# Record and brief — Schiavo Bros. v. United States Gypsum Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Record and brief
- **Published:** January 1, 1982
- **Citation:** 456 U.S. 961

## Text

das,

UONed

.. STEVAS,

CLERK

Supreme Court of the United States

October Term, 1981

SCHIAVO BROTHERS, INC.,

Petitioner
v.

UNITED STATES GYPSUM CO.,

Respondent

On Writ of Certiorari to the United States Court of
Appeals for the Third Circuit

PETITION FOR WRIT OF CERTIORARI

Joun M. Exuiotr

2600 The Fidelity Building

Philadelphia, PA 19109

(215) 875-7000

Attorney for Petitioner
Schiavo Brothers, Inc.

Of Counsel:

Dir_wortn, Paxson, KALisH
& KAUFFMAN

ConsTANcE B. Foster

2600 The Fidelity Building

Philadelphia, PA 19109

International Printing Co., 711 So. SOth St., Phila., Pa, 19143— Tel. (215) 727-8711

QUESTION PRESENTED

The well-established and long-standing limitation of
appellate review contained in the Clearly Erroneous Rule
is ever increasingly being eroded by the Courts of Appeals’
transparent recourse to mislabelling a factual finding as
“ultimate fact” or a “mixed question of law and fact” and
thus subject to plenary review.

Legal commentators, the practicing bar, as well as
judges of the federal courts have noted with increasing
alarm that the appellate courts’ expanding license to
substitute their judgment for that of the trial court on
factual issues has inevitably usurped the traditional role
of the finder of fact; increased appeals and unnecessary re-
mands; and further burdened already overcrowded
dockets.

Accordingly, this case is of exceptional importance.
It presents this Court with a clear-cut example of the
undisputed and widespread abuse of the Clearly Erroneous
Rule and the perfect opportunity to draw a clear and thera-
peutic line between appellate review and fact finding:

Did the United States Court of Appeals for the Third
Circuit subvert the intent and purpose of the Clearly
Erroneous Rule when it reversed the factual finding
of the trial court and held that the District Court’s
finding of reasonableness was a mixed question of
law and fact reviewable as a conclusion of law, es-
pecially where this Court, appellate courts of the
forum state, and every other circuit court address-
ing the issue has held that a finding of reasonableness
must be reviewed as a finding of fact under the clearly
erroneous standard?

(i)

TABLE OF CONTENTS

REASON FOR GRANTING THE WRIT ............000eceeeee0:

The Decision Below Raises a Question of Exceptional
Importance Which Must Be Settled by This Court

Opinion of the United States Court of Appeals for the
Third Circuit Entered November 30, 1981 ........
Opinion and Order of the United States District Court
for the Eastern District of Pennsylvania Entered
Dt MM wethds cas necadodesecsawnsdcsuceces
Opinion and Order of the United States District Court
for the Eastern District of Pennsylvania Entered
EE SED eG icienonsstedcantiecaqhcnessuetede
Memorandum and Order of the United States District
Court for the Eastern District of Pennsylvania
Entered January 15, 1980 ............c.esceeees
Judgment of the United States Court of Appeals for the
Third Circuit Entered November 30, 1981 ........
Order of the United States Court of Appeals for the
Third Circuit Denying Petition for Rehearing In
Banc Entered December 23, 1981 ................
Amended Judgment of the United States Court of Ap-
peals for the Third Circuit Entered January 6, 1982

(ii)

Page

Al

A74

A88

A95

A97

A98

TABLE OF AUTHORITIES

Cases:
AMF, Inc. v. McDonald’s Corp., 536 F. 2d 1167 (7th Cir.
Dt psa bshvesakheshheanehesccsl eedccdgencsconess

Bogojavlensky v. Logan, 181 Pa. Super. 312, 124 A. 2d 412
DEE Shu rdndencuassvuendhedenseccéecegeesesseneees

Clancy v. Brunswick-Balke-Collender Co., 291 F. 2d 799
I ee Ee ee eee ei ea cegsubusene tt

Commissioner v. Duberstein, 363 U. S. 278 (1960) .........

Four Sons Bakery, Inc. v. Dulman, 542 F. 2d 829 (10th Cir.
A ACEI chien Rant ae

Hinkson v. Great Atlantic & Pacific Tea Co., 134 Pa. Super.
PE EEE LesGode bcccecccecsscceueesss

Hood v. Meininger, 377 Pa. 342, 105 A. 2d 126 (1954) ....

Pendergrass v. New York Life Ins. Co., 181 F. 2d 136 (8th
PE 200 cua de Cie cehekdspaiedwaseeckacencbonee

Slisz v. Munzenreider Corp., 411 N. E. 2d 700 (Ind. App.
SE CaCROSbRCSEELESGmeNS ase ceveésecancencedesves

Travelers Insurance Co. v. Davis, 411 F. 2d 244 (5th Cir.
ME Cakenubengekeehesegneblenesccccesenoveesessee
Trio Process Corp. v. L. Goldstein's Sons, Inc., 612 F. 2d
1353 (3d Cir. 1980), cert. denied, 449 U. S. 827 (1981)
United States v. City of Albuquerque, 545 F. 2d 110 (10th
' Cir. 1976), cert. denied, 433 U. S. 909 (1977) .........
United States v. One Motor Yacht Named Mercury, 527
Ws EE COE GEN BED Sic csccccnccccescccocstses
United States Gypsum Co. v. Schiavo Brothers, Inc., 450
. Sapp. S508 (E. DB. Ba. WBE) 0... ccccccccccccess
United States Gypsum Co. v. Schiavo Brothers, Inc., 485
. Ba. SE CE. BP, BUR) onc ccccncccccccccecccss

Van Ooteghem v. Gray, 628 F. 2d 488 (5th Cir. 1980), cert.
dismissed, 451 U. S. 935 (1981) ...............0c00ee

Wurlitzer Co. v. Strand Enterprises, 32 N. E. 2d 62 (Ohio
ME MEE Ske Sendcdeceseeacncscccoseccscodeccuses

Page

TABLE OF AUTHORITIES (Continued)

Statutes: Page
a a 1
MMII ccccecvchecendncevdvecesecnccoscsess 2
Court Rules: |
Federal Rules of Civil Procedure, Rule 52(a) ............. 1,4
Other Authorities:

Nangie, The Ever Widening Scope of Fact Review in Federal
Appellate Courts—Is the “Clearly Erroneous Rule” Being

Avoided?, 59 Wasu. Univ. L. Q. 409 (1981) .......... 6,7
Wright, The Doubtful Omniscience of the Appellate Courts,
FF FS Gg ere 6

Note, Federal Rule of Civil Procedure 52(a) and the Scope
of Appellate Fact Review: Has Application of the Clearly
Erroneous Rule Been Clearly Erroneous?, 52 St. Joun’s
PEE scbUbewecncceccodavuenusdsedesuecs 7

(iv)

OPINIONS BELOW

The panel opinion of the United States Court of Ap-
peals for the Third Circuit, which is not yet officially re-
ported, is printed in the Appendix at pp. Al-A27. The
opinions of the district court, officially reported at 450 F.
Supp. 1291 (E. D. Pa. 1978) and 485 F. Supp. 46 (E. D.
Pa. 1979), are printed in the Appendix at pp. A28-A94.

JURISDICTION

The judgment of the United States Court of Appeals
for the Third Circuit was dated and entered on November
30, 1981. (App. A95-A96). Schiavo Brothers’ timely
petition for rehearing in banc was denied by the Court of
Appeals by Order dated December 23, 1981. (App. A97).
Subsequently, an amended judgment of the Court of
Appeals was dated and entered January 6, 1982. (App.
A98-A99).

The jurisdiction of this Court is invoked under and
pursuant to 28 U. S. C. § 1254(1).

PROCEDURAL RULE INVOLVED
Federal Rules of Civil Procedure, Rule 52(a):

In all actions tried upon the facts without a jury . . .
[findings of fact shall not be set aside unless clearly
erroneous . . ..

(1)

2 Petition for Writ of Certiorari

STATEMENT OF THE CASE

In 1966, Schiavo Brothers, Inc. (“Schiavo”) leased a
tract of land in Southwest Philadelphia from United States
Gypsum Co. (“USG”). The lease specified that the land
could be used by Schiavo only for the less than pristine
uses of a landfill and a junkyard. When the lease was ter-
minated in 1974, USG brought suit’ to recover from
Schiavo the cost of clearing the land of debris left by the
sublessee junk car dealers. (App. A29).

At trial, the factual issue presented was whether
Schiavo had breached its covenant, implied under Penn-
sylvania law, to return the leasehold property in the same
condition as received, normal wear and tear excepted.
(App. A53). The evidence at trial established that the
property was specifically limited to use as a junkyard (App.
A36-A37); that debris was a natural and inevitable con-
sequence of a junkyard (A33, A56, A57); that junk car
dealers virtually never cleaned the property of debris upon
leaving (App. A56, A57); that USG knew how junk car
dealers operated when the lease was executed in 1966
(App. A32-A34, A56, A57); and that USG had made no
provision in the lease requiring Schiavo to assume respon-
sibility for clearing the debris which the junkyard dealers
would inevitably produce (App. A41, A57).

After ten days of trial, extensive briefing and oral
argument (App. A30), the trial court found that under
the circumstances of this case, the “accumulation of
debris” and the “failure to clear the debris” when the lease
was terminated constituted reasonable wear and tear in

the context of the junk car industry:

1. The basis for federal jurisdiction was diversity of citizenship
between the parties, 28 U. S. C. § 1332: USG is incorporated in
Delaware and its principal place of business is in Chicago, Illinois;
Schiavo is incorporated in Pennsylvania and its principal place of
business is in Philadelphia, Pennsylvania. (App. A30-A31, A47).

Petition for Writ of Certiorari 3

Schiavo returned the land in substantially the same
condition as existed when it received the land, rea-
sonable wear and tear excepted. (App. A58).

The reversal by the Court of Appeals of the trial
court's finding of reasonableness was based solely on its
bizarre holding that a finding of reasonableness is “a mixed
question of fact and law subject to review as a question
of law.” (App. A7). Although the panel acknowledged
that review of a factual finding of reasonableness was gen-
erally subject to the “clearly erroneous” standard (App.
A7 n. 2), it nevertheless inexplicably held that the question
of “reasonable wear and tear” in the instant case was some-
how a question of law subject to plenary review on appeal.
(App. A8).

Only by expediently avoiding the clear limitation on
appellate review mandated by the Clearly Erroneous Rule
was the panel able to substitute its own judgment for that
of the fact finder and hold that “the wear and tear inflicted
[on the junkyard] was unreasonable.” (App. A13).

4 Petition for Writ of Certiorari
REASON FOR GRANTING THE WRIT

The Decision Below Raises a Question of Exceptional
Importance Which Must Be Settled by This Court

As set forth in Rule 52(a) of the Federal Rules of
Civil Procedure, findings of fact by the district court must
be affirmed by the Courts of Appeals unless “clearly
erroneous.”

In the instant case, the Third Circuit conveniently
avoided the mandated restricted review of factual findings
under the Clearly Erroneous Rule* by simply mischar-
acterizing the issue of reasonableness as a mixed question
of fact and law, and thus reviewable free of the Clearly
Erroneous Rule. (App. A7).

Significantly, in making its crucial finding that rea-
sonableness is a mixed question of law and fact, the Court
cited only two state court opinions from outside the forum.’
(App. A7 n. 2). The Court did not cite, distinguish or
discuss either opinions by the appellate courts of Pennsyl-
vania, unanimously holding the issue of reasonableness to
be a question of fact,* or numerous opinions by the Courts
of Appeals from the Third and other Circuits, also hold-

2. Commissioner v. Duberstein, 363 U. S. 278, 290 (1960).

3. Slisz v. Munzenreider Corp., 411 N. E. 2d 700, 710-11 (Ind.
App. 1980); Wurlitzer Co. v. Strand Enterprises, 32 N. E. 2d 62,
63 (Ohio App. 1936).

4. Hinkson v. Great Atlantic & Pacific Tea Co., 134 Pa. Super.
161, 166, 3 A.2d 197, 199 (1938) (holding on facts identical to the
instant case that the issue of whether or not leasehold property
was returned in the same condition as received, reasonable wear
and tear excepted, “was clearly a question of fact”); Hood v.
Meininger, 377 Pa. 342, 105 A. 2d 126 (1954) (question of reason-
able time allowed to correct defect is for trier of fact); Bogojavlen-
sky v. Logan, 181 Pa. Super. 312, 124 A. 2d 412 (1956) (determina-
tion of reasonableness of delay in performance of contract is for
fact finder).

Petition for Writ of Certiorari 5

ing that reasonableness determinations were findings of
fact subject to the Clearly Erroneous Rule.’ ,

Thus, the Third Circuit's holding in the instant case
that “reasonablencss” is “a mixed question of fact and law
subject to review as a question of law” is, in the words of
the Fifth Circuit, an obvious and improper relabelling of
a factual determination “in order to justify plenary review
of an issue.” Van Coteghem v. Gray, 628 F. 2d 488, 491-
92 (5th Cir. 1980), cert. dismissed, 451 U. S. 935 (1981).

The unsupported holding of the Third Circuit in this
matter is unfortunately only the latest example of the mani-
fest abuse of the Clearly Erroneous Rule prevalent
throughout the Courts of Appeals. The disregard of the
Rule and its resulting injury to the entire federal judicial
system has been universally lamented by legal commenta-
tors, the practicing bar, as well as district and circuit
court judges. For example, in Trio Process Corp. v.
L. Goldstein’s Sons, Inc., 612 F.2d 1353 (3d Cir. 1980),
cert. denied, 449 U. S. 827 (1981), a member of the Third

5. Four Sons Bakery, Inc. v. Dulman, 542 F. 2d 829, 832 (10th
Cir. 1976) (“[R]easonableness of time for revocation of accept-
ance is one of fact, to be made on the unique circumstances of
each case”); AMF, Inc. v. McDonald's Corp., 536 F. 2d 1167, 1170
(7th Cir. 1976) (“Whether in a specific case a buyer has reason-
able grounds for insecurity is a question of fact”); United States v.
City of Albuquerque, 545 F. 2d 110, 114 (10th Cir. 1976) (“We
conclude that the trial court’s finding that the City of Albuquerque
made reasonable accommodation efforts is not clearly erroneous
and should not be overturned by us”); United States v. One Motor
Yacht Named Mercury, 527 F. 2d 1112, 1114 (Ist Cir. 1975)
(“[T]he determination of reasonableness of the delay is a finding
of fact”); Travelers Insurance Co. v. Davis, 411 F. 2d 244, 248
(5th Cir. 1969; (“The reasonableness . . . of an attorney's fee is
primarily a disputed question of fact”); Clancy v. Brunswick-
Balke-Collender Co., 291 F. 2d 799, 807 (3d Cir. 1961) (reasonable
grounds for termination under employment contract issue for jury ).

6 Petition for Writ of Certiorari
Circuit vividly described the tendency of the Third Cir-

cuit to act as a “rump fact-finding authority.”
Although today’s decision of the court and the previ-

ous decision in Trio Process III involve only one case,
they reflect a point of view in this court, with which
I am in strong disagreement. It is a point of view
reflecting a belief than an appellant court has the right
to encroach upon the prerogatives of a fact finder.
Today’s decision, in particular, constitutes a danger-
ous extension of a line of cases that I believe were
wrongly decided because they tampered with fact-
finding orthodoxy. See, e.g., Harganrader v. Cali-
fano, 575 F. 2d 434 (3d Cir. 1978); N. L. R. B. vo.
Armcor Industries, Inc., 535 F. 2d 239 (3d Cir. 1976).
Id. at 1364 (Aldisert, J., dissenting).

Judge Aldisert’s criticism of the Third Circuit is
echoed by Judge Nangle of the Eastern District of Mis-
souri in his recent article The Ever Widening Scope of
Fact Review in Federal Appellate Courts—Is the “Clearly
Erroneous Rule” Being Avoided?, 59 Wasn. Univ. L. Q.
409 (1981), in which he lamented the almost universal
tendency of the appellate courts to circumvent the Clearly
Erroneous Rule.®

The appellate courts have failed increasingly to ac-
cord to the trial court’s findings of fact the respect
and deference envisioned by the Clearly Erroneous
Rule. Although purporting to pay homage to the
Clearly Erroneous Rule, appellate courts have become

6. Unfortunately, Professor Charles Alan Wright's 1957 pre-
“diction that through, inter alia, circumvention of the Clearly Erro-
neous Rule the appellate courts would usurp the judicial system
has come true. See Wright, The Doubtful Omniscience of the
Appellate Courts, 41 Munn. L. Rev. 751, 751 (1957).

Petition for Writ of Certiorari 7

less reticent to substitute their view of the evidence
for that of the trial court to “do justice.” Id. at 410.

Erosion of the Clearly Erroneous Rule is not an
academic problem. It cuts to the core of the federal ju-
dicial system. Where the simple expedient of invoking
the proper talismanic words * “frees” the appellate courts
to conduct unrestricted review of the factual findings of
district courts, it inevitably “impairs the confidence of
litigants and the public in the decisions of the district
courts, and multiplies the number of appeals.” * In addi-
tion, appellate usurpation of district court fact finding de-
lays justice, adversely affects judicial morale and hinders
reasonable settlements.’

It is imperative that this Court seize this opportunity
to firmly reassert the proper limits of appellate review
under the Clearly Erroneous Rule. The instant case in-
volves a clear-cut example of the ever increasing abuse of
appellate review and calls for this Court's exercise of its
supervisory powers to grant certiorari and reaffirm that ap-
pellate courts must strictly adhere to the Clearly Erroneous
Rule, and thus rebalance the scales between the fact finder
and appellate courts.

7. Nangel, Widening Scope of Fact Review at 418.

8. Pendergrass v. New York Life Ins. Co., 181 F. 2d 136, 138
(8th Cir. 1950).

9. Nangel, Widening Scope of Fact Review at 426-27. See
also Note, Federal Rule of Civil Procedure 52(a) and the Scope
of Appellate Fact Review: Has Application of the Clearly Erro-
neous Rule Been Clearly Erroneous?, 52 Sr. Joun’s L. Rev. 68,
90-91 (1977).

8 Petition for Writ of Certiorari

CONCLUSION

For the foregoing reasons, a writ of certiorari should
issue to the United States Court of Appeals for the Third
Circuit.

Respectfully submitted,

Joun M. E.uiotr

2600 The Fidelity Building
Philadelphia, Pennsylvania 19109
(215) 875-7000

Attorney for Petitioner

Schiavo Brothers, Inc.

Of Counsel:

Dua.wortH, Paxson, KAuIsH &
KAUFFMAN

CowsTANcE B. Foster

4600 The Fidelity Building

Philadelphia, Pennsylvania 19109

en OT oe

wins

etter

UNITED STATES COURT OF APPEALS
For THE Turrp Circuir

Nos. 81-1168, 81-1272 and 81-1273

UNITED STATES GYPSUM COMPANY,
Appellant /Cross-Appellee

SCHIAVO BROTHERS, INC.,
Appellee/Cross-Appellant

On Cross-APPEALS FROM THE
Unitep States Districr Court
For THE EASTERN District OF PENNSYLVANIA

(D.C. Civil Nos. 74-3165 and 80-0391)

Argued: September 22, 1981
Before: ALDISERT, HIGGINBOTHAM and SLOVITER,
Circuit Judges

(Opinion filed November 30, 1981)
(Al)

A2 Court of Appeals Opinion

MicHaet M. Bayison (Argued )

Duane, Morris & HECKSCHER

One Franklin Plaza

Philadelphia, Pennsylvania 19102
Attorney for Appellant/Cross-Appellee,
United States Gypsum Company

Joun M. Exuiorr (Argued)

ConsTANCE B. Foster

Di.wortH, PAxson, KALIsH &
LEvy

2600 The Fidelity Building

Philadelphia, Pennsylvania 19109
Attorneys for Appellee/
Cross-Appellant,
Schiavo Brothers, Inc.

OPINION OF THE COURT

[Entered November 30, 1981]

A. Leon HiccinsoruaM, Jr., Circuit Judge.
1.

While one man’s junk may be another man’s profit,
there comes a point where clearing junkyard remnants
constitutes a substantial financial cost. Here we are re-
quired to decide whether under Pennsylvania law the
landlord or the primary lessee should bear the costs of
clearing the junk left by the sublessees in this case. Dur-
ing the last three years, two district judges have been sort-
ing out the appropriate property and damage doctrines
to determine who pays for removal of the junk and other
alleged damages arising out of the tenancy. We will af-
firm the rulings of the district court except as to its deci-
sion not to consider the issues of holdover rent and loss-
of-use of purchase monies, and we will remand for further
proceedings on those two claims.

Court of Appeals Opinion A3

Il.

The facts of this case have been set forth twice, at
length, in two different district court opinions, reported
at 450 F.Supp. 1291 (E.D.Pa. 1978) and 485 F.Supp. 46
(E.D.Pa. 1979). We therefore only summarize them here.

The plaintiff, United States Gypsum Company
(Gypsum ) owned a landfill in southwest Philadelphia. In
1966, it entered into a lease agreement with the defendant
Schiavo Brothers, Inc. (Schiavo). Gypsum and Schiavo
also agreed by separate contract that Schiavo, a waste
hauling firm, would haul waste for Gypsum. Schiavo sub-
let part of the property to automobile junkyard opera-
tors. Schiavo’s lease with Gypsum was lawfully termi-
nated by Schiavo, effective January 1, 1974, but most of
the junkyard dealers (the sublessees) refused to leave un-
til well into the sun.mer of 1974. Meanwhile Gypsum had
agreed to sell the property to Swann Oil Company, but
the sale was delayed, allegedly because Swann would not
accept transfer of the property until all of the debris left
by the junkdealers had been cleared. That debris cov-
ered most of the property and included car seats, tires and
other by-products of junkyard dealing. When the junk-
dealers finally left, Gypsum was obliged to hire a con-
tractor to clear the debris. After the debris was cleared,
Gypsum transferred the property to Swann in September,
1974, almost four months later than both parties had
planned.

Gypsum sued Scisavo for the cost of the cleanup,
for holdover rent’ and for damages compensating it for

1. A holdover tenant is one who fails to abide by the term of a
lease requiring the tenant to vacate on an agreed date. Katzman v.
Hoffman, 242 F.2d 354, 358 (3d Cir. 1957). We use the term
“holdover rent” to apply to all of the damages, rent and others,
sought by Gypsum for Schiavo’s occupancy of the premises beyond
the termination of the lease. See Restatement (Second) of Prop-

A4 Court of Appeals Opinion

the loss of the use of the money due from Swann that
was not received until after the clean-up. Jurisdiction
was founded on diversity of citizenship, and the law of
Pennsylvania governs the action

The case was assigned to the calendar of Judge Her-
bert A. Fogel, who ordered that liability and damages be
tried separately. Trial on liability issues began in Novem-
ber, 1975 and continued, intermittently, into January,
1976. Judge Fogel filed his judgment shortly before he
resigned in May, 1978.

Judge Fogel ruled that under Pennsylvania law
there was, implied in the lease between the parties, a
covenant by Schiavo to return the leasehold property in
the condition in which it received it, reasonable wear
and tear excepted. He ruled that that covenant is a part
of a tenant’s obligations under a lease unless it is negated
by contrary language in the lease, and that no such
contrary intent was expressed in the lease at issue. He
also found, however, that Schiavo had not breached the
contract, and that in the context of the junkyard industry,
the leaving of the debris was reasonable wear and tear
to the property. He entered judgment in favor of Schiavo
without mentioning the issues of holdover rent and loss
of use of purchase monies.

Judge Louis H. Pollak was assigned the case after
post-trial motions had been filed by both sides. He agreed
with Judge Fogel that the implied covenant existed, but
he reversed Judge Fogel’s conclusion that Schiavo had not
breached the covenant. He ruled that the debris exceeded
reasonable wear and tear, and he therefore ordered a trial
on damages relating to breach of the covenant. He also
ruled, initially, that Judge Fogel should have entered find-

NOTE — (Continued)

erty, Landlord and Tenant, §§ 14.5, 14.6, (1976) for a discussion of
the various types of damages recoverable from a holdover tenant.

Court of Appeals Opinion A5

ings on holdover rent and loss of use of purchase monies.
However, upon a motion for reconsideration filed by
Schiavo, Judge Pollak decided that Gypsum had not
placed its claims “in so clear a focus as to warrant my
concluding that (1) the claims were actually litigated,
and (2) Judge Fogel erred in not ruling on them.” 485
F.Supp. at 56. He therefore denied Gypsum any relief on
the claims of holdover rent and loss of use of purchase
monies.

After trial of damages Judge Pollak awarded Gypsum
$96,815.00 to compensate it for its expenditures in clearing
the debris caused by Schiavo’s subtenants. He denied
Gypsum’s request for an award of prejudgment interest.
He also dismissed, on the basis of res judicata, a second
complaint brought by Gypsum seeking to recover holdover
rent and loss of use of purchase monies.

Both parties appealed. Schiavo challenges the rul-
ings of Judge Fogel and Judge Pollak that any implied
covenant existed. Gypsum challenges Judge Pollak’s rul-
ings precluding recovery for holdover rent and loss of use
of purchase monies, his dismissal of the second action,
his refusal to award prejudgment interest, and his refusal
to disburse to Gypsum certain escrow funds held by
Schiavo.

Ill.
Existence of the Implied Covenant

Schiavo vigorously disputes the rulings of both Judge
Fogel and Judge Pollak that there existed an implied
covenant in the agreement between the parties that
Schiavo would return the property in the condition in
which it received it, reasonable wear and tear excepted.

Schiavo implicitly concedes that under Pennsylvania
law, the covenant exists unless it is, in some manner,

A6 Court of Appeals Opinion

negated. However it argues that the integration clause
in the lease did negate any implied covenants. The in-
tegration clause said in part:

It is expressly understood and agreed by and between
the parties hereto that this lease and the riders at-
tached hereto and forming a part hereof set forth all
the promises, agreements, conditions and understand-
ings between the Lessor and or its Agent and Lessee
relative to the demised premises, and that there are
no promises, agreements, conditions, or understand-
ings, either oral or written between them other than
are herein set forth.

Although there is some force to Schiavo’s contention,
we have concluded that the courts of Pennsylvania would
hold that the covenant was not negated by the integration
clause at issue. The obligation of a tenant to return the
leasehold property in the condition in which it was re-
ceived, reasonable wear and tear excepted, is fundamental
to the landlord-tenant relationship, even in a commercial
setting. A landlord is entitled to presume that the tenant
has implicitly promised not to waste the property. For
that reason, only the clearest negation of the obligation
will overcome the landlord’s lawful expectation. We
agree with Judge Fogel’s discussion of the issue (450
F.Supp. at 1304), and affirm the district court's ruling on
the point.

IV.
Breach of the Implied Covenant

Schiavo also appeals Judge Pollak’s determination
that it is liable for $96,815.00, Gypsum’s costs in clearing
the debris that was left by Schiavo’s subtenants.

Judge Fogel placed great weight on the trial evidence
showing that “upon termination of a junkyard lease, the

Court of Appeals Opinion A7

dealer rarely, if ever, cleared the property of accumulated
debris... .” 450 F.Supp. at 1306. He ruled that the
implied covenant to return the property in the condition
in which Schiavo received it, reasonable wear and tear

excepted, had not been breached:

We find . . . that USG has failed to meet its burden
of establishing that, in the context of the junk car
industry, the wear and tear to the land was excessive
or unreasonable.

450 F.Supp. at 1305.

Part of Gypsum’s timely motion for a new trial sought
reconsideration of Judge Fogel’s finding that the wear and
tear inflicted on the property was reasonable. In a
thoughtful opinion Judge Pollak ruled that he was em-
powered to reconsider Judge Fogel’s conclusion on reason-
ableness; that, in his opinion, the Pennsylvania courts
would not give controlling effect to industry custom; and
that the wear and tear inflicted by Schiavo was not
reasonable.

The parties disagree on whether the “reasonableness”
determination is a finding of fact or a conclusion of law.
Generally, where the primary facts are undisputed and
only ultimate inferences and legal consequences are in con-
tention, a question of law is presented; or, by some formu-
lations, a mixed question of fact and law subject to review
as a question of law. Ross v. Commissioner of Internal
Revenue, 129 F.2d 310, 312 (5th Cir. 1942). See also 9
Wright and Miller, Federal Practice and Procedure (2d
Ed.), § 2589, at 753; Fleer Corporation v. Topps Chewing
Gum, Inc., 658 F.2d 139, 154 (3d Cir. 1981); Shultz v.
Wheaton Glass Co., 421 F.2d 259, 267 (3d Cir. 1970),
cert. denied, 398 U.S. 905 (1970).

2. Other courts have held that, where the basic facts are not
in dispute, ultimate questions of “reasonableness” are mixed ques-

A8 Court of Appeals Opinion

In this case, only the legal consequences of Schiavo's
conduct, and not the particulars of the conduct itself, were
in issue before Judge Pollak. He was asked to decide
whether the law of landlord and tenant in Pennsylvania
would hold Schiavo liable for damages because of the un-
disputed condition of the property after the termination
of the lease. That determination is essentially a legal one.

We conclude that where a successor judge is asked by
timely and proper motion to reconsider the legal conclu-
sions of an unavailable predecessor, he or she is empowered
to reconsider those issues to the same extent that his or
her predecessor could have. Our conclusion rests on three
grounds. First, we are bound by clear precedent of this
court:

The petitioners base their claim for relief . . .
upon the rule that judges of co-ordinate jurisdiction
sitting in the same court and in the same case should
not overrule the decisions of each other . . . [citations

omitted]

[T]here may be exceptional circumstances under
which the rule is not to be applied. Such circum-
stances exist when the judge who made the original
decision is not available to consider the application

NOTE -— (Continued)

tions of fact and law, subject to plenary review on appeal. See,
e.g., Slisz v. Munzenreider Corp., 411 N.E.2d 700, 710-11 (Ind.App.
1980); Wurlitzer Co. v. Strand Enterprises, 32 N.E.2d 62, 63 (Ohio
App. 1936). The standard of review is of course different where
the issue is how a reasonable person would have acted in a like
situation — a determination that is peculiarly one for the factfinder.
TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 450 n. 12.
Compare 9 Wright and Miller, supra, § 2589 (mixed questions of
fact and law generally subject to plenary review), and Id., § 2590
(negligence finding subject to “clearly erroneous” review. )

Court of Appeals Opinion A9

to rehear and reverse his decision. If the judge who
made the decision dies or resigns from the court he
obviously is no longer available to consider it and

such consideration must perforce be by another judge
if it is to be had at all.

TCF Film Corporation v. Gourley, 240 F.2d 711, 713-14
(3d Cir. 1957) (affirming successor judge’s reversal of a
denial of leave to amend complaint). We have held the
rule to apply where a “mixed question of fact and law” is
presented; that is, where the primary facts are not in dis-
pute but ultimate inferences and legal conclusions are.
Ryans v. Blevins, 258 F.2d 945, 946 (3d Cir. 1958) (suc-
cessor judge’s reversal of his predecessor's application of
the “last clear chance” doctrine to undisputed facts ).

Second, were we to hold that Gypsum was not en-
titled to have its request considered by Judge Pollak, we
would effectively be denying it its right to move for re-
consideration—a right recognized by the Federal Rules,*
and the Local Rules of Civil Procedure of the Eastern Dis-
trict of Pennsylvania, where this case was tried.‘ A liti-
gant’s right to try to persuade a court that it has erred
should not be denied simply because of the unavoidable
unavailability of the judge who rendered the original
decision.

Third, we agree with the succinct reasoning of the
Seventh Circuit in a similar case:

Regardless of the impact of any law-of-the-case rule,
our duty is to determine whether the judgment of
Judge Miner [a successor judge] is correct. In fact

3. See Rules 52(b), 59 and 60. Cf. Rules 15(b), 16.

4. Local Rule 20(g), E.D.Pa. Two of the other district courts
in this circuit — the Districts of New Jersey and Delaware — like-
wise provide for reconsideration by Local Rule: Local Rule 12(1),
D.N.J.; Local Rule 3.3, D.Del.

Al0 Court of Appeals Opinion

we should sustain any judgment from which an ap-
peal has been takea if it is supported by the record
and the law .... Obviously we cannot be expected
to reverse a correct decision by one district judge
simply because we find that it is contrary to a prior
ruling by another district iudge in the same case . . .

. Parmelee Transportation Co. v. Keeshin, 292 F.2d 794,
797 (7th Cir. 1961). It remains for us to decide, however,
whether we agree with the legal determination of Judge
Pollak, who ruled as follows:

[T]he fact that . . . junkdealers are “in general, an
extremely difficult group with whom to deal . . . and
that upon termination of a junkyard lease, the
dealer[s] rarely, if ever, cleared the property of accu-
mulated debris”, should not, without more, immunize
them (or those responsible for them) from liability.
Such behavior was not “reasonably necessary in order
for the [junk car dealers] to use the leased property
in a manner that [was] reasonable under all the cir-
cumstances.” Restatement 2d of Property, Landlord-
Tenant, Section 12.2.

485 F.Supp. at 52.°

5. Section 12.2(1) says:
Permissible changes by the tenant — Except to the extent the
parties to a lease validly agree otherwise, the tenant is entitled
to make changes in the physical condition of the leased prop-
erty which are reasonably necessary in order for the tenant to
use the leased property in a manner that is reasonable under
all the circumstances.
We agree with Judge Pollak that, because of the absence of clear
Pennsylvania precedent on many of the points at issue, our analysis
in this diversity case is, by necessity, largely predictive. Most of
our citations to the Restatement are meant to encompass our pre-
diction that the courts of Pennsylvania would adopt the cited

principles.

Court of Appeals Opinion All

Although Judge Pollak’s interpretation of the obliga-
tions imposed on a tenant by § 12.2 is phrased somewhat
differently from Judge Fogel’s discussion of the “reason-
ableness” of the wear and tear, supra, in fact each used
virtually the same standard. Comment d to § 12.2 pro-
vides in relevant part:

No matter what use of the leased property is de-
termined to be reasonable under all the circumstances,
normal wear and tear on the leased property by that
use is not only reasonably necessary, but reasonably
to be expected by the parties, absent an agreement
otherwise. . . .

Because “normal wear and tear” is per se a part of
that which is “reasonably necessary in order for the tenant
to use the leased property in a manner that is reasonable
under all the circumstances,” the fundamental question de-
cided by both Judge Fogel and Judge Pollak was whether
the wear and tear imposed on the property was “reason-
able.” Restatement (Second) of Property, Landlord-
Tenant, § 12.2(3).

When determining what constitutes “wear and tear”
for a junkyard or landfill we write on a clean slate, since
we have not found, and no one has called to our attention,
any prior cases defining “wear and tear” in such a con-
text. Even the references to wear and tear in the Com-
ments to the Restatement include such traditional exam-
ples as the wearing down of refinished floors and the
leaving of holes caused by picture hooks — instances in
which wear and tear seems to imply some gradual wear-
ing. In this case instead of wear and tear we have a
“dump and add” phenomenon. Nevertheless, the central
issue is the same as that in more traditional wear and
tear cases, i.e., whether the condition of the property,

Al2 Court of Appeals Opinion

viewed in light of its potential for sale or re-rental, has
deteriorated so unreasonably that the tenants, rather than
the landlord, should be required to pay for its restoration.
We therefore have little difficulty in concluding that “wear
and tear” is at issue.

In this case a landlord leased a largely vacant piece
of land in January of 1966. 450 F.Supp. at 1298. A rela-
tively small part of that property was sublet to junkdealers.
The land was returned about one hundred and three
months later, sometime in the summer of 1974, with debris
“spread generally throughout the leasehold area.”* Id.
at 1301. Gypsum received ninety-six months’ rent for its
property, a total of about $191,500. Yet Gypsum was
required to pay $96,815.00 — more than half of the rent it
received during the eight years —to clean the debris
caused by Schiavo’s subtenants.’ Moreover, Gypsum was
saddled with the dual aggravations of arranging for the
clearing of the property and having to wait for that process
to be completed. We agree entirely with Judge Pollak
that the Pennsylvania courts would not require a land-

6. The area that was not free of debris in 1966 was returned in
1974 in as good or better condition than that in which it was rented.

7. Schiavo contended at trial that Gypsum realized $17,000
per year in synergistic savings by entering into the combined
leasehold/waste-hauling agreement with Schiavo. Our review of
the record indicates that Gypsum, for its own reasons, had insisted
on an arm’s length hauling rate separate from the lease. (App. at
1125). Nevertheless, even if Judge Fogel had found as a fact that
Gypsum indeed saved money from the combined leasehold/ hauling
agreement, it is clear that it would have saved but $34,000 in the
first two years and at most $34,000 between 1968 and 1972 after
its waste hauling needs had declined by sixty per cent (the landfill
operation closed in 1972). Even if those savings had been viewed
as additional rent, the total rent would have been about $259,000.
The cost of clearing the debris caused by the subtenants remains
$96,815, or almost forty per cent of the total “rent” — hardly reason-
able to ask a landlord to accept.

Court of Appeals Opinion Al3

lord to pay for the kind of behavior engaged in by the
junkdealers in this case. The leaving of massive amounts
of debris on otherwise vacant property to the significant
detriment of the landlord is, in our crowded age, unrea-
sonable wear and tear, regardless of whether the industry
involved makes a habit of it. As between Gypsum and
Schiavo it is Schiavo who must bear the cost of the
clean-up because it was Schiavo who chose to rent to the
largely judgment-proof junkdealers. Certainly, Gypsum
foresaw that Schiavo would lease to junkdealers, but that
foresight hardly solves the problem of which party to the
agreement ought to pay for the conduct that occurred.
We conclude that under the law of Pennsylvania, the wear
and tear inflicted was unreasonable, and Schiavo should
compensate Gypsum for it.

V.
Gypsum’s Requests for Rulings on Claims

It is often difficult for a trial judge hearing a case to
determine whether counsel has presented a claim with
sufficient specificity to put opposing counsel on notice to
defend it, or whether in the course of pretrial and trial
proceedings counsel has waived the claim. The problem
of ascertaining whether there was or was not a waiver of
a claim is even more difficult when a judge must decide
on a cold record what was waived or litigated before his
or her predecessor. Yet, this is the troublesome problem
that Judge Pollak was required to adjudicate — i.e.
whether “the Court [Judge Fogel] failed to rule on two of
its [the plaintiff's] damage claims,” 485 F.Supp. at 51, or
whether “the failure to enter findings with respect [to
these claims] is tantamount to findings adverse to [the
claimant}’” Id., quoting Switzer Brothers, Inc. v. Locklin,
297 F.2d 39, 46 (7th Cir. 1961).

Al4 Court of Appeals Cpinion

Judge Pollak originally concluded that “the failure
to enter findings on these two claims was oversight, and
one which Judge Fogel would have been required to cor-
rect had he still been on the bench when plaintiff's motion
was filed. As his successor, I am equally obliged to reopen
the judgment...” 485 F.Supp. at 51-2. However, upon
a motion for reconsideration filed by Schiavo Judge Pollak
reversed his ruling:

I have concluded that the presentation of these two
damage claims [holdover rent and loss of use of pur-
chase monies] at the trial before Judge Fogel did not
place them in so clear a focus as to warrant my con-
cluding that (1) the claims were actually litigated,
and (2) Judge Fogel erred in not ruling on them. It
was, therefore, inappropriate for me to re-open the
record as to these claims. I will vacate that portion
of my May 22 order.

Id. at 56.

After Judge Fogel’s findings were filed, Gypsum pre-
sented a motion and memorandum of law captioned
“Motion for a New Trial” (essentially, a Rule 59 motion)
as a part of which it sought additional findings of fact
and conclusions of law under Rule 52, Fed. R. Civ. P.°
Rule 52(a) provides in part:

In all actions tried upon the facts without a jury
or with an advisory jury, the court shall find the facts
specially and state separately its conclusions of law

8. We agree with Professor Moore that “Since the time periods
for the various motions [Rule 52(b) and Rule 59(a) and (e)] are
identical and the motions are closely related, a movant should not
be prejudiced by an erroneous rule reference, but should be granted
whatever relief his motion shows him to be entitled.” 6A Moore’s
Federal Practice { 59.04[6] (2d Ed.).

Court of Appeals Opinion Al5

thereon, and judgment shall be entered pursuant to
Rule 58;.... Requests for findings are not necessary
for purposes of review. . . .

Rule 52(b) provides in part:

Upon motion of a party made not later than 10 days
after entry of judgment the court may amend its
findings or make additional findings and may amend
the judgment accordingly. The motion may be made
with a motion for a new trial pursuant to Rule 59...

The claims on which Gypsum sought rulings in its
post-trial motion were those relating to Schiavo’s liability
for holdover rent and loss of use of purchase monies.

A.
Holdover Rent

Two years after the conclusion of a complex trial,
Judge Fogel rendered findings of fact and conclusions of
law which omitted any discussion of the issue of holdover
rent that Gypsum believed it had litigated. The Rules
recognize that judges will occasionally overlook issues,
especially in a complex case. In a jury case Rule 51 affords
counsel the opportunity during trial to call the court's
attention to claims upon which counsel believe the jury
should be charged, even after the court has given all of
the instructions that it had intended to give. In a non-
jury case, of course, counsel will not always know which
issues the court has been considering until it has rendered
its findings of fact and conclusions of law, and, normally,
a judgment. Rule 52(b) was designed to deal with
exactly the sort of problem raised by Gypsum in its post-
trial motion. It permits counsel to ask the court to correct,

Al16 Court of Appeals Opinion

on the non-jury record before it, any errors of law, mis-
takes of fact or oversights that require correction.’

Rule 59(a) complements Rule 52. When the trial
record before the court in a non-jury case is infected with
“manifest errors of law or fact,” 6A Moore’s Federal Prac-
tice $59.07 (2d Ed.) (and cases cited), the court may
order a new trial on some or all of the issues in the case.
A new trial is sometimes the only effective way to cure
the prejudice resulting from errors or oversight, and if
that is the case a new trial must be ordered. Very often,
however, corrections can be made without reopening the
trial record.

Where a new trial is not ordered, the trial record must
support whatever additional findings of fact or conclusions
of law a party seeks under Rule 52(b) or it is certainly not
entitled to them. That entitlement also depends, as Judge
Pollak recognized, on what the trial court required the
moving party to prove. See Rule 16, Fed. R. Civ. P.

9. Although Rule 52(b) does not explicitly refer to reconsider-
ation of conclusions of law, it is clear that the district court has the
power under Rule 52(b) and 59(e), read together, to alter or add
to its conclusions of law where appropriate. See 5A Moore’s Fed-
eral Practice { 52.11[2] (2d. Ed.). Cf. Parmelee Transportation
Co. v. Keeshin, supra, 292 F.2d at 797. Factual determinations are
correctable under Rule 52(b) if the district judge who heard the
evidence believes that they are necessary, and capable of being
made without the grant of a new trial. We hold in this case that a
successor judge is generally empowered to decide a reconsideration
motion in the same way his or her predecessor could have. How-
ever, like the court in Ryans v. Blevins, supra, 258 F.2d at 945, we
do not address whether a successor judge is, under any circum-
stances, empowered by Rule 52 to add to or alter the factual deter-
minations of the predecessor judge who heard the trial evidence.
That situation very likely presents an exception to our holding that
the successor jvdge steps completely into his or her predecessor's
shoes in deciding a Rule 52 motion.

Court of Appeals Opinion Al7

This case therefore compels us to examine, in some
detail, exactly the situation Gypsum faced at the begin-
ning of trial. Judge Fogel bifurcated the trial into liability
and damages phases." Indeed, that was Judge Fogel’s
practice in virtually every civil case on his calendar, as
reflected in his standing pretrial order. (App. at 32).
Gypsum alleged in its complaint that “As a result of de-
fendant’s breach of its covenants to surrender complete
possession of the premises to the plaintiff on the date of
termination, January 1, 1974, plaintiff has suffered dam-
ages in the amount. the rental value of the property
from the date of termi tion to the date Swann was ready,
willing and able to proceed to settlement under the agree-
ment of sale of the leasehold property, but for the pres-
ence of the debris.” (Complaint $23). Gypsum in-

10. Bifurcation of liability and damages is permitted by Rule
42(b), Fed. R. Civ. P.

The court, in furtherance of convenience or to avoid prejudice,
or when separate trials will be conducive to expedition and
economy, may order a trial of any . . . separate issue...”

11. The phrase “but for the presence of the debris” refers only
to Swann’s unwillingness to purchase the property before it was
cleared of debris. That stipulation was part of Swann’s contract of
sale with Gypsum. The date Swann was “ready, willing and able
to proceed to settlement . . . but for the presence of the debris” was
approximately June 1, 1974, more than three months before the
debris was cleared. We do not construe the phrase “but for the
presence of the debris” in this paragraph to be intended to amplify
the allegation that Schiavo failed to “surrender complete possession
of the property,” (although it is possible that the debris itself was
sufficient to deprive Gypsum of possession of certain parts of the
property at the time.) Rather, the paragraph as a whole refers to
the period of time between January and June in which (1) some
of Schiavo’s subtenants were still in possession of parts of the prop-
erty and holdover rent was the only remedy at issue, and (2) at
the end of which (approximately June 1) loss of use of purchase
monies first became a conceivable element of damages (i.e., Swann

A18 Court of Appeals Opinion

cluded, in its pretrial Proposed Findings of Facts, a finding
that “Schiavo notwithstanding that it terminated the lease
with Gypsum, did not vacate the leasehold property as of
January 1, 1974.” Gypsum listed as “Contested Issues” in
the joint pretrial order “Whether Schiavo is liable to
United States Gypsum for damages... . (b) for rent from
February 1, 1974 to September 26, 1974, at $1,667.67 per
month [and] (c) For the loss of the use of $1,282,895
from June 1, 1974 to September 26, 1974.”

Gypsum proved that the lease existed, that Schiavo
terminated it, and that the termination was effective as
of January 1, 1974, or at the latest, February 1, 1974. 450
F.Supp. at 1299; Exh. P. 58. Gypsum also proved that
“only one of the dealers vacated his lot [as of December
31, 1973]”, 450 F.Supp. at 1300; that the “other dealers
formed an association to fight eviction,” Id.; and that
“[d]uring the course of the summer of 1974, the junk car
dealers gradually vacated the premises,” Id.

Unfortunately, one lawyer’s liability issue is another
lawyer's damages issue. For example, a claim for five
months of holdover rent can be viewed in at least two
ways. There can be liability for some holdover rent, with
the length of the holdover being a damages issue; or there
can be liability for five different months of holdover
tenancy, with a later damages determination involving,
in a simple case, only a multiplication of a monthly num-
ber by five.

In discussing bifurcation of liability and damages
under Rule 42(b) in a slightly different context (an anti-
trust case in which proof of injury was an element of lia-
bility) the Fifth Circuit observed:

NOTE — (Continued)

was ready to settle but for the presence of the debris). In short,
{ 23 is a “holdover tenants” paragraph and not a “holdover debris”
paragraph. See 485 F.Supp. at 56.

Court of Appeals Opinion Al9

The use oi this trial procedure [bifurcation of liability
and damages] must be grounded upon a clear under-
standing between the court and counsel of the issue
or issues involved in each phase and what proof will
be required to pass from one phase to the next.

Response of Carolina, Inc. v. Leasco Response, Inc., 537
F.2d 1307, 1324 (5th Cir. 1976).

In this case, Judge Fogel made it clear at the final
pretrial conference that liability and damages issues would
be strictly separate:

Mr. Ex.uiotr [counsel for Schiavo]: This is a
bifurcated trial. I think damages are inappropriate.
I haven't put any facts in as to the damages because
of the standing pretrial order which says—

Tue Court: I think that’s right. That is correct
because I said I want to bifurcate as to liability first.

Mr. Baytson [counsel for Gypsum]: Does that
mean I don’t have to be prepared for damages?

Tue Court: No, because what I will do is when
the testimony is completed, obviously, I think in a
case of this importance to both sides you would prob-
ably want the transcript with a right to submit any
supplemental data you may want as to what develops.

Mr. Baytson: Okay.

Tue Court: Therefore, you don’t have to go to
the expense or trouble of putting on any damage
witnesses.

Mr. Bay.son: Fine.

Unfortunately, Judge Fogel did not clarify with coun-
sel where the dividing line between liability and damages
was to be.

A20 Court of Appeals Opinion

The touchstone, in reviewing bifurcated proceedings,
is whether the party bearing the burden of proof was
unfairly prejudiced by the procedures employed. Rule
42(b) permits bifurcation to “avoid prejudice,” not to
create it.

Judge Fogel’s standing pretrial order, the joint pre-
trial order and the transcript of the pretrial conference do
not reflect the clear separation of issues into liability and
damages, nor the “clear understanding [of] . . . what proof
will be required to pass from one phase to the next”
( Response of Carolina, Inc., 537 F.2d at 1324), that would
have been necessary before Gypsum could be charged
with having waived certain points by not having litigated
them aggressively enough in the liability phase.”

Counsel for Gypsum could reasonably have concluded
that his obligations during the liability phase were to
plead the holdover tenancy,” to offer to prove a failure
to surrender possession, and to prove that Schiavo failed
to surrender possession of some part of the premises for
some period of time after the termination of the lease.
Gypsum, in fact, met each of those requirements. Calcu-
lations of the time of the holdover and the acreage unlaw-
fully possessed are reasonably susceptible of being called
questions of damages.

12. Generally, pretrial orders under Rule 16 are to be liberally
construed to embrace all legal and factual theories inherent in the
issues defined therein. Century Refining Co. v. Hall, 316 F.2d 15,
19-20 (10th Cir. 1963); Peter Pan Seafoods, Inc. v. United States,
272 F.Supp. 888, 891 (W.D.Wash. 1967) rev'd on other grounds,
417 F.2d 670 (9th Cir. 1969). Gypsum was simply not accorded
that latitude in this case.

13. Of course, the plaintiff need only plead his claim. The
magic legal words “holdover tenancy” were certainly not necessary
where the plaintiff so clearly put Schiavo’s failure to surrender
possession in issue. See Rule 8(f), Fed. R. Civ. P.

Court of Appeals Opinion A21

Certainly, Judge Fogel could have required more ex-
tensive proof of “liability” for holdover tenancy, for exam-
ple, proof of the number of months the sub-tenants were
in possession. Nevertheless, he did not, and it would be
unfair to penalize Gypsum for not having done what it
was never required to do.

A holdover tenant is one who unjustifiably refuses to
surrender possession of a leasehold premises at the end
of the term of the lease. See n. 1, supra.; Restatement
(Second ) of Property, Landlord and Tenant, § 14.1. The
landlord may sue such a holdover for possession and to
recover whatever damages it suffered as a result of the
tenant’s actions. Taylor v. Kaufhold, 368 Pa. 538, 544,
84 A.2d 347, 350 (1951). Schiavo chose, as a tenant, to
sublet the property to subtenants, and their presence after
January 1, 1974 is imputable to Schiavo. Id. Certainly
it appears that Schiavo wrongfully denied Gypsum pos-
session of some part of the leasehold property for some pe-
riod of time after the termination of the lease.

We conclude, therefore, that Judge Pollak could have
entered a conclusion of law on Schiavo’s liability vel non
for holdover rent; that is, there is a sufficient record upon
which to base such a determination. It would be inap-
propriate, however, for us to make that determination, be-
cause we have not been briefed as to what legal defenses
Schiavo may have had, given Judge Fogel’s findings of
fact aud other facts not in dispute."* Moreover, Rule
52(a) reposes in the district court the responsibility for
entering initial rulings on each issue raised at trial. We
will therefore remand the case to the district court for an
examination of record of the trial before Judge Fogel, a
conclusion of law as to liability for holdover rent, and, if
necessary, further proceedings on damages for the hold-
over.

14. Judge Pollak, in fact, alluded to some possible defenses in
his original opinion. 485 F.Supp. at 51.

A22 Court of Appeals Opinion

Loss of Use of Purchase Monies

Much of our discussion of the holdover rent issue
applies to Gypsum’s claim for loss of use of purchase
monies. Judge Fogel did not reach the issue, and Judge
Pollak ruled that Gypsum had waived it. Judge Fogel
had found that

. USG had arranged for the sale of the leasehold
property to Swann Oil Company (Swann), as part
of the agreement of sale, dated January 18, 1974; clos-
ing was.made conditional upon all debris being re-
moved from the land. It was thus vital to USG’s
interests that the property be cleaned.

meen the period when the dealers were vacat-
ing the premises, Schiavo denied that it was its re-
sponsibility to remove the debris left by the dealers,
or the debris accumulated through fugitive dumping.
As a result, in order to guarantee that the sale of the
property to Swann would go through, USG was forced
to hire a private contractor, George Hunter, to clear
the debris. Hunter performed this work at a total
cost of $144,500; the closing on the sale of the prop-
tery to Swann was held on September 30, 1974.

450 F.Supp. at 1300.

Gypsum introduced evidence that the agreed pur-
chase price was $1,282,895, and that representatives of
Swann refused to proceed to settlement until the debris
had been cleared, as was its right under the contract of
sale. (App. at 849).

Moreover, Gypsum had raised the issue in its com-
plaint, in its pretrial Proposed Findings of Fact and in its
pretrial “Statement of Contested Issues”:

Court of Appeals Opinion A23

[Complaint, {] 24. By failing to remove the debris as
of the date of termination of the Lease, defendant
has breached its duty to surrender the premises in
substantially the same condition that it was in at the
time defendant took possession, reasonable wear
and tear excepted. As a result of such breach, plain-

tiff has sustained damages in the amount of:

(b) the loss of the use of the purchase monies
under the agreement of sale with Swann
from June 1, 1974, the date on which Swann
was ready to settle but for the presence of
the debris and scrap, to September 26, 1974,
when plaintiff conveyed the leasehold prop-
erty to Swann and received the purchase
monies.

[Proposed Finding of Fact] 58. As of June 1, 1974
Swann Oil Co. was ready, willing and able to proceed
to closing on the Agreement of Sale dated January
18, 1974, but for the debris on the leasehold property
which had not been removed.

61. USG, in order to complete the sale . . . to Swann
Oil, was forced to undertake . . . the clearing of the
leasehold property. ... The sale of the leasehold
— took place on . September 26, 1974.

nearer Issue] 5. Whether Schiavo is liable to
United States Gypsum for damages.

(c) For the loss of the use of $1,282,895 from
June 1, 1974 to September 26, 1974.”

A24 Court of Appeals Opinion

Gypsum therefore did not in any sense waive the is-
sue during the liability phase.

In any event, we think the issue should be treated in
the way it was raised by Gypsum — as a damage issue.
Loss-of-use is very arguably an element of the damages
proximately caused by Schiavo’s breach of the implied
covenant, that is, its failure to clear the debris. Gypsum’s
complaint ({ 24(b), supra.) alleged exactly that.” Coun-
sel for Gypsum could justifiably have assumed that the
Swann Oil sale was purely a question of damages for
breach of the implied covenant as to which he had no
obligation to present evidence during the liability trial. It
is perfectly clear that that was counsel’s understanding,
since, in the pretrial order, he had offered testimony as
to the “cost of delay [in clearing the debris] to United
States Gypsum in loss of use of funds from June 1, 1974
to September 26, 1974” under the caption “Plaintiff's
Witnesses-Damages.” In fact, Judge Fogel at one point
indicated that the issue was one of damages while a wit-
ness from Swann Oil was testifying. (App. at 848-9).

15. Gypsum also cites § 14.6 of the Restatement (Second) of
Property, supra, which reads as follows:
Liability of Holdover Tenant for Special Damages — Except _
to the extent the parties to a lease validly agree otherwise, if
no election is made under the rule of § 14.4, the landlord, or
incoming tenant, is entitled to recover from a tenant improp-
erly holding over after the termination of his lease for the
special damages caused by the holdover which the tenant could
reasonably have foreseen at the time of his holding over would
result from his conduct, and which the injured party could not
reasonably have avoided, unless equitable considerations justify
relieving the tenant of some or all of these damages.
Loss-of-use may be an element of damages not only for breach of
the covenant but for the holdover tenancy (i.e., if Swann would
have refused to settle for part of the summer because of the sub-
tenants), a question which the district court may wish to consider
on remand if liability for the holdover is established.

Court of Appeals Opinion A25

Equally important is that Judge Fogel might well
have entered a finding on loss-of-use if it had been ger-
mane to his holding on the lease-related issues. As it was,
his finding that the implied covenant was not breached
eliminated any reason for him to consider whether there
was “liability” for various damages resulting from the
breach. After Judge Pollak reversed Judge Fogel’s liabil-
ity finding, he was obliged to consider Gypsum’s timely
raised claim for loss-of-use damages. We will therefore
remand the loss-of-use issue to be considered in the first
instance by the district court.’*

16. As our discussion indicates one of our disagreements with
Judge Pollak is our view that the claims for holdover rent and
loss-of-use are distinct, and in fact flow from two different alleged
acts of the defendant — the tuilure to surrender possession and the
breach of the implied covenant, respectively. (But see n. (15)
supra.) Judge Pollak viewed them as unitary. 485 F.Supp. at 51.
Nevertheless, our discussion of the nature of the claims is not in-
tended to be a commentary on their merits. For example, signifi-
cant issues remain with respect to the loss-of-use claim. Even if
the presence of the debris was the cause of Swann’s refusal to
settle — an issue which the district court will decide on remand —
there remains the question of whether Schiavo should be required
to pay for the harm resulting to Gypsum. Normally, “where the
breach [of contract] by the defendant has prevented the use and
operation of property by the plaintiff from which use profits would
probably have been made, the damages to be recovered may be
measured by [rental waluej . . . or by interest on the reasonable
value of the property as an investment.” 5 Corbin on Contracts
§ 1029, at 177 (footnotes omitted). Interestingly, however, the Re-
statement (Second) of Property, § 12.2(2) —the subsection deal-
ing with remedies for breach of the implied covenant at issue —
omits any mention of the recoverability of “special” damages for
breach of the covenant. See, especially, Comment i. Compare Id.
§ 14.6 (special damages recoverable for holdover tenancy). The
district court must decide on remand whether the courts of Penn-
sylvania would permit recovery of loss-of-use damages on whatever
facts it finds.

A26 Court of Appeals Opinion

VI.

Other Issues

Judge Pollak dismissed a second complaint which was
filed by Gypsum after he had refused to consider holdover
rent and loss-of-use in the main action. The new com-
plaint simply renewed those two claims. Judge Pollak
ruled, in accordance with his earlier ruling, that the issues
were res judicata and could not be raised in a second com-
plaint, because they “should have been fully litigated” in
the first action, citing, Bearoff v. Bearoff Bros., Inc., 458
Pa. 494, 498, 327 A.2d 72, 74 (1974). One of the require-
ments for concluding that a matter is res judicata is, of
course, that there be an extant final judgment from an
earlier action on the matters at issue, which is unreversed
on appeal. Bearoff, 458 Pa. at 498, 327 A.2d at 74-75.
With our decision, that is no longer the case as to the first
action. We will therefore vacate Judge Pollak’s ruling and
remand the second case to the district court so that it can
decide whether to consider it or dismiss it anew on a basis
other than res judicata.

We have considered Gypsum’s arguments anent the
district court's denial of prejudgment interest and its re-
fusal to order the disbursement to Gypsum of certain
escrow funds and find them to be without merit.

Conclusion

We will affirm the district court’s judgment in part
and reverse it in part, and we will remand both cases for
further proceedings, consistent with this opinion, on the
plaintiff's claims for holdover rent and loss of use of pur-
chase monies.”

17. This case has now occasioned hundreds of pages of brief-
ing and at least six different fairly lengthy written opinions in two
different courts. Something about this saga of landlord and tenant
seems to have caused the tiny segment of the legal community
that has dealt with it — both lawyers and judges — to discuss it at
extraordinary length. It is time, however, to bring this litigation to
a close, and we urge the parties that in view of this opinion they
first explore a prompt negotiated resolution of their remaining
differences before this protracted litigation is continued.

A28 District Court Opinion

IN THE
UNITED STATES DISTRICT COURT
For THE EASTERN DisTRICT OF PENNSYLVANIA

Crvit Action No. 74-3165

UNITED STATES GYPSUM CO.
vo.

SCHIAVO BROTHERS, INC.

OPINION AND ORDER

[Entered May 18, 1978]
Foce., J.
I. IntRopuctrory STATEMENT:

Good name in man and woman, dear my Lord,
Is the immediate jewel of their souls;

Who steals my purse steals trash; ‘tis
something, nothing:

"Twas mine, ‘tis his, and has been slave to
thousands;

But he that filches from me my good name
Robs me of that which not enriches him
And makes me poor indeed.’

(Emphasis supplied. )

The subject of this lawsuit concerns no one’s good
name; it does concern trash. While the actors in this saga

1. Othello, William Shakespeare (1964) — speech of Iago Act
III, Scene III — Lines 155-161 — Edition of 1936, edited by George

Lyman Kittredge.

District Court Opinion A29

do not quite reach the dramatic heights of an Othello or
an Iago, the bitterness generated by this dispute between
landlord and tenant with respect to the responsibility for
cleaning up industrial land has produced quite a scenario
(and has also provided us with more than one sideshow ).
It is the consequence of a long standing business relation-
ship gone sour.

Plaintiff, United States Gypsum Company (USG),
was the Icssor of a tract of land in Southwest Philadelphia
under a lease agreement which began in 1966 and ended
in 1974. USG seeks to recover from the lessee under that
lease, Schiavo Brothers, Inc. (Schiavo), costs incurred by
USG in clearing a large amount of trash and debris left
on the land by Schiavo at the termination of the lease.
The cause of this accumulation of debris was the use to
which the property was put; Schiavo, pursuant to the
terms of the lease, sublet a substantial portion of the lease-
hold premises to junk car dealers. When these dealers
vacated the property in 1974, they neglected to take with
them a substantial amount of the remains of their opera-
tions, specifically tires and car seats. Additionally, the
property accumulated, during the course of the lease, a
large amount of debris which was the result of illegal
dumping by third persons.

When the lease was terminated and Schiavo sur-
rendered the land to USG, Schiavo denied any duty to
clear the debris from the land. It based its position on
the terms of the 1966 lease, which made no provision for
the cleanup of the property at termination; Schiavo con-
tends that such a duty cannot be implied.

Plaintiff contends that Schiavo is in breach both of its
express duty to surrender peaceably the property, and
its implied duty, as lessee, to return the property in sub-
stantially the same condition which existed at the incep-
tion of the lease, reasonable wear and tear excepted.

A30 District Court Opinion

Schiavo also filed a counterclaim against USG, pursu-
ant to Fed.R.Civ.P. 13; this counterclaim arises from an-
other lease between USG as lessor and Schiavo as lessee.
This lease was signed in 1970, and concerned a tract of
land adjacent to the property which was the subject of the
1966 lease between the parties. Schiavo alleges that USG
fraudulently misled Schiavo with respect to the duration of
this lease; it contends that it expended a large sum of
revenue in the purchase of new equipment, and in im-
proving a road leading to the property in reliance on USG’s
misrepresentation; Schiavo claims USG then wrongfully
terminated the lease, causing damage to it.

The trial, which was non-jury, took ten days, eight of
which were devoted to trial of the main claim. Following
the trial, the parties submitted extensive briefs and re-
quests for findings of fact and conclusions of law. Thor-
ough oral argument was heard. We are now prepared
to issue our Findings of Fact and Conclusions of Law,
pursuant to Fed.R.Civ.P. 52(a).

With respect to the main claim, we find that plain-
tiff has failed to prove, by a preponderance of the evi-
dence, that Schiavo is in breach of either an express cove-
nant to peaceably surrender the property, or an implied
covenant to return the land in substantially the same con-
dition as existed at the inception of the lease, (reasonable
wear and tear excepted). With respect to the counter-
claim, we find that Schiavo has also failed to meet its

burden of proof.
II. Frvpincs or Fact — Main Ciaim:

We will present our findings of fact, made pursuant
to Fed.R.Civ.P. 52(a), in narrative form:

A. Introduction:

USG is a corporation engaged in the manufacture of
gypsum building products; it is incorporated in Delaware,

District Court Opinion A31

and its principal place of business is in Chicago, Illinois.
Schiavo is in the business of waste disposal; its state of
incorporation is Pennsylvania, wad its principal place of
business is located in Philadelphia. In January, 1966, the
parties entered into a leasehold agreement for a tract of
land located in Southwest Philadelphia which was owned
by USG ’; it is that lease which is the center of the dispute
before us.

The leasehold property consisted of approximately 26
acres of territory, divided into two areas: Area A comprised
slightly more than 23 of these acres, while Area B ac-
counted for the remaining two-plus acres.’ This property
is adjacent to Essington Avenue, and covers both sides of
67th Street in Philadelphia, an industrial area in Southwest
Philadelphia which is near the Philadelphia International
Airport and consists of much undeveloped land.

B. Pre-1966 Background:

The primary benefit which USG derived, over the
years, from its ownership of the leasehold property, was
the disposal of the company’s waste through the operation
of a landfill on the property. USG has a manufacturing
plant located in Philadelphia, which produces a great
amount of waste material that must be eliminated; USG’s
ownership of the leasehold property provided the neces-
sary means for this disposal. Prior to 1959, the property
was entirely below grade, and was, therefore, suitable for
a landfill operation. In summary form, this operation con-
sists of dumping successive layers of waste in trenches dug
on the land, and covering each layer with a layer of dirt;

2. The lease agreement was dated January 1, 1966.

3. Trial Exhibit P-1, which was admitted into evidence, is a
survey of a portion of the City of Philadelphia, including the lease-
hold property. The parties have stipulated to the accuracy of
this document.

A32 District Court Opinion

this procedure is continued until the land is brought up
to grade. In this fashion, a properly operated landfill can
last for many years.

USG began to use the leasehold property for waste
disposal approximately in 1959; USG leased Area B to a
Mr. Archer, a waste hauler, who was to conduct a landfill
operation on the property, using primarily USG waste ma-
terial to bring the land up to grade; it took approximately
one year to accomplish this. At that time, in 1960, Area
B was leased by USG to a Mr. Spence and a Mr. Mont-
gomery for the purpose of operating an automobile junk
dealership on the property.

In the meantime, while Area B was being brought up
to grade, USG also began to have its waste dumped on
another part of the leasehold property; it leased a small
section of Area A, which has been designated as Area F
(this section has roughly the shape of a finger), to a Mr.
Neely; Area F covers approximately 718 feet along Essing-
ton Avenue, to a depth of about 100 feet. Mr. Neely
agreed to conduct a landfill on Area F, again using pri-
marily waste material of the lessor, USG. When Area F
was brought up to grade (within about a year), Neely
began to operate a used truck business on the property, a
use specifically permitted under the terms of his lease with
USG.

In 1961, Neely had a heart attack, and he assigned his
rights and obligations under the lease for Area F to Joseph
Adiletto, who continued to conduct a used truck business
on the land. Soon, however, Adiletto went beyond the
uses permitted under the lease, and not only began to
deal in automobile scrap himself, but also to sublet a part
of Area F to two automobile junk dealers. When USG
became aware of Adiletto’s activities, it did not order re-
moval of the junk car dealer operation, (Spence and Mont-
gomery were already operating a junk car dealership on

District Court Opinion A33

Area B), but increased the rental which Adiletto was to
pay under the lease. Thus, the junk car dealers continued
to occupy Area F.

By 1963, however, USG had become very unhappy
with the manner in which Adiletto supervised the junk car
dealers. The junk cars had expanded beyond the bounda-
ries of Area F, and were constantly sprawling onto Es-
sington Avenue, a public thoroughfare. In addition, the
property was generally in an unkempt condition, with
junk scrap and debris spread throughout the area; this
generally poor maintenance of the property had prompted
frequent complaints from the City of Philadelphia. For
these reasons, USG cancelled the lease with Adiletto in
1963.

Throughout this period, defendant Schiavo had been
carrying on a waste haulage and landfill operation on a
parcel of land which it owned, and which was adjacent to
the USG property. The real estate business relationship
between plaintiff and defendant began in 1963 after USG
had terminated the Adiletto lease. Area F was then leased
to Schiavo by USG;* USG believed that Schiavo would
exercise more aggressive, and therefore, more effective
supervision over the junk car dealers, and thus not only
keep them within the confines of their areas, but also
police them so that junk cars would not be placed on Es-
sington Avenue.

The natural expansion of junk car dealers beyond their
boundaries seems, however, to be an inevitable occurrence,
and the junk car sublessees gradually began to encroach
on Area A, beyond Area F. Rather than force the dealers
back onto their property, seemingly a fanciful idea at
best, USG agreed to lease to Schiavo a further part of
Area A (beyond Area F), encompassing in part the land
onto which junk dealers had expanded. This area, the

4. The date of this lease agreement was January 18, 1963.

A34 District Court Opinion

subject of a second 1963 lease,” covered approximately 200
feet along Essington Avenue, to a depth of approximately
100 feet. Thus, after the signing of the second lease
agreement, Schiavo had under lease from USG a section
of Area A (encompassing Area F), extending a little more
than 900 feet along Essingtor Avenue, to a depth of about
100 feet.

After the unhappy experience with Adiletto, USG had
been somewhat wary of continuing to allow junk car deal-
ers on the property; USG leased to Schiavo hoping that
defendant would keep the property in better condition.
While there is conflicting evidence on the extent to which
this was accomplished, it is at least clear that Schiavo
maintained the land in better condition than had Adiletto.
Nevertheless, the junk car dealers were an extremely dif-
ficult group to control; Michael Schiavo, who was the
president of Schiavo Brothers, Inc. from 1962 to 1968,
would periodically instruct the junk car dealers to clean up
their properties if the land had become too messy, and he
would demand that they keep their goods within their
particular boundaries. It was, however, a constant
struggle.

Whatever the degree of success of Schiavo at the su-
pervision of the subtenants, the evidence establishes that
the City of Philadelphia did not want the junk car dealers
on the land. The junk car operations produced recurrent
fire calls which had to be answered by the City; they
also produced several air pollution violations, the result
of open burning on the land. Thus, in February, 1965, the
City recommended to USG that the Schiavo lease be ex-
tended only on condition that the junk car dealers be re-
moved from the land, and that a lease term be added which
would specifically forbid the lessee from subletting to junk
car dealers.

5. This second 1963 lease was dated August 15, 1963.

District Court Opinion A35

USG, however, was advised by C.J. Mitchell Co.,
Inc. (Mitchell), its real estate agent with respect to the
leasehold property, that Schiavo was making “a real ef-
fort to compel his tenants to operate according to the terms
of the lease agreement.” (Trial Exhibit D-94.) Mitchell
counselled USG to oppose the City’s attempts to eliminate
the junk car dealers, this advice was followed by USG,
culminating in the lease of January 1, 1966, which is now
before us for interpretation.*

C. The 1966 Lease:

Before introducing the terms of the 1966 lease, it is
necessary to summarize the basic nature of the business
relationship between USG and Schiavo. We have noted
that Schiavo, in leasing Area F and another part of Area
A, acted as master tenant in trying to control the junk
car sublessees. It is important to recognize, however, that
this was merely a sideline operation for Schiavo; its main
business was waste haulage. Because of USG’s need to
dispose of its waste, and Schiavo’s obvious interest in gen-
erating revenue through the hauling of waste, the parties
were able to maintain a healthy, symbiotic relationship.
As we have noted, the leasehold property, owned by USG,
was suited for a landfill operation because it was below
grade; however, USG needed a dumping permit to be able
to dispose of its waste on the property; Schiavo had such a
permit. Similarly, Schiavo needed a landfill area into which
it could dispose of the waste it hauled; it could not, how-
ever, run a landfill operation without a City permit; USG
possessed this permit. In addition, USG desired to have
the land brought up to grade, since this would increase
its value; it was also to USG’s benefit to have a tenant oc-
cupying the property, because vacant land would be

6. The 1966 lease was admitted as Trial Exhibit P-15.

A36 District Court Opinion

highly susceptible to the illegal dumping of waste by out-
siders (a phenomenon known as “fugitive dumping” or
“short dumping”). So our Othello and Iago did indeed
start off well.

In recognition of their mutual needs, USG and Shi-
avo, in January, 1966, entered into two separate con-
tracts: a waste haulage agreement and a lease; it is only
the latter document with which we are concerned in the
matter before us. We note that this lease cannot be
characterized in any sense as an adhesion contract: both
parties were represented by counsel in the negotiation of its
terms.

The leasehold property encompassed all of Areas A
and B (including, of course, Area F, the subject of the
first 1963 lease, and the other portion of Area A which had
been the subject of the second 1963 lease). The 1966
lease superseded and terminated both 1963 leases between
the parties.’ USG terminated its lease with Spence and
Montgomery which covered this property. Spence and
Montgomery had, since the inception of its tenancy in
1960, been using the property for the operation of a junk
car dealership, similar to the use to which Schiavo’s sub-
tenants had put Area F and the other portion of Area A.
The remainder of the leasehold area, on Area A, was still
below grade and suitable for landfilling. Thus, while the
1966 lease was designed primarily to memorialize Schiavo’s
future operation of a landfill on the property, the lease
nevertheless encompassed, in part, areas which had al-
ready been brought up to grade, and which were being
used as junkyard sites. The lease specifically provided for
the further expansion of these junkyards as the land was

7. Due to an apparent typographical error in the 1966 lease,
the two 1963 leases were not specifically cancelled. (See Trial
Exhibit P-15, 23). The parties have stipulated, however, that
both 1963 leases between the parties were cancelled by the 1966
lease. (Joint Request for Finding of Fact #13(a)).

District Court Opinion A37

gradually brought up to grade; paragraph 20 of the lease
states, in relevant part:

20. Subject to the written approval of Lessor’s Works
Manager, Philadelphia Plant, which shall not be un-
reasonably withheld, Lessee reserves the right and
privilege to sublet that portion of the subject premises
already filled to grade level and of no use to Lessee
in conducting a landfill operation, provided that sub-
letting shall be only to so called “Automobile Wreck-
ing Yards.

When Schiavo took over the tenancy of Area B under
the 1966 lease, this property was not vacant; to the con-
trary, Spence and Montgomery had left a substantial
amount of debris on the property upon vacating it. Thus,
in order to prepare the land for the further subleasing to
junk car dealers, Schiavo was forced to expand the sum
of at least $2,500.00. Schiavo initially attempted to re-
cover this amount from USG, but USG directed Schiavo
to pursue Spence and Montgomery under the terms of the
1966 lease, under which USG had assigned to Schiavo all
rights to rent under the lease between USG and Spence
and Montgomery. Since this assignment covered only
rental rights, however, Schiavo could not force Spence
and Montgomery to pay for the cleanup of the property.°

8. Schiavo contends that the total cost of this operation was
$4,391.70. The evidence, however, does not sufficiently establish
the accuracy of this amount. Trial Exhibit P-19, which is a docu-
ment relating to the debris left on the Spence and Montgomery

property, states that the cost to Schiavo was $2,500.00; at the
bottom of this document there are several cryptic numerical
amounts, one of which is 4391.70. We cannot decipher the mean-
ing of this number; we, therefore, find that the cost was at least
$2,500.00.

9. The Spence and Montgomery lease actually did not termi-
nate until May 11, 1966, at which time Schiavo gained full control
over Area B.

A38 District Court Opinion

After negotiations between plaintiff and defendant, USG
agreed to pay Schiavo a $1,400 rental credit for the
cleanup of Area B. Since we find that Schiavo paid at
least $2,500 to have the land cleared, defendant was not
wholly compensated for the expense of removing the
debris. .
With the exception of those areas which were
sites of junkyards, the leaschold property was, in January,
1966, generally clear of debris, with the exception of some
waste which was the result of fugitive dumping on the
property.” During the term of the lease (which was a
year-to-year lease, to be automatically continued unless
terminated by either party), the land was developed as
contemplated by the parties." Schiavo, through the op-
eration of the landfill, gradually brought the land up to
grade; as a portion of Area A was raised to grade leyel,
it would be sublet to an automobile junk car dealer. In
the meantime, junk car dealers continued to operate on

10. The evidence produced at trial established that the only
effective means of preventing fugitive dumping was, in fact, to
erect a chain link fence which would prevent outsiders from even
entering onto the property. Fugitive dumping occurred during the
entire course of the period from 1959 to 1974. The evidence
showed, in fact, that fugitive dumping is virtually a custom with
respect to vacant land, or land on which a landfill operation is in
progress. As one witness eloquently put it:

Nothing will stop anybody from dumping, as I said before.
If you are going to dump, you are going to dump. There's
nothing in the world to stop them. (Trial at 1.227.)

1l. There was one modification to the lease. In 1968, the
parties negotiated a rent reduction for the property. This reduc-
tion was based upon the facts that USG’s waste removal require-
ments had declined, only a small percentage of the leasehold
property was actually being used as a landfill, and the junkyards
were not producing as much income as had been anticipated.

District Court Opinion A39

Areas F and B, and that portion of Area A which had
housed these dealers before 1966. Needless to say, as
the number of junk car dealers on the leasehold property
increased, the number of junk cars on the property likewise
increased. The general nature and upkeep of these junk-
yards was, however, gradually improved as the years
progressed, for the reason that the junk car industry was
generally improving its image; in addition, the City began
to put greater pressure on the dealers to keep their prop-
erties clean.”

There was also evidence that Michael Schiavo made
periodic efforts to keep the junk car dealers in line, and
to force them to keep their properties clean. Along with
his verbal attempts to control his subtenants, Schiavo also
required each dealer, as part of the terms of his lease, to
pay a security deposit to cover the cost of any rent de-
ficiency, as well as the cost of any necessary cleanup at
the termination of the dealer’s lease."* Generally, if this
escrow money was forfeited, it was for failure to pay rent,

12. One junk dealer succinctly stated the reason for the gradual
change in image:

It was going from an eyesore to where nobody wanted a junk
car to where they realized they needed them. If you make it
attractive and neat, you know, then you get more money for
your merchandise, for one thing, and it's more desirable, a
more desirable place to go. People is getting away from the
dirty old image. (Trial at 1.41.)

13. During the period from 1966-69, the amount of this security
deposit varied from $300-$500. In 1969, the amount was raised to
$1,000.

In each of its subleases with the junk car dealers, Schiavo in-
serted a general cleanup clause, which stated:

4b4. The lessee agrees to keep the area clean, with no piling

up of unnecessary old cushions, debris, etc., and clean off the

lot upon vacating it. If the lessor must clean the lot the lessee
will be charged.

A40 District Court Opinion

although there was at least one instance in which it was
forfeited for failure to clean up the property. Michael
Schiavo also testified that if a sublease was terminated, and
the dealer left debris on the property, Schiavo would bear
the expense of cleanup; the purpose of the cleanup was
primarily economic: Schiavo could not sublet a piece of
land which was strewn with debris. Michael Schiavo
testified that if another tenant was not coming onto prop-
erty which a dealer had vacated, he would not clean up
the property, and we accept this testimony.

In 1972, the landfill operation on the leasehold prop-
erty was completed, and Schiavo continued its operations
on the land only in its status as master tenant for the junk
car dealers. After 1972, the number of dealers continued
to increase, and the number of junk cars thus continued to
multiply. In addition, the amount of debris left by
fugitive dumpers increased after the close of the landfill,
because Schiavo could no longer dump this waste in the
landfill.

D. The Termination of the 1966 Lease and the Re-
moval of the Subtenants:

The 1966 lease provided that either party could ter-
minate the lease upon 120 days written notice; the lease
was properly terminated by Schiavo on August 1, 1973,
effective January 1, 1974." The termination was acknowl-
edged by USG by letter dated September 7, 1973; this
letter, from Frank Hansen, Real Estate Manager of USG,
to Schiavo, laid the groundwork for the saga that fol-
lowed—the second paragraph reads as follows:

14. The August 1, 1973 letter was from John Lamb, President
of Schiavo, to Roy E. Starner, Works Manager of USG’s Phila-
delphia plant. Mr. Lamb became president of Schiavo in 1968,
and remained in that position until mid-1973.

District Court Opinion A4l

You recognize, of course, that as lessee it is your obli-
gation to surrender the premises on the termination
date in substantially the same condition as at the com-
mencement of the lease. Consistent with this obliga-
tion, we shall expect you to remove all wrecked or
abandoned automobiles, trucks, parts and other debris
prior to the termination date. (Trial Exhibit P-49).

We find that this was the first notice which Schiavo
received from USG, setting forth that USG expected
Schiavo, under the terms of the 1966 lease, to return the
leasehold property free and clear of debris. The 1966
lease contains no clause with respect to the responsibility
for cleanup of the property. In addition, no representative
of USG informed Schiavo, prior to September, 1973, either
orally or in writing, that cleanup would eventually be re-
quired of Schiavo at termination; the testimony reveals that
the cause of this omission was USG’s belief that such no-
tice was unnecessary, since USG believed that Schiavo
would be fully aware of its alleged responsibility for
cleanup, despite the fact that there was no specific lease
provision which spelled out this duty.

After notice of termination, USG informed Schiavo
that USG did not want the junk car dealers to remain on
the property, and directed Schiavo to terminate the leases
of these subtenants. Accordingly, Francis Dougherty, real
estate agent for Schiavo with respect to the leasehold prop-
erty, gave written notice to the subtenants in October,
1973, that their leases would be terminated, effective
December 31, 1973. No mention was made in this ter-
mination letter from Dougherty of the junk dealers’ re-
sponsibility to clean up their properties pursuant to the
specific terms of their leases.

The junk car dealers, a notoriously difficult group with
whom to deal in any case, quickly objected to the short

A42 District Court Opinion

amount of time which they had been given to vacate their
premises. Basically, the stock in trade of an automobile
junk car dealer is the metal scrap parts of the car; the tires
and seats are generally worth little—it is the metal which
has the value.” In October, 1973, the dealers were faced
with an economically unenviable situation: they had been
given a month and a half to negotiate new leases on an-
other area or to go out of business, and they had to
arrange to remove their inventory from the premises, either
through transportation to another lease site, or through
sale. In addition, sale of the inventory would be hampered
by the fact that all of the dealers had to vacate, resulting
in a large amount of scrap material being dumped on the
market at one time.

Several of the junk dealers informed Dougherty that
they could not possibly vacate their lots by December 31,
and asked for an extension of time. They were informed
by Dougherty that this was impossible; one of the dealers
telephoned Mr. Hansen of USG to request an extension,
but he was rebuffed. On December 1, 1973, Schiavo re-
affirmed the December 31 date. However, only one of
the dealers * vacated his lot on that date, and this dealer
was forced to leave a great amount of valuable scrap

15. The value of the junk car metal to the dealers, despite its
unsightliness, was colorfully explained by one dealer at trial:

Let me explain something to you about junk cars. You know,

it’s just the animal itself. A junk car looks exactly like that, a

junk car. To somebody that doesn’t know anything about junk

cars, it's an ugly sight, it really is. I mean, you know, there’s

nothing beautiful about a smashed automobile or an old scrap,

an old piece of scrap. Now, to me that’s money.

THE COURT: To you it’s beautiful.

THE WITNESS: Right. To me that’s a picture of beauty. I

wish I had a billion cars out there. (Trial at 7.96.)

16. The dealer who vacated was Valentino Piacentino, Jr.

District Court Opinion A43

metal on the property because he had not had time to sell
or remove it.

The other dealers formed an association to fight evic-
tion; Schiavo began eviction proceedings immediately after
January 1, 1974. A hearing was held in Municipal Court
of the City of Philadelphia on March 4, 1974; at this
hearing, the dealers were given a further 90 days from that
date in which to vacate. While the Municipal Court
eviction proceedings were technically a dispute between
Schiavo and the junk dealer's association, counsel for USG
sent an observer *’ to the hearing; he took no part in the
proceedings, but was informed of the negotiations be-
tween respective counsel for Schiavo and the dealers on an
ongoing basis. This agent of USG never objected to the
extension of time given to the dealers.

In the meantime, USG had arranged for the sale of
the leasehold property to Swann Oil Company (Swann),
as part of the agreement of sale, dated January 18, 1974;
closing was made conditional upon all debris being re-
moved from the land. It was thus vital to USG’s inter-
ests that the property be cleaned.

During the course of the summer of 1974, the junk car
dealers gradually vacated the premises, either voluntarily
or by eviction; by September, all of the dealers had left
the property. A substantial amount of debris, however,
remained on the property after the dealers had departed.
The evidence shows that Schiavo did very little to force
the dealers to obey the terms of their leases with respect
to the cleanup of the property. Neither Dougherty, nor
Lamb, nor William Breene (who became managing agent
of Schiavo in April, 1974, and the president of the com-
pany in August, 1974), put great pressure on the dealers
to clear off all the debris, although periodic visits were

17. This observer was Ralph M. Harter, who was an associate
in the firm of Duane, Morris and Heckscher.

A44 District Court Opinion

made by Lamb to the property; he would remind the
dealers that it was their responsibility to clean up. In ad-
dition, Lamb provided the dealers with free trash barrels
to encourage them to put the debris in these containers
and then remove them. Schiavo and its agents were, how-
ever, primarily concerned with removing the dealers them-
selves from the land, which was in and of itself no trifling
task.

It is highly speculative that any degree of pressure
would have succeeded in forcing the dealers to remove all
the debris. Testimony from several witnesses established
that junk car dealers rarely, if ever, clean up their proper-
ties upon leaving; we have already noted that these deal-
ers, were, in general, very difficult persons against whom
to enforce obligations.

During the period when the dealers were vacating the
premises, Schiavo denied that it was its responsibility to
remove the debris left by the dealers, or the debris accumu-
lated through fugitive dumping. As a result, in order to
guarantee that the sale of the property to Swann would go
through, USG was forced to hire a private contractor,
George Hunter, to clear the debris. Hunter performed
this work at a total cost of $144,500; the closing on the
sale of the property to Swann was held on September
30, 1974.

E. Condition of the Leasehold Premises in 1974:

The principal factual disputes between the parties are
the amount and nature of the debris, which was left on
the property at the lease termination in 1974, as compared
with that which was on the leasehold premises at the
commencement of the lease in 1966. In addresing this
question, we must separately consider the three sub-areas
of the leasehold: 1) Area B, Area F, and that portion of
Area A which had been the site of junk car dealerships

District Court Opinion A45

prior to 1966; 2) that part of Area A fronting on Essington
Avenue, and back to a depth of approximately 100 feet—
it is this section onto which Schiavo gradually extended
its subleasing to junk car dealers; and 3) the back portion
of Area A, behind the site of the junk car dealers—this
area was not sublet to the dealers, even after the landfill
was completed.

It is also necessary to distinguish between three types
of debris: 1) junk car metal scrap, which was valuable
inventory for the dealers, although it was just debris as
far as USG and Swann were concerned; 2) tires and car
seats, which comprised the main portion of the waste
left on the property by the dealers; and 3) material from
fugitive dumping, which took virtually every imaginable
form, from watermelons to dead cats to junk car debris
deposited by third persons.

When the property was cleared in 1974, there was
debris spread generally throughout the leasehold area, with
the exception of the areas of three or four dealers who
had thoroughly cleaned their land. Of the material
cleared, approximately forty percent was found on the
front portion of the property, which had housed the deal-
ers; the remaining sixty percent was cleared from the back
portion of Area A. The front portion of the land (both
Areas A and B) was virtually devoid of fugitive dumping
material; it was almost entirely the residue of the junk car
dealers’ operations. Very little of this debris, however,
was metal scrap; the dealers, with only minor exception,
had taken their valuable metal scrap when they left, or had
sold it.’* Thus, the waste on the front portion of the land
was principally automobile tires and seats.

18. USG, in attempting to prove the cluttered nature of the
property in 1974, as opposed to its condition in 1966, places great
reliance upon a series of photographs introduced at trial. Trial
Exhibits P-30 and P-34 are aerial photographs of the leasehold
property, the former taken in 1968, and the latter in 1971. These

A46 District Court Opinion

The debris on the back portion of the land was made
up of approximately eighty percent of the residue of the
junk dealers whose waste had spread beyond their
boundaries (again, principally tires and seats), and ap-
proximately twenty percent fugitive dump material.

Those sub-areas which had been the site of junk car
‘ealers at the commencement of the lease were left, at the
termination of the lease, in the same, or in cleaner con-
dition than that which existed in 1966. There were two
reasons for this: first, as noted earlier, the image of the
junk car industry was changing, and dealers were gen-
erally more conscious of maintaining an orderly premises;
second, and of greater significance, a shredding machine
operation used by the dealers started to accept automobile
seats in 1973; previously the machine had not been
equipped to handle them. Thus, instead of allowing these
seats to accumulate on the property, the dealers were able
to bring them to the shredder and be paid for waste
tonnage.

NOTE — (Continued)

photos serve principally to show the proliferation of junk car dealers
on the property as the land was gradually brought up to grade.
We have found that Schiavo subleased to more junk dealers as the
landfill operation progressed; it is a natural incident of this increase
in dealers that there be a coincident increase in the number of
junk cars and debris, and it is this fact which is shown by P-30
and P-34.

Trial exhibits P-86 and P-86A consist of a series of photographs
identified as depicting portions of the leasehold property taken
during the summer of 1974 when Hunter was cleaning the property.
While these photos show a substantial amount of debris on the
property, they are somewhat misleading, in that they were obviously
taken after Hunter had bulldozed the majority of the debris into
huge piles preparatory to putting it into trucks. Therefore, these
photos show, in essence, the total amount of debris cleared, and not
the general nature of the property at the termination of the lease.

District Court Opinion A47

The rest of the leasehold area, both the front portion
first sublet to junk dealers after 1966, and the back portion,
had more debris on it in 1974 than it had in 1966; this
conclusion is obvious, since we have found that this area
was generally clear in 1966, with the exception of scattered
fugitive dump material. Whatever debris was on the land
in 1974 was therefore more than had existed when the
lease term commenced. With respect to the front portion
which were the subleased areas, however, we emphasize
that the remaining debris was the residue of these junk
car operations — debris which stemmed from the precise
type of land development that had been contemplated by
the parties to the 1966 lease.

III. Discussion:

The basis for federal jurisdiction in this case is diver-
sity of citizenship between the parties. 28 U.S.C. § 1332.
We are, thus, obliged to apply the substantive law which
the courts of Pennsylvania would apply. Erie R. Co. v.
Tompkins, 304 U.S. 64 (1938).

A. Pretrial Ruling on Parol Evidence:

As part of the final pretrial order, plaintiff indicated
its intention to introduce evidence relating to the negotia-
tions which led to the signing of the 1966 lease; specif-
ically, plaintiff wanted to show the reasons why a specific
cleanup clause did not become part of the lease. De-
fendant objected on the ground that this evidence was
barred by the parol evidence rule; defendant contended
that the lease was not ambiguous in any of its terms, and
that it was not procured through fraud, accident, or mis-
take. Prior to trial, we ruled that all evidence of lease
negotiations was inadmissible under the parole evidence

rule; we now reaffirm that finding.

A48 District Court Opinion

Under the parol evidence rule, when parties to a
contract have reduced their agreement to a written form,
and this writing appears on its face to be the entire agree-
ment of the parties, evidence of prior or contemporaneous
negotiations or agreements, which either vary or contradict
that writing, is inadmissible. Furthermore, when the
writing expressly states that it contains the entire agree-
ment of the parties, it is conclusively presumed to do so,
absent a showing that this integration clause was procured
through fraud, accident, or mistake. Gianni v. Russell &
Co., 281 Pa. 320, 126 A. 791 (1924).

The lease in the instant case contains an integration
clause which provides as follows:

It is expressly understood and agreed by and between
the parties hereto that this lease and the riders at-
tached hereto and forming a part hereof set forth all
the promises, agreements, conditions and understand-
ings between Lessor or its Agent and Lessee relative
to the demised premises, and that there are no
promises, agreements, conditions or understandings,
either oral or written, between them other than are
herein set forth. It is further understood and agreed
that, except as herein otherwise provided, no subse-
quent alteration, amendment, change or addition to
this lease shall be binding upon Lessor or Lessee
unless reduced to writing and signed by them. (Trial
Exhibit P-15, 17.)

Plaintiff does not contend that the lease is ambiguous
as to any term, nor that fraud, accident, or mistake can be
established; to the contrary, plaintiff's counsel admitted at
oral argument following trial that the contract was un-
ambiguous. Plaintiff contends, however, that because the
lease is silent with respect to the cleanup of the property,
that parol evidence is admissible to show the intent of the

District Court Opinion A49

on this issue. The short answer to this contention
is that if it had been the intent of the parties specifically
to provide for cleanup, a provision to this effect should
have been inserted into the admittedly integrated lease
document.” It is clear that evidence of intent with re-
spect to the meaning of the contract terms is not admissible
in the absence of ambiguity. Pavlich v. Ambrosia Coal
and Construction Co., 441 Pa. 210, 273 A.2d 343 (1971).
As stated by the Supreme Court of Pennsylvania over
twenty years ago:
In interpreting this agreement it is our duty to at-
tempt to ascertain the intention of the parties and to
give effect to that intention if it can be done con-
sistently with legal principles [citations omitted]. In
order to ascertain that intention “the court may take
into consideration the surrounding circumstances, the
situation of the parties, the objects they apparently
have in view, and the nature of the subject matter of
the agreement.” [citations omitted]. However, that
does not mean that where there is an integrated
agreement. . . . evidence of the negotiations which
have led to the formation of this integrated agreement
is admissible to show an intent at variance with the
language of the written agreement. . . .

Appeal of Edwin J. Schoettle Co., 390 Pa. 365, 372, 134
A.2d 908, 912 (1957).

In order to consider evidence of negotiations in the
matter before us, we would have to find that silence with

19. To support its claim that the ;,arol evidence should have
been admitted, USG cites Commonwealth v. Berger, 11 Pa. Comm.
332, 312 A.2d 100 (1973). While evidence of lease negotiations
was admitted in Berger, there is no indication that the contract
before the court was an integrated document. The lease before
us in the instant matter does, of course, contain an integration

clause, and this is a crucially distinguishing factor.

A50 District Court Opinion

respect to the responsibility of cleanup at the termination
of the lease, amounts to an ambiguity in the contract.
There is simply no basis for such a holding, nor does plain-
tiff contend there is. The lease, which is an integrated
document, and unambiguous in its terms, must be inter-
preted within its four corners; the intent of the parties
must be gleaned from the language of the lease. We,
therefore, reaffirm our prior ruling on this issue, and hold
that parol evidence with respect to negotiations leading
to the signing of the 1966 lease agreement between USG
and Schiavo was property excluded at trial, particularly,
since that evidence would have added a material provision
to the lease.

B. The Existence of an Implied Covenant:

The 1966 lease contained no provision requiring
Schiavo to clean the land, or to return the leasehold prop-
erty to USG free of debris. Therefore, the principal basis
upon which USG relies in seeking recovery from Schiavo
for the expense of clearing the debris is Schiavo's alleged
breach of the implied covenant to return the leasehold
premises in substantially the same condition in which it
existed when received, reasonable wear and tear excepted.
Under Pennsylvania law, this covenant exists even in the
absence of an express covenant, unless the implied cove-
nant is negated by contrary language in the lease. Earle
v. Arbogast, 180 Pa. 409 (1897); Patton v. United States,
139 F.Supp. 279 (W.D.Pa. 1955); Riverview Properties,
Inc. v. United States, 102 F.Supp. 934 (M.D.Pa. 1952).
Plaintiff contends that the return of the property with
junk car debris and fugitive dump material still on the
land was a clear breach of this implied covenant. Before
analyzing this contention, we must deal initially with
Schiavo’s claim that this implied covenant was negated by
the terms of the lease.

District Court Opinion A51

Defendant avers that the integration clause in the
lease precludes the finding of any implied covenant. Since
this clause provides that no agreements or conditions exist
outside the terms of the lease, argues Schiavo, we cannot
place any greater duties upon it beyond those which are
specifically delineated in the written contract. Defendant
contends that the integration clause provides language con-
trary to any duty to return the premises in the same con-
dition, reasonable wear and tear excepted, and that this
implied covenant has thus been expressly negated.

We do not believe that this argument withstands
analysis. We have noted that the intent of the parties
with respect to the meaning of the lease terms must be
determined from the face of the document. The integra-
tion clause, in relevant part, states as follows:

[T]here are no promises, agreements, conditions, or
understandings, either oral or written, between [the
parties] other than are herein set forth. (Emphasis

supplied. )

The obvious intent of this language was to preclude the
introduction of parol evidence with respect to negotiations
and agreements which are not incorporated in the con-
tract. This is the generally recognized purpose of such an
integration clause. An implied covenant, however, cannot
be characterized as an “oral or written” agreement or
understanding; we believe that the insertion of these words
makes it clear that the negation of any implied covenant
which might otherwise adhere was not within the con-
templation of the parties in drafting the integration clause.
Cf. City of Philadelphia v. Page, 363 F. Supp. 148 (E.D.
Pa. 1973), in which the court held that the implied war-
ranty of habitability was not negated by a clause which
stated that the delineated express warranties were the
only warranties to which the seller would be bound.

A52 District Court Opinion

In seeking to negate the existence of the aforemen-
tioned implied covenant, Schiavo advances the following
points: 1) the lease term specifically permitting subleasing
to junk car dealers, did not mention any cleanup duty,
thus negating any finding of an implied covenant to re-
turn the premises as received, reasonable wear and tear
excepted; and 2) the express duty in the lease requiring
peaceable surrender of the premises at the termination of
the lease precludes a finding of any further implied duty.”
We summarily reject both of these contentions. With re-
spect to the first, the mere fact the lease directs that a
specific use be made of the property simply does not estab-
lish that the parties intended to relieve the lessee of the
duty to rectify the consequences of that use. This clause
cannot be interpreted as language contrary to the existence
of the implied covenant.

The second of Schiavo’s contentions is refuted by the
reasoning in City of Philadelphia v. Page, supra; the fact
that the parties resolved to memorialize one termination
duty does not evidence an intent to reject another duty of
a different nature. Defendant argues that the insertion of
an express covenant excludes a contradictory, implied
covenant. Brimmer v. Union Oil Co., 81 F.2d 437 (10th
Cir.), cert. denied, 298 U.S. 668 (1936). We do not be-
lieve, however, that a duty to deliver land at the termina-
tion of a lease is contradictory to a duty to deliver that
land in a certain condition. The covenants are separate
and distinct.

20. Schiavo also contends that the previous dealings between
the parties, and specifically the inclusion of a cleanup clause in
the two 1963 leases, negates the finding of an implied covenant
with respect to the 1966 lease. However, in interpreting the lan-
guage of the 1966 lease within its four corners, we have not con-
sidered evidence with respect to the prior negotiations or dealings
between the parties.

District Court Opinion A53

Having found no language to the contrary in the 1966
lease, we hold that the defendant had a duty to return the
leasehold premises to USG at the termination of the lease,
in substantially the same condition as existed at its incep-
tion, reasonable wear and tear excepted.

C. Breach of the Implied Covenant:

In determining whether Schiavo is in breach of this
implied covenant, we must separately consider three areas
of the leasehold property: 1) the area previously leased
to junk car dealers; 2) the area landfilled and sublet to
dealers during the term of the lease; and 3) the back por-
tion, landfilled but not leased to dealers.

(i) The Area Previously Leased to Junk Car
Dealers

At the commencement of the leasehold term in 1966,
Area B, Area F, and another 200 foot portion of Area A
adjoining Area F, had been the site of junk car dealers for
several years. We have found that, as a result of these
operations, there was a substantial amount of debris and
junk cars already on the property at the execution of the
lease in 1966. Furthermore, we have found that at the
termination of the lease, this portion of the property was
left by Schiavo in either the same, or in better condition
than that in which it had been in 1966. It is therefore
obvious, based upon these findings, that Schiavo did not
breach its implied covenant with respect to these areas.
The land was returned in substantially the same condition
as that which existed when received, reasonable wear and
tear excepted.

(ii) The Area Sublet to Junk Car Dealers for the
* First Time During the Leasehold Term

We have found that the portion of Area A not previ-
ously leased to junk car dealers at the commencement of

A54 District Court Opinion

the lease was generally clear of debris at that time, with
the exception of some fugitive dump material. The part
of this property fronting on Essington Avenue to a depth
of approximately 100 feet as it was gradually raised to
grade level during the lease term, was sublet to dealers.
As a result of these operations, a substantial amount of
junk car debris, principally tires and some car seats, was
left on the property at the termination of the lease. USG
vigorously contends that the failure of Schiavo to clear this
debris off the property was an obvious breach of Schiavo’s
implied covenant; the accumulation of rubbish to this de-
gree, contends plaintiff, cannot be considered “reasonable
wear and tear.” We find, however, that USG has failed to
meet its burden of esi.blishing that, in the context of the
junk car industry, the wear and tear to the land was ex-
cessive or unreasonable.

It is of cardinal importance to note that USG spe-
cifically approved subletting of the leasehold property by
Schiavo to junk car dealers, as the property was filled to
grade. Therefore, while this portion of Area A was vacant
in 1966, the land was developed in the precise manner
contemplated by the 1966 lease. In determining that wear
and tear which is “reasonable”, we must consider the use
to which the property was put, a use which, in this case,
was agreed to by the landlord. In Codman v. Hygrade
Food Products Corp., 295 Mass. 195, 3 N.E. 2d 759 (1936),
the court was confronted with a lease which, by its terms,
required the lessee to return the property (a building)
in “good tenantable repair.” Interpreting this term, the
court stated:

The phrases “in good tenantable repair” and “in good

condition” appearing in such a lease do not have a

fixed or technical meaning which is always the same

regardless of the character or use of the building to

which they refer. A building adapted for use as a

District Court Opinion A55

tannery might be in good condition for that purpose
and absolutely untenantable for use as a watch fac-
tory. In the application of phrases of such general
significance to a building which is the subject matter
of a lease various things are to be taken into account.
Among these are . . . the use to which the building
is to be put and the character of a business there to
be carried on [citations omitted]; . . . and the class
of tenant and the kind of business of a tenant who
would be likely to lease the building (citations
omitted].

3 N.E.2d at 760.

We believe this reasoning is apposite to the facts of
this case. We, therefore, reject plaintiffs argument that
because the land way vacant when leased, we must con-
sider only what is reasonable wear and tear to vacant land;
USG cannot consent to a specific use of its property, and
then ask this court to ignore the natural consequences of
that use.** We cannot determine that “wear and tear”

21. One of the principal cases relied upon by USG, U.S. v.
Jordan, 186 F.2d 803 (6th Cir.), affd per curiam, 342 US. 911
(1951), is distinguishable from the case at bar. In Jordan, the
government temporarily condemned certain private lands, and
leased others, for use as a gunnery range; following the return of
the land to the property owners, they sued for damage to the
standing timber caused by the lodging of bullets in the trees; the
owners argued that the compensation awards and lease rentals
were not sufficient to cover this damage. The government argued
that because the intent of the government was to use the land as a
gunnery range, the lodging of bullets in the timber was the conse-
quence of the normal use of the property. In rejecting this argu-
ment and affirming the district court’s award of damages to the
landowners, the court stated, inter alia:

The extremely low rental which was paid [under the leases],

in some instances as low as fifty cents an acre, strongly sup-

ports the ruling that timber damage was not included in the
rental figure.

A56 District Court Opinion

which is “reasonable” without considering the nature of
the business conducted on the land.* While USG was
primarily interested in the use of the property as a land-
fill, the parties agreed in the lease that Schiavo could sub-
let to the dealers after the land was raised to grade. It
is an understatement to say that the establishment of
junk car dealerships is not the most elegant use to which
land may be put. The uncontradicted evidence produced
at trial established that junk car dealers were, in general,
an extremely difficult group with whom to deal; that it
was an arduous, if not impossible, task to keep them within
the bounds of their obligations; that there was a natural
expansion of debris beyond their lease boundaries; and
that upon termination of a junkyard lease, the dealer rarely,
if ever, cleared the property of accumulated debris be-
yond removing the scrap metal which could be sold. USG,
in fact, suffered this experience with Spence and Mont-
gomery, who failed to clear Area B at the termination of
the 1960 lease covering that property; as a result, Schiavo
was forced to remove the accumulated debris before it
could relet the premises to other dealers.

NOTE — (Continued)

Id. at 806. In the case at bar, there is not sufficient evidence
to support an inference that the rental fee was so low that the
parties clearly did not contemplate that USG would bear the cost
of cleanup.

22. Plaintiff produced the testimony of a real estate expert,
Charles A. Thomas, who stated that the debris left on the property
by Schiavo diminished the value of the land with respect to the
“highest and best use” of the land. This issue, however, is not
before us; we must determine what is reasonable wear and tear to
the land with respect to the operation of a junkyard, for this was
the use to which the parties agreed. It is undisputed that the
debris diminished the value of the property with respect to the use
to which Swann wished to put it. See, Getty Oil Co. ». Mills, 204
F.Supp. 179, 197 (W.D.Pa. 1962); Codman v. I grade Food
Products Corp., 295 Mass. 195, 3 N.E.2d 759 (1936).

District Court Opinion AST

Initially, it is clear that the accumultion of debris on
this portion of the leasehold property was not more than
reasonable wear and tear in the context of the junk car
industry. The evidence established that in the later years
of the lease term the general condition of the dealers’
properties improved, due both to the industry's goal to
improve its image, and to the fact that the shredder began
to accept car seats.

Second, with respect to the failure to clear the debris
at the termination of the lease, we find that USG has
failed to prove by a preponderance of the evidence that
this condition was more than reasonable wear and tear to
junkyard property. The evidence shows that the dealers
virtually never cleaned their properties upon leaving, de-
spite their standard lease obligation to do so. We cannot
ignore this evidence. When the lease was executed in
1966, both parties had had experience with junk car
dealers; nevertheless, no provision was made in the lease
with respect to the responsibility for clearing the debris
which the dealers would inevitably produce. We cannot
imply an obligation to return land wholly free of debris,
when the evidence provides no support for a finding that
junkyard property would normally be returned in this
condition. We cannot simply assume in a vacuum that no
one would ever expect leased land to be returned covered
with debris, and that this condition is therefore, neces-
sarily, unreasonable wear and tear as a matter of law.
It is the record, and not our assumptions, which

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385008_1386%3A0. Public record. Not legal advice.