1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-13-1994

Schulman v. J.P. Morgan Inv. Mgmt. Inc.

Precedential or Non-Precedential:

Docket 93-1888

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Recommended Citation

"Schulman v. J.P. Morgan Inv. Mgmt. Inc." (1994). 1994 Decisions. Paper 133.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/133
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 No. 93-1888 

 ___________ 

 ROBERT D. SCHULMAN, t/a MAXI'S EXPRESS, 

 Appellant 

 v. 

 J.P. MORGAN INVESTMENT MANAGEMENT, INC.; 

 WIDENER FUNDING CORP., INC., 

 Appellees 

 ___________ 

 Appeal from the United States District Court 

 for the Eastern District of Pennsylvania 

 (D.C. Civil Action No. 92-cv-02853) 

 ___________ 

 Argued: March 25, 1994 

 PRESENT: HUTCHINSON, ROTH and ROSENN, Circuit Judges

 (Filed September 13, l994 

 ____________ 

Daniel J. Dugan, Esquire (Argued) 

Paul R. Rosen, Esquire 

Spector, Gadon & Rosen, P.C. 

29th Floor 

1700 Market Street 

Philadelphia, PA 19103 

 Attorneys for Appellant 

M. Melvin Shralow, Esquire 

Frumkin, Shralow & Cerullo, P.C. 

33rd Floor 

1601 Market Street 

Philadelphia, PA 19103 
 and 
Leonard S. Baum, Esquire 

Dean T. Cho, Esquire (Argued) 

Haythe & Curley 

237 Park Avenue 

New York, NY 10017 

 Attorneys for Appellees 

 ____________ 

 OPINION OF THE COURT 

 ____________ 

HUTCHINSON, Circuit Judge. 

 Appellant, Robert D. Schulman ("Schulman"), t/a Maxi's 

Express ("Maxi's"), appeals an order of the United States 

District Court for the Eastern District of Pennsylvania granting 

summary judgment in favor of appellees, J.P. Morgan Investment 

Management, Inc. ("J.P. Morgan") and Widener Funding Corporation, 

Inc. ("Widener") (collectively "mortgagee"), on Schulman's claim 

that the mortgagee intentionally interfered with contractual 

relations between him, as tenant of a commercial building, and 

Widener Associates Limited Partnership ("WALP"), the landlord.1

The order also granted summary judgment to the mortgagee on its 

counterclaim for a declaratory judgment that no valid, 

enforceable lease existed. 

 For the reasons that follow, we hold the district court 

had subject matter jurisdiction over the question raised in 

Count I of Schulman's complaint and the portion of J.P. Morgan's 

amended pleading styled as a counterclaim despite WALP's absence 

 

1. WALP is not a party to this action. 
as a party. On the merits of that issue, we conclude that the 

district court correctly determined there was no existing lease 

with which the mortgagee could have tortiously interfered. No 

lease existed between WALP and Schulman because the draft leases 

on which all of the negotiations between Schulman and WALP were 

based explicitly required execution by the landlord, an event 

that never happened. In addition, even if we assume Schulman had 

a reasonable probability of obtaining a lease absent J.P. 

Morgan's and Widener's interference, Schulman's alternate claim 

for interference with a prospective contractual relation between 

himself and WALP fails as a matter of law because Morgan and 

Widener were acting in good faith to protect their legal and 

financial interests as mortgagee of the premises Schulman sought 

to lease from WALP. Accordingly, we will affirm the district 

court's order in all respects. 

I. 

 In 1990 WALP, the owner of the Widener Building in 

Philadelphia, began a major renovation of the building to attract 

upscale tenants. Jeffrey Kelter ("Kelter") was the principal 

acting on WALP's behalf regarding the renovation.2 Equitable 

Life Assurance Society of the United States ("Equitable Life") 

 

2. WALP's general partners include Kelter, Peter Faherty 

("Faherty") and 1339 Chestnut Street Associates. Kelter and 

Faherty, along with Anthony Brady, are also the principal 

stockholders in FKB Management, Inc. ("FKB"). FKB manages the 

Widener Building under a management agreement with WALP dated 

July 18, 1991. 1339 Chestnut Street Associates has no 

affiliation with FKB. 
began funding the building's renovation under a construction loan 

agreement with WALP dated June 8, 1990. The agreement included 

among other documents a Mortgage and Assignment of Leases and 

Rents, both of which were publicly recorded on June 15, 1990 

under Pennsylvania's recording laws, 21 Pa. Cons. Stat. Ann. 

§§ 321-471 (deeds), 621-28 (mortgages) (1955 & Supp. 1994). 

Equitable Life assigned these documents to Widener under an 

"Assignment of Loan Documents" which was also publicly recorded 

on July 24, 1990. As recited in the Mortgage, WALP and Widener 

also executed a Permanent Loan Agreement dated June 8, 1990 in 

which Widener agreed to loan WALP up to $72 million for 

renovations, including a take-out of Equitable Life's 

construction financing. Both the Assignment of Leases and the 

Permanent Loan Agreement provided WALP would not lease any part 

of the building without the prior written consent of Widener, the 

assignee. 

 As of April 1, 1992, Widener had loaned WALP 

approximately $63 million to finance the renovations. Anne 

Pfeiffer, Vice President of both Widener and J.P. Morgan,3

supervised the loan and was responsible for approving new leases 

on Widener's behalf.4

 

3. J.P. Morgan acts as a trustee for a commingled pension trust 

fund and invests monies which come from over 157 domestic pension 

and employee benefit funds. J.P. Morgan, as trustee, wholly owns 

Widener which it formed for the sole purpose of providing 

financing to WALP. 

4. Pfeiffer stated in her affidavit that typically her approval 

of a lease was not sought until the lease was signed by the 

prospective tenant. Once she approved the lease on behalf of 

Widener, the lease was executed by WALP as landlord. 
 In the summer of 1990 Kelter and Schulman began 

discussing plans for Schulman to operate Maxi's, a food 

establishment in the lobby of the Widener Building.5 It is 

undisputed that both Kelter and Schulman anticipated that a lease 

would be executed for Schulman's establishment at some later 

date. Under the construction arrangement, the tenants received 

the first year's rent free of charge, which in Schulman's case 

amounted to $56,280. Schulman agreed to "contribute" this amount 

personally to Kelter for construction and obtained an offsetting 

construction allowance from Kelter. Schulman invested an 

additional $35,000 towards construction costs. 

 Kelter participated in and approved the design plans 

for Maxi's before construction began and forwarded them to 

Pfeiffer. According to Schulman, Kelter told him that he alone 

made decisions concerning the premises to be leased and that he 

never told Schulman that Widener and J.P. Morgan had to approve 

the lease. Schulman admits, however, that he knew Pfeiffer was 

connected with the lender and that she wanted to review the draft 

leases prior to execution. Construction began in September of 

1991 despite the fact no lease had yet been signed. 

 Kelter sent Schulman three draft leases dated June 4, 

1990, March 19, 1991 and August 6, 1991 respectively prior to 

commencing construction. Schulman reviewed these drafts himself 

and his counsel, Martin Herring & Associates and later Drinker, 

 

5. Kelter allegedly advised Schulman that Maxi's had to be 

"absolutely first-class" because the renovations were aimed at 

obtaining first class tenants, but Schulman disputes this fact. 
Biddle & Reath, also reviewed at least two of the drafts. 

Schulman noted several objections on the drafts, some of which 

were incorporated into subsequent drafts. According to Schulman, 

the third draft lease dated August 6, 1991, set forth all of the 

material agreed-upon terms. Schulman never objected to a 

provision appearing in all of the draft leases that expressly 

required WALP's approval and signature, as well as delivery of a 

fully executed lease, before any binding lease agreement would 

arise. 

 As construction continued, Schulman repeatedly tried to 

obtain an executed lease. Kelter reassured him each time that 

Schulman had a lease and had nothing to worry about. Though 

neither WALP nor Widener executed any of the draft leases, 

Schulman contends that a ten-year lease for the premises 

commenced in October or November 1991 when Schulman began 

construction of his establishment and the terms of this lease, 

agreed upon by August 6, 1991, are embodied in a fourth draft 

dated January 31, 1992 which FKB sent to Schulman on February 4, 

1992. 

 Maxi's opened for business on December 2, 1991 despite 

the absence of an executed lease. After the renovated Widener 

Building's official grand opening celebration on December 12, 

1991, Pfeiffer told Kelter she did not like Maxi's appearance and 

called it her "worst nightmare." Appendix to Brief of Robert D. 

Schulman ("App.") at A-91. Shortly thereafter, according to 

Schulman, Kelter began, for the first time, to express 

displeasure about Maxi's aesthetics and appearance and suggested 
physical and operational improvements.6 Schulman agreed to the 

suggestions but could not implement them because of a lack of 

sufficient funds. Kelter agreed to provide funding for the 

improvements but never did so. 

 On February 3, 1992, FKB employee Stephen Butte sent 

Schulman a letter confirming the amount of rent he now owed 

"pursuant to the terms of your lease." App. at A-200. On 

February 4, 1992, another FKB employee, Jennifer Pancoast, sent 

Schulman a second letter enclosing three "approved execution 

copies of the Lease Agreement for your space at The Widener 

Building." App. at A-97. 

 In March of 1992 Kelter told Schulman he had no lease 

and ordered him to vacate the premises. Kelter offered to 

compensate Schulman for his out-of-pocket expenses and prior rent 

checks. Schulman refused the offer. WALP filed suit for 

ejectment in the Philadelphia Court of Common Pleas on May 18, 

1992.7 Kelter also moved for a preliminary injunction. After 

four days of hearings, Kelter abandoned that motion. 

 

6. According to Schulman, he learned the reason for Kelter's 

change of heart and growing displeasure with Maxi's only after 

Pfeiffer testified in state court on April 29, 1992 in support of 

WALP's motion for a preliminary injunction against Schulman. 

Schulman complains Pfeiffer was well aware of the construction 

and design plans for Maxi's long before its opening because she 

had received at least one draft of the lease in June 1991 as well 

as the architect's final design plans. She also visited the 

construction site on several occasions, one as late as November 

of 1991. At no time did she question Schulman's design for 

Maxi's. She states she never really examined the establishment 

until December 12, 1991. 

7. The ejectment action remains pending in state court. 
 In May of 1992 Schulman filed a complaint in the 

district court against J.P. Morgan and Widener alleging 

intentional interference with existing or prospective contractual 

relations. On January 19, 1993, J.P. Morgan and Widener moved to 

amend their answer to include what they called a counterclaim for 

a declaratory judgment that Schulman did not have a valid, 

enforceable lease. Ten days later they moved for summary 

judgment and sanctions. 

 On April 22, 1993, the district court granted J.P. 

Morgan's and Widener's motions to amend their answer and also 

concluded WALP was not an indispensable party on the counterclaim 

under Federal Rule of Civil Procedure 19. On August 19, 1993, 

the court granted the mortgagee's motion for summary judgment 

against Schulman on all claims, including the so-called 

counterclaim for a declaratory judgment, but declined to impose 

sanctions. In its opinion the district court held Schulman could 

not prevail on his Count I claim for intentional interference 

with an existing contract because both WALP and Widener were 

required to consent to any lease and therefore Schulman had no 

existing lease with WALP. It also held Schulman had no 

reasonable prospect of obtaining a lease. Alternately, the 

district court held any interference was privileged because J.P. 

Morgan and Widener, as mortgagee and assignee of the leases, had 

both a legal and financial interest in the transaction. Finally, 

the district court declared Schulman had no valid, enforceable 

lease for the premises. Schulman filed a timely notice of 

appeal. 
II. 

 Because Schulman is a Pennsylvania citizen while J.P. 

Morgan and Widener are New York corporations with their principal 

places of business in New York and the claimed damages exceed 

$50,000, the district court had subject matter jurisdiction under 

28 U.S.C.A. § 1332(a) (West 1993) when Schulman filed this case. 

We have appellate jurisdiction over the district court's final 

order granting summary judgment under 28 U.S.C.A. § 1291 (West 

1993). Accordingly, all facts in the record, and all reasonable 

inferences deduced therefrom, will be construed in the light most 

favorable to Schulman, the non-moving party. Mellon Bank Corp. 

v. First Union Real Estate Equity and Mortgage Invs., 951 F.2d 

1399, 1404 (3d Cir. 1991). 

 The district court's conclusion that WALP is not an 

indispensable party under Federal Rule of Civil Procedure 19(b) 

is reviewed for abuse of discretion. Janney Montgomery Scott, 

Inc. v. Shepard Niles, Inc., 11 F.3d 399, 403 (3d Cir. 1993).8 

We exercise plenary review over the district court's grant of 

summary judgment. Mellon, 951 F.2d 1399, 1404 (3d Cir. 1991); 

see Fed. R. Civ. P. 56(c). We also review a district court's 

decision to review or dismiss an action under the Declaratory 

 

8. In Janney we held a district court's determination that an 

absent party is necessary under Rule 19(a), as opposed to 

indispensable under Rule 19(b), is subject to plenary review when 

the district court's determination is premised on a conclusion of 

law. Janney, 11 F.3d at 404. We will assume WALP is necessary 

under Rule 19(a) as discussed infra Part III A. 
Judgment Act, 28 U.S.C.A. §§ 2201, 2202 (West 1982 & Supp. 1994), 

for abuse of discretion. See United States v. Pennsylvania, 

Dep't of Envtl. Resources, 923 F.2d 1071, 1073 (3d Cir. 1991). 

III. 

 In response to the mortgagee's motion to amend its 

answer to assert as a counterclaim for a declaratory judgment its 

argument that no lease existed, Schulman argued in the district 

court that WALP was an indispensable party because its presence 

was essential to resolving the mortgagee's counterclaim. He also 

argued that a decision on the mortgagee's counterclaim would 

expose him to a substantial risk of inconsistent rulings if WALP 

were not joined because he would be collaterally estopped in the 

pending state court ejectment action by a declaratory judgment 

that no lease exists, but WALP would not be collaterally estopped 

if the district court decided a lease did exist. 

 The district court granted the mortgagee's motion to 

add the attack on the lease's existence that was called a 

counterclaim, expressly rejecting Schulman's contention that WALP 

was an indispensable party. The district court first noted 

Schulman would not be prejudiced by the proposed counterclaim 

because all questions relating to the existence of Schulman's 

lease were already at issue in Schulman's own claim of 

intentional interference with contractual relations. It also 

stated its ruling on the counterclaim would not interfere with or 

complicate the pending eviction action against Schulman in state 

court: 
 Whether Mr. Schulman had an enforceable lease 

or not is an entirely separate question from 

the one now in state court of whether Mr. 

Schulman has any rights against the landlord. 

Moreover, my ruling need not prompt those 

parties to dispute the ruling's collateral 

estoppel effect. If I find, after full and 

fair litigation on the merits, that there was 

no lease, Mr. Schulman cannot re-litigate 

that issue in state court. See Parklane 

Hosiery Co., Inc. v. Shore, 439 U.S. 322, 328 

(1979). If, on the other hand, Mr. Schulman 

is concerned that the landlord will try to 

re-litigate the issue should I find there was

a lease, he can accept the landlord's 

counsel's proposal that both Mr. Schulman and 

the landlord waive their rights to relitigate the existence of the lease. 

Schulman v. J.P. Morgan Investment Management, Inc., No. 

92-cv-02853 (E.D. Pa. April 22, 1993) (footnote omitted) (order 

granting motion to amend). Finally, the district court stated 

"[w]hile the landlord may be an important witness on the issue of 

whether the requirements of a Widener Building lease were 

satisfied, he need not be a party to Schulman's suit against the 

building's lender for intentional interference." Id. (emphasis 

in original). 

 Schulman did not argue on appeal that the district 

court's order granting the mortgagee's motion to amend its answer 

to assert a counterclaim for a declaratory judgment was 

erroneous. Nevertheless, prior to oral argument we asked the 

parties to submit letter memoranda addressing the effect of 

WALP's non-joinder under Rule 19(b). See Finberg v. Sullivan, 

634 F.2d 50, 55 (3d Cir. 1980) (in banc) (this Court on appeal 

can raise sua sponte problem of joinder without motion of 
parties) (citing Provident Tradesmens Bank & Trust Co. v. 

Patterson, 390 U.S. 102, 111 (1968)). 

 The parties assumed that the only basis for 

jurisdiction was diversity. Therefore, in both the district 

court and here they briefed the jurisdictional issue in terms of 

the Rule 19 distinction between necessary and indispensable 

parties. In doing so, they overlooked the possibility of 

supplemental jurisdiction under 28 U.S.C.A. § 1367 (West 1993) 

that would be present if J.P. Morgan's amended pleading claiming 

that no lease exists is truly a counterclaim. See 6 Charles A. 

Wright & Arthur R. Miller, Federal Practice and Procedure §§ 1414 

at 99, 1422 at 170, 1436 at 274-76 (1990). J.P. Morgan's claim 

that no lease exists may, however, be no more than a defense to 

Count I of Schulman's complaint, not a counterclaim. See Fed. R. 

Civ. P. 8(c) (permitting court to relabel improperly labeled 

counterclaims and defenses). If this claim is mislabeled, 

consideration of WALP's status as a necessary or indispensable 

party under Rule 19 would be required. 

 Accordingly, whether the amended complaint's claim that 

the lease does not exist is treated as a counterclaim or a 

redundant defense is immaterial to the district court's 

jurisdiction over J.P. Morgan's contention that no lease ever 

existed. Moreover, if it is not a redundant defense, we disagree 

with the dissent's conclusion that the district court abused its 

discretion in addressing the merits of that contention and 

resolving it in favor of J.P. Morgan and against Schulman. 
A. 

 Supplemental jurisdiction under section 1367 would not 

be available if the mortgagee's attack on the existence of the 

lease that is the basis of Count I of Schulman's complaint is not 

a true counterclaim, but consideration of the merits would 

nevertheless be proper unless WALP is not an indispensable party 

under Federal Rule of Civil Procedure 19(b). For the reasons 

hereinafter given, we conclude WALP is not indispensable. 

Rule 19 sets forth a two step procedure for determining whether a 

person is an indispensable party. See Sindia Expedition, Inc. v. 

Wrecked and Abandoned Vessel, 895 F.2d 116, 121 (3d Cir. 1990); 

Abel v. American Art Analog, Inc., 838 F.2d 691, 694-95 (3d Cir. 

1988). Under the rule, a court must consider whether an absent 

party is "necessary" and "indispensable." We will first consider 

whether WALP is a "necessary" party to this action. 

 Schulman argues the landlord is necessary under both 

Rule 19(a)(2)(i) and Rule 19(a)(2)(ii).9 Under Rule 19(a)(2)(ii) 

 

9. Federal Rule of Civil Procedure 19(a) provides, in pertinent 

part: 

 Rule 19. Joinder of Persons Needed for Just 

Adjudication

 (a) Persons to be Joined if Feasible. A 

person . . . shall be joined as a party . . . 

if (1) in the person's absence complete 

relief cannot be accorded among those already 

parties, or (2) the person claims an interest 

relating to the subject of the action and is 

so situated that the disposition of the 

action in the person's absence may (i) as a 

practical matter impair or impede the 

person's ability to protect that interest or 

(ii) leave any of the persons already parties 
we ask whether nonjoinder would subject Schulman to a substantial 

risk of inconsistent obligations if the district court decided 

there was a lease and WALP subsequently challenged this finding 

in state court. 

 We recognize that a decision in this action on the 

mortgagee's defense to Schulman's claim for tortious interference 

denying the existence of any lease between Schulman and WALP 

could affect the pending state court action, but whether WALP 

would be collaterally estopped is ultimately a matter for the 

state court to decide when the issue arises. Cf. Janney, 11 F.3d 

at 407 (declining "to hold that any potential effect the doctrine 

[of stare decisis] may have on an absent party's rights makes the 

absent party's joinder compulsory under Rule 19(a) whenever 

'feasible'"). Nevertheless, under general principles of 

collateral estoppel or issue preclusion, a strong argument can be 

made that WALP would be bound.10 Moreover, during the district 

court proceedings WALP agreed to be bound by the district court's 

determination on the lease's existence. We will therefore 

assume, without deciding, that WALP is a necessary party under 

(..continued) 

subject to a substantial risk of incurring 

double, multiple, or otherwise inconsistent 

obligations by reason of the claimed 

interest. 

Fed. R. Civ. P. 19(a) (in relevant part). 

10. See Restatement (Second) of Judgments §§ 27-29 (1982). 

WALP's interests are the same as the mortgagee and the mortgagee 

had a full and fair opportunity to litigate the issue as well as 

every incentive to press its defense that no lease ever arose. 
Rule 19(a) and go on to consider whether it is also indispensable 

under Rule 19(b). 

B. 

 The extent to which a judgment rendered in WALP's 

absence might be prejudicial to it or to those already parties to 

this case must be considered under Rule 19(b) as well as 19(a).11 

Prejudice under Rule 19(b), like impairment of an absent party's 

rights under Rule 19(a)(2)(i), implicates principles of 

collateral estoppel or issue preclusion. Under Pennsylvania law 

 

11. Federal Rule of Civil Procedure 19(b) provides: 

 (b) Determination by Court Whenever Joinder 

not Feasible. If a person as described in 

subdivision (a)(1)-(2) hereof cannot be made 

a party, the court shall determine whether in 

equity and good conscience the action should 

proceed among the parties before it, or 

should be dismissed, the absent person being 

thus regarded as indispensable. The factors 

to be considered by the court include: [1] to 

what extent a judgment rendered in the 

person's absence might be prejudicial to the 

person or those already parties; [2] the 

extent to which, by protective provisions in 

the judgment, by the shaping of relief, or 

other measures, the prejudice can be lessened 

or avoided; [3] whether a judgment rendered 

in the person's absence will be adequate; [4] 

whether the plaintiff will have an adequate 

remedy if the action is dismissed for 

nonjoinder. 

Fed. R. Civ. P. 19(b). 
on issue preclusion,12 a party may be precluded from relitigating 

an issue only if: 

 "(1) the issue decided in the prior 

adjudication was identical with the one 

presented in the later action; (2) there was 

a final judgment on the merits; (3) the party 

against whom the plea is asserted was a party 

or in privity with a party to the prior 

adjudication; and (4) the party against whom 

it is asserted has had a full and fair 

opportunity to litigate the issue in question 

in a prior action." 

Janney, 11 F.3d at 409 n.12 (quoting Sanders v. Sanders, 558 A.2d 

556, 560 (Pa. Super. Ct. 1989) (citation omitted), allocatur

denied, 578 A.2d 930 (Pa. 1990)). Thus, if the landlord was in 

privity with J.P. Morgan and Widener and they adequately 

represented its interests, WALP would be collaterally estopped. 

See id. at 410. Yet, under Rule 19(b), unlike Rule 19(a), 

collateral estoppel is only a necessary condition of dismissal, 

not a necessary and sufficient condition. 

 Though it would be logically inconsistent for J.P. 

Morgan to succeed in this federal action on its defense that no 

lease existed with respect to the tortious interference claim, 

and the landlord to lose in the state court action because the 

state court decided the parties' actions and oral communications 

brought a lease into existence, logical inconsistency does not 

 

12. The parties do not dispute that Pennsylvania law applies in 

this diversity action. All lease negotiations occurred in 

Pennsylvania, the object of the purported lease is located there, 

and the draft leases specifically provided that the lease was to 

be governed by Pennsylvania law. 
make an absent party indispensable. See Field v. Volkswagenwerk 

AG, 626 F.2d 293, 301-02 (3d Cir. 1980) ("[T]he possibility of a 

subsequent adjudication that may result in a judgment that is 

inconsistent as a matter of logic [does not] trigger the 

application of Rule 19.") (emphasis added). 

 In the district court, WALP offered to agree to be 

bound by any determination of the lease issue, even if not 

joined, provided Schulman would also agree to be bound. WALP 

specifically informed the district court that it could 

 submit an affidavit . . . in which it would 

agree to be bound by a decision rendered in 

this action as to the existence of a lease 

and would expect, in return, plaintiff's 

acknowledgement and stipulation that he would 

be bound by [the district court's] 

determination of the lease issue so that 

plaintiff would not seek to relitigate the 

issue in state court. If WALP were to submit 

such an affidavit and plaintiff such an 

acknowledgment and stipulation, there would 

be no need to join WALP as a party defendant 

and there would be no possibility of further 

procedural wrangling in the state court on 

the lease issue. 

Letter from Leonard S. Baum, Esq., counsel for Mortgagees, to 

District Court dated February 16, 1993, Exh. "B" of Memorandum of 

Law of Appellees to this Court dated March 11, 1994. Schulman 

declined this offer and no such affidavit or stipulation was 

filed. We think that Schulman, even absent this stipulation, 

would be bound by the district court's resolution of the issue 

concerning existence of the lease. Given WALP's willingness to 
be bound, any judgment rendered in WALP's absence would be 

mutually dispositive of the case. 

C. 

 Because the mortgagee's counterclaim for a declaratory 

judgment on the lease's existence mirrors an essential element of 

Schulman's own claim, i.e. the existence of a lease, we do not 

think the district court abused its discretion when it concluded 

Schulman should not be able to demand WALP's presence as a 

condition of an order adjudicating the merits of the dispute over 

the lease's existence.13 Dismissal under Rule 19(b) is subject 

to a district court's discretionary analysis of equitable 

considerations, as is its decision to entertain a request for a 

declaratory judgment. In either case we do not think the 

district court abused its discretion. The equities favor WALP 

and the mortgagee, not Schulman, because it was Schulman who 

chose to divide this dispute between two independent forums and 

then rejected WALP's proposal to stipulate that any decision in 

the district court would be binding on both of them in the 

ongoing state court proceedings. Accordingly, we conclude the 

district court had subject matter jurisdiction over the merits of 

 

13. In addition, we think J.P. Morgan's interest in the lease 

Schulman asserts can be analogized to that of a third party 

beneficiary. According to Wright & Miller, "[i]n cases in which 

the beneficiary is a party, the courts uniformly reject the 

argument that all of the original parties to the contract must be 

joined." 7 Charles A. Wright, Arthur R. Miller & Mary K. Kane, 

Federal Practice and Procedure § 1613 at 186 (1986) (footnote 

omitted). 
whether J.P. Morgan's counterclaim is treated as such or as no 

more than a redundant defense to Count I of Schulman's complaint. 

It therefore follows that we also have appellate jurisdiction to 

decide the issues the parties have raised about the lease's 

existence on their merits. 

IV. 

 Turning to the merits of that issue, Schulman argues 

that a valid, enforceable lease exists because he relied on 

Kelter's assurances that he would obtain one as well as the FKB 

employees' confirmed acceptance of the final draft.14 Schulman 

relies on Emerman v. Baldwin, 142 A.2d 440 (Pa. Super. Ct. 1958). 

There, defendants orally agreed to lease a house to plaintiffs 

for two years at a specified price. Id. at 443. Defendants 

acknowledged the agreement as to terms by letter but in the 

letter stated the agreement was nevertheless subject to execution 

and delivery of defendants' standard lease form. Id. Under the 

circumstances, the court held that the minds of the parties had 

met on the essential provisions of the lease and a valid 

leasehold agreement was made because the form's provisions were 

 

14. The elements of intentional interference with existing 

contractual relations are: (1) the existence of a contractual 

relationship; (2) an intent on the part of the defendant to harm 

the plaintiff by interfering with those contractual relations; 

(3) the absence of privilege or justification for the 

interference; and (4) actual damages resulting from the 

defendant's conduct. Neish v. Beaver Newspapers, Inc., 581 A.2d 

619, 625 (Pa. Super. Ct.), allocatur denied, 593 A.2d 421 (Pa. 

1990). 
known to plaintiffs and the defendants believed the negotiations 

had resulted in a binding contract. Id. at 445. 

 Emerman is distinguishable from this case. The 

defendants in Emerman expressed their willingness to accept the 

terms agreed upon during the negotiations as a binding contract 

and objectively indicated they intended the executed standard 

form would be a mere formality, serving only as evidence of the 

agreed upon terms. In contrast, here WALP always made clear its 

intent not to be bound by any lease until a written lease was 

executed. Paragraph 57 of the January 31, 1992, draft lease, 

which Schulman contends embodies all of the terms of the 

purported lease, expressly bars any agreement from taking effect 

until both the landlord and tenant have signed and delivered it. 

It provides in a distinctive, capitalized typeface: 

 57. Delivery For Examination. DELIVERY OF 

THE LEASE TO TENANT SHALL NOT BIND LANDLORD 

IN ANY MANNER, AND NO LEASE OR OBLIGATIONS OF 

LANDLORD SHALL ARISE UNTIL THIS INSTRUMENT IS 

SIGNED BY BOTH LANDLORD AND TENANT AND 

DELIVERY IS MADE TO EACH. 

App. at A-150. Schulman was on notice of WALP's intent not to be 

bound until it signed the lease throughout the negotiations. 

Schulman and his attorneys reviewed each of the four draft 

leases. All contained this provision and they never objected to 

it. Schulman's attorney expressly cautioned him on the necessity 

of formal execution. Schulman concedes WALP never signed any of 

the draft leases. 
 Despite the clear language of paragraph 57, Schulman 

argues that the January 31, 1992, draft lease and the two letters 

he received from FKB employees in February 1992 create a 

sufficient writing to evidence the lease terms. His argument 

might be sufficient to overcome the defense of the statute of 

frauds, but the issue here is whether parties whose minds had met 

on the need for a formal fully executed document before any 

binding contract arose consummated their agreement, not whether 

there was sufficient written evidence of the proposed terms of 

that agreement. Paragraph 57 explicitly requires the signing and 

delivery of the lease itself. The letters' references to the 

draft as a lease did not transform it into one. Under 

Pennsylvania law, when one party has expressed an intent not to 

be bound until a written contract is executed, the parties are 

not bound until that event has occurred. See Essner v. 

Shoemaker, 143 A.2d 364 (Pa. 1958). In this case, no lease could 

exist until WALP executed and delivered it.15 In response to the 

mortgagee's motion for summary judgment, Schulman points to 

nothing that could create a genuine issue of fact on the 

 

15. Schulman argues the district court exceeded or abused its 

authority under the Declaratory Judgment Act by ruling on the 

existence of the lease. We agree with the dissent that the 

district court could have decided this case by assuming the lease 

existed and so refusing to reach or decide the mortgagees' 

counterclaim for a declaratory judgment. We are unable to agree, 

however, that it was inappropriate for the district court to rule 

on the counterclaim. Resolution of the existence of a lease is 

essential to disposition of Schulman's claim of intentional 

interference with existing contractual relations. Therefore, we 

have also considered the merits of the lease issue and concluded 

that no lease existed. 
existence of a binding lease. For the same reasons, Schulman's 

alternate argument based on Valvano v. Galardi, 526 A.2d 1216, 

1220 (Pa. Super. Ct. 1987) that commencement of operations and 

payment of rent to WALP is part performance sufficient to take 

the case outside Pennsylvania's statute of frauds, Pa. Stat. Ann. 

tit. 68, § 250.202 (1994), also fails. The district court did 

not err by granting summary judgment in favor of the mortgagees 

on Schulman's claim for intentional interference with existing 

contractual relations. 

V. 

 Schulman also asserts a claim for intentional 

interference with prospective contractual relations.16 To 

succeed, Schulman must show the prospective contract has an 

objectively reasonable probability of coming into existence. See

Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, 471 (Pa. 1979). 

We think there is sufficient evidence in this record to withstand 

summary judgment on the issue of whether Schulman had a 

reasonable probability of obtaining a lease from WALP absent the 

mortgagee's interference.17 We must therefore consider whether 

the mortgagee's conduct was privileged.18

 

16. The elements of this tort are: (1) a prospective contractual 

relation; (2) intent to harm the plaintiff by preventing the 

relation from occurring; (3) absence of privilege or 

justification on the defendant's part; and (4) resulting damage. 

See Silver v. Mendel, 894 F.2d 598, 601-02 (3d Cir.) (citing 

Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, 471 (Pa. 

1979)), cert. denied, 496 U.S. 926 (1990). 

17. We believe there is a genuine issue of fact as to whether 

there was a reasonable probability of Schulman's obtaining a 
 The Pennsylvania Supreme Court has "repeatedly looked 

to the Restatement as authority for the elements of a cause of 

action for intentional interference with existing contract 

relations." Adler, Barish, Daniels, Levins & Creskoff v. 

Epstein, 393 A.2d 1175, 1182 n.13 (Pa. 1978) (adopting 

Restatement of Torts §§ 766, 767 as definition of intentional 

interference), appeal dismissed and cert. denied, 442 U.S. 907 

(1979). It has also adopted portions of the Restatement relating 

to intentional interference with prospective contractual 

relations. See Glenn v. Point Park College, 272 A.2d 895, 897 

(Pa. 1971). Section 769 of the Restatement (Second) of Torts 

excuses interference committed by a person with a financial 

interest in another's business if that interest may be affected 

(..continued) 

lease absent the mortgagee's interference. Although Schulman 

argues Kelter did not begin communicating his displeasure with 

Maxi's until after speaking with Pfeiffer, he conceded in 

deposition and hearing testimony in the state ejectment action 

that Kelter began complaining almost immediately after Maxi's 

opened. That opening, in Schulman's own words, occurred "on or 

about December 2, 1991, well before the grand opening party" on 

December 12, 1991 and prior to Pfeiffer communicating her 

displeasure. Thus, Kelter's opinion may have been uninfluenced 

by Pfeiffer. Nevertheless, Schulman might have been able to get 

Kelter to change his mind absent the mortgagee's objections 

because Kelter initially appeared willing to work out the 

problems he noted and suggested various improvements after 

expressing his displeasure. 

18. The Pennsylvania Supreme Court has not adopted the language 

of the Restatement (Second) of Torts § 766B (1977) that favors an 

analysis of "proper" conduct rather than "privileged." Thus, in 

cases to which Pennsylvania law applies, we must consider 

privilege in analyzing claims of interference with prospective 

contractual relations. See Advent Sys. Ltd. v. Unisys Corp., 925 

F.2d 670, 673 (3d Cir. 1991). 
by commercial relations between others. Restatement (Second) of 

Torts § 769 (1979). It provides: 

 One who, having a financial interest in the 

business of a third person[,] intentionally 

causes that person not to enter into a 

prospective contractual relation with 

another, does not interfere improperly with 

the other's relation if he 

 (a) does not employ wrongful means and 

 (b) acts to protect his interest from 

being prejudiced by the relation. 

Id. (emphasis added); see also Yaindl v. Ingersoll-Rand Co., 422 

A.2d 611, 625 (Pa. Super. 1980) (citing Restatement (Second) of 

Torts § 769 approvingly), abrogation on other grounds recognized

by Yetter v. Ward Trucking Co., 585 A.2d 1022 (Pa. Super. Ct. 

1991) (citing Paul v. Lankenau Hosp., 569 A.2d 346 (Pa. 1990) and 

Clay v. Advanced Computer Applications, 559 A.2d 917 (Pa. 1989)). 

As the district court recognized, illustration 1 to that section 

is similar to this case. Illustration 1 provides: 

 A provides the financial backing for B's 

theatrical production. The arrangement is in 

the form of a loan for the purposes of the 

production. While B undertakes to repay the 

loan in any event, in fact the chances of 

repayment depend upon the success of the 

play. B is about to engage C to play the 

leading role. Under the conditions stated in 

Clauses (a) and (b), A's interference with 

the prospective relation by causing B not to 

have C play that role is not improper. 

Restatement (Second) of Torts § 769 cmt. c, illus. 1. The 

interest of a mortgage lender is clearly an economic or financial 

interest that falls within the scope of the privilege. See, 
e.g., Cloverleaf Dev., Inc. v. Horizon Fin. F.A., 500 A.2d 163, 

167 (Pa. Super. Ct. 1985) (lender acted in its own financial 

interest by demanding higher interest rate, thereby interfering 

with sale of mortgage). 

 Here, the mortgagee who is charged with interference 

loaned WALP $62 million for renovations; of that amount only 

$56,280 was allocated to Maxi's. Schulman argues this minimal 

financial interest is insufficient to justify the mortgagee's 

conduct. Schulman also argues the mortgagee's aesthetic concerns 

are invalid because there is no evidence Schulman could not pay 

the rent as agreed. Schulman misses the point. J.P. Morgan has 

$62 million tied up in the Widener Building and if the building 

doesn't succeed in attracting up-scale tenants, J.P. Morgan's 

ability to recoup its loan is jeopardized. To the extent Maxi's 

appearance would harm the building's ability to attract firstclass tenants, J.P. Morgan's concerns are valid. WALP implicitly 

acknowledged this by granting the mortgagee the right to 

disapprove tenants. 

 Interference is also privileged when the actor believes 

in good faith that his legally protected interest may otherwise 

be impaired by the performance of the contract. See Advent Sys., 

Ltd. v. Unisys Corp., 925 F.2d 670, 673 (3d Cir. 1991); Geofreeze 

Corp. v. C. Hannah Constr. Co., 588 F. Supp. 1341, 1345 (E.D. Pa. 

1984); Cloverleaf, 500 A.2d at 168. Section 773 of the 

Restatement (Second) of Torts excuses interference by persons 

protecting legal interests. Restatement (Second) of Torts § 773 

(1979). It provides: 
 One who, by asserting in good faith a legally 

protected interest of his own or threatening 

in good faith to protect the interest by 

appropriate means, intentionally causes a 

third person not to perform an existing 

contract or enter into a prospective 

contractual relation with another does not 

interfere improperly with the other's 

relation if the actor believes that his 

interest may otherwise be impaired or 

destroyed by the performance of the contract 

or transaction. 

Id. (emphasis added); see also Kelly-Springfield Tire Co. v. 

D'Ambro, 596 A.2d 867, 872 (Pa. Super. Ct. 1991) (relying on 

Restatement (Second) of Torts section 773); Geofreeze, 588 

F. Supp. at 1345-46 (citing section 773 approvingly). The 

Restatement gives an actor this defense only if it has a legally 

protected interest and, in good faith, asserts the interest or 

threatens to protect it by appropriate means. Restatement 

(Second) of Torts § 773 cmt. a. 

 The Mortgage and Loan Documents WALP and Widener 

executed expressly prohibit WALP from entering into any lease 

without Widener's prior written consent. Section 6.01.1 of the 

Mortgage forbids WALP from executing leases without the 

mortgagee's written consent. Section 9.01(k) makes WALP's sale, 

conveyance, encumbrance, or other transfer of control without the 

mortgagee's prior written consent an event of default. Section 

10.01 again forbids transfers of any kind without the mortgagee's 

prior written consent. WALP also covenanted in section 4(k) of 

the Assignment of Leases to Equitable Life that it would: 

 [n]ot lease any part of the Property, or 

renew or extend the term of any Lease of any 
part of the Property without, in each case, 

the prior written consent of the Assignee or 

as expressly provided for in the Loan 

Agreement[.] 

App. at A-410.19 In the instant case, Widener acted in good 

faith pursuant to its own reserved, contractual right in the 

mortgage and loan documents between it and WALP to oversee the 

selection of the Widener Building tenants.20

 

19. The only exception to the written approval requirement is 

that leases may be granted without the lender's approval if done 

"in strict accordance with the provisions of the Loan Agreement." 

App. at A-399. The Loan Agreement exempts only those leases 

which "prior to the Closing, . . . demise[] less than 5,000 

square feet of Rentable Area and which otherwise compl[y]" with 

the other agreement provisions. App. at A-427. Although 

Schulman's space occupies only 1,407 square feet, he does not 

contend his lease took effect "prior to the Closing," which 

occurred on June 8, 1990. 

20. Schulman argues Pennsylvania law does not require 

a prospective tenant to search the public records for a mortgage 

that may have restricted the landlord's right to lease the 

property in question. Generally, under Pennsylvania law a 

mortgage, recorded or not, does not affect title to property, but 

a lessee's interest may nevertheless be subordinated to a 

mortgage, as reflected in Schulman's draft lease. See DeMarco v. 

City of Philadelphia, 494 A.2d 875, 876 (Pa. Commw. Ct. 1985). 

Our research has not revealed any Pennsylvania cases directly 

supporting either party's position on the issue of record notice. 

The draft leases, however, all contained a subordination clause 

putting Schulman on constructive notice of the existence of 

mortgage documents. Schulman also knew Pfeiffer was connected 

with the lender and that she wanted to review the draft leases. 

 Whether notice of the mortgagee's interest and the tenant's 

express subordination to the rights of the mortgagee allow J.P. 

Morgan to proceed directly against WALP, the owner, is thus a 

question we do not decide. It is unnecessary to resolve it 

because WALP never executed a lease and Widener clearly reserved 

its right to approve Schulman's lease and its acts to that end 

are privileged under Restatement (Second) of Torts § 773. 
 Thus, the mortgagee's conduct is not improper based on 

both its financial and legal interests in the transaction. 

VI. 

 For the foregoing reasons the order of the district 

court will be affirmed. 

 

ROBERT D. SCHULMAN, t/a MAXI'S EXPRESS, Appellant v. 

J.P. MORGAN INVESTMENT MANAGEMENT, INC.; WIDENER FUNDING CORP., 

INC., No. 93-1888 

_________________________________________________________________ 

ROSENN, Circuit Judge, concurring and dissenting. 

 I agree with the majority's conclusion that the 

district court did not err by granting summary judgment in favor 

of the defendants on Schulman's claim for intentional 

interference with existing contractual relations. However, I 

part company with the majority's characterization of J.P. 

Morgan's counterclaim and its decision to sustain the district 

court's ruling on the amended counterclaim involving the 

existence of a lease between Schulman and Widener Associates 

Limited Partnership (WALP). I therefore respectfully concur and 

dissent. 

I. 

 This is an action by Schulman against the defendants 

for intentional interference in contractual relations. Before 
Schulman initiated this action, WALP filed an ejectment action in 

the Philadelphia County Court of Common Pleas to evict Schulman. 

That action, which was pending at the time Schulman filed this 

suit, inevitably must test the existence of a lease between the 

Schulman and WALP. There was no point, therefore, for the 

district court to decide an issue already pending in the state 

court and which was not essential to the disposition of the 

matter before it. In this federal action, the issue is limited 

to whether the defendants intentionally interfered with 

Schulman's contractual rights. 

 The majority concedes that the district court could 

have disposed of this case by assuming, without deciding, that 

WALP and Schulman had agreed upon the terms of the lease. 

Moreover, as discussed by the majority in Part III, the 

defendants acted in good faith pursuant to their contractual 

rights to protect their legal interests. Therefore, even 

assuming the existence of a lease, the defendants' actions were 

privileged and did not constitute intentional interference. 

 The district court should not have decided the question 

of whether Schulman had a valid lease to any space at the Widener 

Building because that issue was pending in the state court 

action, essentially involves a matter of state law, and the 

elements for a declaratory judgment were not present.21 The 

 

21. The defendants contend that this court does not have 

jurisdiction to decide whether the district court erred in 

granting summary judgment for them on their counterclaim because 

Schulman only appealed from the August 11, 1993 Order granting 
Declaratory Judgment Act, 28 U.S.C. § 2201, calls for the federal 

courts to exercise discretion in determining whether to involve 

themselves in a declaratory judgment action. As set forth most 

recently by this court in United States v. Pennsylvania, Dep't of 

Envtl. Resources, 923 F.2d 1071 (3d Cir. 1991), this court 

considers the following factors when determining whether the 

federal forum is appropriate for a declaratory action: (1) the 

likelihood that a federal court declaration will resolve the 

uncertainty of obligation which gave rise to the controversy; (2) 

the convenience of the parties; (3) the public interest in 

settlement of the uncertainty of obligation; and (4) the 

availability of and relative convenience of other remedies. Id. 

at 1075 (citations omitted). 

 The Pennsylvania, Dep't of Envtl. Resources court also 

discussed Terra Nova Ins. Co. v. 900 Bar, Inc., 887 F.2d 1213 (3d 

Cir. 1989), in which the court upheld the district court's stay 

of an insured's claim in light of a pending state tort action 

because of the general policy of restraint when the same issues 

are pending in a state court and an avoidance of duplicative 

litigation. 923 F.2d at 1075-76; see also Brillhart v. Excess 

Ins. Co., 316 U.S. 491, 495 (1942) (federal court should consider 

(..continued) 

summary judgment in favor of the defendants, and not from the 

April 27, 1993, Order granting the defendants leave to amend 

their answer to include the counterclaim. However, the August 

11, 1993 Order from which Schulman appealed specifically granted 

the defendants' motion for summary judgment on their counterclaim 

and declared that Schulman had no legally enforceable lease. 
whether state court suit "present[s] the same issues, not 

governed by federal law, between the same parties" and whether 

state court is better able to settle controversy). "[E]ven if a 

declaratory judgment would clarify the parties' legal rights, it 

should ordinarily not be granted unless 'the parties' plans of 

actions are likely to be affected by a declaratory judgment.'" 

Armstrong World Industries, Inc. v. Adams, 961 F.2d 405, 412 (3d 

Cir. 1992) (citation omitted). 

 The district court's decision to resolve the 

declaratory action raised by the counterclaim substantially 

ignores these factors. The federal action can be resolved 

without deciding the essential issue in the pending state court 

ejectment action. There is no public interest involved in either 

action and the state action provides an available and convenient 

forum for the disposition of a contractual suit arising under 

state law. The declaratory judgment did not serve any useful 

purpose because the declaration was not necessary for the 

settlement of obligations between the parties in this case or for 

the disposal of this action. 

 The declaration of the district court improperly 

encroaches upon the state court, which is currently addressing 

the issue of the existence of a lease between Schulman and WALP. 

The district court acknowledged that its declaration that there 

was not a valid contract between Schulman and WALP "may not 

resolve the question still pending . . . in state court regarding 
what rights Schulman has against a landlord who allegedly 

represents it can freely enter into a lease, when in fact it 

cannot." The district court's declaration will have the effect 

of either binding the state court in its decision making or 

requiring Schulman to undertake duplicative litigation. In any 

event, it can only serve to complicate or confuse the state court 

proceedings. The majority's ruling on the lease is not necessary 

to this action and relies on a matter in which a key figure to 

the lease is not a party to the proceedings before this court. 

Finally, the parties would not be inconvenienced by deference to 

the state court because the federal action properly granted the 

defendants' motion for summary judgment on Schulman's claims 

against them, and the state court could resolve in timely fashion 

the issue of the existence of a lease. Thus, I believe this 

court should reverse the district court's grant of summary 

judgment for the defendants on their counterclaim. 

II. 

 Additionally, the majority's extensive discussion of 

Rule 19 is not necessary or relevant to the disposition of this 

appeal. As the majority concedes, the district court had 

ancillary jurisdiction over the issue raised in the counterclaim 

without regard to diversity under 28 U.S.C. § 1367 (West 1993). 

(Maj. Op. at 12). I further disagree with the majority's 

characterization of J.P. Morgan's counterclaim as a redundant 

defense. This issue has never been raised by the parties and 
there is no indication that J.P. Morgan did not intend to file a 

counterclaim for a declaratory judgment. 

 As authority for its "relabeling" the counterclaim as a 

defense, the majority cites Fed.R.Civ.P. 8(c). Rule 8(c), 

however, empowers a trial court at the pleading stage to correct 

a party's mistaken designation of a counterclaim as a defense if 

justice so requires. The rule does not provide any authority for 

this court to do so on appeal. Rather, our review is constrained 

by the district court's treatment of the pleading as a 

counterclaim. Therefore, I see no justification to relabel J.P. 

Morgan's counterclaim as a defense, and no need to discuss Rule 

19 in light of the district court's ancillary jurisdiction over 

the counterclaim. 

 Moreover, the majority concludes that the equities 

favor WALP and the defendants, and not Schulman, because Schulman 

chose to divide this dispute between two independent forums and 

then rejected WALP's proposal to stipulate that any decision in 

the district court would be binding in the state court. (Maj. 

Op. at 19). However, WALP, not Schulman, chose to file the 

ejectment action in the Philadelphia County Court of Common 

Pleas. Moreover, there was no reason for Schulman to stipulate 

to a binding resolution by the district court because that court 

was not the appropriate forum for resolution of an issue 

essentially involving state law pending in a prior action 

instituted by WALP in state court. Finally, the equities may 
fall in favor of Schulman in the ejectment action because Kelter, 

the principal acting on WALP's behalf, sought out Schulman to 

discuss plans to operate Maxi's food establishment in the lobby 

of the Widener Building. "It is undisputed that both Kelter and 

Schulman anticipated that a lease would be executed" and Schulman 

invested $35,000 of his own money toward construction costs. 

(Maj. Op. at 5). 

III. 

 In conclusion, the district court should not have 

decided the question presented by the defendants' counterclaim as 

to whether there was in fact a lease because the elements for a 

declaratory judgment were not present. Furthermore, the 

declaration of the district court improperly encroaches upon the 

litigation then pending in the state court. Accordingly, I 

respectfully dissent from the majority's opinion.