2001 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-8-2001

Huang v. BP Amoco Corp

Precedential or Non-Precedential:

Docket 00-3607

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Recommended Citation

"Huang v. BP Amoco Corp" (2001). 2001 Decisions. Paper 261.

http://digitalcommons.law.villanova.edu/thirdcircuit_2001/261
Filed November 8, 2001 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 00-3607 

JOSPEH HUANG; JULIA Y. HUANG, 

v. 

BP AMOCO CORPORATION 

Joseph Huang; Julia Huang, 

 Appellants 

On Appeal From the United States District Court 

for the Eastern District of Pennsylvania 

(D.C. No. 00-CV-01290) 

District Judge: Honorable Clarence C. Newcomer 

Argued: August 2, 2001 

Before: MCKEE, AMBRO, and GREENBERG, 

Circuit Judges 

(Filed: November 8, 2001) 

 Kenneth J. Fleisher (Argued) 

 E. Harris Baum 

 Zarwin, Baum, DeVito, Kaplan, 

 O'Donnell & Schaer 

 1515 Market Street, Suite 1200 

 Philadelphia, PA 19102 

 Attorneys for Appellants 
 William A. DeStefano (Argued) 

 Jeffrey M. Viola 

 Maura F. Ratigan 

 Saul Ewing LLP 

 1500 Market Street 

 Centre Square West, 38th Floor 

 Philadelphia, PA 19102 

 Attorneys for Appellee 

OPINION OF THE COURT 

AMBRO, Circuit Judge: 

In this diversity action alleging breach of a commercial 

property lease under Pennsylvania law, appellants Joseph 

and Julia Y. Huang (collectively, the "Huangs" or "Lessor") 

appeal an order by the United States District Court for the 

Eastern District of Pennsylvania ("the District Court") 

granting summary judgment in favor of appellee BP Amoco 

Corporation ("BP Amoco"), the successor in interest of 

Amoco Oil Company ("Amoco" or "Lessee"). We conclude 

that by making the unsupported factual assumption that 

Amoco could not apply for contractually required 

Government approvals until it procured satisfactory

agreements with third-party co-developers, the District 

Court unjustifiably allowed BP Amoco to flout its implied 

covenant of good faith and fair dealing. 

I. Factual and Procedural History 

On September 21, 1998, Amoco by written agreement 

("the Lease") leased a commercial property in Philadelphia 

from the Huangs for fifteen years. The Lease allowed Amoco 

to make improvements to the property for the purpose of 

operating a "retail gasoline facility" or"for any [other] lawful 

purpose." Under section 2 of the Lease, no rent was due 

until Amoco sold gasoline from the property. 

The crucial provisions for our purposes are in 

subsections 7(b) and 7(c), and S 19, of the Lease. 

Subsection 7(b) gave Amoco 180 days to obtain "approvals" 

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from various government authorities for any improvements 

to the property, subject to thirty-day extensions at the 

Huangs' option: 

 Lessee shall apply for appropriate zoning and for 

 issuance from the proper municipal, county, state and 

 other duly constituted authorities such unconditional 

 Approvals and permits . . . (collectively "the Approvals") 

 satisfactory to Lessee, in its sole discretion, for the 

 razing of improvements, construction of improvements 

 and installation of equipment for a retail gasoline 

 facility and for the operation and maintenance of such 

 facility. . . . Lessee shall not be deemed to be in default 

 of any provision relating to the Approvals as long as the 

 pursuit of the administrative, legal or equitable 

 proceedings shall be diligently carried out by Lessee. 

 . . . 

 It is agreed by Lessee that it shall obtain the 

 Approvals, or denial, within 180 days of the full 

 execution of the Lease. In the event the Approvals, or 

 denial, are not received by Lessee within the 180 days, 

 Lessor shall have the option, at his sole discretion, of 

 extending the period for an additional thirty (30) days, 

 and granting additional thirty (30) day periods 

 thereafter until the Approvals or denial are received, or 

 canceling this Lease. 

Section 19 reiterated that Amoco was required to obtain the 

Approvals: "In reliance on Lessor's representations, 

warranties and covenants set forth herein, Lessee will 

obligate itself to expend sums to, without limitation, . . . 

obtain the Approvals." 

Subsection 7(c)1 listed situations in which Amoco could 

_________________________________________________________________ 

1. Subsection 7(c) reads in full: 

 In the event Lessee shall be unable to obtain the Approvals, or any 

 thereof; or in the event the Approvals, or any thereof, if 

obtained, 

 shall be afterward revoked without fault of Lessee, or its assignee 

or 

 sublessee; or in the event Lessee shall be unable to enter into an 

 agreement satisfactory to Lessee, in its sole discretion, for the 

co- 

 development with a third party quick-service restaurant and 

 satisfying all conditions and contingencies in that agreement; or 

in 

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terminate the Lease without incurring liability. Three of 

these situations are relevant here. First, it could terminate 

the Lease if one of the required Approvals were denied. 

Second, Amoco could terminate the Lease if it were"unable 

to enter into an agreement satisfactory to Lessee, in its sole 

discretion, for the co-development with a third party quickservice restaurant. . . ." Third, "[i]f for any reason [Amoco] 

has not obtained the Approvals within six (6) months after 

the date of execution of this Lease by both Lessor and 

Lessee, then Lessee may, at Lessee's discretion, terminate 

this Lease as though the Approvals, of any thereof, had 

been denied." 

Six months after signing the Lease, BP Amoco had made 

no efforts to obtain the required Approvals. On March 19, 

1999, BP Amoco and the Huangs agreed to extend the 180- 

day period for obtaining Approvals to April 20, 1999. On 

April 19, 1999, still having made no effort to obtain any 

Approvals, BP Amoco sent a letter to the Huangs stating 

that it "has not obtained the Approvals required by Section 

7 . . . within the prescribed 180-day period as extended to 

April 20, 1999," and "[a]ccordingly, pursuant to Section 7(c) 

. . . hereby exercises its privilege of terminating[the Lease]." 

On neither March 19 nor April 19 did BP Amoco claim that 

its ability to seek the Approvals was contingent upon its 

procuring satisfactory third-party co-developer agreements. 

_________________________________________________________________ 

 the event necessary utility connections (including but not limited 

to 

 electricity, natural gas, sanitary and storm sewer, telephone and 

 water hookups) adequate in Lessee's sole judgment are unavailable 

 at the property line or in the adjoining right-of-way to serve the 

 Demised Premises for a standard "tap-on" fee; or if Lessee, its 

 assignee or sublessee shall be restrained or enjoined from 

 conducting its business and maintaining its improvements, 

 driveways and equipment; then and in any or either of such events, 

 Lessee shall have the privilege of terminating this Lease by giving 

 Lessor ten (10) days' notice of its intention so to do, and shall 

 thereupon be relieved of all liability hereunder. If for any reason 

 Lessee has not obtained the Approvals within six (6) months after 

 the date of execution of this Lease by both Lessor and Lessee, then 

 Lessee may, at Lessee's discretion, terminate this Lease as though 

 the Approvals, or any thereof, had been denied. 

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Indeed, on neither occasion did BP Amoco even mention its 

inability to reach such agreements. 

After BP Amoco announced that it was terminating the 

Lease despite occupying the property rent-free for seven 

months, the Huangs brought suit in the District Court and 

filed a motion for summary judgment. BP Amoco responded 

with a cross-motion for summary judgment, and the 

District Court entered summary judgment for it. The

District Court found that subsection 7(c), "in clear and 

unambiguous terms, allowed [BP Amoco] to terminate the 

contract" in two situations: "if [BP Amoco] failed to reach 

any agreements, suitable to [BP Amoco] in its sole 

discretion, with third parties regarding the development of 

the property" or "if, for any reason, [BP Amoco] failed to 

obtain [the required] Approvals within six months of 

executing the contract." Huang v. BP Amoco Corp., No. 00- 

1290, slip op. at 1, 7 (E.D. Pa. July 13, 2000). 

The District Court recognized that despite subsection 

7(c)'s "clear and unambiguous terms," BP Amoco was--like 

any party to a contract--"bound by an implied covenant of 

good faith and fair dealing." Id. at 8. But reasoning that 

"common sense dictates that [BP Amoco] would not have 

been required to apply for zoning permits, variances, or 

other Approvals until [it] had determined with specificity 

how it would develop and operate the property," the District 

Court found that "any obligation on [BP Amoco] to pursue 

Approvals was contingent upon [its] success on procuring 

satisfactory agreements [with] third-party co-developers." 

Id. at 12 (emphasis added). 

In other words, the District Court found, based on its 

"common sense" assumption, that BP Amoco's duty to act 

in good faith did not include a responsibility to seek and 

obtain the Approvals until it first reached acceptable 

agreements with third-party co-developers. Because BP 

Amoco "made earnest [though unsuccessful] efforts to 

negotiate and reach suitable agreements with third parties," 

it satisfied its covenant to act in good faith. Id. at 9. 

Therefore, the District Court concluded, BP Amoco 

could--as its April 19, 1999, letter did--terminate the Lease 

without ever trying to obtain the Approvals. Id. 

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Following the District Court's grant of summary 

judgment to BP Amoco, the Huangs filed a motion for

reconsideration. The District Court denied the Huangs' 

motion, again insisting that BP Amoco could not seek 

Approvals without first reaching agreements with thirdparty co-developers, Huang v. BP Amoco Corp., No. 00- 

1290, slip op. at 1, 4 (E.D. Pa. October 12, 2000), and this 

appeal followed. We have jurisdiction under 28 U.S.C. 

S 1291. 

II. Legal Analysis 

We review the District Court's grant of summary 

judgment de novo. Armbruster v. Unisys Corp., 32 F.3d 768, 

777 (3d Cir. 1994). Rule 56 of the Federal Rules of Civil 

Procedure provides that a moving party is entitled to 

summary judgment "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 material fact and that the moving party is entitled to a 

judgment as a matter of law." Fed. R. Civ. P. 56(c). The 

moving party bears the initial burden of demonstrating the 

absence of any genuine issue of material fact, though the 

non-moving party must make a showing sufficient to 

establish the existence of each element of his case on which 

he will bear the burden of proof at trial. Celotex Corp. v. 

Catrett, 477 U.S. 317, 323 (1986). The standard for

granting summary judgment under Rule 56 "mirrors the 

standard for a directed verdict under Federal Rule of Civil 

Procedure 50(a), which is that the trial judge must direct a 

verdict if, under the governing law, there can be but one 

reasonable conclusion as to the verdict." Anderson v. 

Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). 

Pennsylvania contract law informs our analysis of the 

District Court's entry of summary judgment. In 

Pennsylvania, a lease is a contract and "is to be interpreted 

according to contract principles." Hutchinson v. Sunbeam 

Coal Corp., 519 A.2d 385, 389 (Pa. 1986). One of the most 

important principles of contract law is the implied covenant 

of good faith. "[S]uch a promise is fairly to be implied. The 

law has outgrown its primitive stage of formalism when the 

precise word was the sovereign talisman, and every slip was 

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fatal." Jamison v. Concepts Plus, Inc., 552 A.2d 265, 269 

(Pa. Super. Ct. 1988) (quoting Wood v. Lucy, Lady DuffGordon, 118 N.E. 214, 214 (N.Y. 1917) (Cardozo, J.)). Hence 

"where it is clear that an obligation is within the

contemplation of the parties at the time of contracting or is 

necessary to carry out their intentions, the court will imply 

it . . . even where the contract itself is not ambiguous." 

Slater v. Pearle Vision Center, Inc., 546 A.2d 676, 679 (Pa. 

Super. Ct. 1988). 

Because of the implied covenant of good faith, an 

approvals contingency clause does not give a lessee an 

absolute right to terminate the lease without penalty. 

Rather, the lessee must make a diligent and good-faith 

effort to obtain the required approvals. Jamison , 552 A.2d 

at 269.2 Under Pennsylvania law, whether a party has made 

a good-faith effort is a question of fact. Id. at 270 (citing 

Burke v. Gen. Outdoor Adver. Co., 168 A. 334, 336 (Pa. 

Super. Ct. 1933)); Pressey v. McCornack, 84 A. 427, 428 

(Pa. 1912); In re J.B. Van Sciver Co., 73 B.R. 838, 845 

(Bankr. E.D. Pa. 1987) (applying Pennsylvania law).

In light of these principles, the District Court made an 

unsupported factual assumption that colored its analysis. It 

assumed that BP Amoco could not seek the Approvals until 

it reached suitable agreements with third-party codevelopers. Without this factual assumption BP Amoco 

would not have carried its initial burden of "show[ing] that 

there is no genuine issue as to any material fact." Fed. R. 

Civ. P. 56(c). The Huangs alleged in their complaint that BP 

Amoco "made no effort whatsoever to obtain the Approvals, 

in violation of its obligations under Section 7(b) of the 

Lease." The pleadings and documents in the record offer 

some support for the Huangs' allegation: BP Amoco failed to 

make any effort to seek the Approvals, and failed to 

state--on March 19, 1999, April 19, 1999, or at any other 

time preceding the current litigation--that it failed to do so 

because it could not reach suitable agreements with thirdparty co-developers. Only when faced with legal action did 

_________________________________________________________________ 

2. Indeed, "if no duty is implied or imposed upon the [lessee] in this 

situation, there is no contract" because the absence of an implied 

obligation would render the lessee's promise illusory. Id. 

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BP Amoco insist that its bad luck with co-developers was 

responsible for its purported inability to seek the Approvals. 

The District Court cited nothing in the record that even 

tended to disprove the Huangs' allegation, let alone 

anything so persuasive that no rational juror could find 

that BP Amoco's failure to seek the Approvals violated its 

implicit covenant to act in good faith. While BP Amoco 

presented the statement of its employee that BP Amoco 

made earnest efforts to find suitable third-party codevelopers, that statement sheds little if any light on 

whether BP Amoco acted in good faith with respect to 

seeking the Approvals. 

Rather than acknowledging the Huangs' allegation on the 

factual question of BP Amoco's good faith with respect to 

the Approvals, the District Court ignored this issue by 

making an assumption on another, underlying question of 

fact: it assumed that getting a suitable co-developer was 

the horse before the cart of taking even the first step in 

obtaining the Approvals. The District Court made this 

assumption of fact based only on its own notion of 

"common sense" rather than anything in the record. 

Relying on this assumption enabled the District Court to 

avoid the factual question that lies at the heart of this case: 

whether BP Amoco's failure to seek the Approvals violated 

its covenant of good faith and fair dealing. By assuming 

that co-developer agreements must precede any effort to 

obtain the Approvals, the District Court effectively rewrote 

the Lease to contain a condition precedent to BP Amoco's 

obligation regarding those Approvals. In so doing, the Court 

gutted BP Amoco's good-faith obligation to seek Approvals 

and, by entering summary judgment in its favor, ran afoul 

of Rule 56(c). 

* * * * * 

Because the District Court substituted its version of 

"common sense" for that of a jury and thereby decided a 

disputed issue of material fact (from which followed its 

conclusion of law), we reverse its entry of summary

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judgment and remand for further proceedings consistent 

with this opinion. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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