

it this way. Absent Developer’s involvement, if you will, in securing the

condemnation of the land necessary for the construction of the Mandy Lane,

were you, by virtue of any other default by Developers, independent of their

action in connection with the taking involved?

MR. REIF: Under the terms of the agreement, your honor, if they had simply

walked away and we had ended up with our existing business and the

$20,000.00, we were not.

(Summary Judgment Transcript, February 8, 2005, p. 46). Finally, we note that each of the parties

to this contract, including Zemenco, are experienced business entities that routinely engage in the

purchase and sale of real estate. See, e.g., Wedner v. Fidelity Security Systems, Inc., 307 A.2d 429,

433 (Pa. Super. 1973) (concluding that a limitation of damages clause was not unconscionable after

finding it “significant” that “both plaintiff and defendant are experienced, established business

persons.”); K & C, Inc. v. Westinghouse Elec. Corp., 437 Pa. 303, 308 (1970). 

Zemenco also argues that the liquidated damages clause should not apply because “at the

time Diversified entered into the Assignment for the Zemenco property with Scott’s on November

14, 1998, it had no intention of honoring the terms of the Agreement between Zemenco and Scott’s

in order to purchase the forty-six (46) acre parcel in accordance with the terms of the Agreement .

. .”. (Complaint ¶ 47). However, as we noted supra, Zemenco’s assertions of fraud are time-barred.

Thus, because the Agreement is no longer susceptible to attack on the basis of fraud, the liquidated

damages clause cannot be invalidated on this ground.

D. Proximate Cause

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12

Even if Zemenco were able to establish any of the claims discussed above, Diversified argues

in the alternative that Zemenco cannot demonstrate that Diversified’s actions proximately caused

any of the damage. Under Pennsylvania law, a plaintiff asserting a claim of breach of contract or

fraud is required to demonstrate that the damages suffered were proximately caused by the

defendant. See Gruenwald v. Advanced Computer Applications Inc., 730 A.2d 1004, 1014 (Pa.

Super. 1999) (holding that a plaintiff asserting fraud must show that their injury was proximately

caused by reliance on the defendant’s misrepresentation); Logan v. Mirror Printing Co., 600 A.2d

225, 226 (1991) (“In order to recover for damages pursuant to a breach of contract the plaintiff must

show a causal connection between the breach and the loss”). Diversified argues that Zemenco’s

damages stem entirely from Summit Township’s decision to condemn the necessary portion of land

for the construction of Mandy Lane. 

A review of the record supports this assertion. For example, the Amended Complaint is

replete with references to the “disastrous” effect that the Mandy Lane extension would have on

Zemenco’s development plans:

The extension of Mandy Lane to Downs Drive . . . would have the

effect of cutting certain eastern portions of the Zemenco property in

half. Even more important is the fact that this contemplated

extension would bisect the area immediately adjacent to Peach Street

where Zemenco maintained its sales office and various models of

manufactured housing which were essential to its continued

development of Peach Tree Place as a residential housing

development and thereby make this portion of the Zemenco property

unusable for those purposes.

* * * * * * * *

Zemenco refused to sign the proposed Reciprocal Easement and

Operating Agreement for a number of reasons, which included the

disastrous effect the proposed Mandy Lane extension would have on

the continued development of Peach Tree Place. 

(Amended Complaint, ¶¶ 27, 30). The Amended Complaint also comprehensivelydetails the actions

taken by Diversified in conjunction with the Mandy Lane extension before concluding that “[a]s a

direct consequence of these improper actions, Zemenco has been damaged. . .”. (Amended

Complaint, ¶ 45). Finally, counsel for Zemenco conceded at oral argument that the damages suffered

by Zemenco resulted primarily from the Mandy Lane condemnation proceeding. (See Summary

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6 Zemenco’s Brief in Opposition asserts that Zemenco suffered damages unrelated

to the Mandy Lane extension in that Zemenco was prohibited by the Agreement

from entering into new long-term leases with potential residents of the Peach Tree

Place mobile home park. Moreover, the Amended Complaint claims that

Zemenco sustained “loss of sunk costs, costs of refinancing its indebtedness on

the property and other losses and costs” unrelated to Mandy Lane. (Zemenco’s

Brief in Opposition, Dkt. #34, pp. 10-11; Amended Complaint, ¶ 61). However, to

the extent that Zemenco alleges damages that predate the Mandy Lane

condemnation proceeding, those losses rooted in breach of contract were

foreclosed by the liquidated damage clause, and those alleged under the fraud in

the inducement claim are time-barred, as discussed supra.

13

Judgment Transcript, February 8, 2005, p. 46). Thus, it is clear from the Amended Complaint and

the arguments contained in each parties’ briefs and presented at oral argument that the damages

sustained by Zemenco as a result of the Mandy Lane extension were proximately caused by Summit

Township’s decision to condemn the intersecting.6

Notwithstanding this conclusion, Zemenco asserts that Diversified is still liable for that

damage because Diversified petitioned Summit Township to condemn the land in question,

providing the impetus for the Township’s action. Developers responds by asserting that the NoerrPennington doctrine immunizes it from civil liability for exercising its right to petition the

government.

The First Amendment of the United States Constitution grants parties the right to petition the

government. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 510 (1972).

This right, which is applicable to the states by virtue of the Fourteenth Amendment, see Hague v.

Committee for Indus. Org., 307 U.S. 496 (1939), extends to all departments of government,

including administrative agencies, courts, and municipal bodies. Herr v. Pequea Township, 274 F.3d

109, 115 (3rd Cir. 2001) (“The First Amendment right to petition extends to all departments of

government including administrative agencies and the courts.”) (citations omitted) (abrogated on

other grounds by United Artists Theatre Circuit, Inc. v. Twp. Of Warrington, 316 F.3d 392, 400 (3rd

Cir. 2003)). 

The Noerr-Pennington doctrine derives from the United States Supreme Court’s holdings in

Case 1:03-cv-00175-SJM Document 45 Filed 10/07/05 Page 13 of 20
14

Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961)(“Noerr”),

and United Mine Workers v. Pennington, 381 U.S. 657 (1965) ( “Pennington”), wherein the Court

held that an individual is immune from liability for exercising his or her First Amendment right to

petition the government. See Pennington, 381 U.S. at 669-70; Noerr, 365 U.S. at 137-38. Although

these rulings originated in the antitrust context, the Third Circuit and other circuit courts have

extended the doctrine’s application to other areas of the law. See, e.g., Barnes Foundation v.

Township of Lower Merion, 242 F.3d 151, 160 (3rd Cir. 2001) (noting that prior Third Circuit

precedent gave no indication that “this principle of First Amendment immunity was not meant to

have general applicability. . . .”); Herr, 274 F.3d at 116 (“principles relied upon [under

Noerr-Pennington doctrine] not limited to antitrust liability”). 

Significantly, the Supreme Court has held that “there was immunity regardless of the

defendants’ motivations in waging their campaigns, as it recognized that the right of individuals to

petition the government ‘cannot properly be made to depend on their intent in doing so.’” Barnes,

242 F.3d at 159 (citing Noerr, 365 U.S. at 139). Thus, the doctrine allows “parties [to] petition the

government for official action favorable to their interests without fear of suit, even if the result of

the petition, if granted, might harm the interests of others.” Tarpley v. Keistler, 188 F.3d 788, 794

(7th Cir. 1999). “While the right to petition conferred by the First and Fourteenth Amendments does

not provide an absolute immunity from liability for actions based on petitioning activity, the

Supreme Court has held that such liability cannot be imposed in the absence of a finding that the

position taken lacked any reasonable basis.” See Schneck v. Saucon Valley School Dist., 340

F.Supp.2d 558, 573 (E.D.Pa. 2004) (citing Herr, 274 F.3d at 116).

 While conceding the broad scope of the Noerr-Pennington doctrine, Zemenco nonetheless

contends that the doctrine is inapplicable where the attempt to influence government action is a

“sham.” The Third Circuit has indicated that this so-called sham exception applies where “the

[petitioning activity was] without probable cause and primarily for a purpose other than securing the

proper adjudication of [the] claim.” Herr, 274 F.3d at 118. Zemenco cites LeBlanc - Sternburg v.

Case 1:03-cv-00175-SJM Document 45 Filed 10/07/05 Page 14 of 20
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Fletcher, 781 F.Supp. 261 (S.D.N.Y. 1991), for the proposition that “[t]he ‘first amendment . . . may

not be used as the means or the pretext for achieving “substantial evils” which the legislature has the

power to control.’” Id. at 267 (quoting California Motor Transp., 404 U.S. at 515). 

In Fletcher, the defendants were accused of petitioning for the incorporation of a village and

the imposition of strict zoning rules in order to discourage and prevent Orthodox Jewish residential

neighborhoods from developing in the community. The district court, noting that “[d]iscrimination

through the exercise of government power is illegal,” concluded that the Noerr-Pennington doctrine

does not protect a party petitioning the government to act in an illegal manner. Asserting that

Fletcher’s factual posture is “not too dissimilar to the present case,” Zemenco urges this court to find

that Diversified’s actions in petitioning for and constructing the Mandy Lane extension constituted

the type of “substantial evil[]” decried by the Supreme Court. California Motor Transp., 404 U.S.

at 515. 

We find no similarity between the conduct proscribed in Fletcher and Diversified’s

petitioning activity here. Zemenco does not contend that Diversified sought the Mandy Lane

extension for a discriminatory purpose. Further, it is difficult to conceive as to how an extension of

Mandy Lane could be considered a “substantial evil” within the meaning of the aforementioned

caselaw. While we must accept Zemenco’s allegations of damage to their property and business as

true for purposes of this motion, the sham exception to Noerr-Pennington is not invoked simply

because the petitioning activity “might harm the interests of others.” Tarpley, 188 F.3d at 795-96

(holding that a Republican committee chairman’s actions in petitioning the state government to hire

members of the Republican Party for open state administrative positions was protected by NoerrPennington despite the fact that it harmed the interests of non-Republican applicants for those

positions); Knology, Inc. v. Insight Communications, 393 F.3d 656, 658 (holding that the right to

petition the government generally extends even to situations where “the petitioning activity has the

intent or effect of depriving another of property interests . . .”). 

Here, it is clear that Diversified’s petitioning activities were not designed “as an

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anticompetitive weapon,” PRE, 508 U.S. at 61, “for a purpose other than securing the proper

adjudication of [the] claim,” Herr, 274 F.3d at 118, or as a “pretext for achieving ‘substantial evils,’”

California Motor Transp., 404 U.S. at 515. Rather, Diversified sought to achieve through legitimate

legislative means that which it could not achieve through contractual negotiations: the provision of

additional ingress and egress to its business plazas. At least one court has held that a party’s efforts

to induce or facilitate a municipal body’s condemnation of property are protected by the NoerrPennington doctrine. See Oberndorf v. City of Denver, 696 F.Supp. 552, 558-60 (D. Colo. 1988)

(holding that Noerr-Pennington protected a party’s efforts to condemn a parcel of private property

as “blighted” in order to facilitate the construction of a shopping mall). Thus, we reject Zemenco’s

argumentthatDiversified’s petitioning activities fall within the sham exception toNoerr-Pennington.

Zemenco’s final argument against the application of Noerr-Pennington asserts that

Diversified perpetuated a fraud on Summit Township while petitioning the Township to condemn

the intersecting parcel. Specifically, Zemenco suggests that Diversified “misrepresented the terms

of the Zemenco-Scott’s Agreement” in the June 4, 1999 letter to the Township seeking

condemnation. The relevant portion of the letter states that:

Late last year, Diversified Developers Realty Corporation

(“Developers Diversified”) entered into an Agreement for Purchase

of Real Estate with Zemenco, Inc. (“Zemenco”) for the purchase of

property owned by Zemenco that abuts Developers Diversified’s

existing Peach Street Square Phase II Shopping Center (the “Purchase

Agreement”). The Purchase Agreement with Zemenco provided,

among other things, that Developers would have the right to construct

an extension of Downs Drive east of Peach Street, and a connective

access roadway (known as “Mandy Lane”) from the Downs Drive

Extension north to the existing Mandy Lane.

(Amended Complaint, Exhibit G). Zemenco argues that the first sentence quoted above is inaccurate

because the original agreement was actually between Zemenco and Scott’s, and that the second

sentence is inaccurate in that it misrepresents that the Agreement obligated Zemenco to allow the

Mandy Lane extension. Cumulatively, Zemenco argues that these two sentences constitute such an

egregious “fraudulent misrepresentation of fact” as to nullify the effect of the Noerr-Pennington

doctrine. (Brief in Response, Dkt. #21, p. 17). 

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The Third Circuit, however, has declined to recognize an exception to Noerr-Pennington

immunity where the petitioning activity includes a misrepresentation or fraudulent statement:

The Supreme Court has not addressed how alleged misrepresentations

affect Noerr-Pennington immunity or the sham exception to

Noerr-Pennington immunity. In PRE, the Court explicitly declined to

decide whether the sham exception to immunity would include

situations where the litigant had perpetrated “fraud” or had made

“other misrepresentations.” Id. at 61 n. 6, 113 S.Ct. 1920.

* * * * * * * *

We decline to carve out a new exception to the broad immunity that

Noerr-Pennington provides. Rather, we will determine whether

[defendant’s] petition was objectively baseless under the Supreme

Court's test in PRE, without regard to those facts that [plaintiff]

alleges [defendant] misrepresented. If the alleged misrepresented

facts do not infect the core of [defendant’s] claim and the

government’s resulting actions, then the petition had an objective

basis and will receive Noerr-Pennington immunity under the first step

of PRE. While we do not condone misrepresentations in a judicial

setting, neither will we deprive litigants of immunity derived from the

First Amendment’s right to petition the government if the alleged

misrepresentations do not affect the core of the litigant’s . . . case. 

* * * * * * * *

If the government’s action was not dependent upon the

misrepresented information, the misrepresented information was not

material and did not go to the core of [the] petition. 

Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119, 123 (3rd Cir.1999) (citing Music Center S.N.C.

Di Luciano Pisoni & C. v. Prestini Musical Instruments Corp., 874 F.Supp. 543, 549 (E.D.N.Y.

1995)) (holding that defendants were entitled to Noerr-Pennington immunity for [petitioning

activity] despite allegations of misrepresentations in the petitions because the defendants had an

objective basis for filing the petitions). 

As an initial matter, we doubt that the representations in the letter are sufficient to support

a fraud claim in the first instance. The first sentence quoted above simply omits a reference to the

Assignment. However, the legal effect of the assignment was to place Diversified in the same

contractual position previously occupied by Scott’s. If this is indeed a misrepresentation, it is

certainly not material. The second sentence is simply a manifestation of Diversified’s legal opinion

as to the effect of Paragraph 29 of the Agreement, an opinion which Diversified maintains to this

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day. However, it is axiomatic that “[o]ne of the essential elements of fraud arising out of a

misrepresentation is, that it must be of a fact, and not the mere expression of opinion . . .”. Peck v.

Stevenson, 1898 WL 4047, *3 (Pa. Super. 1897); Step-Saver Data Sys., Inc. v. Wyse Technology,

752 F.Supp. 181, 190 (E.D.Pa.1990), rev’d in part on other grounds, 939 F.2d 91 (3d Cir.1991). 

Assuming arguendo that the letter contained fraudulent misrepresentations of material fact,

they could not have affected the core of Diversified’s petitioning activity. Diversified has provided

deposition testimony from Summit Township Supervisor Paul Dahlkemper indicating that the

Township did not even consider the contract between Zemenco and Diversified in determining to

condemn the intersecting parcel:

Q. Attorney Sennett again repeated that a contractual agreement

between Mr. Scott and Mr. Zafiropoulos is not the issue here.

Do you remember Mr. Sennett making that kind of

observation?

A. Yeah, because I think I asked him for it.

Q. Do you agree with this observation?

A. Yes.

Q. Would it be fair to say that the basis for your vote approving

the resolution [to condemn the property] was because the

Township wanted Mandy Lane and Downs Drive to be

developed as opposed to whether there was a contract

between Scott[’s] and Zafiropoulos?

A. Yeah, because I don’t know anything about a contract

between the two. I can’t remember one.

(Motion for Summary Judgment, Dkt. ##31-32, Exhibit J, pp. 32-33). Thus, to the extent that the

June 4, 1999 letter contained factual errors, Diversified has provided unrebutted evidence that those

errors were not relied upon by the Township and, therefore, did not go to the core of the petitioning

activity. SeeCheminor Drugs, 168 F.3d at 123 (“If the government’s action was not dependent upon

the misrepresented information, the misrepresented information was not material and did not go to

the core of [the] petition.”). 

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IV. CONCLUSION

For the foregoing reasons, Diversified’s motion for summary judgment is granted and this

action is dismissed. An appropriate Order follows. 

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IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

ZEMENCO, INC., )

)

Plaintiff, )

)

v. ) Civil Action No. 03-175 Erie

)

DEVELOPERS DIVERSIFIED )

REALTY CORPORATION, )

)

Defendant. )

ORDER

AND NOW, this 7th day of October, 2005, and for the reasons set forth in the accompanying

Memorandum Opinion, 

IT IS HEREBY ORDERED that the Motion for Summary Judgment of Defendant

Developers Diversified Realty Corporation [Doc. No. 30] is GRANTED. Accordingly, this action

is DISMISSED.

/s/ Sean J. McLaughlin 

United States District Judge

cm: All parties of record. ___

 

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