IN THE COMMONWEALTH COURT OF PENNSYLVANIA Allegheny Valley Railroad Company, : Appellant : : v. : No. 1111 C.D. 2013 : Argued: April 23, 2014 The Urban Redevelopment Authority : of the City of Pittsburgh : BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge OPINION NOT REPORTED MEMORANDUM OPINION BY PRESIDENT JUDGE PELLEGRINI FILED: June 27, 2014

Allegheny Valley Railroad Company (AVR) appeals the order of the

Court of Common Pleas of Allegheny County (trial court) denying its request for

permanent injunctive relief prohibiting the Urban Redevelopment Authority

(Authority) of the City of Pittsburgh (City) from taking actions purportedly contrary

to a restriction in the deed conveying the Pittsburgh Produce Terminal (Terminal) to

the Authority by Consolidated Rail Corporation (Conrail) that the Authority would

use its “best efforts” to use the property for some rail oriented use. We affirm.

2

The Terminal is located in the City’s Strip District and was built in 1929

by the Pennsylvania Railroad in what was then a large rail yard. The Terminal is

over five blocks long and located in an area that was formerly populated by

warehouses and distribution centers. It was designed and built as a “cross-dock”

facility intended to transit goods between railway delivery and local truck and

vehicular delivery and distribution. Goods were delivered to one side of the

Terminal, offloaded from the railway, sorted, packed and bundled and then loaded

onto vehicular transport on the other side for distribution.

In 1980, the City sought to purchase the Terminal to provide continued

rental space for the wholesale produce industry. In 1981, the Authority acquired the

Terminal and the surrounding land including 6,000 feet of railroad tracks from

Conrail for $1.1 million on behalf of the City. The deed contained the following

provision:

THIS INSTRUMENT is executed, delivered and accepted upon the understanding and agreement: (a) That [the Authority] acknowledges that the basic use of the building located on the land hereby conveyed is as a rail freight facility served directly by rail lines of [Conrail] and [the Authority] further acknowledges that its primary public purpose in acquiring said premises is to provide continued rental space for the wholesale produce industry and agrees to use its best efforts to continue it as such or some other rail oriented use.

(Reproduced Record (R.R.) at 34a) (emphasis added).

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At the time the deed was executed, the Terminal was surrounded by

railroad tracks in the front and rear and was occupied by wholesale produce tenants

who relied upon the direct rail service Conrail provided. In particular, tracks to the

south of the Terminal on Smallman Street directly serviced the Terminal and

permitted the delivery of goods directly from railcars to the Terminal’s platform. In

1984, Conrail formally abandoned the Smallman Street line and ceased all direct rail

service to the Terminal. However, Conrail maintained a rail line that terminated

approximately 100 yards from the northeast corner of the Terminal, the Valley

Industrial Track. At present, all railroad tracks in the vicinity of the Terminal have

been abandoned, removed or paved over except for the Valley Industrial Track.

In 1986, the Authority obtained a $1.8 million grant from the federal

Economic Development Administration (EDA) to rehabilitate the Terminal and the

surrounding eight acres of land to maintain it as a wholesale produce facility. It was

agreed that during the Terminal’s expected useful life, it would not be used for any

other purpose unless with EDA approval. Between its acquisition of the Terminal in

1981 and 1995, the Authority spent nearly $4.5 million to renovate and improve the

Terminal and charged below-market rates to its tenants.

While no direct rail deliveries have been made to the Terminal for nearly

three decades, Conrail continued to make indirect deliveries via the terminus of the

Valley Industrial Track. The deliveries would be transported by short truck delivery

from the Valley Industrial Track to the Terminal. Deliveries were consistent enough

to warrant the installation of a saw-tooth dock to facilitate truck distribution from the

Terminal. In 1995, AVR acquired the Valley Industrial Track from Conrail and a

permanent rail easement that crosses property adjacent to the Terminal. AVR

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formally adopted the stations located on the Valley Industrial Track and the Terminal

remains identified as a station on the line.

However, from 1991 to 2010, the delivery of goods from Valley

Industrial Track, including produce, declined at an increasing rate. Likewise, the

volume of produce distributed from the Terminal decreased as did the demand for

produce wholesaler rental space. In 1998, all 129,500 square feet of the Terminal’s

platform area was occupied by wholesale produce tenants. However, in 1999, a

wholesale tenant occupying 17,500 square feet chose to relocate operations to a new

facility located between 21st Street and 22

nd Street in the Strip District. Likewise, in

2000, another wholesale tenant that occupied 17,500 square feet at one time

voluntarily terminated its lease and moved operations to the new facility. The new

facility could be directly served by a rail spur operated by AVR.

In 2004, the Terminal’s largest wholesale tenant, formerly occupying

35,000 square feet, filed for bankruptcy and vacated the Terminal. In addition, in the

late 1990s and early 2000s, three other tenants that formerly occupied a total of

34,500 square feet filed for bankruptcy, went out of business and left the terminal.

No new wholesale produce tenants occupying more than 5,000 square feet were

added after 1998, and only two such tenants leased space in the Terminal after 1992.

By the end of 2007, only 81,000 square feet of the Terminal was leased to produce

wholesalers. In 2009, the EDA relinquished its interest in the Terminal on the basis

that the Terminal’s useful life had been exceeded and the Authority could no longer

maintain it as a produce terminal.

5

In December 2010, the Authority approved a Master Lease Agreement

with the Buncher Company (Buncher) wherein Buncher was granted the sole right

and option to purchase the Terminal. Buncher is not a wholesale produce distributor

or a rail-oriented user and it is Buncher’s intention to destroy at least a part of the

Terminal to make way for residential and retail building space as part of a larger

Lower Strip District redevelopment project. Since December 2010, minimal efforts

have been used to lease space to either produce distributors or rail-oriented users at

the Terminal and existing leases were not renewed and have expired. AVR

terminated its service to the Terminal after the produce wholesale tenants were

displaced.

In September 2012, AVR filed a complaint alleging that the Authority

violated the 1981 deed restriction to use its “best efforts” to maintain the Terminal as

a rail-oriented facility by entering into the Master Lease Agreement with Buncher.

AVR sought preliminary and special injunctive relief to enjoin the Authority from

implementing any plans contrary to its obligations under the 1981 deed.

During a three-day hearing, AVR presented the testimony of its

President and owner, Russell Peterson, and the Authority called its Executive

Director, Robert Rubenstein. AVR and the Authority presented the testimony of

common witnesses who were deemed to have been called by each: James Malanos,

an employee with Baker Young, the real estate company that managed the Terminal

for the Authority from 1992 to 2010; Kyra Straussman, the Authority’s Director of

Real Estate; Robert Stephany, the Authority’s former Executive Director; and

Michael Kutzer, the Buncher Company’s Vice President of Real Estate. The

testimony and evidence presented related to the past and present volume of goods

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delivered to the Terminal; the past and present tenants in the Terminal and the

Authority’s efforts to keep it occupied; the Terminal’s condition, obsolescence and

state of repair; and the Lower Strip District redevelopment project including its

funding and revenue potential. AVR also presented Joseph Mistick, a professor at

Duquense University, and the Authority presented John Murray, Jr., Duquense

University’s Chancellor, to testify as experts regarding the meaning of the “best

efforts” provision of the 1981 deed.

The trial court accepted and adopted the Authority’s Proposed Findings

of Fact Numbers 34 through 71 relevant to the impossibility of the Terminal’s

continued use as a “rail freight facility … wholesale produce facility … or other rail

oriented use” as required by the 1981 deed. (Trial Court 9/16/13 Opinion at 10). As

a result, the following relevant facts were adopted by the court:

• while the 1981 deed transfers the Terminal to be used as “a rail freight facility directly served by [Conrail]” and it was acquired by the Authority for a “primary public purpose,” there is no evidence or intent that it be annexed as an appurtenance to the land or for the benefit of subsequent owners of other separate rail assets not directly serving the Terminal;

• at the time the Authority acquired the Terminal by the 1981 deed, it was served “directly” by rail;

• in 1984, just three years after it sold the Terminal to the Authority, Conrail abandoned the Smallman Street Tracks by which it directly served the Terminal and those tracks were paved over in 1992;

• by 1993, all rail lines on the Authority’s property as well as those on Buncher’s adjacent property had been removed or paved over and were no longer in use;

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• the viability of the Terminal as “rental space for the wholesale produce industry” has steadily declined with significant changes to the Terminal itself, the Strip District, and the produce industry;

• the 1995 deed by which AVR acquired its interests in certain Conrail assets does not mention the 1981 deed or the Terminal and AVR did not acquire any rights in the Smallman Street Tracks via that deed;

• the 2008 deed purporting to “correct” the 1995 deed does not mention the 1981 deed or the Terminal, but does reference the 1983 deed between Conrail and Buncher;

• in the 17 years between AVR’s acquisition of Conrail assets in 1995 and the filing of this lawsuit, AVR never exercised its alleged option to construct a grade crossing across 21

st

Street to provide direct rail service to the Terminal because it “was not [AVR]’s highest priority” and AVR “had other priorities for its money;”

• AVR’s deliveries to Terminal tenants in 2008 through 2010 generated between $30,000.00 and $40,000.00 of AVR’s approximately $10 million in annual revenues;

• AVR’s own assessment of its alleged “loss” in this case is stated entirely in terms of money damages so to the extent that AVR has suffered any injury, it is uncontroverted that such injury can be compensated in money damages.

(Proposed Findings of Fact and Conclusions of Law at 29-36).

Based on the foregoing, regarding whether the Authority had violated

the “best efforts” provision of the 1981 deed,1 the trial court stated, “While AVR

1 The trial court explained that it “specifically did not reach the question of whether AVR is

or is not a successor to Conrail for purposes of the ‘best efforts’ provision of the 1981 deed….”

(Trial Court 9/16/13 Opinion at 13).

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points to some limited facts which might suggest that there existed some ongoing

hope that, with concentrated ‘best efforts’ … the [Terminal] could be operated as a

rail freight facility servicing the wholesale produce industry, the significant weight of

the testimony and evidence … supports the conclusion that the [Terminal]’s ongoing

viability as either a wholesale produce facility and/or a rail freight facility served

directly by rail lines or otherwise had materially passed.” (Trial Court 9/16/13

Opinion at 7). The trial court determined that the 1981 deed did not impose a never-

ending obligation on the Authority to perpetually protect Conrail’s private rail

service; rather, the court found that it was an “expression by the [Authority] that its

then-present intention was to continue to use its best efforts to support the local

wholesale produce industry, which it recognized had historically relied on then-

existing direct rail service … [and] the language … is an expression of [the

Authority]’s commitment primarily to the wholesale produce industry….” (Id. at 8).

The trial court noted that the 1981 deed did not impose an absolute duty

on the Authority to maintain such uses of the Terminal and concluded, “Even if the

relevant language did not incorporate the ‘best efforts’ language, at some point, the

unavailability of rail lines connected to the [Terminal] creates a condition which

renders the promise to maintain [it] as ‘a rail freight facility served directly by rail

lines’ or ‘some other rail oriented use’ a practical impossibility, that relieves [the

Authority] of any ongoing ‘best efforts’ obligation.” (Trial Court 9/16/13 Opinion at

10). The court explained that because AVR’s predecessor, Conrail, abandoned direct

rail service to the Terminal, “No reasonable interpretation of the best efforts

provision would require the [Authority] to continue to promote the [Terminal] ‘rail

freight facility served directly by rail lines … wholesale produce facility … or other

rail oriented use’ for the benefit of a railroad company that, itself, did not maintain

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rail lines to the facility.” (Id. at 11). According to the court, the Terminal is a 100

year-old structure “that is in nearly every respect obsolete, outdated, and ill-equipped

for a modern wholesale produce distribution center and which is, coincidentally, not

directly connected to any rail line, and the suggestion that the [Authority] is required

to do something more than it has attempted to do over the last 30 years in order to

continue to maintain a rail oriented wholesale produce distribution center at the

[Terminal] becomes patently ludicrous.” (Id.).

The trial court also noted that “[n]otwithstanding AVR’s contention to

the contrary … [it] does not assert that it suffers any damages that cannot be

remedied through the imposition of a compensatory monetary damage award. In

short, AVR contends that it will lose money because of its inability to continue a

vibrant or robust business of delivering produce to the [Terminal]…. In fact, AVR

has already estimated the amount of these potential damages as $1,100,000.00.”

(Trial Court 9/16/13 Opinion at 6). Because AVR can obtain monetary relief, the

trial court concluded that injunctive relief could be denied on this basis alone. (Id.).

The trial court further determined that equitable relief was not available

because such relief is contrary to the public interest. Specifically, the court found:

Under the facts and circumstances as established by the record in this case, it is plainly contrary to public interest that the [Authority] be saddled with the responsibility to maintain an old, underutilized, and deteriorating building consistent with an outdated and outmoded business model predicated upon conditions which have not existed for over 30 years in an urban location potentially susceptible to enormously valuable and profitable redevelopment and reinvigoration. To do so only for purposes of protecting the pecuniary interests of a private entity that is, itself, fully

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capable of seeking compensatory damages for any actually provable damages is unsupportable…. [T]he [Authority] has entered into a Master Lease with an option to purchase extended to Buncher as part of a broad based lower Strip District redevelopment project including $15 million in grant money and at least that much in private investment. If enjoined from fulfilling its commitment under the Master Lease, the goals of that undertaking would be materially jeopardized.

(Trial Court 9/16/13 Opinion at 12-13).

Ultimately, the trial court issued an order denying equitable relief

because, if proven, compensatory damages are an adequate available remedy; the

record did not show that the Authority materially violated the “best efforts” provision

of the 1981 deed; and it would be contrary to the applicable public interest

considerations under the established facts. AVR then filed this appeal.2

2 As this Court has explained:

In reviewing a grant of a permanent injunction that turns on

“whether the lower court properly found that the party seeking the

injunction established a clear right to relief as a matter of law,” the

standard of review for a question of law is de novo and the scope of

review is plenary. To prevail on a claim for a permanent injunction,

the plaintiff must establish a clear right to relief, that there is an

urgent necessity to avoid an injury which cannot be compensated for

by damages, and that greater injury will result from refusing rather

than granting the relief requested. However, unlike a claim for a

preliminary injunction, the plaintiff need not establish either

irreparable harm or immediate relief.

Big Bass Lake Community Association v. Warren, 950 A.2d 1137, 1144-45 (Pa. Cmwlth. 2008)

(citations omitted).

11

AVR claims that the trial court erred in determining that the Authority

did not materially violate the “best efforts” clause of the 1981 deed and in denying

injunctive relief because the Authority took intentional and concerted actions to

eliminate the Terminal’s use as a “rail freight facility served directly by rail lines …

wholesale produce facility … or other rail oriented use” as required by the deed.

AVR argues that the conditions have not changed thereby relieving the Authority of

this duty; that the injury flowing from the violation of this duty cannot be

compensated by damages due to the unique nature of the facility; and that the greater

injury will result in refusing the injunction because this station serves as the anchor

for the remaining customers served by Valley Industrial Track. We do not agree.

As noted above, the trial court found that injunctive relief was

unavailable in this case because: (1) compensatory damages, if proven, constitute an

adequate available remedy; (2) the “best efforts” provision of the 1981 deed was not

materially violated; and (3) an injunction would be contrary to the public interest. It

was demonstrated that AVR’s deliveries to Terminal tenants in 2008, 2009 and 2010

generated between $30,000.00 and $40,000.00 of its approximately $10 million in

total revenues, and that its replacement loss for the loss of use of the Terminal totaled

$1,100,000.00. (See R.R. at 254a-256a; Defendant’s Exhibit 17 at 3 n.2; Defendant’s

Exhibit 21 at 2). This shows that AVR’s loss, if proven, is quantifiable in damages.

While the trial court rejected3 AVR’s evidence that the loss of the Terminal cannot be

compensated by damages, its finding that AVR’s losses are compensable as monetary

3 This Court is bound by the trial court’s findings of fact unless they are not based upon

competent record evidence. Bold Corporation v. County of Lancaster, 801 A.2d 469, 477 (Pa.

2002). Likewise, this Court is bound by the trial court’s credibility determinations. Id.

12

damages is supported by competent evidence and supports the denial of a permanent

injunction on this basis alone. See generally Meehan v. Cheltenham Township, 189

A.2d 593, 595 (Pa. 1963) (holding that an adequate remedy at law existed so as to

divest equity of jurisdiction of action for alleged unjust enrichment since law courts

can provide remedy of money damages).

Second, the trial court properly determined that the restrictive covenant4

in the 1981 deed expressed the Authority’s then-present intention to continue to use

its best efforts to support the local wholesale produce industry which historically

relied on then-existing direct rail service. As outlined above, the 1981 deed

acknowledges that the basic use of the Terminal was as a rail freight facility served

directly by Conrail’s Smallman Street Tracks. It is uncontroverted that in 1984,

Conrail abandoned a number of railroad tracks, including the Smallman Street Tracks

which used to provide direct access to the Terminal, and that all railroad tracks in the

vicinity of the Terminal were removed or paved over by 1993. As a result, the trial

court properly found that the unavailability of rail lines connected to the terminal

created a condition that rendered the covenant in the 1981 deed to maintain the

Terminal as “a rail freight facility served directly by rail lines” a practical

impossibility, thereby relieving the Authority of any purported duty arising

thereunder.

4 “Restrictive covenants are generally disfavored by the law and may lose their utility

through the passage of time, but covenants of recent vintage may be enforced by injunction.” Big

Bass Lake Community Association, 950 A.2d at 1145 n.10.

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We agree with the trial court that the Authority gave its best efforts to

comply with the deed restriction in this case. As it has been explained:

[A duty to use best efforts] requires a party to make such efforts as are reasonable in light of the party’s ability and the means at its disposal and of the other party’s justifiable expectations. Although the scope of this duty is not better defined than is the scope of the duty of good faith, it is clear that the duty of best efforts is more onerous than that of good faith…. Good faith is a standard that has honesty and fairness at its core and that is imposed on every party to a contract. Best efforts is a standard that has diligence as its essence and is imposed on those contracting parties that have undertaken such performance.

* * * [However, a] “best efforts” obligation does not require [defendant] to accomplish a given objective…. Rather, it requires [defendant] to make a diligent, reasonable[,] and good faith effort to accomplish that objective. The obligation takes into account unanticipated events and the exigencies of continuing business and does not require such events or exigencies be overcome at all costs. It requires only that [defendant] exercise all reasonable efforts within a reasonable time to overcome any hurdles and accomplish the objective. The fact that the objective is not accomplished is no indication that the party had not utilized its “best efforts.”

Mark Technologies Corp. v. Utah Resources International, Inc., 147 P.3d 509, 512

(Utah Ct. App.2006) (citations omitted and emphasis in original). By expending $4.5

million renovating and improving the Terminal over the past 30 years, and by

maintaining rents at below-market rates during the time that there were wholesale

produce tenants using the facility in spite of Conrail’s removal of all direct rail

14

access,5 the Authority exhibited the requisite diligent, reasonable and good faith effort

within a reasonable time necessary to meet the “best efforts” duty under the 1981

deed.

Moreover, what is “best efforts” has to be undertaken in the context of

any change in circumstances from the date of the deed in 1981. In this case, a major

impediment to the use of the property as a rail oriented facility was caused when

Conrail abandoned direct access to the facility in 1984 making its use of the terminal

as a “cross-dock” facility no longer viable. As a result, goods had to be unloaded and

transported by truck 100 yards to the facility leading to a number of users building

their own facilities so they could have direct access to the rail line.

The credited record evidence also supports the trial court’s determination

that a change in conditions alleviated the Authority of any “best efforts” duty

imposed by the 1981 deed. In 1998, all 129,500 square feet of the Terminal’s

platform area was occupied by wholesale produce tenants. By the end of 2007, such

tenants only occupied 81,000 square feet. The Authority was unable to replace

wholesale produce tenants because there were none in the market; no new wholesale

5 The trial court properly rejected AVR’s assertion that the terminus of the Valley Industrial

Track 100 yards from the Terminal constitutes the “direct” rail service to that structure referenced in

the 1981 deed. (See R.R. at 228-229a). AVR’s reliance on Secretary of Agriculture of the United

States v. United States, 347 U.S. 645 (1954), for a contrary conclusion is misplaced because that

case involved the insufficiency of the Interstate Commerce Commission’s findings to support the

imposition of special unloading charges in addition to line-haul rates due to unique conditions in

New York and Philadelphia because the goods shipped there were not accessible to the consignees

until after they had been unloaded by the rail carriers. See id. at 651-654. That case involved

“delivery” and “unloading” and not what constitutes “direct” rail service either in the industry in

general or under the terms of the instant restrictive covenant in particular.

15

produce tenants occupying more than 5,000 square feet of space were added to the

Terminal after 1998. From 1998 to 2007, occupancy by wholesale tenants declined

from 100 percent to 62 percent filled. Given that and the changing nature of the

surrounding area, the Authority properly determined that it could not maintain the

Terminal as a wholesale produce facility for the long term and, in 2008, began the

process of redeployment. The evidence also demonstrates that if the injunction was

issued, the Authority would be left with an obsolete building in need of significant

renovation and rehabilitation without the necessary funds to do so.

As the Supreme Court has explained:

[E]quity will not enforce a restriction if the nature of the neighborhood changes has been such as to make it impossible to accomplish the objects for which it was designed, even though such changes may have resulted from circumstances over which neither of the parties had any control. It being a general policy of the law that land shall not be burdened with permanent or long-continued restrictions which have ceased to be of any advantage, equity will not, in such cases, prohibit or retard improvements simply to enforce the literal observance of a condition or covenant. Nor will equity grant injunctive relief if the enforcement of a restriction would make the land unfit or unprofitable for use and development, or result in a far greater hardship to the servient than a benefit to the dominant tenement….”

Katzman v. Anderson, 59 A.2d 85, 87 (Pa. 1948) (emphasis in original).

Accordingly, because the credited evidence showed that the changes to

the Terminal, its immediate surroundings, the wholesale produce industry, and the

Lower Strip District since 1981 relieved the Authority of its obligation under the deed

16

to use its best efforts because to do so would be impractical, if not futile, the trial

court’s order is affirmed.6

________________________________

DAN PELLEGRINI, President Judge

Judge Brobson did not participate in the decision of this case.

6 While the Authority raised in New Matter that AVR is not a successor to Conrail and that

it cannot enforce the “best efforts” provision in the 1981 deed, we will not address that issue

because of the way we have resolved this appeal.

IN THE COMMONWEALTH COURT OF PENNSYLVANIA Allegheny Valley Railroad Company, : Appellant : : v. : No. 1111 C.D. 2013 : The Urban Redevelopment Authority : of the City of Pittsburgh :

O R D E R

AND NOW, this 27th day of June, 2014, the order of the Court of

Common Pleas of Allegheny County is affirmed.

________________________________ DAN PELLEGRINI, President Judge

IN THE COMMONWEALTH COURT OF PENNSYLVANIA Allegheny Valley Railroad Company, : Appellant : : No. 1111 C.D. 2013 v. : : Argued: April 23, 2014 The Urban Redevelopment Authority : of the City of Pittsburgh : BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge OPINION NOT REPORTED DISSENTING OPINION BY JUDGE McCULLOUGH FILED: June 27, 2014

Respectfully, I dissent. When Consolidated Rail Corporation

(Conrail) conveyed the Pittsburgh Produce Terminal (Terminal) to the Urban

Redevelopment Authority of the City of Pittsburgh (Authority), Conrail protected

its interest as a railroad carrier shipping produce to the Strip District in Pittsburgh.

The 1981 Deed between Conrail and the Authority contained the following

restriction or restrictive covenant:

[The Authority] acknowledges that the basic use of the building located on the land hereby conveyed is a rail freight facility served directly by rail lines of [Conrail,] and [the Authority] further acknowledges that its

PAM - 2

primary public purpose in acquiring said premises is to provide continued rental space for the wholesale produce industry and agrees to use its best efforts to continue it as such or some other rail oriented use.

(Reproduced Record (R.R.) at 34a) (emphasis added).

Beginning in 2008, the Authority advised tenants in the Terminal that

long-term occupancy was not practical and amended all leases to have a common

termination date of December 2012. In 2010, the Authority approved a lease

agreement with Buncher Company (Buncher) with an option to purchase the

Terminal. Buncher is not a wholesale produce distributor or a rail-oriented user,

and it is Buncher’s intention to demolish at least a part of the Terminal to make

way for residential and retail building space as part of a larger redevelopment

project in the Strip District. As Conrail’s successor-in-interest, Allegheny Valley

Railroad Company (AVR) filed a complaint in equity against the Authority seeking

to enforce the above restriction. (Trial court op. at 1-2, 4; Maj. op. at 5.)

Conrail and AVR transported produce to the Terminal continuously

from the time the 1981 Deed was executed until the Authority’s lease agreement

with Buncher. Although Conrail removed direct rail access to the Terminal in

1984, Conrail and AVR utilized the Valley Industrial Track for almost 26 years to

transport produce and unload it on shipping trucks that would then deliver the

produce a short distance (approximately 100 yards) to tenants in the Terminal.

However, from 1991 to 2010, produce deliveries to the Terminal declined in

unison with the departure of certain wholesale produce tenants in the Terminal, a

number of whom relocated to a “state-of-the-art” facility within the Strip District.1

Nonetheless, AVR’s deliveries to the Terminal tenants in 2008 through 2010

1 Brief for the Authority at 15-16, citing record.

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generated approximately $30,000.00 to $40,000.00 in annual revenue. (Trial court

op. at 3-5.)

The Majority affirms the trial court’s denial of permanent injunctive

relief,2 concluding that: (1) the Authority used its best efforts to atttract and retain

wholesale produce tenants in the Terminal; (2) Conrail’s removal of direct rail

access rendered the restriction in the 1981 Deed a “practical impossibility;” (3) a

change in the conditions of the neighborhood nullified the restrictive covenant; and

(4) AVR has an adequate remedy at law. (Maj. op. at 11-16.)

Pursuant to the plain language of the 1981 Deed, the Authority must

provide “rental space for the wholesale produce industry and . . . use its best efforts

to continue it as such or some other rail oriented use.” The esteemed trial court’s

conclusion that the removal of direct rail access thwarted the Authority’s reason

and ability to use its “best efforts,” (Trial court op. at 8-9), is belied by the fact that

Conrail and later AVR continued to make deliveries to the Terminal, via the Valley

Industrial Track and shipping trucks, until the Authority terminated leases of

existing tenants. Because the Authority terminated leases with tenants in the

Terminal and entered into the lease agreement with Buncher while AVR was still

servicing tenants in the Terminal, the Authority did not comply with the best

efforts obligation. At these points in time, the Authority effectively abandoned its

obligations under the 1981 Deed.

A contract may specifically provide for the occurrence of events

subsequent to its execution (a condition subsequent), and upon the happening of

2 In general, “[t]he required elements of injunctive relief are: a clear right to relief; an

urgent necessity to avoid an injury that cannot be compensated in damages; and a finding that

greater injury will result from refusing, rather than granting, the relief requested.” Big Bass Lake

Community Association v. Warren, 950 A.2d 1137, 1144-45 (Pa. Cmwlth. 2008).

PAM - 4

such events, may terminate either a party’s contractual obligations or extinguish

the contract. See Village Beer and Beverage, Inc. v. Vernon D. Cox and Co., Inc.,

75 A.2d 117, 122 (Pa. Super. 1984) (stating that “a condition subsequent acts to

discharge a contractual duty after it has already occurred” and recognizing that a

condition subsequent may act to extinguish a contract); Cambria Savings and Loan

Association v. Estate of Gross, 439 A.2d 1236, 1239 (Pa. Super. 1982) (explaining

a condition subsequent as follows: “if under the terms of the contract the

occurrence of an event is to terminate an obligor’s duty of immediate performance

. . . that duty is discharged if the event occurs.”).

However, there is no condition subsequent (or express set of

circumstances) in the 1981 Deed that would allow the Authority to sell the

Terminal to Buncher free and clear of the restriction. Therefore, unless there is a

legal basis that excuses the Authority’s obligations or nullifies the restriction in the

1981 Deed, the Authority remains bound by the restriction.

Contrary to the trial court and the Majority, I would conclude that the

Authority’s duty of performance was not discharged under the doctrines of

impossibility or frustration of purpose. “There is in the law the doctrine of

‘frustration,’ which holds that under the implied condition of the continuance of a

contract’s subject-matter, the contract is dissolved when the subject-matter is no

longer available.” Alvino v. Carraccio, 162 A.2d 358, 361 (Pa. 1960).

“Ordinarily, nothing will excuse performance of an absolute promise if the act

promised is possible of performance, even though performance in the manner

originally contemplated is rendered impossible. . . .” 12 P.L.E. CONTRACTS §455.

Here, the fact that Conrail removed direct rail access to the Terminal

in 1984 is essentially irrelevant. The Valley Industrial Track provided (and

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continues to provide) meaningful access to the Terminal for nearly 26 years, and

there is nothing in the 1981 Deed that preconditions the operability of the

restrictive covenant or the Authority’s obligations thereunder upon the presence of

direct rail access. Instead, the overriding subject matter and purpose of the

restriction in the 1981 Deed is to ship produce to “a rail freight facility,” i.e., the

Terminal. Given that this purpose or subject matter continues in effect and was not

destroyed, the restriction is not invalid pursuant to the doctrine of legal frustration.

Moreover, as a general rule, “a contractor is presumed, in the absence

of an express provision to the contrary, to have assumed the risk of unforeseen

contingencies arising during the course of the work, unless performance is

rendered impossible by an act of God, the law, or the other party.” O'Neill Constr.

Co. v. City of Philadelphia, 6 A.2d 525, 526-27 (Pa. 1939). “In order to prevail

under the theory of legal impracticability, [the party] must establish that the act

contemplated under the contract . . . is incapable of being performed, rather than

the fact he is incapable of performing it.” Luber v. Luber, 614 A.2d 771, 774 (Pa.

Super. 1992). “[F]utility is not the same as impracticability. . . . A party to a

contract cannot refuse to perform its obligations merely because it believes that

such performance would be fruitless.” Prusky v. ReliaStar Life Ins. Co., 474 F.

Supp. 2d 695, 700 (E.D. Pa. 2007).

Here, a number of tenants relocated to a “state-of-the-art” facility in

the same area, allegedly because the Terminal was not maintained as such. Despite

the decline in wholesale produce tenants at the Terminal, AVR’s deliveries to the

Terminal tenants remained viable in 2010 (62% of the Terminal’s platform space

was occupied as of 2009)3 and the loss of tenants is an entirely foreseeable event.

3 Brief for the Authority at 20, citing record.

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The record indicates that the Authority did not attempt to secure new tenants to

replace those who did not renew their leases. (Reproduced Record (R.R.) at 380-

82a, 392a-93a.) Significantly, there is no evidence that the Authority could not

continue seeking tenants, via newspaper or some other means of advertisement, or

using its best efforts to convert the Terminal to another rail-oriented use. Although

the Authority may have considered the task of securing and maintaining tenants

not profitable, this, alone, does not allow the Authority to abandon the covenant in

the 1981 Deed in favor of creating residential and retail building space. See

Firemen and Oilers, Local 1201, AFL-CIO v. Board of Education of School

District of Philadelphia, 457 A.2d 1269, 1274 (Pa. 1983) (“[M]ere inconvenience,

although it works a hardship, does not excuse performance and . . . a party who

wishes to be excused from performance on the basis of a subsequently occurring

condition has a duty so to provide in the contract and will not be excused otherwise

if performance is lawful and possible in itself.”). Accordingly, the Authority’s

contractual duty to continue performance under the 1981 Deed was not discharged

under the doctrine of impossibility/impracticability.

For these same reasons, I cannot agree with the Majority that the

Authority’s duty of performance was excused on the ground that changes in the

nature of the neighborhood made performance impossible or without any benefit to

AVR.

Generally speaking, the change in the neighborhood has to be so

dramatic that it deprives the beneficiary of the benefit of the restrictive covenant.

See Daniels v. Notor, 133 A.2d 520, 523 (Pa. 1957) (“Where the exigencies of

altered conditions in a neighborhood render a strict adherence to the terms of the

restrictive covenant useless to the dominant tenement, or absurd, or futile, or

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ineffective to achieve the end desired, it would be an anachronism to interpose

equitable relief in support of it.”). “[T]he courts will restrain violations of a

restrictive covenant so long as it remains of substantial value to the owner of the

dominant estate, notwithstanding a change of conditions.” 16 P.L.E. COVENANTS

§20. See Vernon Township Volunteer Fire Department, Inc. v. Connor, 855 A.2d

873, 881 (Pa. 2004) (“[T]he relevant inquiry concerning changes to the immediate

neighborhood is whether such changes alter or eliminate the benefit that the

restriction was intended to achieve.”).

In this case, the wholesale produce tenants that opted to leave the

Terminal, from its full capacity days of 1998 to the mid-2000s, chose to either

relocate to a state-of-the-art facility in the Strip District or were experiencing

financial difficulties.4 As the Authority itself noted, in 1999, Pittsburgh Repack, a

produce wholesaler that occupied 17,500 square feet on the Terminal, chose to

relocate its operations to a new state-of-the-art facility elsewhere in the Strip

District; and, in 2000, Consumers Produce Company, also a produce wholesaler

that at one time occupied 17,500 square feet on the Terminal, voluntarily

terminated its lease in the Terminal and joined Pittsburgh Repack in the state-of-

the-art facility.5 There is no evidence to support a finding that the Strip District’s

residential and retail development was such as to render the Terminal a useless,

isolated island that has no place in the neighborhood; indeed, the evidence shows

that a new state-of-the-art terminal was recently built in the Strip District to which

tenants of the Terminal moved.6 More importantly, AVR’s deliveries to the

4 Brief for the Authority at 15-17, citing record.

5 Id. at 15-16.

6 Id. at 16.

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Terminal tenants in 2008 through 2010 generated approximately $30,000.00 to

$40,000.00 in annual revenue, and, resulting, AVR continued to receive a benefit

from the covenant as of those dates. Therefore, I would conclude that the

restrictive covenant in the 1981 Deed remains enforceable; the Authority or any

subsequent purchaser is bound by that covenant; and AVR established a breach

and clear right to relief.

I also disagree with the Majority that AVR is barred from obtaining

equitable relief because it possesses an adequate remedy at law. “If a property

owner deliberately and intentionally violates a valid express restriction running

with the land or intentionally ‘takes a chance,’ the appropriate remedy is a

mandatory injunction to eradicate the violation.” Peters v. Davis, 231 A.2d 748,

752 (Pa. 1967). “To restrict the plaintiff to damages is not an adequate remedy.”

Id. (citations omitted). Here, in plain disregard of the covenant’s terms, the

Authority cancelled leases with existing tenants in the Terminal and entered into a

lease agreement for the construction of residential and retail building space.

Finally, I note that in its opinion, the trial court balanced the equities

and hardships that would result if a permanent injunction were granted. (Trial

court op. at 13-15). However, Pennsylvania courts do not balance equities where,

as here, the defendant “takes a chance” that its action will be permissible under an

existing restrictive covenant. Epstein Family Partnership v. Kmart Corp., 13 F.3d

762, 770 (3d Cir. 1994) (applying Pennsylvania law).

Regardless of the potential merits or benefits of the plans for large-

scale redevelopment in the Strip District, the Court is obligated to enforce a

restrictive covenant unless there is a legal basis that excuses performance or

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nullifies the validity of the covenant. I would conclude that no such legal basis

exists under the circumstances of this case.

Hence, I must respectfully dissent.

________________________________ PATRICIA A. McCULLOUGH, Judge