Ginko Associates

At the final hearing on this matter, Mr. Tota moved to conform the pleadings to1
the evidence, including the amounts claimed differing from those in the filed amended claim. 3
N.T. at 68-69. This is permissible per Fed. R. Civ. P. 15(b)(2), incorporated in bankruptcy
proceedings by Fed. R. Bankr. P. 7015, which itself can be incorporated into contested matters
under Fed. R. Bankr. P. 9014(c). See, e.g., In re Adelphia Communications Corp., 376 B.R. 87,
106 (Bankr. S.D.N.Y. 2007). I granted the motion. 3 N.T. at 69.
The hearing on damages took place over three days. Citations to Notes of
Testimony will be in the form of “1 N.T. at”; “2 N.T. at”; and “3 N.T. at.”
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
GINKO ASSOCIATES, L.P. 	:
Debtor 	: 	Bankruptcy No. 05-19436bf
.................................................
MEMORANDUM
.................................................
Before me is the debtor’s amended objection to an amended proof of claim,
docketed as claim #8, filed by Mr. Luan Tota, t/a Branzino Restaurant. Mr. Tota, the
owner and operator of Branzino Restaurant, asserts an unsecured claim totaling
$225,601.15, see Claimant’s Post-Trial Memorandum, at 2, 40, in connection with a lease
from debtor Ginko Associates, L.P. of commercial real estate located at 259-61 South
17th Street, Philadelphia, Pennsylvania. 	In his amended claim, Mr. Tota seeks damages1
against Ginko for pre-opening repairs made by him, repairs made to the basement to
prevent flooding, and repairs made in connection with damages caused by a burst water
pipe, as well as attorney’s fees, return of his security deposit, and damages for delay in
opening the restaurant. The debtor objects to the amended claim, opposes any return of
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On February 15, 2007, Regis filed a motion to intervene in this claim objection,2
asserting a right of subrogation of Mr. Tota’s claim against Ginko. On March 29, 2007, Regis’s
intervention motion was granted with agreement of the parties, and the insurance carrier was
permitted to intervene in the damage aspect of the dispute.
2
the tenant’s security deposit, and counters with its own claim for unpaid rent and other
charges.
Previously, I bifurcated the matter to first determine the liability, if any, of
Ginko. In a memorandum and order issued July 25, 2007, see In re Ginko Assocs., L.P.,
372 B.R. 229 (Bankr. E.D. Pa. 2007), I found Ginko liable for those certain pre-opening
repairs and improvements performed by Mr. Tota and for the cost of repairs to prevent
flooding of the basement storage area. I disallowed, however, the creditor’s claim for
attorney’s fees as well as damages for the purported delay in opening the restaurant. In
addition, I deferred to this second, damages portion of the contested matter the issues of
Mr. Tota’s claim for return of his security deposit, and Ginko’s setoff claim, as well as
liability for that portion of the claim concerning property damages, damages for business
interruption, and subrogation, all arising from the burst water pipe.
In the July 2007 memorandum I noted potentially conflicting provisions in
the Lease Agreement and Lease Addendum regarding the lessor’s liability for negligence,
but deferred decision on that issue to accord intervenor Regis Insurance Company, Mr.
Tota’s insurance carrier, the opportunity to participate. 	In this phase of the dispute, the2
parties still disagree as to whether the lease agreements as a whole place liability on
Ginko for its negligence, or if recovery from Ginko is precluded by an exculpation clause.
The following facts are relevant to this claim and are detailed in narrative
format.
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The premises were sold on June 8, 2006 to PBRG Acquisitions, LP and the lease3
assigned to this new owner. See May 17, 2006 Order (docket #181). For purposes of this claim
objection, the parties agreed that Ginko was the owner and lessor of the subject property.
Furthermore, the debtor’s confirmed plan provides that allowed claims of
unsecured creditors will be paid in full. See “Second Modified Second Amended Plan,” dated
May 11, 2006, Article III, ¶ 3.5. Thus, any allowance of Mr. Tota’s claim will be paid in full by
Ginko.
3
I.
The debtor, Ginko Associates, L.P., was the owner of property located at
259-261 South 17th Street, Philadelphia, Pennsylvania. 	On January 9, 2002, Ginko3
entered into a Lease Agreement with Mr. Muharrem Himallari (a/k/a, and hereinafter,
Mario Hima), Mr. Tota’s cousin, for rental of the premises, consisting of a portion of the
first floor of the building at 259 South 17th Street and the first floor and basement of the
building at 261 South 17th Street. Ex. C-1. (The upper floors of the buildings were
vacant and not part of the leased space.) Signed contemporaneously with the lease was a
Lease Addendum. See ex. C-2. I previously found that Ginko drafted both of these
documents. See In re Ginko, 372 B.R. at 237.
Mr. Hima and Mr. Tota are both citizens of Albania who came to this
country in the late 1990s. Before Mr. Hima was able to open a restaurant at the 17th
Street location, he was deported back to Albania. He and Mr. Tota then agreed that Mr.
Tota, who was seeking rental space for his own restaurant, would take over the 17th
Street leasehold.
Accordingly, on May 1, 2003, Mr. Tota, Mr. Hima, and Ginko entered into
an agreement termed a “Lease Modification Agreement” adding Mr. Tota to the Lease
Agreement as lessee under the lease as of that date. Ex. C-3, § 1. This modification
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While the Modification Agreement did not expressly mention the Lease4
Addendum, the parties assumed that the reference in the Modification to the January 2002 lease
included the Addendum as well. I agreed that this was the intent of the parties, especially since
many of the specific lease terms are only found in the Addendum and the lease refers to the Lease
Addendum. See In re Ginko, 372 B.R. at 234 n.4.
4
agreement also “ratified” all of the terms of the January 2002 lease. Ex. C-3, § 5. 	When4
it was clear that Mr. Hima would not be permitted to return to this country, Mr. Tota took
over full ownership of the restaurant.
The January 2002 Lease Addendum called for a five year lease term, with
base rental payments during the first twelve months of $3,500 monthly. Ex. C-2, at § 2.
The rent increased annually as follows:
lease year 	monthly rent
1 	3,500.00
2 	3,710.00
3 	3,932.60
4 	4,168.56
5 	4,418.67
Id.
The Lease Addendum also required the lessee to pay “as additional rent,
Lessee’s proportionate share of the Business Use and Occupancy Taxes, or similar taxes
imposed and/or assessed by the School District and/or City of Philadelphia . . . .” Id., § 4.
Additionally, the lessee was required to pay:
as additional rent, an amount equal to twenty-five (25%)
percent of the aggregate of all real estate, assessments, special
services district taxes . . . within ten (10) days of presentation
of a bill for such taxes. Lessee’s share of the Real Estate
Taxes shall be pro-rated during the first and last calendar
years during the term of this Lease on a per diem basis.
Should Lessee fail to pay such taxes in a timely manner,
Lessee shall also be responsible for any and all interest,
penalties and additions that may be imposed or assessed by
the City and/or School District of Philadelphia.
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Mr. Garrett worked for Urban Shelter, a company controlled by Wilson Rigdon,5
president of the general partner of Ginko. Later, Walter Wood Realty took over management of
the Ginko properties. There is no dispute that, at the times relevant, Mr. Garrett was a duly
authorized agent of the lessor.
5
Id., § 6. Similarly, the lessee was required under the Lease Addendum to pay “as
additional rent, twenty-five (25%) percent of all water and sewer charges that are assessed
or imposed upon the entire premises . . . within ten (10) days after presentation of a bill
therefor by Lessor. If Lessee shall fail to make timely payment . . . Lessee shall also be
responsible for any interest, penalties and additions imposed thereon.” Id., § 5. Thus
payment of the water and sewer charges, and taxes (other than use and occupancy and
school taxes) required prior presentment of a bill by Ginko.
The Lease Addendum provided for the payment of rent on the first day of
the month, with a late charge of 5% of the “amount of such item of rent, additional rent or
other charge due” if not paid within 10 days of the due date. Id., § 2. In addition, the
lessee was to pay the lessor an administrative charge of $50 for any of lessee’s checks
that were returned due to insufficient funds or otherwise dishonored. Id. However, the
Lease Addendum required that “[p]rior to the exercise of any remedies by Lessor
hereunder, Lessor shall provide: (a) five (5) days written notice for monetary defaults;
and twenty (20) days in cases of non-monetary defaults . . . .” Id., § 24.
After he signed the lease modification in May 2003, Mr. Tota prepared the
leasehold for use as a restaurant, leading to the claim that Ginko owes him for rent credits
promised by its property manager, Mr. Whit Garrett, as reimbursement for repairs or5
improvements made by him that were the contractual responsibility of the lessor or
otherwise authorized by the lessor’s agent. In the initial phase of this contested matter, I
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6
found Ginko liable for these credits. In re Ginko Assocs., L.P., 372 B.R. at 239-40. The
specifics of these repairs and their costs will be discussed below.
Mr. Tota opened the restaurant on October 2, 2003. 1 N.T. at 71. The
restaurant includes two dining areas, one containing 45 seats (259 South 17th St.) and one
containing 25 seats (261 South 17th St.). 3 N.T. at 18-20. The restaurant is open 52
weeks a year, even when Mr. Tota is on vacation. 2 N.T. at 122, 123. Mr. Tota testified
that in 2004 he filled all of the tables on “many, many nights.” 3 N.T. at 19. He testified
that in 2005, he did 450-550 “covers” per week, and in 2007 he averaged 550-650. 2
N.T. at 109-110. He also testified that the average cost of a meal ($30) has remained
constant. Id.
On January 26, 2005, a water pipe located on the unheated, non-leased
second floor of the premises froze and broke, flooding the restaurant, basement and
storage areas. At the liability phase of the contested matter, Ginko admitted that the water
pipe breakage was due to its negligence. In re Ginko Assocs., L.P., 372 B.R. at 241.
Among other things, the flood damaged the restaurant’s ceiling and walls,
rugs and furniture, and a wall mural. Damage occurred in both dining rooms of the
restaurant, but primarily in the 45-seat dining room. 2 N.T. at 72. Mr. Tota notified
Ginko’s management company, Walter Wood Realty, as well as his own insurance
company, Regis. 2 N.T. at 97-98.
Mr. Tota then hired a company called ServPro Restoration to remove the
water from the premises. 2 N.T. at 98; see ex. C-26 (ServPro invoice dated February 8,
2005 listing claim date as February 4, 2005). He testified that ServPro installed
dehumidifiers that ran for approximately two weeks. 2 N.T. at 98. On February 8, 2005,
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7
Mr. Tota engaged a property appraiser, Mr. Bruno Pagano, of Pro-Claim Public
Adjusters, Inc., to negotiate with Regis on his behalf. 2 N.T. at 4-6, 105.
Although Mr. Tota variously referred to the restaurant being closed for 35
days after the burst water pipe, see, e.g., Claimant’s Post-Trial Memorandum, at 17, ¶ 88
(“the restaurant was closed for 35 days from 1/26/05 to 3/2/05”), it appears that only a
portion of the restaurant was closed from January 26, 2005 to March 2, 2005 to make
repairs sufficient to reopen the business fully. See 2 N.T. at 29 (testimony of Mr. Pagano
that “the actual work started 2/9/2005 and ended on 3/2/2005 . . . and there was
suspension of service in part of the restaurant during that time.”); 2 N.T. at 105
(testimony of Mr. Tota that he closed “part” of the restaurant for 35 days and that work on
the restaurant occurred from February 9, 2005 to March 2, 2005); 2 N.T. at 90-91 (Mr.
Pagano testifying that the restaurant was closed for 35 days and would be partially closed
in the future, but then stating that there was “some business going on,” possibly 30%,
during the 35-day closure). During this period, various contractors performed repairs, and
Mr. Tota did some work himself. See 2 N.T. at 103.
Mr. Tota ultimately filed a claim with Regis to recover his repair costs
during that period, plus a loss of 70% of business, and also claimed damages for projected
future repairs as well as anticipated loss of business while these future repairs were
completed. Ex. C-39. See also 2 N.T. at 29 (Mr. Pagano testifying that the accountant
calculated initial loss of earnings based on a 70% loss). In connection with the personal
property damages, Mr. Tota executed a Sworn Statement in Proof of Loss on January 16,
2005, claiming from Regis a total of $32,500 as the replacement cost to betterments,
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Mr. Marinelli, the debtor’s lost profits expert, filed a motion to quash the trial6
subpoena, declining to testify unless he was paid. The debtor declined to pay an expert fee;
therefore the witness did not testify. See 1 N.T. at 8-12. Because this witness was not deemed
unavailable, his deposition was not admitted into evidence. See 1 N.T. at 13-18.
The insurance policy provided for a $1,000 deductible. See Ex. I-1(A)7
(unpaginated); 2 N.T. at 88.
8
improvements and business personal property as a result of the water damage. Ex. I-1(g).
Additionally, Mr. Pagano sent a letter dated January 13, 2006 to Regis, stating:
This letter is to memorialize our telephone conversation . .
with regards to the loss of 1/26/2005 with Bronzino [sic]
Restaurant. At the time we arrived at a gentleman’s
agreement to settle in full the betterments and improvements
business personal property for $32,500 pending a proof of
loss.
Subsequently this offer was presented to your insured Luan
Tota, and was accepted in good faith.
Therefore this leaves open only the issue concerning the
business interruption.
Ex. I-4 (emphasis in original).
On January 19, 2006, Mr. Pagano requested a loss of business estimate from
Nick Marinelli, an accountant hired by Mr. Tota to compute the loss of business, see 1
N.T. at 8-10; 2 N.T. at 88, assuming 35 days loss of earnings, plus six weeks future loss
of earnings, both based on a 70% reduction in restaurant operations. Ex. C-39. 	Mr. Tota6
executed another Sworn Statement in Proof of Loss on February 1, 2007, claiming from
Regis a total of $21,550.42 for the loss of business resulting from the water damage. Ex.
I-1(f).
Regis paid Mr. Tota $31,500.00 for personal property damage 	and7
$21,550.42 for loss of business profits. Trial Stipulation, at ¶ 2. Payments were made by
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9
Regis by bank drafts dated January 26, 2005 ($7,500.00), January 16, 2006 ($24,000.00),
August 21, 2006 ($4,584.42 for 35 days lost profit), and February 5, 2007 ($16,966.00 for
six weeks lost profit). Id., at ¶ 4.
Mr. Tota contends in this contested matter that these amounts did not fully
compensate him for his losses. Claimant’s Post-Trial Memorandum, ¶¶ 91-92; see 2 N.T.
at 74-75 (Mr. Pagano testifying that amount received on betterments and improvements
and personal property damage represented a compromise with Regis). Further, although
he negotiated with Regis for lost profits in the future based on a partial closure of the
business, see 2 N.T. at 90, he contends in this proceeding that a full closure is necessary.
2 N.T. at 92.
The parties dispute the application and interpretation of various provisions
of the Lease and the Lease Addendum, especially concerning the issue of liability for the
damages caused by the burst water pipe. The Lease at section 11 provides:
(a) Lessee agrees to be responsible for and to relieve and
hereby relieves the Lessor from all liability by reason of any
injury or damage to any person or property in the demised
premises, whether belonging to the Lessee or any other
person, caused by any fire, breakage or leakage in any part or
portion of the demised premises, or any part or portion of the
building of which the demised premises is a part, or from
water, rain or snow that may leak into, issue or flow from any
part of the said premises, or of the building of which the
demised premises is a part, or from the drains, pipes, or
plumbing work of the same, or from any place or quarter,
unless such breakage, leakage, injury or damage be caused by
or result from the negligence of Lessor or his servants or
agents or any person or persons whatsoever.
Ex. C-1, § 11(a) (emphasis supplied). The word “unless” replaced the form’s original
word, “whether.” Id.
The next paragraph is similarly altered as follows:
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10
(b) Lessee also agrees to be responsible for and to relieve and
hereby relieves the Lessor from all liability by reason of any
damage or injury to any person or thing, which arise from or
be due to the use, misuse or abuse of all or any of the
elevators, hatches, openings, stairways, hallways, of any kind
whatsoever, which may exist or hereafter be erected or
constructed on the said premises, or from any kind of injury
which may arise from any other cause whatsoever on the said
premises or the building of which the demised premises is a
part unless such damage, injury, use, misuse or abuse be
caused by or result from the negligence of Lessor, his servants
or agents or any other person or persons whatsoever.
Ex. C-1, § 11(b) (emphasis supplied).
Section 12 of the Lease deals with the responsibility of the lessor in case of
total or partial destruction to the premises, as follows:
(a) In the event that the demised premises is totally destroyed
or so damaged by fire or other casualty not occurring through
fault or negligence of the Lessee or those employed by or
acting for him, that the same cannot be repaired or restored
within a reasonable time, this lease shall absolutely cease and
determine, and the rent shall abate for the balance of the term.
(b) If the damage caused as above be only partial and such
that the premises can be restored to their then condition within
a reasonable time, the Lessor may, at his option, restore the
same with reasonable promptness, reserving the right to enter
upon the demised premises for that purpose. The Lessor also
reserves the right to enter upon the demised premises
whenever necessary to repair damage caused by fire or other
casualty to the building of which the demised premises is a
part, even though the effect of such entry be to render the
demised premises or a part thereof untenantable. In either
event the rent shall be apportioned and suspended during the
time the Lessor is in possession, taking into account the
proportion of the demised premises rendered untenantable and
the duration of the Lessor’s possession. If a dispute arises as
to the amount of rent due under this clause, Lessee agrees to
pay the full amount claimed by Lessor. Lessee shall,
however, have the right to proceed by law to recover the
excess payment, if any.
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11
(c) Lessor shall make such election to repair the premises or
terminate this lease by giving notice thereof to Lessee at the
leased premises within thirty days from the day Lessor
received notice that the demised premises had been destroyed
or damaged by fire or other casualty.
(d) Lessor shall not be liable for any damage, compensation or
claim by reason of inconvenience or annoyance arising from
the necessity of repairing any portion of the building, the
interruption in the use of the premises, or the termination of
this lease by reason of the destruction of the premises.
Ex. C-1, § 12.
In addition, three paragraphs of section 4 of the Lease Agreement are
deleted in their entirety, one having to do with payment of taxes, one with payment of
water rent, and one with sewer rent. See ex. C-1, § 4(b), (d) and (e). The third paragraph
of section 4, requiring the lessee to pay as additional rent all increases in fire insurance
premiums, is not struck. See ex. C-1, § 4(c).
As for the Lease Addendum, it requires the lessee to obtain insurance
coverage in paragraph 10, as follows:
LESSEE’S INSURANCE. Lessee shall, at Lessee’s sole cost
and expense, obtain and maintain throughout the term of this
Lease and any extensions or renewals, a policy of
comprehensive general public liability insurance, including
contractual liability and fire legal liability coverages, insuring
both Lessee and Lessor, in and about the demised premises,
with combined single limits of not less than One Million
($1,000,000.00) Dollars for bodily or personal injury or death
per person and property damage. In the event that Lessee
shall obtain a liquor license for use at the demised premises,
Lessee shall also maintain dram shop or liquor liability
insurance coverage. Lessor shall be named as an additional
insured on said policy(ies), and such policy(ies) shall not be
subject to cancellation, termination or change except after at
least twenty (20) days prior written notice has been given to
Lessor. The policy(ies) of insurance shall be issued by a
financially responsible company or companies licensed to do
business in the Commonwealth of Pennsylvania.
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12
Upon execution of this Lease and prior to Lessee taking
possession of the demised premises, Lessee shall deliver to
Lessor a copy of said insurance policy(ies) or a Certificate of
Insurance evidencing said coverage and shall provide proof of
payment of the premiums therefor. Prior to the expiration
date of such policy, Lessee shall provide Lessor with a copy
of all renewal or replacement policies or Certificates of
Insurance therefor, indicating that the required insurance
coverage is in force and effect at all times during the term of
this Lease and any extensions or renewals hereof. Lessee
acknowledges and agrees that Lessor shall not be responsible
or liable in any way to Lessee or any other person, for any
damage or loss to any personal property, equipment, fixtures
and/or leasehold improvements of Lessee or any other person
upon the demised premises. Lessee agrees to maintain
throughout the term of this Lease and any extensions or
renewals, a policy of fire and hazard insurance covering all of
Lessee’s contents and leasehold improvements at the demised
premises at the replacement value thereof.
If Lessee shall fail to obtain or maintain such insurance policy
or coverages required hereunder, Lessor may, but shall not be
obligated to, obtain such insurance coverages on Lessee’s
behalf, or Lessor may, at its sole option, terminate this Lease
upon ten (10) days notice to Lessee. In the event that Lessor
obtains such coverages on Lessee’s behalf, Lessee shall
reimburse Lessor for the cost of the premiums, together with a
service charge in the amount of 1-1/2% per month upon such
costs paid by Lessor, until Lessee shall have fully reimbursed
Lessor for same.
Ex. C-2, at ¶ 10.
In addition, the Lease Addendum provides for indemnification by the lessee
as follows:
INDEMNIFICATION. Lessee agrees to indemnify, defend
and hold Lessor harmless from and against any and all claims,
actions, suits, proceedings, losses, liabilities, damages, costs
and expenses, including attorney’s fees and disbursements,
arising out of or flowing from the operation of Lessee’s
business and/or the use and occupancy of the demised
premises, and/or from any bodily injury or property damage or
loss sustained by Lessee or any of Lessee’s employees,
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13
agents, patrons or invitees upon the premises, and/or from a
breach of this Lease by Lessee.
Ex. C-2, at § 14.
Finally, as Ginko points out, the Lease Addendum begins with the
following preface:
Notwithstanding anything set forth in the pre-printed Lease
Agreement to the contrary, the parties hereto, intending to be
legally bound hereby, do agree as follows. . . .
Ex. C-2.
As for Regis’ subrogation rights, I note that neither the Lease Agreement
nor the Lease Addendum expressly addresses subrogation rights using that term or title,
except the indemnification provision just quoted that protects the lessor. The insurance
policy between Regis and Mr. Tota includes an “SMP [Special Multi-Peril Policy]
Amendatory Endorsement” addressing subrogation. This endorsement provides:
1.6. Subrogation.
(a) In the event of any payment under this policy, the
Company shall be subrogated to all the insured’s rights of
recovery against any person. . . .
(c) As respects coverage provided under Section 1-Property
Coverage of this policy this insurance shall not be invalidated
should the insured waive in writing any or all right of
recovery against any party for loss. . . subject to the
following additional provisions:
***
(2) If made before loss has occurred, such agreement
may run in favor of any third party.
Trial Stipulation, Ex. I-1(A) (unpaginated).
In support of his claim for lost profits during the 2005 closure immediately
after the water pipe burst, Mr. Tota submitted his 2003, 2004 and 2005 tax returns for
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Mr. Tota testified that the average monthly gross revenue for January 2007-July8
2007 was $65,000. 2 N.T. at 132.
Mr. Tota testified that his cost of goods is approximately 25% of the gross9
monthly receipts. 2 N.T. at 126.
This total does not include the $171 in income derived from sales tax10
commissions.
The categorization and order of listing expenses for the most part follows the11
2005 tax return form 1120 and its attached schedule of deductions.
14
restaurant operations. See exs. C-45 and C-46. For the anticipated future closing for
completing repairs and restoration, Mr. Tota testified to the 2007 restaurant income and
expenses. See 2 N.T. 132-138. A comparison of all of these figures follows:
2004 	2005 	2007
INCOME
gross receipts or sales 	402,582 	493,216 	780,000 8
cost of goods 	166,767 	210,324 	195,000 9
GROSS PROFIT 	235,815 	282,892 	585,00010
EXPENSES11
payroll 	83,625 	47,215 	180,000-240,000
rent 	40,612 	44,733 	50,400
advertising 	3,248 	2,744 	8,400
interest 	151 	79 	none in 2007
taxes & licenses 	8,926 	24,716 	1,200
depreciation 	13,786 	10,895 	unknown
heat and light 	20,974 	21,986 	30,000
equipment rental 	3,602 	324 	12,000-18,000
equipment maintenance 	1,586 	12,000
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15
credit card fees 	3,738 	18,000-21,600
laundry 	9,476 	9,893 	12,000
store supplies & expenses 	4,192 	11,183 	6,000-9,600
building maintenance 	9,310 	14,924
trash removal 	3,575 	2,636 	3,360
customer parking 	3,661 	6,678 	6,000
outside services 	1,200 	9,466 	none in 2007
insurance 	6,878 	6,449 	7,000
employee benefits 	5,347 	8,384 	10,400
travel expense 	32 	41 	none in 2007
office supplies and expense 	1,952 	8,241 	unknown
telephone 	2,120 	2,912 	3,000
bank fees 	1,855 	65 	600
professional services 	2,750 	30,425
amortization 	433 	443
water 	2,160
miscellaneous 	1,293
postage 	207
uniforms 	318
payroll services 	852 	unknown
TOTAL EXPENSES 	230,375 	269,129 	361,720-434,920
NET PROFIT 	5,440 	13,763 	223,280-150,080
Mr. Tota testified that he would not have laundry, store supply, customer
parking, travel, interest, or office supply expenses during a closure. 2 N.T. at 111, 114,
115, 116, 133, 136. He also stated that during a closure he would not pay as much for
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heat and light or for credit card charges. 2 N.T. at 112. He asserted that those saved
expenditures totaled $2,866.69 in 2005 and would subtract $1,500 per month from his
expenses in 2007. Claimant’s Post-Trial Memorandum, ¶ 113.
Mr. Tota’s testimony regarding 2007 income and expenses was uncertain or
conflicting in some respects. For example, he could not give an estimate of how much he
had spent on office supplies and expenses, or the amount of claimed depreciation on
personal property. 2 N.T. at 117, 136. When asked about the cost of trash removal, he
first stated “I don’t know on top of my head[,]” 2 N.T. at 114, but later answered “$280 a
month.” 2 N.T. at 134. Similarly, he stated that salaries cost him 30 percent of his gross
profit, 2 N.T. at 125—which would equal roughly $234,000 for 2007 ($19,500
monthly)—but later stated that salaries cost him $15,000-20,000 ($180,000-$240,000
annually). 2 N.T. at 133. He also stated that he did not know the income and expenses
for August and September 2007 because he was on vacation then. 2 N.T. at 130-131.
Finally, he stated that there were other expenses, but he could not name them. 2 N.T. 137
(“I have to take a moment and, you know, think about them.”).
In addition, some of Mr. Tota’s estimates regarding 2007 income and
expenses were at variance with 2004 and 2005 figures, without any explanation. Mr.
Tota estimated that net profit equaled 15-18 percent of his gross profit in 2007, 2 N.T. at
137, but the numbers above show a 25-39 percent profit ($150,080 or $223,280 divided
by $585,000), and he averaged only 2-3 percent net to gross profit in 2004 and 2005. He
also estimated that in 2007 his cost of goods approximated 20-25 percent of his gross
receipts, 2 N.T. at 109, 110, 125, or less, id. at 111, but his 2005 cost of goods
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approximated 43 percent, and his 2004 cost of goods approximated 42 percent. See exs.
C-45, C-46.
This uncertainty occurred despite Mr. Tota’s testifying that “I don’t need an
expert to tell me my numbers, you know, what – what do I do, because I know what I do.
I’m not an accountant, but everything in that restaurant goes through my fingers. The
cash money, the charge money, you know, expenses such as, you know, food costs, labor,
other expenses, you know. I do them myself, not my accountant. So, you know, I don’t
need a[n] expert to tell me that.” 2 N.T. at 127. In contrast, later he stated “If – I mean, if
you need a[n] exact answer from me, I mean, I have to, you know, I have to take my
paperwork. I mean, I’m not a computer, you know. I know what my numbers are and I
know what I do every week. But if you need exact the amount what I do monthly, I have
to – I have to take my paperwork with me.” 2 N.T. at 131.
In support of his claim against the lessor for future repair and renovation
costs and lost profits, Mr. Tota presented the testimony of Mr. Howard Ozeroff, who was
qualified as an expert to offer an opinion as to the extent and cost of damages. 1 N.T. at
112. Mr. Ozeroff had been retained by Mr. Pagano to provide an estimate of the work to
repair the betterments and improvements. 1 N.T. at 122. Mr. Ozeroff examined the
damages to the restaurant in July 2005, 1 N.T. at 123, thus some months after the burst
pipe and after the restaurant had been partially repaired. He estimated what it would cost
“to bring it back to like it was prior to the leak. Not improve what was there, but like
kind and quality, as close as possible.” 1 N.T. at 119.
Mr. Tota submitted into evidence an estimate prepared by Mr. Ozeroff,
under a cover letter dated July 12, 2005, detailing the additional work required to repair
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betterments and improvements at the restaurant. Ex. C-32. This report includes repairs in
the north front and rear areas, the service hall, and the south front area. Id.
Recommended repairs include cleaning and painting ceilings, repairing various light
fixtures, and replacing the carpet. Id.; 1 N.T. at 114. Mr. Ozeroff estimated a cost of
$34,628.05 to complete the repairs. Ex. C-32. The items Mr. Tota had already repaired,
such as the wall mural, and some painting and patch work, were not included in Mr.
Ozeroff’s estimate. 3 N.T. at 21-22.
By letter dated July 13, 2005 to Mr. Pagano, Mr. Ozeroff estimated that the
time of repair would be two months. Ex. C-34. Mr. Ozeroff testified however that his
estimate of time was, more accurately, seven weeks. 1 N.T. at 116. “I just wrote it up
roughly and I had 7 weeks, and I think in my letter I put 8 weeks.” Id. He explained on
direct testimony why his estimate anticipated complete closing of the restaurant for the
entire time of the repairs as follows:
[A] restaurant like that, that serves the type of food . . . no one
wants to go in there with a junky looking place with plastic
hanging all over and dust and everything else.
He’d have to vacuum that place from top to bottom every
night and it would still look a mess. Your cost would be more
prohibitive to do that job in stages. Put the carpet in on the
north side, and then bring them back when the south side is
ready.
Same thing with the painter. Finish up one side, and you do it
the following two weeks later and hopefully that he could
come in and do the job for you when you need him. That’s
why it’s time consuming.
1 N.T. at 116-17.
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Finally, Mr. Tota asserts that Ginko is responsible to return his lease
security deposit to him having transferred ownership of the leasehold and assigning the
lease. The Lease Agreement provides the following regarding the security deposit:
Lessee shall, upon execution hereof, deposit with Lessor as
security for the performance of all the terms, covenants, and
condition of this lease, the sum of SEE ADDENDUM. This
deposit is to be retained by Lessor until the expiration of this
lease and shall be returnable to Lessee provided that (1)
premises have been vacated; (2) Lessor shall have inspected
the premises after such vacation; and (3) Lessee shall have
complied with all the terms, covenants and conditions of this
lease, in which event the deposit so paid hereunder shall be
returned to Lessee; otherwise, said sum deposited hereunder
or any part thereof may be retained by Lessor at his option, as
liquidated damages, or may be applied by Lessor against any
actual loss, damage or injury chargeable to Lessee hereunder
or otherwise, if Lessor determines that such loss, damage or
injury exceeds said sum deposited. Lessor’s determination of
the amount, if any, to be returned to Lessee shall be final. It
is understood that the said deposit is not to be considered as
the last rental due under the lease.
Ex. C-1, § 28 (emphasis in original).
The Lease Addendum additionally provides, in pertinent part:
As security for Lessee’s faithful performance of all of its
covenants and agreements under this Lease, Lessee agrees to
deposit with Lessor a security deposit in the amount of Seven
Thousand ($7,000.00) Dollars, upon execution of this Lease. .
. . In the event of a default by Lessee, which shall remain
uncured after any required notice and opportunity to cure,
Lessor may (but shall not be obligated to) apply the security
deposit toward any damage Lessor may suffer from such
default . . . . Lessor may deliver the security deposit to any
purchaser of Lessor’s interest in the demised premises in the
event that such interest is sold, and thereupon Lessor shall be
discharged from any further liability with respect to such
security deposit and Lessee shall look solely to the transferee
of such security deposit for the return thereof.
Ex. C-2, § 15.
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Despite ending up with the same amount due, the ledgers do not match in their12
listings of charges due. This also results in the running balances of amounts outstanding to not
correspond. For example, on February 28, 2004, exhibit D-1 shows $6,046.53 owing, while
exhibit D-2 shows $2,649.37 owing. As exhibit D-1 was prepared September 30, 2007 and
exhibit D-2 was prepared July 12, 2006, I will favor the numbers presented on exhibit D-1 as the
more recent accounting and more accurate representation of Ginko’s offset claim.
20
Ginko seeks to offset Mr. Tota’s amended proof of claim by its own claim
for unpaid rent and other charges. In support, Ginko submitted into evidence two ledgers
prepared by Walter M. Wood, Jr., Inc. as property manager. The first, dated September
30, 2007, purports to list all charges assessed against Branzino Restaurant, amounts paid,
and a rolling balance, beginning November 16, 2001 and ending July 7, 2006. See ex. D-
1. The second ledger, dated July 12, 2006, lists only outstanding payments owed, from
January 31, 2002 through June 11, 2006. See ex. D-2. Both ledgers report that
$14,680.05 remains due. 12
The first ledger shows a payment on November 16, 2001 of $3,500 by
check ascribed to the security deposit, and a payment of $3,000 cash on January 7, 2002.
Ex. D-1. These entries are followed by an entry dated January 31, 2002 charging $7,000
for “deposit.” Id. The second ledger includes an entry dated January 31, 2002 of $500
still due for “deposit.” Ex. D-2.
In addition, Ginko submitted a letter dated December 19, 2005 from Glenn
F. Hing, Esq., its attorney, addressed to Mr. Hima, advising him of his failure to pay
certain real estate taxes ($5,121.65), Center City district taxes ($534.98), use and
occupancy taxes ($1,451), and water and sewer charges ($1,715.08), totaling $8,819.71.
Ex. C-14. Dr. Rigdon, who is affiliated with Ginko, testified that these figures were
supplied by him. 3 N.T. at 88. Mr. Tota entered into a payment plan to pay $1,000 per
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month, as supported by a confirming letter dated January 10, 2006, sent by his attorney,
John Gough, Esq., to Mr. Hing. See ex. C-15. Mr. Tota ultimately paid $4,715.08 under
this agreement. Ex. C-49.
The parties also dispute the propriety of the assessment of late fees on
several rent payments as represented on the ledgers. These rent payments were made on
December 5, 2005 and January 5, February 3, March 6, April 5, May 2, and June 2, 2006,
all in the amount of $3,932.60. Ex. D-1. Dr. Rigdon conceded at trial that late fees were
to be assessed for payments made more than 10 days late, not five days. 3 N.T. at 88-89.
However, he asserted that if the rent was delinquent and never brought current, a late fee
would be assessed on each month as a rolling charge. 3 N.T. at 90.
Regarding late fees, the Lease Addendum provides the following:
Prior to the exercise of any remedies by Lessor hereunder,
Lessor shall provide: (a) five (5) days written notice for
monetary defaults; and (b) twenty (20) days in cases of non-
monetary defaults . . . .
Exhibit C-2, § 24.
Aside from rent checks, it appears that Ginko applied checks received from
Mr. Tota to particular debts, rather than to a running total. For example, Ginko’s ledger
at April 16, 2004 notes $117.14 due on a water bill. Ex. D-1. The check received May
25, 2004 for $117.04 is labeled “water bill.” Similarly, Mr. Tota’s checks received on
account of the settlement agreement for back taxes and utilities were applied to that debt.
See, e.g., 12/28/05 check for $1,000 labeled “W&S”; 1/11/06 check for $1,000 labeled
“R.E. tax”; 1/11/06 check for $715.08 labeled “W&S.”
Mr. Tota contends that Ginko’s ledger lists certain real estate taxes twice.
At February 28, 2005, Ginko lists a total of $2,234.59 due in real estate taxes. See ex. D-
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1. At January 1, 2006, it claims $1,191.21 and $1,021.04 due in real estate taxes, totaling
$2,212.25. See ex. D-2.
II.
“A proof of claim executed and filed in accordance with [the Bankruptcy
Rules] shall constitute prima facie evidence of the validity and amount of the claim.”
Fed. R. Bankr. P. 3001(f). When a claim is based on a writing, the claimant shall attach
the original or a duplicate to the filed proof of claim, or explain its loss or destruction.
Fed. R. Bankr. P. 3001(c). Failure to attach a contract to a proof of claim does not defeat
the claim; it merely eliminates the entitlement to prima facie validity.” In re Campbell,
336 B.R. 430, 432 (B.A.P. 9th Cir. 2005); In re Moreno, 341 B.R. 813, 817 (Bankr. S.D.
Fla. 2006); In re Burkett, 329 B.R. 820, 829 (Bankr. S.D. Ohio 2005).
The Third Circuit Court of Appeals has provided instruction upon the
appropriate allocation of the evidentiary burdens in proof of claim litigation:
The burden of proof for claims brought in the bankruptcy
court under 11 U.S.C.A. § 502(a) rests on different parties at
different times. Initially, the claimant must allege facts
sufficient to support the claim. If the averments in his filed
claim meet this standard of sufficiency, it is “prima facie”
valid. In other words, a claim that alleges facts sufficient to
support a legal liability to the claimant satisfies the claimant’s
initial obligation to go forward. The burden of going forward
then shifts to the objector to produce evidence sufficient to
negate the prima facie validity of the filed claim. It is often
said that the objector must produce evidence equal in force to
the prima facie case. In practice, the objector must produce
evidence which, if believed, would refute at least one of the
allegations that is essential to the claim’s legal sufficiency. If
the objector produces sufficient evidence to negate one or
more of the sworn facts in the proof of claim, the burden
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reverts to the claimant to prove the validity of the claim by a
preponderance of the evidence. The burden of persuasion is
always on the claimant.
In re Allegheny Int’l Inc., 954 F.2d 167, 173-74 (3d Cir. 1992) (citations omitted).
Thus, a proof of claim dispute will typically involve shifting evidentiary
burdens with the ultimate burden of persuasion upon the claimant. In determining
whether that burden has been met, non-bankruptcy law, generally state law, will supply
the substantive law:
Indeed, we have long recognized that the basic federal rule in
bankruptcy is that state law governs the substance of claims,
Congress having generally left the determination of property
rights in the assets of a bankrupt’s estate to state law.
Travelers Cas. & Sur. Co. of Am. v. PG&E, — U.S. —, 127 S. Ct. 1199, 1205, 167 L.
Ed.2d 178 (2007).
As the leasehold is in Philadelphia, and the lease agreements were all
entered into in Philadelphia, Pennsylvania law governs this claims objection. See J.C.
Penney Co. v. Giant Eagle, Inc., 813 F. Supp. 360, 367 (W.D. Pa. 1992) (all three leases
involved concern Pennsylvania premises and involve installation and operation of a
pharmacy department at that shopping center, and because no other state has a significant
interest in this proceeding, Pennsylvania law applied); see In re Karfakis, 162 B.R. 719,
726 (Bankr. E.D. Pa. 1993) (citing Restatement (Second) Conflict of Laws §§ 6, 188
(1971)).
In determining the meaning of the various lease provisions, I turn to
contract interpretation principles as enunciated by Pennsylvania courts (and followed
when relevant by federal courts). See Cusamano v. Anthony M. DiLucia, Inc., 281 Pa.
Super. 8, 421 A.2d 1120, 1122 (1980) (leases are contracts thus are controlled by
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principles of contract law). “Contracts are best read as a whole and ‘clauses seemingly in
conflict [should be] construed, if possible, as consistent with one another. Terms in one
section of the contract should not be interpreted in a manner which nullifies other terms.’”
Universal Underwriters Ins. Co. v. A. Richard Kacin, Inc., 916 A.2d 686, 692 (Pa. Super.
2007) (quoting AK Steel Corp. v. Viacom, Inc., 835 A.2d 820, 824 (Pa. Super. 2003)
(internal quotation marks and citation omitted).). The Third Circuit Court of Appeals
observed in this regard:
In Pennsylvania, [c]ontract interpretation is a question of law
that requires the court to ascertain and give effect to the intent
of the contracting parties as embodied in the written
agreement. Courts assume that a contract’s language is
chosen carefully and that the parties are mindful of the
meaning of the language used. When a writing is clear and
unequivocal, its meaning must be determined by its contents
alone.
Dep’t of Transp. v. Pa. Indus. for the Blind & Handicapped,
886 A.2d 706, 711 (Pa. Cmwlth. 2005) (internal citations and
quotation marks omitted).
A contract is ambiguous if it is reasonably susceptible of
different constructions and capable of being understood in
more than one sense. The court, as a matter of law,
determines the existence of an ambiguity and interprets the
contract whereas the resolution of conflicting parol evidence
relevant to what the parties intended by the ambiguous
provision is for the trier of fact.
Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d
385, 390 (Pa. 1986) (internal citations omitted). However,
“[a]n appellate court may draw its own inferences and arrive
at its own conclusions when a finding of fact is simply a
deduction from other facts and the ultimate fact in question is
purely a result of reasoning.” Id. at 391 n. 6. A court always
may consider the course of performance as evidence of the
intent of the parties. Atlantic Richfield Co. v. Razumic, 480
Pa. 366, 390 A.2d 736, 741 n. 6 (Pa. 1978).
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In re Old Summit Mfg., LLC, 523 F.3d 134, 137-38 (3d Cir. 2008); see also Warren v.
Greenfield, 407 Pa. Super. 600, 595 A.2d 1308, 1311 (1991) (interpretation of a lease
agreement follows principles of contract interpretation and should give effect to the plain
meaning of the contract as expressing the intent of the parties); Church Mutual Ins. Co. v.
Palmer Const. Co., Inc., 153 Fed. Appx. 805, 808 (3d Cir. 2005).
The intention of the parties to a contract is gleaned by reference to every
part of the document. Cusamano v. DiLucia, 421 A.2d at 1122. Any ambiguities should
be construed against the drafter. See Rusiski v. Pribonic, 511 Pa. 383, 390, 515 A.2d 507
(1986); Fleetway Leasing Co. v. Wright, 697 A.2d 1000, 1003 (Pa. Super. 1997); In re
Andrews, 78 B.R. 78, 81 (Bankr. E.D. Pa. 1987). Specific terms control over general
ones, Baltic Development Co. v. Jiffy Enterprises, Inc., 435 Pa. 411, 257 A.2d 541, 543
(1969), and a “clear provision controls a doubtful one[.]” Cusamano v. DiLucia, 421
A.2d at 1124. Finally, “according to the usual interpretation of leases, where special
typed matter or addenda are included within a printed lease, insofar as the inserted or
attached matter conflicts with the printed provisions of the lease, the inserted or attached
matter governs.” Scranton Medical Building v. Milkman, 67 Pa. D. & C. 129, 130 (Pa.
Com. Pl. Lack. 1948) (rider attached to lease bound defendant).
As noted in my July 2007 ruling on liability, Pennsylvania public policy
does not prohibit private parties from including exculpation clauses in their contracts, but
the waiver of liability must be “plainly expressed.” See, e.g., Cannon v. Bresch, 307 Pa.
31, 36, 160 A. 595 (1932). As explained by the Pennsylvania Supreme Court in a dispute
between a lessor and a lessee also involving water damage caused by a burst pipe:
It is generally accepted that an exculpatory clause is valid
where three conditions are met. First, the clause must not
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contravene public policy. Secondly, the contract must be
between persons relating entirely to their own private affairs
and thirdly, each party must be a free bargaining agent to the
agreement so that the contract is not one of adhesion. . . . In
Dilks v. Flohr Chevrolet [Inc.], 411 Pa. 425 . . . (1963), we
noted that once an exculpatory clause is determined to be
valid, it will, nevertheless, still be unenforceable unless the
language of the parties is clear that a person is being relieved
of liability for his own acts of negligence. In interpreting
such clauses we listed as guiding standards that: 1) the
contract language must be construed strictly, since
exculpatory language is not favored by the law; 2) the
contract must state the intention of the parties with the
greatest particularity, beyond doubt by express stipulation,
and no inference from words of general import can establish
the intent of the parties; 3) the language of the contract must
be construed, in cases of ambiguity, against the party seeking
immunity from liability; and 4) the burden of establishing the
immunity is upon the party invoking protection under the
clause. Dilks, at 434. . . .
Topp Copy Products, Inc. v. Singletary, 533 Pa. 468, 471 (1993).
As for Regis’s subrogation rights, Pennsylvania law grants to a subrogee the
same rights as a subrogor. Universal Underwriters Ins. Co. v. A. Richard Kacin, Inc., 916
A.2d at 694 (“subrogee “stands in the shoes of the subrogor”). Thus if Ginko is liable to
Mr. Tota, then Regis, to the extent of its valid subrogation claim, can be substituted for
Mr. Tota as payee. Id. (subrogee can recover when its sugrogor has a “legally cognizable
cause of action against a third party”); Church Mutual Ins. Co. v. Palmer Const. Co., Inc.,
153 Fed. Appx. 805, 808 (3d Cir. 2005) (non-precedential) (“It is well-established that
subrogation is derivative in nature, placing the subrogee in the precise position of the one
to whose rights and disability he is subrogated.”) (internal citation omitted). To the extent
Mr. Tota has no claim because of a valid exculpation clause, then the subrogee cannot
recover from Ginko. See Jamison v. Ellwood Consol. Water Co., 420 F.2d 787, 789 (3d
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Cir. 1970) (“A valid exculpatory clause precludes recovery by the victim of the
negligence.”).
Where an exculpation clause is related to a duty of a party to obtain
insurance, public policy concerns are minimized; the existence of insurance means that an
injured party will not be left uncompensated. See Reliance Nat’l Indemnity v. Knowles
Industrial Services, Corp., 868 A.2d 220, 226 (Sup. Jud. Ct. Me. 2005); Amica Mutual
Ins. Co v. Bergmeyer Assocs., Inc., 2008 WL 526032, at *4 (Mass. Super. Jan. 4, 2008);
see also Jalapenos , LLC v. GRC Gen. Contr., Inc., 939 A.2d 925, 933 (Pa. Super. 2007)
(“[T]he insurance provisions . . . are not designed to unilaterally relieve one party from
the effects of its future negligence, thereby foreclosing another party’s avenue of
recovery. Instead, they work to ensure that injuries or damage incurred during the
construction project are covered by the appropriate types and limits of insurance, and that
the costs of that coverage are appropriately allocated among the parties.”) (internal
citations omitted).
Similarly, contracts that effectively waive subrogation do not adversely
affect public policy. See Penn Avenue Place Associates, L.P. v. Century Steel Erectors,
Inc., 798 A.2d 256, 259 (Pa. Super. 2002) (a waiver of subrogation are matters of contract
without public policy concerns). Insurers can protect against waivers of subrogation by
setting higher premiums. Universal Underwriters Ins. Co. v. A. Richard Kacin, Inc., 916
A.2d at 695; Reliance Nat’l Indemnity v. Knowles Industrial Services, Corp., 868 A.2d at
227.
During the liability phase of the trial, I found Ginko responsible for the
reasonable costs of the pre-opening repairs and flood prevention. Mr. Tota, as creditor,
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bears the burden of proving the amount of his damage claim by a preponderance of the
evidence. See Mahood v. Omaha Property and Casualty, 174 F. Supp. 2d 284 (E.D. Pa.
2001); see generally Bolus v. United Penn Bank, 525 A.2d 1215, 1225-26 (Pa. Super.
1987); Delahunty v. First Pennsylvania Bank, N.A., 318 Pa. Super. 90, 464 A.2d 1243,
1257 (1983); James Corp. v. North Allegheny School District, 938 A.2d 474, 495 (Pa.
Cmwlth. 2007). By including his fixed expenses as part of his damage request, Mr. Tota
implicitly requests compensatory damages, which “seek to put the injured person in a
position as nearly as possible equivalent to his or her position prior to the tort[.]”
Moorhead v. Crozer Chester Medical Center, 564 Pa. 156, 163-164, 765 A.2d 786, 790
(Pa. 2001) (abrogated on other grounds by Northbrook Life Ins. Co. v. Com., 949 A.2d
333 (Pa. 2008)) (citing Trotsky v. Civil Service Comm’n, City of Pittsburgh, 539 Pa. 356,
652 A.2d 813, 817 (1995). See also Waggoner Motors, Inc. v. Waverly Church of Christ,
159 S.W.3d 42, 57 (Tenn. Ct. App. 2004) (“The goal is to restore the injured party, as
nearly as possible, to the position the party would have been in had the wrongful conduct
not occurred.”).
In general, the party seeking damages must prove the amount and cause of
his loss under state law. Metz v. Quaker Highlands, Inc., 714 A.2d 447, 450 (Pa. Super.
1998). However, “mere uncertainty as to the amount of damages will not bar recovery
where it is clear that the damages were the certain result of the defendant’s conduct.”
Delahunty, 464 A.2d at 1257 (citing Pugh v. Holmes, 486 Pa. 272, 405 A.2d 897 (1979)).
That is, “[d]amages are speculative if the uncertainty concerns the fact of damages not the
amount.” Carroll v. Philadelphia Housing Authority, 168 Pa. Cmwlth. at 281, 650 A.2d
at 1100 (1994); see also Waggoner Motors, Inc. v. Waverly Church of Christ, 159 S.W.3d
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at 58 (“The existence of damages has been proven with reasonable certainty when the
mind of a prudently impartial person is satisfied that the injured party has been
damaged.”).
Regarding the amount of the damages, “[Pennsylvania] law only requires
that a reasonable quantity of information . . . be supplied by plaintiff so that the jury may
fairly estimate the amount of damages from the evidence.” Ashcroft v. C.G. Hussey &
Co., 359 Pa. 129, 58 A.2d 170, 172 (1948). See Mahood v. Omaha Property and
Casualty, 174 F. Supp. 2d 284 (rejecting some proffered damage values for failure to
explain how amount was arrived at or what was covered, including: replacement of
property not damaged by the flood, replacing damaged property with upgraded materials,
and failing to apportion invoice to categories of work performed). The fact-finder
determines damages after weighing the evidence and assessing the credibility of the
witnesses. Delahunty, 464 A.2d at 1257. Some speculation necessarily accompanies the
estimation of any damages. “Although the fact-finder may not render a verdict based on
sheer conjecture or guesswork, it may use a measure of speculation in estimating
damages. The fact-finder may make a just and reasonable estimate of the damage based
on relevant data, and in such circumstances may act on probable, inferential, as well as
direct and positive proof.” Omicron Systems, Inc. v. Weiner, 860 A.2d 554, 565 (Pa.
Super. 2004) (citation omitted). Indefiniteness as to damages does not absolutely
preclude relief; “a claim for damages may be sustained if the amount may be fairly
estimated from the evidence.” Carroll v. Philadelphia Housing Authority, 650 A.2d at
1100.
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Mr. Tota seeks both damages for injury to personal property/betterments,
and for lost profits. Lost profits are generally recoverable in breach of contract and tort
actions in Pennsylvania. See, e.g., Brisbin v. Superior Valve Co., 398 F.3d 279, 289 (3d
Cir. 2005) (citing Delahunty v. First Pennsylvania Bank, N.A., 464 A.2d 1243).
The general rule of law applicable for loss of profits in both
contract and tort actions allows such damages where (1) there
is evidence to establish them with reasonable certainty[;] (2)
there is evidence to show that they were the proximate
consequence of the wrong, and, in the contract actions; [(3)]
that they were reasonably foreseeable.
Delahunty v. First Pennsylvania Bank, N.A., 464 A.2d at 1258 (citations omitted); see
Bolus v. United Penn Bank, 525 A.2d at 1226 (permissible to use evidence of past profits
in an established business; use evidence of experts if based on more than individual
opinion or conjecture). “Lost profits are the ‘net pecuniary gain from a transaction, the
gross pecuniary gain diminished by the cost of obtaining them.’” Aiken Industries, Inc. v.
Estate of Wilson, 477 Pa. 34, 43, 383 A.2d 808, 812 (1978) (quoting Restatement of
Contracts, § 331, Comment (b)).
In meeting his burden of proof for lost profits, a claimant “is required only
to provide the [fact finder] with a reasonable amount of information so as to enable the
[fact finder] fairly to estimate damages without engaging in speculation. Damages need
not be proved with mathematical certainty.” Bolus v. United Penn Bank, 525 A.2d at
1226; see Brisbin v. Superior Valve Co., 398 F.3d at 289; Delahunty v. First Pennsylvania
Bank, N.A., 464 A.2d at 1257; James Corp. v. North Allegheny School District, 938 A.2d
at 494 (claim need only “be supported by a reasonable basis for the calculation.”).
Despite its prescription against engaging in conjecture, the Pennsylvania
Superior Court has explained that the estimation of lost profits, as with other damages,
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necessarily involves some imprecision. See Merion Spring Co. v. Muelles Hnos. Garcia
Torres, S.A., 462 A.2d 686, 698 (Pa. Super. 1983) (proof of lost profits not entirely of an
unspeculative nature); see also Waggoner Motors, Inc. v. Waverly Church of Christ, 159
S.W.3d at 57 (“[D]amages become too speculative only when the existence of damages is
uncertain, not when the precise amount is uncertain.”); Thomasville Furniture Indus., Inc.
v. The Elder-Beerman Stores, Corp., 250 B.R. 609, 630 (S.D. Ohio 1998) (“Court is
mindful of the fact that proof of damages of lost profits often requires some conjecture.”).
The Third Circuit Court of Appeals described the difficulty as follows:
Undoubtedly, the District Court’s damage calculation was to
some extent imprecise. But so were the calculations that
Scully and US WATS advocated. Importantly, we are
satisfied that, in the circumstances presented, the District
Court's damage calculation with respect to the stock option
adequately puts Scully in a position most closely reflecting the
one he would have occupied absent US WATS’s breach.
“[T]he law does not command mathematical preciseness from
the evidence in finding damages.” Rochez [Bros., Inc. v.
Rhoades], 527 F.2d [891] at 895 [3d Cir. 1975]. Instead, all
that is required is that “sufficient facts . . . be introduced so
that a court can arrive at an intelligent estimate without
speculation or conjecture.” Id.; accord Indu Craft [v. Bank of
Baroda], 47 F.3d [490] at 496 [2d Cir. 1995] (damages for
breach of contract need only be proved with “reasonable
certainty”).
In assessing damages, particularly for lost profits, we
recognize the inevitability of some imprecision in the proof,
and note that certainty as to the amount of damages is not
required, particularly when it is the defendant's breach that
has made such imprecision unavoidable.
Scully v. US WATS, Inc., 238 F.3d 497, 515 (3d Cir. 2001).
The Merion Spring court thus noted that damages will not be denied in their
entirety due to some uncertainty regarding the proof. “‘[A] defendant who has broken a
contract should not be allowed to profit by his breach because of the difficulty in fixing
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damages with exactness. . . .’” Merion Spring., 462 A.2d at 698 (quoting Smith v. Onyx
Oil and Chemical Co., 218 F.2d 104, 110, 111-12 (3d Cir. 1955)). The court noted that
“‘[i]t is not difficult to shoot these estimates full of holes as the (plaintiff) has done. On
the other hand, . . . [w]e do not think this is a case where it can be really said that there
would have been no profit . . . had the contract been performed.’” Merion Spring, 462
A.2d at 698 (quoting Smith v. Onyx Oil and Chemical Co., 218 F.2d at 110, 111-12);
see also Waggoner Motors, Inc. v. Waverly Church of Christ, 159 S.W.3d at 58
(“desirable that an injured party not be deprived of compensation merely because it
cannot prove the extent of the harm suffered with complete certainty.”).
Of course, these principles must be balanced with the need for sufficient
evidence. “Damages for lost profits, like other contract damages, may not be awarded
when the evidence leaves the trier of fact without any guideposts except his or her own
speculation. Sufficient evidence must be introduced to permit a reasonably certain
estimate of the amount of anticipated profits lost due to the breach.” Merion Spring, at
686.
In establishing the amount of lost profits, courts have relied on “evidence of
past profits in an established business,” evidence of “[p]rofits made by others or by a
similar contract, where the facts were not greatly different,” and evidence presented by
experts “if based on anything more than individual opinion or conjecture.” Bolus v.
United Penn Bank, 525 A.2d at 1226 (citations omitted). Accordingly, “‘[t]he kind and
amount of evidence that will be held to afford a sufficient basis for estimation varies
greatly in different kinds of cases.’” Merion Spring, 462 A.2d at 696 (quoting
Restatement (Second) of Contracts, § 331 cmt. c); see, e.g., Bolus v. United Penn Bank,
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525 A.2d 1215 (accepting expert’s testimony on lost profits relying on actual record of
business, including ledgers, financial statements and tax returns, and trucking industry
profit data, and noting that the opposing party fully cross-examined expert on his
qualifications).
Moreover, an owner of a business may be competent to testify regarding the
amount of his damages. Bonjorno v. Kaiser Aluminum & Chemical Corp., 518 F. Supp.
102, 114 (E.D. Pa. 1981) (testimony of owner of damaged business may be sufficient to
support a verdict on damages where owner is qualified by experience and position to
make damages estimates). Oral testimony of damages rather than submission of
documents verifying the damages may be sufficient in appropriate circumstances. See
Maier v. Publicker Commercial Alcohol Co., 62 F. Supp. 161, 167 (D.C. Pa. 1945)
(“Maier is competent to testify as to the wages paid so long as the facts are within his own
knowledge. It may be true that libelant’s business entries might be entitled to greater
probative force than his oral testimony, but the business records are not preferred over
oral testimony nor is libellant required to produce them.”). But see Trailer Ranch, Inc. v.
Levine, 523 So. 2d 629, 632 (Fla. Dist. Ct. App. 1988) (owner’s testimony inadmissible
where he had day-to-day knowledge of operation of the business, but not overall concept
of value of the business; owner gave raw data to accountant who provided composite
picture).
Lastly, Ginko and Mr. Tota dispute Ginko’s rolling assessment of fees on
late rent payments. Regarding the application of rent payments, longstanding
Pennsylvania law provides:
“The debtor has a right to make the application, in the first
instance, and failing to exercise it, the same right devolves on
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the creditor. When no application is made by either party, the
law determines how the payments are to be applied in
accordance with equitable rules and principles, and primarily,
it deems the payments to have been made in discharge of the
earliest liabilities of a running account–each item of credit is
applied in extinguishment of the earliest debit items in the
account; in other cases, it will apply the payment, when not
appropriated by either party, in the way most beneficial to the
creditor, that is, to the debt least secured, unless to the
prejudice of a surety.”
Toll-Barkan Co. v. Toll, 193 Pa. Super. 221, 225, 164 A.2d 36, 38 (Pa. 1960) (quoting
Page v. Wilson, 150 Pa. Super. 427, 433, 28 A.2d 706, 709 (1942)).
III.
A.
In his amended proof of claim, Mr. Tota divided his demand for
$225,601.15 into different categories. First, he asserts that the debtor owes him
$29,542.76 for pre-opening repairs, itemized as follows:
• 	repairs and improvements made to meet Philadelphia health and safety
code requirements consisting of:
• 	making the restrooms handicap accessible ($3,300), and
• 	applying sheet rock to exterior walls for fireproofing ($4,100)
• 	air conditioning and duct work and recharging ($7,245)
• 	heating unit upgrades ($2,368.85)
• 	fire alarm system installation ($3,920), and
• 	basement repairs to permit food storage ($8,608.91).
Ginko concedes to $3,300 for the restroom work, $4,100 for the
fireproofing, $7,245 for the air conditioning and duct work, and $3,920 for the fire alarm
system installation. See Debtor’s Post-Trial Findings of Fact, ##1-3, 8. As to the heating
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unit upgrades, Ginko concedes only to $582.25, and as to the basement repairs, it
concedes only to $1,400 of the repair costs. Id., ##4-7, 9-20.
1.
At the liability phase of this contested matter I concluded that all of the
improvements and repairs for which Mr. Tota demanded credit were either contractually
due to the lessee or authorized by Ginko’s agent, Mr. Garrett. This liability however is
limited to the reasonable cost of improvements and repairs. Accordingly, in this damage
phase of this claims dispute, Mr. Tota must demonstrate that the improvements and
repairs were indeed made and that the costs for which he surcharges the debtor were
reasonable and actually incurred. Upon meeting this burden, that portion of his amended
proof of claim shall be allowed, as Ginko has offered no independent evidence of its own
on this aspect of the claim.
First, Ginko promised Mr. Tota reimbursement by way of rent credits for
replacement of two heaters in the basement. See 1 N.T. at 50. Mr. Tota testified that
these heaters were replaced, requiring purchase of gas furnaces and necessary piping. 1
N.T. at 26. He submitted into evidence a receipt from Riley Sales Inc., dated October 20,
2003, showing the purchase of two Gibson gas furnaces costing $509.37 and 472.50, and
a “horizontal drai[n]” costing $22.33, for a total of $1,004.20. Ex. C-8. The item
numbers of the furnaces appear as GG6RC-040C12 and GG6RC-040C08. Id. An
additional $60.25 on the invoice is not labeled, but equals 6% of the total, therefore it
presumably represents the tax on the items, bringing this invoice’s total to $1,064.45. Id.
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A cash register receipt for the $1,064.45 appears copied onto the second page of the
exhibit (which is also an additional invoice). Id.
A second invoice of Riley Sales, dated October 21, 2003, itemizes another
gas furnace (item number GG6RC-060C12), costing $538.00, and several items of PVC
piping, costing $14.12, for a total (including tax) of $585.25. Id. This invoice has “paid”
handwritten on it. Id.
A third invoice, dated October 21, 2003, itemizes one gas furnace (item
number GG6RC-060C12). Id. A copy of an un-itemized credit card receipt shows
$648.40 paid on October 21, 2003. Id. The credit card receipt is signed by Mr. Tota. Id.
Finally, Mr. Tota submitted an invoice from Superior Plumbing Supply,
Inc., dated December 5, 2003, in the amount of $656.00. Ex. C-10. He testified “I
believe [this] was for the heating also[,]” 1 N.T. at 30, and asserted in his post-trial
memorandum that these were “additional supplies” purchased by him. Claimant’s Post-
Trial Memorandum, at 6, ¶ 29.
Mr. Tota testified that one heater cost “around four something, the other
one was close to six hundred dollars. Plus the parts. You know, the PVC pipes and all
that stuff.” 1 N.T. at 72. In his memorandum, he asserts that the furnaces and supplies
from Riley Sales cost $1,712.85, which he paid for by cash in the amount of $1,064.45
and by credit card in the amount of $648. Claimant’s Post-Trial Memorandum, at 6, ¶ 27.
Ginko complains that the invoices of exhibit C-8 reference three heaters
instead of the two claimed installed and that the October 20th invoice is not marked paid.
In addition, Ginko maintains that the exhibit C-10 invoice was issued to Two Star
Plumbing rather than to the debtor or to Delany Plumbing (which performed the labor).
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Upon review, I agree that the invoices submitted itemize three different
furnaces. The furnaces described on the second and third invoices match, but the second
invoice sets the price at $538, while no price is listed with the third invoice. Moreover,
the credit card receipt showing $648.40 does not correspond with the total on any of the
invoices. While I found credible Mr. Tota’s testimony regarding the replacement of two
furnaces and the need for additional plumbing parts, and this is supported by a letter of
Patrick J. Delany, the contractor who performed the labor, see ex. C-6, the invoices
submitted are not sufficiently probative of all of the costs now asserted by Mr. Tota.
Further, the invoice for $656, ex. C-10, is dated in December, well after the October work
purportedly was completed. See 1 N.T. at 52 (“And then [Mr. Delany] came back late
September or October to do the – to replace the heating and air conditioner.”).
Contrary to Ginko’s contention, however, there is evidence of payment of
the first invoice, as copied onto the second invoice of the exhibit. Moreover, the debtor
does not suggest that the amounts paid by Mr. Tota for the two lower-cost heaters were
unreasonable.
Accordingly, based upon the evidentiary burden, I will allow $1,064.45 in
damages representing the sum of the two lower-cost furnaces ($509.37 and $472.50), plus
the horizontal drain ($22.33) listed on the first invoice, plus 6% tax.
2.
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Mr. Tota also seeks $8,608.91 in reimbursement for basement repairs to
permit food storage, for which he was promised rent credits, but Ginko concedes only to
$3,100 of that repair cost. Ginko Post-Trial Memorandum, at 3, ¶ 11.
Ginko objects that the repair quote from Mr. Tota’s cousin, Besnik Tota,
includes items beyond the clean-up and repair of the basement. It agrees to $500 for
clean-up and $1,200 for waterproofing only, arguing that the other work was
“unauthorized.” Similarly, it suggests that the Home Depot receipts include charges for
“unauthorized” supplies.
Mr. Tota testified that he paid Mr. Earl Thompson $1,400 for work on
walls, steps, and clean-up and repair of part of the basement. 1 N.T. at 21-22. Mr.
Thompson was recommended to Mr. Tota by Mr. Garrett as someone who was working
for Urban Shelter at that time. 1 N.T. at 21. Ginko conceded to this part of the total
claimed expense.
In support of the work performed by his cousin, Besnik, Mr. Tota submits a
quote detailing what work Besnik would perform: $500 to clean up basement and take
dirt outside; $1,200 to do waterproofing, and install a sump pump; $430 to pour concrete
on the basement; and $2,500 to do carpentry work, framing, spackle, doors, and drop
ceiling; for a total of $4,630. See ex. C-7. Mr. Tota submitted his business check stubs in
support of having paid his cousin for this work. See ex. C-23. He testified that he paid
his cousin with two checks, $1,400 and $1,500, and the rest in cash. 1 N.T. at 34. Mr.
Tota stated that the actual checks were cashed, but he does not have the cancelled checks.
1 N.T. at 67-69. Mr. Tota also submitted 29 Home Depot receipts representing supplies
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he purchased in connection with the basement work, totaling $2,578.91, which he paid in
cash. See ex. C-24; 1 N.T. at 35.
Mr. Tota also swore that finishing the basement room was necessary to
meet Philadelphia health and safety codes concerning restaurants:
And I also had to fix the basement. The second part of the
basement, because it was – I – it was very dirty and, you
know, I could get all kinds of things in the – inside the
restaurant from the basement. . . . Because, first of all, the
health department would never allow me to open the
restaurant or to have a kitchen above that, you know that
mess, you know, because it was mud and all kinds of stuff
underneath. . . . One of the guys that used to work for [the]
City of Philadelphia, Leonard Persofsky. He – while I was
consulting with him, you know, this was one of the things that
he told me to do. . . . Because, otherwise, they were going to
shut me down.
1 N.T. at 23-24
Though the evidence submitted in corroboration of Mr. Tota having paid his
cousin is limited, Ginko does not object on this ground. As for whether the work was
included within the scope of the promised rent credit, in my July 2007 memorandum on
liability, I found that “Mr. Garrett promised a rent credit for the repairs to the basement of
the premises, which periodically flooded.” In re Ginko, 372 B.R. at 235. I thus disagree
with Ginko that this work was not necessary. Therefore I will accept that Mr. Tota did
indeed pay his cousin for basement repairs and allow the full $4,100 of Besnik’s invoice
as reasonably necessary.
Conversely, I note that the Home Depot receipts include items not
representing supplies but constituting tools, such as jig and reciprocal saw blades, a
masonry brush and a utility brush, and a propane cylinder, all more typically used as
reusable tools by the person making the repairs, as well as a door lock kit, trash bags,
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light bulbs, and tape, not within the scope of waterproofing the basement. More
importantly, as Mr. Tota did not segregate by job the items on these 29 receipts purchased
(e.g., cementing versus installing drop ceiling), he has not met his evidentiary burden on
this point. Therefore, I shall sustain Ginko’s objection and disallow the entire $2,578.91
requested as insufficiently proven as reasonable, necessary and authorized by Ginko’s
agent. See Mahood v. Omaha Property and Casualty, 174 F. Supp. 2d 284 (rejecting
proffered damage values, inter alia for failure to apportion invoice to categories of work
performed).
Therefore I will allow $6,030 on this portion of Mr. Tota’s amended claim.
The total amended claim allowed as reimbursement for pre-opening
restaurant repairs therefore is $25,659.45.
B.
1.
The next component of Mr. Tota’s claim involves damages to his personal
property as well as lost profits caused by the burst water pipe in January 2005. Mr. Tota
estimated that preliminary repairs to the leasehold took 35 days, during which the
restaurant was partially closed. He contends he will need to close the restaurant again, for
two months, to make permanent repairs.
Before I consider whether damages for these elements have been proven, I
note that the parties dispute whether the lease agreements as a whole place the liability for
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As quoted above, Mr. Pagano sent to Regis on Mr. Tota’s behalf a letter13
containing the statement that “we arrived at a gentleman’s agreement to settle in full the
betterments and improvements business personal property for $32,500 pending a proof of loss.”
Ex. I-4 (emphasis in original). Whether this constituted a release between Mr. Tota and Regis is
an issue between these parties only; i.e., it does not affect Mr. Tota’s claim against Ginko.
41
these damages on the lessor, or whether the lessee is limited to recovery only from his
own insurer. This portion of the claim is most significant, as Mr. Tota asserts damages in
the total amount of $189,058.39. While Mr. Tota avers that the payment from Regis did
not reimburse him in full for the repairs and lost profits already incurred, as well as the
repairs and lost profits to be incurred by him, he does not argue that Regis should pay him
more, 	but instead looks solely to Ginko as the tortfeasor.13
Mr. Tota focuses on the provision of the Lease, section 11 (quoted earlier)
as placing liability upon the lessor for its own negligence. Claimant’s Reply to Debtor’s
Post-Trial Findings of Fact and Law, at 10. He also argues that Ginko’s failure to make
repairs as provided under section 12 of the Lease (also quoted above) renders it liable for
all damages, including lost profits and business interruption. Id. Finally, Mr. Tota
maintains that because his insurance policy did not name Ginko as a loss payee, and
because Ginko failed to obtain insurance on its own, the lessor cannot now be considered
a co-insured and subrogation should not be barred. Id., at 10-11.
Ginko responds by emphasizing the Lease Addendum’s insurance
provision, section 10, wherein the lessee purportedly releases the lessor “for any damage
or loss to any personal property, equipment, fixtures and/or leasehold improvements of
Lessee or any other person upon the demised premises.” It argues that this provision
exculpates the lessor from liability for damage to the contents and leasehold
improvements. Ginko’s Post-Trial Memorandum of Law, unpaginated, at III.A.
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The requirement for the lessee to obtain insurance and to list Ginko as a co-
insured demonstrates an intent to shift the burden of loss of personal property to the
claimant’s insurance carrier, Ginko contends. Id. Moreover, Ginko dismisses the
provisions of section 11 of the Lease as having been modified by the preface in the Lease
Addendum purporting to override anything in the Lease Agreement to the contrary. Id.
And, Ginko continues, because Mr. Tota has no recourse to Ginko for damages, neither
does Regis. Id.
I note that, at the liability hearing, Ginko conceded that the insurance
provision of the lease addendum did not address lost profits. In re Ginko Associates,
L.P., 372 B.R. 229, 243 (Bankr. E.D. Pa. 2007) (“As debtor’s counsel conceded at the
trial, damages due to the interruption of business operations were not addressed in section
10 of the addendum.”). However, Ginko strongly disputes the amount of damages for lost
profits demanded by Mr. Tota.
Finally, Regis maintains that its insurance policy with Mr. Tota provided for
a right of subrogation. It argues that section 10 of the Lease Addendum, to the extent it
implicitly precludes subrogation, is unenforceable because it conflicts with section 11 of
the Lease Agreement, as it appears to eliminate the liability for negligence created by
section 11. Regis further contends that the Lease Addendum fails to clearly express an
intention of the parties to absolve Ginko from liability for damage to personal property
and leasehold improvements caused by water leakage caused by its own negligence.
Regis also argues that section 10 of the Lease Addendum is void as against public policy
because it attempts to transfer liability for negligence away from Ginko, the tortfeasor.
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2.
To resolve this issue, I begin with paragraph 11(a) of the Lease. Standing
alone, courts have upheld the validity of this provision, either as originally worded or as
modified. See Frankel v. Arch Street Corp., 35 Pa. D. & C.2d 453 (Ct. Common Pleas,
Phila. Cty, 1964) (unmodified); Kotwasinski v. Rasner, 436 Pa. 32 (1969) (modified).
Indeed, in Kotwasinski, where an identical clause was identically altered by striking the
word “whether” and replacing it with the word “unless,” Pennsylvania’s Supreme Court
interpreted the modification as one “in which the lessors are obviously made liable for
damages resulting from their negligence.” Id., at 37. See Princeton Sportswear Corp. v.
H&M Associates, 510 Pa. 189, 507 A.2d 339, 341 (1986) (where typewritten addendum
to exculpatory clause excepted the negligence of the lessor from the terms of paragraph
11, and lessor was found negligent, court held lessor liable for damages).
Because of the alteration made by the parties in this instance, this clause
functions as an inculpatory clause, holding the lessor liable for damages caused by any
fire, breakage or leakage, or from leakage of water, rain or snow, or (per § 11(b)) due to
the use, misuse or abuse of all or any of the elevators, hatches, openings, stairways,
hallways, of any kind whatsoever, if caused by the lessor’s negligence. Importantly here,
section 11 of the lease would hold Ginko liable for damages due to water leakage caused
by its negligence.
But in light of Pennsylvania’s contract interpretation principles, this
provision must be harmonized, if possible, with the provisions in the Lease Addendum.
Section 10 of the Lease Addendum requires the lessee to obtain Comprehensive General
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Public Liability Insurance, including contractual and fire legal liability insurance, and
dram shop insurance, if applicable. In addition, section 10 provides (twice) that the lessor
be named as an additional insured.
Although the second paragraph of this section 10 begins with a requirement
that the lessee provide proof of “said insurance” and its continued coverage, the provision
then shifts from insurance requirements covering third party injuries to addressing
damages to personal property. In the sentence whose meaning is debated by the parties,
the Lease Addendum states that the “Lessee acknowledges and agrees that Lessor shall
not be responsible or liable in any way to Lessee or any other person, for any damage or
loss to any personal property, equipment, fixtures and/or leasehold improvements of
Lessee or any other person upon the demised premises.” Ex. C-2, at § 10. It then
requires the lessee to obtain “a policy of fire and hazard insurance covering all of lessee’s
contents and leasehold improvements at the demised premises at the replacement value
thereof.” Id. Notably, as acknowledged by Ginko at trial, damages for business
interruption are not addressed. Compare Philadelphia Plaza-Phase II v. Bank of
AmericaNat’l Trust and Savings Bank Assoc., 2002 WL 1472337, at *1 (Pa. Com. Pl.
June 21, 2002) (loan agreement required that borrower maintain “(a) Special form
property damage insurance on the Property, with a policy limit in an amount not less than
the full insurable value. . . . The policy shall include business interruption (or rent loss, if
more appropriate) endorsement in the amount of twelve months’ projected income from
the Property. . . . (b) Commercial General Liability coverage[.]”).
The final paragraph of section 10 of the Lease Addendum provides that if
the lessee fails to obtain “such insurance policy or coverages required hereunder,” then
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The name was changed in 1986. 9A Couch on Insurance, eds. Russ and Segalia14
(3d ed. 2007), at § 129:1. A treatise on insurance warns:
The parties should take care when referring in their contract’s
insurance requirement provision to a specific insurance policy form
or endorsement by name or number. This level of detail may not
be required, and meeting it may be difficult, if not impossible. A
particular insurance form may be replaced or outdated during the
effective dates of the contract. Worse, it may no longer be
available if the contract language itself is outdated. By way of
illustration, demanding maintenance of a comprehensive general
liability policy may create complications as that product now is
known as commercial general liability policy.
1-1 New Appleman Insurance Law Practice Guide (Matthew Bender, 2008), at 1.03[3][a]
(emphasis in original).
45
the lessor may either obtain the insurance on its own but require the lessee to reimburse it,
or may terminate the lease upon notice.
Finally, an indemnification provision of the Lease Addendum places
liability on the lessee to the extent that injuries arise “out of or flowing from the operation
of Lessee’s business and/or the use and occupancy of the demised premises, and/or from
any bodily injury or property damage or loss sustained by Lessee or any of Lessee’s
employees, agents, patrons or invitees upon the premises, and/or from a breach of the
Lease by Lessee.” Ex. C-2, at § 14.
Comprehensive General Public Liability Insurance, now known as
Commercial General Liability Insurance, 	“is designed and intended to provide coverage14
to an insured for tort liability for physical injury to the person or property of others.” 9A
Couch on Insurance, eds. Russ and Segalia (3d ed. 2007), at § 129:4. Generally it “is not
intended to provide coverage for the insured’s contractual liability which merely causes
economic losses.” Id. Here, however, the insurance provision additionally required
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46
contractual and fire legal liability insurance coverage. Contractual liability insurance
pays damages “by reason of the assumption of liability in a contract or agreement.” Id., at
§ 129:31.
Coupled with the requirement that the lessor be coinsured, this contractual
provision evidences an intent by both the lessee and lessor that all damages to third
parties be covered by insurance, at least to the minimum of $1 million coverage. If
damages exceed the $1 million policy limit, the lessor and lessee could hold the other
party liable, as appropriate. For example, the lessor’s liability beyond $1 million would
be limited by the indemnification provision of the Lease Addendum to the extent that
injuries arose out of the operation of the lessee’s business.
The middle paragraph of the insurance provision holds the lessee
responsible for damage to any personal property and additionally to protect his personal
property through the purchase of insurance. This paragraph can be interpreted consistent
with the first paragraph of section 10, in that damage to third party personal property
would be covered by the Commercial General Public Liability Insurance, and additionally
by the contractual and fire insurance, while damage to the lessee’s personal property
would be covered by his own fire and hazard insurance. Because that latter insurance is
at replacement value rather than requiring a dollar amount cap, it appears that the
intention of the parties was that all of debtor’s personal property be covered by this
replacement policy.
In interpreting this second paragraph of Lease Addendum section 10, I note
that the exculpatory clause contained within this Lease Addendum section holding the
lessee liable for its own personal property damage is valid under Pennsylvania law: it
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47
does not contravene public policy, as it simply shifts recovery for personal property
damage to Mr. Tota’s insurer; the Lease and Lease Addendum were entered into by
persons relating entirely to their own private affairs, a landlord/tenant agreement; and as
Ginko and Mr. Hima were represented by counsel, and Mr. Tota was merely added to the
lease, the parties were free bargaining agents and the contract was not one of adhesion.
Further the section appears enforceable under Pennsylvania law, see Topp Copy Products,
Inc. v. Singletary, 533 Pa. at 471, as clearly releasing the lessor from liability for damage
or loss to personal property of the lessee.
While I agree that the insurance provisions of the Lease Addendum were
intended to exculpate Ginko and thus override Lease section 11, the override is only
partial. Lease Addendum section 10 was not intended to eliminate the negligence
provision of Lease section 11 in its entirety.
In construing the contract as a whole, including the Addendum’s preface, I
conclude that the intent of the parties was for the lessee to be responsible—through
purchase of insurance—for damages to his own personal property, even damages caused
by the lessor’s negligence, while the lessor would be responsible for damage to third party
property beyond the $1 million level if due to fire or flood, etc., and due to the lessor’s
negligence. The preface’s language instructing that the Addendum’s provisions prevail
over Lease provisions to the contrary support this interpretation.
I also conclude, however, that Lease Addendum section 10 was intended
only to relieve Ginko for liability for Mr. Tota’s personal property damage, and not for
his lost profits damage. There was no requirement in section 10 for the lessee to purchase
business interruption insurance and to look solely to that policy for any recovery.
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Some of the other alterations to the Lease Agreement, such as deleting the15
provisions regarding payment of taxes and water and sewer rent, make sense within the
agreement as a whole as the Lease Addendum then addresses these issues without conflicting
with the Lease Agreement. But the Preface would need to be applied to reconcile the Lease
provision that increases in fire insurance premiums would be charged to the lessee as additional
rent with the Addendum’s requirement that the lessee obtain the fire insurance itself and pay for
(continued...)
48
In coming to this conclusion, I observe that the Lease was altered not once
but twice to shift liability to the lessor, see ex. C-1, § 11(a) and (b) (regarding use, misuse
or abuse of the elevators, hatches, openings, stairways, or hallways), supporting that the
transfer of liability to the lessor was intentional. Contract interpretation canons instruct
that alterations to contracts—typed or handwritten changes or additions—should be given
more weight than preprinted clauses. Musko v. Musko, 548 Pa. 378, 381, 697 A.2d 255,
256 (1997) (citing Western Oil Fields, Inc. v. Pennzoil United, Inc., 421 F.2d 387, 389
(5th Cir. 1970) (“Further, the typewritten insertion like the asterisk clause should prevail
over the printed matter.”)).
I appreciate that the Lease Addendum is not necessarily a preprinted form
as it was drafted by Ginko specifically to apply to this lessee. See, e.g., section 9
specifying work to be done by Ginko at the premises. Where two portions of an altered
contract squarely conflicted—one alteration was contained in an addendum to the contract
and the other consisted of a preprinted form with blanks filled in—the Pennsylvania
Superior Court held that the addendum as altered controlled, as its changes constituted
more than merely filling in blanks and therefore more greatly reflected the intent of the
parties. Cusamano v. DiLucia, 421 A.2d at 1124 (1980).
But here I cannot conclude that the Lease Addendum’s provisions in section
10 squarely conflict with lease section 11. 	One can harmonize them by recognizing the15
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(...continued)15
all renewals of the policy.
If Ginko intended otherwise, it should have made the exculpation of its liability16
for negligence explicit. See, e.g., Church Mutual Ins. Co. v. Palmer Const. Co., Inc., 153 Fed.
Appx. at 807 (“The Owner and Contractor waive all rights against each other . . . for damages
caused by fire or other perils to the extent covered by property insurance obtained pursuant to
this Paragraph 17 or any other property insurance applicable to the Work.”); Penn Avenue Place
Associates, L.P. v. Century Steel Erectors, Inc., 798 A.2d at 260 (same; plus the clause required
that the insurance policies provide waivers of subrogation). Not having done so, it remains liable
for damages due to business interruption. See Cannon v. Bresch, 307 Pa. at 36.
49
limited scope of section 10 of the Addendum. Furthermore, any ambiguities on this point
should be construed against Ginko, as the drafter of these documents. Rusiski v.
Pribonic, 511 Pa. at 390; Fleetway Leasing Co. v. Wright, 697 A.2d at 1003; In re
Andrews, 78 B.R. at 81.
In summary, Lease section 11 maintains liability on the lessee injury to the
lessee or third parties, “caused by any fire, breakage or leakage . . . or from water, rain or
snow that may leak into, issue or flow from any part of the said premises . . . or from the
drains, pipes, or plumbing work of the same . . .” unless caused by the negligence of the
lessor. Read with the Lease Addendum’s insurance provision results in a finding that
injuries to the lessee’s personal property would be the responsibility of the lessee through
required insurance covering the replacement value of the property. As this does not
include other types of injuries (such as loss of business), the lessor is responsible if other
injuries are caused by fire or flood, etc., and due to its negligence. 16
Accordingly, I find that Mr. Tota, when he adopted the lease provisions
negotiated by his cousin, agreed to look solely to his insurance carrier, Regis, for recovery
of damages to his personal property; however, Ginko is liable for the consequential
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Mr. Tota had argued that the debtor’s failure to make repairs as provided under17
section 12 of the lease rendered it liable, but as the provision for lessor repairs is permissive, the
lessor’s failure could not serve as a basis for holding it liable.
In addition, Mr. Tota argued that because the insurance policy did not in fact name
Ginko as a loss payee, and Ginko failed to obtain insurance on its own, it cannot now be
considered a co-insured and subrogation should not be barred. Again, the Lease Addendum
provision regarding the lessor obtaining insurance was permissive. The requirement that the
lessee name the lessor as a co-insured, however, was not, but arguably applied only to the
requirement to cover losses to third parties and thus the argument is inapposite here.
Indeed, the subrogation clause of the SMP Amendatory Endorsement, ¶18
1(6)(c)(2), seems to permit the insurer to waive subrogation rights as to personal property
damages if such waiver is made prior to the occurrence of any loss.
50
damages of business interruption/lost profits. 	In addition, applying principles of17
subrogation, I find that Regis is limited to the same rights as Mr. Tota and therefore may
pursue reimbursement to the extent it paid for lost profits but not for damage to Mr.
Tota’s personalty. 18
3.
Mr. Tota claims $117,320.08 total for lost profits. Relying primarily upon
business tax return forms, the claimant computes the February 2005 business loss by
adding the net monthly profit to the operating expenses for that month, for a total loss of
$22,820.08. He calculates the business loss for an estimated future two month closing by
taking the average gross monthly receipts for 2007, less 25% for the cost of goods sold, to
obtain a gross monthly profit. He then reduces the average monthly operating expenses
by those costs that would not occur during a closing and subtracts that number from the
gross monthly profit, leaving a net monthly profit, which he doubles for the estimated two
month closing, for a total of $94,500.00.
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Ginko counters that the total net taxable income on Mr. Tota’s 2005 tax
return was only $85; thus the debtor extrapolates that the net income loss for the 35 day
closure should total “less than $8 (1/12 of $85).” Debtor’s Post Trial Memorandum, at
I(C), at ¶¶ 5-6, 9. Ginko also challenges many of Mr. Tota’s expenses during the 2005
closure and the anticipated future closure, and the evidence or lack thereof supporting
them, the estimates of 2007 income and expenses, and the two month anticipated closure
time. The debtor does not suggest a different total for lost profits for the anticipated
second closure; instead it maintains that Mr. Tota has not met his burden to establish
damages for lost profits with sufficient specificity.
a.
I begin with the profits lost on account of the 2005 closure. That there was
a need to close the restaurant to make repairs is not debated by the parties. As discussed
above, however, there is an uncertainty regarding how many days the restaurant was fully
versus partially closed. Having not provided evidence supporting full closure for the
entire 35 days, with the burden on Mr. Tota to so show, I find that the restaurant was able
to operate at an average of 30% of normal capacity. And again, with no evidence to the
contrary, I find that the restaurant’s lost profits during that closure were 70% of the usual
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That is, if a restaurant has 100 tables and normally fills all tables, then a loss of19
20 tables could support a loss of 20% of the restaurant’s profits. But if the restaurant regularly
filled only 80 of the 100 tables, then a loss of 20 tables might not affect profits. Here, there was
no competent evidence supporting Mr. Tota’s “before and after” business.
However, Mr. Tota testified that the average cost of a meal ($30) has remained
constant. 2 N.T. at 109-110. Therefore he must have been filling more tables over the years for
the gross income to have increased from 2004 to 2005 and then to 2007. In addition, he testified
that in 2005, he did 450-550 “covers” per week, and in 2007 he averaged 550-650. 2 N.T. at
109-110. That equals a 16-19 percent increase over the two years.
52
profit. 	And because of the uncertainty regarding the number of days fully versus19
partially closed, I will prorate the damages on a monthly rather than a daily basis.
Preliminarily, I reject Ginko’s calculation of lost profits by dividing by 12
the 2005 taxable income, because the taxable income includes a deduction for a net
operating loss carryover.
I also reject Mr. Tota’s total reliance on figures from 2005 however. The
restaurant closure took place during the first two months of 2005. It is clear from the tax
returns that the restaurant increased its profits over time. Therefore to use only post-
closure income and expenses inflates the profit. Because there is no quarterly breakdown
of profits however, I will make an estimation by averaging the 2004 and 2005 figures.
See Waggoner Motors, Inc. v. Waverly Church of Christ, 159 S.W.3d at 59 (best
evidence of lost profits is comparison of business before and after the tort). In doing so, I
acknowledge that the restaurant had only been open for three months at the start of 2004.
However, that is balanced by averaging that year’s income and expenses, and also by
incorporating figures from all of 2005 despite the closure occurring at the beginning of
that year.
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In 2004, the restaurant took in $402,582 in receipts, less $166,767 in cost of
goods, less $230,375 in expenses, leaving a net profit of $5,440. This averages out to a
monthly net profit of $453 for 2004.
The 2005 calculation is almost as simple, though not as simple as Mr. Tota
made it: I reject his dividing the income by 11 months but the expenses by 12, considering
that the restaurant was partially open in January/February 2005. He thus still earned 30%
of his average monthly income during that time, and while some expenses were incurred
in full regardless of the partial closure, others were incurred at an estimated 30% of the
normal amount.
In 2005, the restaurant took in $493,216 in receipts, less $210,324 in cost of
goods. To calculate an average monthly profit, I divide the gross profit—493,216 minus
$210,324 equaling $282,892—by the 11.3 months the restaurant conducted business.
Dividing $282,892 by 11.3 leaves an average monthly gross profit of $25,035.
The 2005 expenses as reported on the tax return totaled $269,129, divided
by 11.3 for an average monthly expense of $23,817. Subtracting this from the average
monthly gross profit yields $1,218 as the 2005 average monthly net profit. Averaging this
net profit with that of 2004, results in a $836 blended profit. This then is the estimated
lost profit for the 2005 closure.
Mr. Tota is also entitled to damages equaling the fixed expenses he incurred
during the 2005 closure. In other words, to the extent that he incurred certain expenses
during the 2005 closure, which expenses being fixed were payable whether or not the
restaurant was operational—e.g., rent, insurance—he should be reimbursed by the debtor
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On direct testimony, the following exchange took place:20
Q. How about your credit card fees?
A. I pay up to, between 15 and $1,800 a month.
Q. But again, they wouldn’t be, you wouldn’t have those fees, all those fees –
A. Not –
(continued...)
54
for those expenses to restore him to the financial position he would have been in had the
closure not occurred. (Otherwise, those fixed expenses would be “paid” twice.)
Since the total of the 2004 and 2005 expenses do not vary much, and many
expenses likely were established on an annual basis—e.g., taxes and licenses, trash
removal, insurance—I will use the 2005 expenses only in estimating Mr. Tota’s fixed
expenses during the 2005 closure.
I start with the average monthly expenses in 2005 of $23,817. Mr. Tota
testified that he did not have to pay laundry, customer parking, travel, interest, or office
expenses during the closure. In addition, he stated that he would not pay as much for heat
and light or for credit card charges. He asserted that the expenses not incurred saved him
$2,866 during the partial closure, but I find a different amount.
That Mr. Tota did not travel during the closure is understandable and thus
credible. However, if the restaurant were operating at 30%, then he would have had some
laundry, customer parking, and possibly some office expense. Thus I will only subtract
out 70% of the monthly average of these three expenses rather than the full amount as Mr.
Tota urged. He also would have had some heating and lighting expense, both due to the
partial operation and the need for heat and light while repairs were being made. Thus I
will exclude 50% of this average monthly cost. Regarding the credit card expense, Mr.
Tota testified that he would not have “all those fees” if he were closed. 2 N.T. at 133. 20
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(...continued)20
Q. – if you were closed?
A. Correct.
2 N.T. at 133.
“Q. How much do you pay in interest, if you know? A. Interest? Q. Interest.21
That’s you’re paying money for money borrowed.”
55
Since he did not specify how much the fees would be reduced (e.g., a percentage of sales
versus a fixed monthly fee) I will reduce the fixed expenses by the full average monthly
amount. Finally, it is not clear why the interest expense, described as interest on debt
obligations, 2 N.T. at 135-36, 	would be stayed during a closure. Thus this expense will21
not be removed.
On the other hand, Mr. Tota’s professional fee expense, described as
attorney fees, see 2 N.T. at 116, is not a fixed cost incurred regardless of whether the
restaurant is running, thus I will subtract out the average monthly amount of that expense
In sum, I find that during the 2005 closure the fixed expenses for which the
claimant could generate no revenue equaled $18,296, computed as follows:
Average monthly expenses 	$23,817 	($269,129/11.3)
minus travel 	4 	($41/11.3)
minus laundry 	875 	(70% of $9,893/11.3)
minus parking 	591 	(70% of $6,678/11.3)
minus office supplies 	729 	(70% of $8,241/11.3)
minus heating/lighting 	1,946 	(50% of $21,986/11.3)
minus professional fees 	2,677 	($30,425/11.3)
minus credit card fees 	331 	($3,738/11.3)
TOTAL 	$18,296
Adding $18,296 in expenses to the $836 lost profit results in $19,132 in
damages for the 2005 closure. This allowance reimburses the claimant for injury caused
by the debtor to Branzino restaurant operations in 2005.
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b.
For the lost profit damages to be incurred in a future closing, Mr. Tota
relies on his testimony estimating income and expenses existing in 2007, and bases the
total on a two month closure. Ginko complains about the validity of these estimates,
given without supporting documentation, and challenges the two month time frame.
Ginko did not offer an alternative amount of damages, nor at trial did it cross examine
Mr. Tota on any of his 2007 estimates.
Upon my review of the testimony and documentary evidence I conclude that
Mr. Tota has shown by a preponderance of the evidence of the need for additional repairs.
Mr. Ozeroff’s testimony and report estimate in particular support the need to fully repair
and restore the ceilings, walls and floors damaged by water.
As for the length of the closing, I find that only seven weeks has been
proven. No explanation was given for Mr. Ozeroff’s rounding up to two months his
admitted initial estimate of seven weeks. I also find sufficient evidence that the restaurant
must be fully closed during that period, as the necessary repairs are that extensive and
intrusive.
Finally, as described above, Mr. Tota’s testimony regarding 2007 income
and expenses was not the picture of accuracy. However, I am mindful that in meeting his
burden, Mr. Tota is required only to provide the factfinder with a reasonable amount of
information so as to enable reasonable estimation of damages without engaging in
speculation, while Ginko should not obtain a windfall by dint of the less-than-perfect
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evidence. Expert testimony as to lost profits, while often helpful, is not required. See
Jahanshahi v. Centura Development Co., Inc., 816 A.2d 1179, 1184 (Pa. Super. 2003).
I accept, therefore, Mr. Tota’s estimation of average monthly gross receipts
in the first half of 2007 as $65,000. This is the kind of information a business owner
would know and is consistent with increases in income from 2004 to 2005.
I do not accept, however, Mr. Tota’s 25% estimate of the cost of goods,
considering its variance from the 42-43 percent in 2004 and 2005. While his profit
margin could have increased, Mr. Tota presented no evidence—such as the restaurant’s
2006 income tax return—to support such a finding. In addition, he testified that his cost
of goods in 2007 was the same as in 2005. 2 N.T. at 126. Therefore, I will apply a 42
percent cost of goods (the 2005 number) to the gross receipts, resulting in an annual gross
profit of $452,400. Seven weeks of this gross profit equals $60,900 ($452,400 divided by
52 times 7).
I next look to the estimated average expenses. Several estimates vary
greatly from those reported on the restaurant’s prior year tax returns. For example, the
taxes and licenses annual expense in 2004 was $8,926 and in 2005 was $24,716, whereas
Mr. Tota estimated only $1,200 in 2007. Equipment rental cost him $3,602 and $324 in
2004 and 2005, respectively, but Mr. Tota estimated from $12,000 to $18,000 in 2007.
Credit card fees were only $3,738 in 2005, but estimated at $12,000 in 2007. Though Mr.
Tota did not offer any testimony detailing the differences beyond expenses having
increased since 2005, he did testify using the 2005 figures as a guide, see 2 N.T. at 130,
so that he was aware of the prior figures.
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The annual amounts (on the lower end of the estimates) are: laundry, $12,000;22
store supplies, $6,000; parking, $6,000; credit card fees, $18,000; and heat and lighting, $30,000.
Mr. Tota reported no travel or interest expenses in 2007.
58
Accordingly, I will accept the estimates of 2007 expenses as testified to by
Mr. Tota. In so doing, I note that the amount for some categories of expenses—
depreciation, office supplies, and payroll services—were unknown to him, and that he
testified that he had no interest, outside services, or travel expenses in 2007. See 2 N.T.
at 136 (regarding no interest). In addition, to the extent the expense testimony was
inexact, I will use the higher end of Mr. Tota’s estimates in computing lost profits (and
the lower end in computing fixed expenses) as this is somewhat beneficial to Ginko.
Based upon my review of the evidence, I find that Mr. Tota’s 2007 estimated annual
expenses were $434,920. Seven weeks equals $58,547 in expenses ($434,920 divided by
52 times 7). Therefore, his anticipated net profit for a seven week period would be
$2,353 ($60,900 minus $58,547).
As for fixed expenses—those that Mr. Tota must pay even though his
restaurant will not be operational—Mr. Tota again avers that during a closure he would
not incur expenses for laundry, parking, travel, interest, office expenses, heat and light, or
credit card fees, but this time resulting (in his view) in a decrease in fixed expenses of
$1,500 per month, as he ended up only including laundry and parking in his calculation.
I find that the actual annual cost of these expenses equals about $72,000. 22
Since Mr. Tota will still need to heat and/or air condition the premises during the work,
and light it, I will use only half of their $30,000 annual cost, resulting in $57,000
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I again subtract out the full credit card expense since Mr. Tota did not explain23
what makes up the charge.
59
annually, with seven weeks equaling $7,673. 	Subtracting that from the $58,547 average23
leaves $50,874 in expenses that would still be incurred by Mr. Tota even though his
restaurant will be not operational and undergoing repairs and renovations.
Therefore, the total damages estimated to be incurred by Mr. Tota during a
needed seven week closure totals $53,227 ($50,874 in fixed costs plus $2,353 in lost
profits).
C.
1.
Finally, Mr. Tota seeks return of a $7,000 security deposit required in the
Lease Addendum and purportedly tendered by his cousin, Mr. Hima, at the
commencement of the lease. As co-lessee Mr. Tota has standing to seek such relief.
Mr. Tota argues that there is no evidence that Ginko transferred this deposit
to the new owner of the realty upon its sale. He recognizes that section 15 of the Lease
Addendum affords the option to the lessor to transfer that deposit upon sale of the realty,
see ex. C-2, but argues that because Ginko provided no proof of transfer of the deposit,
the debtor remains liable to Mr. Tota for that amount. The claimant also maintains that
the security deposit was paid in full, as Ginko never asked him to pay any portion of the
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60
security deposit, and as Ginko’s attorney did not include in his December 2005 letter any
demand for either the full security deposit or the $500 that Ginko now alleges is still due.
As just mentioned, Ginko argues that $500 of the security deposit was never
paid as its ledger shows only $6,500 paid on account of the security deposit. See exs. D-1
and D-2. It does not contend that the security deposit was paid over to the realty
purchaser.
The lease (as quoted earlier) allows Ginko to apply the security deposit to
any default of Mr. Tota, such as for unpaid rent and other charges that the debtor alleges
are owing in its counterclaim. Furthermore, the lease leaves as permissive (“may”)
whether Ginko had the right to transfer the security deposit to the new owner of the
premises. Barring that transfer or setoff for outstanding lease obligations, Ginko remains
liable to its tenant for the security deposit. (If Ginko did not transfer the deposit to the
new owner then Mr. Tota may be liable to his present lessor, but that issue is not before
me.)
Rather than claim that its liability was discharged by transferring the
security deposit to the new owner, Ginko seems to concede that the claimant has a $6,500
credit, but seeks to offset this deposit as part of its back rent counterclaim. See Ginko
Objection to Claim, ¶ 8 (“Therefore, the Claimant’s breach under the Lease [unpaid rent]
eliminates its right to seek a refund of the security deposit.”). Thus, it seems agreed that
Ginko remains liable for the security deposit to Mr. Tota, potentially offset by any back
rent owed by Mr. Tota.
Insofar as the parties dispute the amount of the security deposit previously
paid to Ginko, I find that Ginko likely received $7,000 as a deposit. As the claimant
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61
notes, the lessor never previously demanded an additional $500 from the lessee, either
when Mr. Tota was added to the lease in May 2003—despite knowing that Mr. Hima had
been deported— nor requested through Ginko’s attorney in December 2005, when
counsel demanded prompt payment by the lessee of his outstanding obligations. Ex. C-
14. Moreover, Ginko’s ledger accounts showing $3,500 paid on the deposit on November
16, 2001 (with an additional $3,000 paid on January 7, 2002) are not authoritative, given
that it did not sign any lease with Mr. Hima until January 9, 2002.
Therefore, I find that it is more likely that the extra $500 had been paid
prior to the execution of the Lease Modification with Mr. Tota in 2003, but inadvertently
not credited to the lessee. Accordingly, Mr. Tota is entitled to a return of the $7,000
tenant security deposit, less any sums due Ginko for unpaid rent and other charges.
2.
Ginko asserts a counterclaim as an offset to any sums due Mr. Tota. In that
regard, it contends that $14,680.05 is owing, consisting of unpaid rent, late charges,
various taxes, and water and sewer charges. See ex. D-1.
Mr. Tota debates the legitimacy of the late charges and the apportionment
of some of the taxes, and argues that Ginko’s ledger reflects a double billing for unpaid
2005 real estate taxes. He admits, however, that he owed the lessor certain charges in
December 2005, as itemized in attorney Hing’s December 2005 demand letter; he denies
though, owing all of the other charges appearing on Ginko’s ledger prior to that
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December 2005 date. Finally, Mr. Tota asserts that Ginko has no standing to assert these
unpaid rent and other charges, as it is no longer owner of the building.
Since Ginko was the owner of the building at the time of the alleged
omitted payments, and as there is no evidence that the new lessor was assigned Ginko’s
claim and is demanding payment, I conclude that Ginko is the proper party to assert this
counterclaim. In addition, the Lease Agreement provides that Ginko may retain the
security deposit or any part thereof if the lessee has not complied with all of the terms of
the lease. Ex. C-1, § 27. Therefore, Ginko can offset Mr. Tota’s claim for the return of
the security deposit against rents and other charges owed under the lease.
As detailed previously, on December 19, 2005 Ginko’s attorney sent Mr.
Tota a letter demanding payment of certain past due payments, totaling $8,819.71. Ex. C-
14. Mr. Tota admitted through testimony to owing certain charges, less the amount he
repaid after December 19th. 3 N.T. at 131. This testimony is supported by a letter dated
January 10, 2006, sent from Mr. Tota’s attorney to Ginko’s attorney, which letter referred
to a payment of one of the charges, acknowledged a debt of more than $8,100, and
referred to a payment arrangement made by the parties to cure this delinquency in light of
Mr. Tota’s cash flow situation. See ex. C-15.
After correcting for several minor mathematical errors made by both
parties, I find that the charges demanded on December 19, 2005 totaled $8,820.33, of
which Mr. Tota paid $4,715.08 after December 19th, and thus he still owes Ginko
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Mr. Hing added up the Center City taxes incorrectly: the total unpaid as of this24
letter was $535.60, not the $534.98 he recited.
Mr. Tota asserts in his post-trial memorandum that he made $5,186.46 in
payments pursuant to the parties’ installment agreement. However, the lessor’s ledger indicates
that he made four payments of $1,000 and one of $715.08, totaling $4,715.08. His check stubs,
ex. C-49, confirm this amount rather than the asserted amount.
Finally, I note that attorney Gough stated in his January 10th letter that Mr. Tota
had so far paid $1,715.08, leaving $8,104.63 to pay, but subtracting the amount already paid
from Mr. Hing’s (incorrect) total of $8,819.71 leaves $7,104.63 left to pay.
Mr. Tota argued that the $176.28 charged as 25% of the Center City Assessment25
on February 28, 2003 was the full amount of this 2003 assessment rather than a pro-rata portion
of 2.5 months representing half of October 2003 plus November and December 2003, which
Ginko had done with the real estate taxes. To the extent that he agreed to the amount recited in
December 2005, I view that issue as waived due to the lessor’s agreement to accept payment over
time.
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$4,105.25. 	To the extent that Mr. Tota now disputes some of the charges demanded in24
December 2005, I find that he had the opportunity to challenge those when the demand
was made, and instead entered into a payment agreement with Ginko, by which the lessor
agreed to accept repayment over time, rather than insist upon immediate repayment as
permitted in its lease. 	Accordingly, I will consider any current challenges to those pre-25
December 2005 demand letter charges as waived.
Similarly, though Ginko now asserts additional pre-December 2005 charges
as still owed, I find between the its records and its December 2005 demand letter, the
latter, contemporaneous letter is the more accurate representation of what amounts were
past due at that time. Indeed, added weight should be given to this demand letter because
Pennsylvania common law obligates a lessor to issue such a written demand (unless
waived by the lease, and ¶ 25 of the Lease Addendum contains no such waiver) prior to
exercising its rights against its tenant. See, e.g., Elizabethtown Lodge No. 596 v. Ellis,
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I note that while Mr. Tota complains that he was not presented with real estate,26
use and occupancy, or special service bills prior to the end of 2005, Claimant's Post-trial
Memorandum, at ¶ 136, he does not make the same claim regarding these bills from 2006
onward. As noted earlier, I consider any issues regarding pre-December 2005 charges as waived
(continued...)
64
391 Pa. 19, 24 (1958). Accordingly, the December 2005 demand letter would be drafted
with care.
Therefore, I will not consider the parties’ various disputes as to amounts
owed or paid prior to the December 19, 2005 demand letter. See Antipas v. 2102, Inc.,
1998 WL 306537, at *3 (E.D. Pa. June 9, 1998) (the lessor’s acceptance of funds
demanded in its notice to the lessee means that the lessee “could not have been
considered in default for unpaid rent”). Accordingly, as of the date of sale of the realty,
June 2006, Mr. Tota owed $4,105.25 in pre-demand letter charges to Ginko.
Ginko asserts and Mr. Tota disputes certain listed charges now claimed by
the lessor that arose after its December 19th letter. Ginko’s ledger lists rent payments,
late fees on rent, water and sewer charges, and Center City and real estate taxes. From
December 19, 2005 onward, the ledger itemizes $30,285.94 in charges and $28,584.06 in
payments, leaving $1,701.88 due. But as the amount paid by the lessee after December
19th includes $4,715.08 paid on accordance with the parties December 2005 agreement, I
will not include those repayments against the $30,285.94 assessed, leaving $6,416.96
unpaid for 2006 as of the date that Ginko sold its realty in June 2006.
Mr. Tota, however, contends that this figure is inaccurate because it
includes late charges and tax payments that were wrongly assessed after December 2005.
He also maintains that he was not given credit for water and sewer charges paid in 2006.
Upon my review of the evidence, I agree with Mr. Tota in part only. 26
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(...continued)26
by virtue of the parties’ repayment agreement.
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Mr. Tota first challenges fees assessed on allegedly late rent payments. I
agree with him that the payments of December 2005 through June 2006 do not appear
late. The Lease Addendum provided for a late charge of 5% if not paid within 10 days of
the due date, and Mr. Tota made his rent payments on December 5th, January 5th,
February 3rd, March 6th, April 5th, May 2nd, and June 2nd of that period. Therefore, his
payments were timely.
However, Mr. Tota’s November 2005 rent payment, though paid timely on
November 3rd, was not paid in full. Under the lease agreement, November 2005 marked
the third year of the lease, and accordingly the rent increased from $3,710.00 to
$3,932.60. See ex. C-2, § 2. But Mr. Tota paid only $3,710.00 in November 2005. Since
the lease provides for a five percent late fee assessed against “the amount of such item of
rent, additional rent or other charge due,” id., Ginko was entitled to assess the late fee of
5% of $3,932.60, or $196.63. Compare In re Oxford Hospital. Inc., 1988 WL 138740, at
*2 (Bankr. E.D. Pa. Dec. 20, 1988) (five percent late charge, “plus interest on such
delinquent amount from the due date thereof until paid.”). To the extent that Ginko was
entitled to apply new payments to the oldest outstanding debt, i.e., on a rolling basis, then
each month that the rent shortfall was not paid up, Ginko could assess a new late fee.
Neither the Lease nor any of its addenda directs how payments were to be
applied. Compare In re Reed, 247 B.R. 618, 621 (Bankr. E.D. Pa. 2000) (setting forth
application of payments, with payments applied fifth to late charges). There was no
evidence that Mr. Tota designated how his subsequent rent payments were to be
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The December 11, 2005 late fee was subsumed by the December 19, 2005 letter.27
Thus, six $196.63 late fees were chargeable to the lessee and these are included in the lessor’s
ledger.
There was no explanation for why the amounts differ.28
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credited—he supplied only his own check stubs, not copies of the actual checks sent to
Ginko that could have noted in the memo section to what the payment was directed.
As noted earlier, Ginko’s practice appeared to be to assess late fees on
monthly rent only, not on unpaid (therefore late) utility and tax bills (which the Lease
Addendum defined as “additional rent,” subject to late charges). Pursuant to Toll-Barkan
Co. v. Toll, 193 Pa. Super. at 225, 164 A.2d at 38, quoted above, in the absence of
agreement, tenant payments may be applied in the way most beneficial to the lessor.
Thus, Ginko had the right to apply the rent payments on a rolling basis, curing the earlier
monthly delinquency and applying the residue to the current month. This would yield late
fee charges until June 2006, as were assessed. 	Accordingly, I shall make no27
disallowance of the late fees now demanded by Ginko.
Next, Mr. Tota argues that Ginko’s ledger lists his 2005 real estate tax
obligation in February 2005 and again in January 2006. On February 28, 2005, the ledger
reflects a $2,234.59 charge to the lessee for real estate taxes. See ex. D-1. On January 1,
2006, Ginko lists in its ledger that the lessee owed $1,191.21 and $1,021.04 in real estate
taxes, totaling $2,212.25, even though 2006 real estate taxes are later assessed on March
23, 2006 ($1,203.00 plus $1.031.00). See ex. D-2.
Ginko agrees that the 2005 taxes were listed again in January 2006,
explaining Mr. Tota had not yet paid them. 3. N.T. at 108. 	The 2005 tax obligation of28
$2,234.59, however, was included by Ginko in its demand letter of December 2005,
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regarding which the parties settled upon a payment plan as explained above. Therefore, it
is unlikely that this second listing represents an obligation distinct from the one included
in the parties’ repayment agreement. Accordingly, I will reduce from the amount owed
by Mr. Tota post-December 2005 the January 2006 tax charges of $2,212.25 as
duplicative of his pre-December 2005 obligation.
Although I agree with Mr. Tota that his payment of $273.38 represents
payment for water bills entered on Ginko’s ledger on April 18, 2006 and May 16, 2006 in
the amounts of $132.34 and $141.04, this was credited by Ginko on June 2, 2006 on its
ledger, therefore no further reduction for this payment need be made from Ginko’s
present claim.
Finally, Mr. Tota alleges that Ginko failed to apportion properly the 2006
real estate taxes charged to him, given that Ginko sold the building on June 8, 2006. Mr.
Tota reasons that Ginko would have received credit from the realty purchaser for almost
seven months of real estate taxes, and so should assess Mr. Tota for his portion of only
five months of taxes, rather than the six months included in the 2006 ledger of expenses.
The realty sale closing statement, however, does not support Mr. Tota’s argument.
The first page of the settlement reflects that taxes were apportioned fifty
percent each to buyer and seller. See ex. C-51. 	Moreover, Mr. Tota did not contend that
the new owners demanded payment for seven months of 2006 taxes rather than the six
months remaining owed; therefore to the extent Mr. Tota should have paid his portion of
five months property taxes to Ginko and seven months to the new lessor, but paid six
months to each, he failed to prove any offset to Ginko’s claim.
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To the extent that the lessee owes the lessor more than the tenant security29
deposit, the excess will be offset against the lessee’s claim for damages. Moreover, given the
subordination agreement with Regis regarding lost profits, the offset will be made against the
lessee’s unsubordinated portion of the claim.
In sum, I find that Mr. Tota owes $8,309.96 in back rent and other charges
to Ginko, inclusive of pre and post-December 2005 charges. As this amount exceeds the
$7,000 owed by Ginko on the security deposit, I find that Ginko need not refund the
security deposit and its obligation to Mr. Tota will be offset by $1,309.96. 29
An appropriate order shall be entered.
date 	BRUCE FOX
United States Bankruptcy Judge
August 5, 2008
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