Opinion
C.A. No. 05C-05-108.
Submitted: July 17, 2007.
Decided: July 25, 2007.
Upon Defendant Edward Saraga's Motion for Partial Summary Judgment.
DENIED.James W. Owen, Esquire, JAMES W. OWEN, P.A., Wilmington, Delaware, Attorney for Plaintiff.
Chad J. Toms, Esquire, BIFFERATO GENTILOTTI LLC, Wilmington, Delaware, Attorney for Defendant.
Jeffrey M. Weiner, Esquire, LAW OFFICES OF JEFFREY M. WEINER, P.A., Wilmington, Delaware, Attorney for Third Party Defendants.
MEMORANDUM OPINION
I. Introduction
Plaintiff Data Management Internationalé, Inc. ("DMI") filed suit against its former landlord, Defendant Edward Saraga ("Saraga"), for one count of conversion and two counts of breach of contract. DMI alleges that Saraga wrongfully gave away, destroyed, and discarded business records and personal property belonging to DMI with a value of $80,000.00. Saraga has brought this motion for partial summary judgment seeking to exclude DMI from pursuing punitive damages. Because the Court finds that DMI can maintain claims in both tort and contract and that genuine material issues of fact exist, Saraga's motion for partial summary judgment is DENIED.
See Docket 1.
II. Statement of Facts
Saraga leased property located at 49B Germay Drive in Wilmington ("the Property") to DMI for about a decade. On July 31, 2003, the parties entered into a one-year lease agreement, effective August 1, 2003 ("the Lease"). By its terms, the Lease was to expire on July 31, 2004 without notice by either party. The Lease contained a peaceable surrender of premises provision ("Paragraph 7"), which stated in relevant part:
See Docket 1, Ex. A (hereinafter "Lease"), ¶¶ 1, 26.
On the last day of the lease term as presently written, or on the last day of any renewal or extension thereof . . . [t]enant shall peaceably surrender the premises. . . . Any personal property left upon the premises shall be deemed abandoned by the Tenant.
See Lease, ¶ 7.
The Lease also included a provision allowing for hold-over tenancy
("Paragraph 27"):
Any holding over after the expiration of the term hereof, without the written consent of Owner shall be construed to be a tenancy from month to month at one and one half (1 /12) [sic] times the monthly rent hereinbefore noted, and shall otherwise be on the terms and conditions hereinbefore specified. If Owner's written consent is granted, the rent shall be at the amount being paid at expiration date of this lease.
See Lease, ¶ 27.
The final provision of the Lease pertinent to this motion is a liability provision ("exculpatory clause"), which states in relevant part:
Owner in no event shall be liable for any damage or injury to Tenant or any agent or employee of Tenant, or to any person or persons coming upon the said premises in connection with the occupancy by Tenant or otherwise, or to any goods, chattels, or other property of Tenant . . . caused or contributed by water, rain, snow, breakage of pipes, leakage, or by any other cause except the willful negligence of the Owner, its agents or employees.
See Lease, ¶ 9.
The Lease called for any notice to the Owner provided for by its terms to be sent via registered mail to Saraga.
See Lease, ¶ 25.
Prior to the expiration of the Lease on July 31, 2004, Saraga found a new tenant for the Property. The new tenant was scheduled to begin occupying the Property on August 15, 2004. DMI entered into an agreement with this new tenant to sub-lease a portion of the Property as a "cold storage" facility.
See Docket 1.
DMI wished to keep some of its possessions on the Property past the express expiration date of the Lease and contacted Anthony M. Medori ("Medori"), an employee of Stoltz Realty Company, which served as Saraga's rental agent for the Property. According to DMI, both Medori and Stoltz Realty Company acted as Saraga's agents in connection with their rental of the Property, and Medori was the employee at Stoltz Realty Company who handled its lease. The scope of any agency relationship between Saraga and Medori or Stoltz Realty Company as it relates to this case is disputed.
Medori and Stoltz Realty have both been named as third-party defendants. See Docket 23.
See id.
DMI informed Medori that it would be sub-leasing the cold storage facility and that it would need "some additional time" past the July 31, 2004 expiration of the lease to remove all of its possessions from the Property. DMI alleges that it arranged with Medori to extend the Lease through August 9, 2004, and that it contacted Medori on multiple occasions to inform him that it would be removing its personal property on that day. Neither Medori nor Saraga notified DMI of any objection to these arrangements, and DMI did not send written notice to Saraga.
See Docket 1, 48, Ex. D.
On the morning of August 9, 2004, Saraga entered the Property with a crew from CCI, Inc. ("CCI"), a general contracting firm. DMI alleges that when its President arrived to begin overseeing removal of its possessions at 10:00 a.m. that morning, Saraga and the contractors had already removed three truck-loads of business records, equipment, and other items to a landfill. DMI also claims that Saraga informed some of the CCI employees that they could take DMI's personal property, including computers. According to DMI, Saraga persisted in removing items from the Property despite the demands of its President. DMI alleges that Saraga removed, gave away, and/or destroyed personal possessions worth more than $80,000, as well as business records.
See Docket 1.
DMI sued Saraga for conversion, breach of contract, and breach of the covenant of good faith and fair dealing. In its complaint, DMI seeks both compensatory and punitive damages. Saraga filed the instant motion for summary judgment on the issue of punitive damages. Following oral argument, the Court ordered additional briefing by the parties.
See id.
III. Parties' Contentions
In his motion for summary judgment, Saraga argued that punitive damages are unavailable in breach of contract claims between commercial landlords and tenants without addressing the effect of DMI's conversion claim. DMI concedes that it would not be entitled to punitive damages for either count of breach of contract contained in its complaint, but contends that it could recover punitive damages on the conversion claim.
See Docket 37, ¶ 8.
See Docket 48, p. 8.
During oral argument and in his supplemental brief, Saraga modified his position to argue that punitive damages are inappropriate in this particular case because DMI "abandoned any potential recovery in tort" by arguing that the Lease was still in effect on August 9, 2004. Saraga contends that DMI's conversion claim is not independent of its breach of contract claims, because DMI "would have had no right to possession of the [Property] and therefore no legal means to locate its personal property" there but for the Lease. Additionally, Saraga claims that the Lease's exculpatory clause would bar liability for acts of conversion. Saraga further maintains that punitive damages would be inappropriate even if DMI can assert a conversion claim, because his conduct was not marked by recklessness, wrongful intent, or any other aggravating factor which would entitle DMI to punitive damages.
See Docket 47, p. 6.
See id., p. 7.
See id., p. 8-9. See also Eby v. Thompson, 2005 WL 486850, at *2 (Del.Super.Ct. Mar. 2, 2005).
In response, DMI argues that its conversion claim is viable under Delaware law as a separate and distinct cause of action from its breach of contract claims. DMI asserts that the Lease's exculpatory clause is inapplicable, either because it only addresses negligent discharge of the landlord's maintenance duties or because it is ambiguous and must be construed against Saraga as the drafter. Finally, DMI claims that Saraga knew the Lease had been extended through August 9, 2004, and that his conduct "exhibit[ed] at best an `I don't care' attitude [towards DMI's rights] and at worst a deliberate attempt to harass," rendering punitive damages appropriate.
See Docket 48, p. 7. See also E.I. DuPont de Nemours and Co. v. Pressman, 679 A.2d 436, 445 (Del. 1996).
See Docket 48, p. 8-9. In its supplemental brief, DMI also objects to Saraga's raising a new argument at the hearing and in his supplemental brief and seeks to have the motion standards of Superior Court Rule 7 applied to bar Saraga from "holding matters in reserve." DMI suggests that the Court should decide this matter based solely on the original motion and response. See id., p. 5-6. The Court is cognizant of the burden placed on opposing counsel when the proponent of a motion pursues an additional or significantly modified argument. The Court takes this opportunity to emphasize the need for motions to be thorough and complete when filed. However, to the extent that Saraga has presented a genuinely new argument at hearing and in his supplemental brief, the Court considers it a matter of expediency to resolve that argument at this time.
IV. Standard of Review
In considering a motion for summary judgment, the Court's function is to examine the record to ascertain whether genuine issues of material fact exist and to determine whether the moving party is entitled to judgment as a matter of law. The court will view the record in the light most favorable to the non-moving party and will draw all rational inferences in favor of the non-movant based upon the undisputed facts and the non-movant's version of any disputed facts. If the Court finds that material facts are in dispute or that judgment as a matter of law is not appropriate, summary judgment will be denied. However, if no material facts are in dispute and the moving party is entitled to judgment as a matter of law, summary judgment will be granted.V. Discussion A. Conversion Claim
Under Delaware law, a plaintiff bringing a claim based entirely upon a breach of the terms of a contract generally must sue in contract, and not in tort. In preventing gratuitous "bootstrapping" of contract claims into tort claims, courts recognize that a breach of contract will not generally constitute a tort. Even an intentional, knowing, wanton, or malicious action by the defendant will not support a tort claim if the plaintiff cannot assert wrongful conduct beyond the breach of contract itself. Rather, a tort usually involves violation of a duty which arises "by operation of law and not by the mere agreement of the parties." However, the same circumstances may give rise to both breach of contract and tort claims if the plaintiff asserts that the alleged contractual breach was accompanied by the breach of an independent duty imposed by law.Conversion is generally defined as "any distinct act of dominion wrongfully exerted over the property of another, in denial of his right, or inconsistent with it." Because conversion is an intentional tort,there is a general duty grounded in tort law to refrain from converting another's property. A conversion claim may be asserted alongside a contract claim where the plaintiff alleges the defendant breached a tort duty independent of any obligations imposed by the contract. In the landlord-tenant context, a tenant may therefore assert a claim of conversion of personal property against a landlord along with a breach of contract claim.
Drug, Inc. v. Hunt, 168 A. 87, 93 (Del. 1933).
See Willis v. City of Rehoboth Beach, 2005 WL 1953028, at *3 n. 4 (Del.Super.Ct. June 24, 2005); Lustgarten v. Philips, Inc., 1981 WL 7628, at * 2 (Del.Ch. Oct. 21, 1981).
See Textainer Equip. Mgmt. Ltd., 2007 WL 1795695, at *3 (stating that where complaint included facts supporting a claim for conversion, plaintiff need not offer specific proof of an independent duty to refrain from conversion where breach of contract was also alleged); Exxon Mobil Corp. v. Kinder Morgan Operating L.P. "A", 192 S.W.3d 120, 128 (Tex.App. 2006).
See Textainer Equip. Mgmt. Ltd. v. TRS Inc., 2007 WL 1795695, at *2-3 (N.D. Cal. June 20, 2007) (finding plaintiff stated claims for breach of contract and conversion where plaintiff alleged defendant violated both contractual obligation and an independent duty to refrain from converting plaintiff's property); H.J. Keith Co. v. Booth Fisheries Co., 87 A. 715, 718-19 (Del.Super.Ct. 1913). See also 18 AM. JUR. 2D Conversion § 67.
See, e.g., Johnson v. Northpointe Apartments, 744 So. 2d 89 (Ala. 1999); Magnuson v. Schaider, 538 N.E.2d 1309, 1315-16 (Ill.App.Ct. 1989); Kincaid v. Sturdevant, 437 F. Supp. 2d 1219, 1222 (D. Kan. 2006). See also Int'l Bus. Machines Corp. v. Comdisco, Inc., 1993 WL 249102, at *8 n. 7 (Del.Super.Ct. June 30, 1993) (citing Magnuson, 538 N.E.2d at 1316) (applying Illinois law and noting that in a commercial lease for personal property, "where a lease provides that a lessee is entitled to notice and an opportunity to cure, a lessor who takes possession of the subject matter of the lease without providing the lessee with such notice and opportunity to cure may be liable to the lessee for conversion").
In the instant case, DMI has presented a viable claim for conversion which can stand alongside its breach of contract claims. Saraga's argument that DMI cannot proceed in tort rests upon a false dichotomy: either the Lease was still in effect on August 9, 2004 and DMI's action can only sound in contract, or else the Lease had expired and DMI lacks grounds for a conversion claim because the property was abandoned. However, the continued operation of the Lease would not bar DMI's conversion claim. The existence of a contractual relationship between the parties may determine the outcome of DMI's conversion claim by establishing whether or not the personal property was abandoned, but this does not mean that the Lease was the source of the duty DMI claims was violated. Rather, the obligation not to misappropriate another's property arises from general common law tort principles and exists independent of any contractual relationship between the parties.
The Court notes that DMI would have a claim for conversion if Saraga wrongfully exercised dominion over business assets belonging to it in the absence of any contract or landlord-tenant relationship between the parties. Although the Lease may be dispositive as to whether the exercise of dominion was wrongful (i.e., whether the personal property was abandoned), Saraga's obligation not to commit conversion clearly exists independent of the contract and did not arise "by the mere agreement of the parties." Garber, 174 A. at 36.
Because this case involves the alleged breach of a tort duty existing independent of the defendant's contractual obligations, Saraga's reliance upon Pinkert v. John J. Oliveiri, P.A. is misplaced. In Pinkert, the defendant construction company was granted summary judgment on a fraud claim where alleged misrepresentations were contained in payment requests which "memorialized . . . some of the . . . defendant['s] principal [contractual] obligations." The defendant's duty to submit the payment request documents arose solely from the contract. Pinkert stands in contrast to the instant case, in which the plaintiff raises a tort claim based upon an alleged violation of a duty which exists independent of the contract between the parties.
Pinkert, 2001 WL 641737.
Id. at *5.
Id.
Saraga concedes that the question of whether the Lease had been extended is a disputed fact. Because the extension of the Lease is dispositive as to the status of the property allegedly converted, this dispute is highly material. Viewing the record in the light most favorable to the non-moving party, DMI presents facts which could allow a reasonable fact-finder to conclude that the lease had been extended up to and including August 9, 2004 and that Saraga's conduct in discarding and destroying the business equipment and records located at the Property breached both the contract between the parties and an independent duty to refrain from converting DMI's personal property. Therefore, Saraga is not entitled to summary judgment on the conversion claim.
See Docket 47, p. 3-4.
B. Exculpatory Clause
Turning to Saraga's contention that the Lease's exculpatory clause relieves him of any potential liability for conversion, the Court finds that the exculpatory clause will not eliminate liability for an intentional tort. Delaware courts have long looked unfavorably upon contractual clauses purporting to exonerate a party from liability for its own negligence. Such clauses can be enforced in commercial leases negotiated in an arm's-length transaction, but the parties' intent to provide immunity from even simple negligence must be stated clearly and unequivocally in order to be enforceable. Exculpatory clauses are strictly construed against the landlord. If it is possible to construe the contract so as not to confer immunity, the language will be so interpreted.
See, e.g., Tandy Corp. v. Fusco Properties, L.P., 1996 WL 280774, at *3 (Del.Super.Ct. Apr. 10, 1996); Koutoufaris v. Dick, 604 A.2d 390, 401-02 (Del. 1992); Blum v. Kauffman, 297 A.2d 48, 49 (Del. 1972); Wright v. Weymouth, 1967 WL 90373, at *2 (Del.Super.Ct. Apr. 21, 1967).
See, e.g., Tandy Corp., 1996 WL 280774, at *3-4; Koutoufaris, 604 A.2d at 401-02. See also Swisscraft Novelty Co. v. Alad Realty Corp., 274 A.2d 59, 62 (N.J.Super.Ct. App. Div. 1971).
See Wright, 1967 WL 90373, at *2.
See Blum, 297 A.2d at 49. See also Johnson, 744 So. 2d at 904-905 (holding that exculpatory clause in lease which did not protect landlord from consequences of its own "willful misconduct" could not act as a shield from liability for landlord's conversion of tenant's personal property).
Here, a landlord seeks immunity from the consequences of an alleged intentional tort under an exculpatory clause which does not relieve him of liability for "willful negligence." Initially, the Court notes that if the Lease's language expressed an unambiguous intent to relieve Saraga of liability for his own intentional torts, it is exceedingly doubtful that such a provision would be enforceable as a matter of public policy. Moreover, the Court finds that the exculpatory clause contained in the Lease does not express a "clear and unequivocal" intent to confer immunity from a conversion claim. The exculpatory clause does not specifically address intentional torts and contains language stating that the Owner shall not be liable for damages or injuries caused by "any . . . cause except the willful negligence of the Owner, its agents or employees." However, in carving out an exemption to immunity for "willful negligence," it would appear that the parties intended a fortiori not to immunize in the event of an intentional tort. Additionally, it is not clear that the exculpatory clause was intended to address liability for intentional torts at all. The exculpatory clause can be construed as allocating liability associated with acts of negligence only. Parties to a lease may reasonably anticipate and address the risks associated with negligence through an exculpatory clause without anticipating an intentional tort which violates a duty independent of the contract. Because the Lease can be interpreted as not conferring immunity for acts constituting an intentional tort, Saraga is not entitled to judgment as a matter of law on the issue of punitive damages based upon the exculpatory clause.
See RESTATEMENT (SECOND) OF CONTRACTS § 195 ("A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy."); RICHARD A. LORD, 8 WILLISTON ON CONTRACTS § 19:23 (4th ed. 2007) ("An attempted exemption from liability for a future intentional tort . . . is generally held void . . ."). See also I.C.C. Metals, Inc. v. Municipal Warehouse Co., 409 N.E.2d 849, 853 (N.Y. 1980) ("Although public policy will in many situations countenance voluntary prior limitations upon that liability which the law would otherwise impose upon one who acts carelessly . . . such prior limitations may not properly be applied so as to diminish one's liability for injuries resulting from an affirmative and intentional act of misconduct . . . such as a conversion. Any other rule would encourage wrongdoing by allowing the converter to retain the difference between the value of the converted property and the limited amount of liability. . . . That result would be absurd.").
See Lease, ¶ 9.
See Textainer Equip. Mgmt. Ltd., 2007 WL 1795695, at *3 ("[P]arties to contracts are expected to understand the risks allocated by contract, but are not expected to anticipate fraud and dishonesty. . . . [Plaintiff] had no reason to enter into a contract believing that defendants would [convert its property].") (internal citations omitted).
C. Punitive Damages
Having established that DMI may proceed with claims in both tort and contract, the Court finds that DMI's claim for punitive damages for conversion withstands summary judgment. Punitive damages are not available in a breach of contract case unless, as is alleged here, the conduct constituting the breach independently amounts to a tort. Unlike contract damages, which are intended solely to compensate the non-breaching party for its expectation loss regardless of the willfulness of the breach, punitive damages are intended to punish tortfeasors whose wrongful conduct was committed with willfulness, wantonness, or malice. Punitive damages are generally permitted for conversion where the conversion "involves elements of . . . ill will, malice, recklessness, wantonness, oppression, insult, willful or conscious disregard of the plaintiff's rights, or other aggravating circumstances."
E.I. DuPont de Nemours and Co., 679 A.2d at 445 (citing RESTATEMENT (SECOND) OF CONTRACTS § 355).
id.
E.g., Riegel v. Aastad, 272 A.2d 715, 718 (Del. 1970). See ALSO RESTATEMENT (SECOND) OF TORTS § 908 ("Punitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others. In assessing punitive damages, the trier of fact can properly consider the character of the defendant's act, the nature and extent of the harm to the plaintiff that the defendant caused or intended to cause and the wealth of the defendant.").
18 AM. JUR. 2D Conversion § 125.
The Court finds that a genuine issue of material fact exists which precludes summary judgment for Saraga on the issue of punitive damages. Saraga maintains that he acted with a good faith belief that the personal property he removed from the Property and then allegedly discarded or destroyed was abandoned under the lease, and that he therefore did not act recklessly or with wrongful intent. DMI alleges that Saraga converted its personal property when he knew or should have known that DMI was in hold-over tenancy.
See Docket 47, p. 9.
See Docket 48, p. 9-10.
Viewing the record in the light most favorable to the plaintiff, DMI's position is supported by the testimony of Medori and DMI President Carol Swezey that Medori was informed of DMI's plans to continue using the Property and that neither Medori nor Saraga objected to this plan, by Carol Swezey's testimony that she acted under the belief that Medori was authorized to extend DMI's lease, and by a report prepared for DMI's insurance company which suggests that Medori stated that he had notified Saraga of DMI's intent to hold-over. Additionally, the testimony of one DMI employee that Saraga made a derogatory reference to two of DMI's principal officers on multiple occasions furthers DMI's position that it should be permitted to pursue a claim for punitive damages. Because the parties have presented a genuine issue of material fact as to whether Saraga's actions amounted to a conversion accompanied by aggravating circumstances which could entitle DMI to recover punitive damages, summary judgment for Saraga on the issue of punitive damages must be denied.
See Docket 37, Ex. 2.
See Docket 48, Ex. D.
See Docket 47, Ex. 4.
See Docket 48, Ex. G.
See Docket 47, Ex. 2.
VI. Conclusion
For all of the foregoing reasons, Saraga's motion for summary judgment is DENIED.
IT IS SO ORDERED.