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Penn-Daniels, LLC v. Daniels

May 27, 2009


The opinion of the court was delivered by: Michael M. Mihm United States District Judge


This matter is before the Court on Plaintiff's Motion for Summary Judgment. For the reasons set forth below, Plaintiff's Motion for Summary Judgment [#23] is DENIED. The Court directs that judgment as a matter of law be entered in favor of Defendants as to Plaintiff's Complaint and that Defendants' counterclaim for breach of contract be dismissed without prejudice as premature.


The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332, as the parties are of diverse citizenship and the amount in controversy exceeds $75,000.00.


Plaintiff, Penn-Daniels, LLC, ("P-D") is a Delaware limited liability company and successor in interest to Penn-Daniels Incorporated, a Delaware corporation. Defendants William D. Daniels, Nancy Jane Daniels, and David P. Daniels (collectively referred to as the "Daniels") own the property located at 888 S. Lake Storey Road, Galesburg, Illinois (the "Property"). William Daniels is the agent and manager of the Property. In 1997, ShopKo acquired P-D from Defendants, and since then, P-D has been a subsidiary of ShopKo.

On December 18, 1997, P-D and the Daniels entered into an Amended and Restated Lease Agreement (the "Lease"), pursuant to which P-D leased the Property from the Daniels. Section 7 of the Lease provides in relevant part:

Tenant agrees that during the term of this Restated Lease Tenant will, at its own expense, (i) keep the Project in as reasonably safe condition as its operations shall permit and (ii) keep all buildings and other improvements forming a part of the Project in good repair and in good operating condition, making from time to time all necessary repairs thereto and renewals and replacements thereof. . . .

The procedure for giving notice of an event of default by P-D as a result of a failure to fulfill any condition of the Lease is set forth in Section 13. Section 22 of the Lease grants P-D the right to exercise an option to purchase the Property.

Unless there is then existing an uncured event of default by Tenant, in which case, Tenant shall have no right or option to purchase the Project as described herein, on . . . January 1, 2007 . . . or at the end of the Term of this Restated Lease, Tenant shall have the option to purchase from Landlords the Project herein demised, with the purchase price thereof to be the fair market value of the Project's real estate, buildings and improvements thereon . . . The option on the part of the Tenant shall be exercised by the Tenant giving Landlords written notice of the exercise of such option within thirty (30) days of the applicable January 1 or the terminating event, as the case may be. . . .

P-D has not operated a store on the premises of the Property since 2001. During 2005, P-D advised the Daniels that it was interested in exercising its purchase option during the course of negotiations attempting to obtain an early exit from the Lease.

In June 2005, William Daniels visited the Property with a consultant to inspect the Property and obtain an independent opinion regarding the cost of deferred maintenance that needed to be performed. At that time, William Daniels claims that he observed conditions such as weeds and cracks in the parking lot of the Property. William Daniels then received a letter dated June 23, 2005, from his consultant outlining areas that needed to be fixed or maintained. Although the Daniels contend that they repeatedly complained to representatives of P-D and requested that they take remedial action on these areas between June 2005 and November 2006, they did not send any default notice under the terms of the Lease and continued to accept rent for the Property.

On November 16, 2006, the Daniels sent P-D a letter advising of conditions that they believed to constitute a default under the terms of the Lease. The conditions identified in this letter were the same conditions set forth in the June 2005 letter from the consultant and which William Daniels had personally observed in June 2005. The November 2006 letter was the only written notice of default that the Daniels ever sent to P-D in accordance with Section 13 of the Lease.

P-D contends that it gave notice to the Daniels of its intent to purchase the Property by letters dated November 28, 2006, and January 3, 2007. The Daniels counter that these notices were sent by ShopKo indicating its intent to exercise P-D's option to purchase under the Lease, but that ShopKo was not the "Tenant" as defined by the Lease and could not exercise the option. On January 10, 2007, the Daniels sent a letter to P-D asserting that it was in default under the terms of the Lease. William Daniels stated in his deposition that he sent the November 2006 letter in the form that he did with the knowledge that if the tenant didn't address those issues, it would be prevented from exercising its purchase option. (Daniels Dep. at 143)

On October 17, 2007, P-D filed this Complaint, seeking specific performance of the contract under the Lease and damages. The Daniels have counterclaimed for breach of contract. P-D has now moved for summary ...

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