James Lammendola James Lammendola

A recent Superior Court opinion illustrates the way a fight for attorney fees might transpire within the commercial real estate lease context. The nonprecedential decision in Pizzella v. Auto Buddies, (No. 522 MDA 2017), filed on June 12, is the culmination of a long-standing dispute between a landlord and tenant, relating to fairly de minimis amounts. Critically, the question of a party’s entitlement of attorney fees is bound up with the litigation, especially whether such fees can be used as an offset for owed rents and other amounts due and owing. The fee provision at issue provides as follows: “In the event that any action is filed in relation to this lease, the unsuccessful party in the action will pay to the successful party, in addition to all the sums that either party may be called upon to pay, a reasonable sum for the successful party’s attorney fees.” Note that the phrase “substantially prevailing” was not employed.

It all started when the Luzerne County Tax Bureau indicated that real estate tax payments were overdue. Auto Buddies (the appellant) had been operating an auto sales business in Plains, Pennsylvania, since early December 2010. The governing lease required Auto Buddies to pay rent, utilities, maintenance and property taxes to Carolyn Pizzella (the appellee). The governing lease also gave Auto Buddies nine options for additional one-year terms. In February 2012, the Luzerne County Tax Bureau issued a delinquency notice, which the appellant rectified within only eight days. Nevertheless, shortly thereafter, the appellee decided against renewing the lease, in spite of the appellant’s request that it be permitted to remain in possession. In October 2012, the appellee alerted Auto Buddies that it had elected to terminate the subject lease altogether, resulting in the first related piece of litigation.

On Nov. 2, 2012, Auto Buddies sought declaratory relief, requesting that a court determine its rights under the lease. In early 2013, the appellee commenced an eviction action, which was consolidated by the  Court of Common Pleas with the declaratory judgment action. After a bench trial, the court determined that Auto Buddies had not materially breached the lease and thus Pizzella had no right to terminate. However, in that same Dec. 17, 2014 order, the lower court did direct the appellant to pay any outstanding rents and reimburse the appellee for any property taxes. The appellant claimed it was the successful party under the lease, and thus entitled to attorney fees. However, Auto Buddies never filed a fee petition, delineating specific amounts, etc. In fact, neither party filed a fee petition or took an appeal from those prior actions.

On March 18, 2015, Pizzella filed a contempt petition, due to the appellant’s alleged failure to pay back taxes in accordance with the December order. Accordingly, Auto Buddies reiterated its demand for attorney fees, a point with which the lower court did not take issue; the court refused to permit any such fees to act as an offset though, without explanation. Additionally, there was no on-the-record determination of the amount of fees, as no fee petition had been filed in the first place. The trial court eventually held Auto Buddies in contempt and Auto Buddies complied that decision, without an appeal. Appellant then stopped remitting rent altogether, as of April 1, 2015, prompting the appellee to commence the action that is the subject of the present appeal. On Sept. 1, 2015, Pizzella demanded rents, late fees and property taxes to the tune of approximately $12,000. The appellant answered and counterclaimed, requesting a setoff for the same basic amount, representing attorney fees. The appellee denied the appellant’s entitlement to such fees and also explained that the trial court never awarded said fees in the prior actions.

On Aug. 1, 2016, the lower court conducted a bench trial, receiving evidence from Auto Buddies of the attorney fees incurred previously, still maintaining its right to a set off. The appellee took the position that neither party had been completely successful in the previous actions, which contractually precluded the appellant from recouping them at any rate. The trial court entered two orders: the first order granted possession to Pizzella, along with a money judgment, which included roughly $4,000 in counsel fees incurred during the appellee’s successful contempt petition. A second order awarded the appellant approximately $12,000 for attorney fees incurred during the prior actions; a setoff was not permitted. Auto Buddies perfected its appeal and relief from an automatic stay in Chapter 11 bankruptcy was granted, giving the appellee the right to proceed with her eviction.

Although the appeal raised several issues (including the questions of a refusal to stay the eviction and breach), our Superior Court homed in on the issue of attorney fees, namely whether a setoff should have been permitted. The Auto Buddies court stated that “the trial court never cited the law it refers to with respect to setoff or credit, and we have found no legal authority to support the trial court’s position.” Additionally, there is nothing in the governing lease that expressly prohibits such a setoff. However, Auto Buddies never appealed from the order on contempt in the prior actions, a procedural decision that proved pivotal for the appellate court: “While our result is not an endorsement of the trial court’s setoff analysis, we conclude that the appellant, after it failed to appeal from the contempt order, continued to defy the trial court at its own risk. The appellant’s failure to refute the trial court’s specific findings on the amount and materiality of its breach of the Lease warrants affirmance of the judgment and renders its stay of eviction arguments moot. Regarding the appellee, she did not appeal, and therefore has failed to preserve any challenge to the trial court’s award of attorney fees, including her argument that the appellant was not the successful party in the prior actions.” In conclusion, albeit not precedential, the Auto Buddies case underscores the risks inherent in attempting to use attorney fees as an offset against contractual obligations.

James M. Lammendola is an assistant professor at Temple University’s Fox School of Business who was in private practice for 20 years. He may be reached via e-mail at james.lammendola@temple.edu or at 215-204-4124.

Harper J. Dimmerman is a published novelist and adjunct professor at Temple University’s Fox School of Business. He represents clients in various Philadelphia litigation and real estate law matters and may be reached via e-email harper@hjdlaw.net or at 215-545-0600.