Kerin v. U.S. Postal Service, 1308

• Decision Date: 07 July 1997
• Docket Number: No. 1308,D,1308
• Citation: 116 F.3d 988
• Parties: William J. KERIN, Plaintiff-Appellee, v. UNITED STATES POSTAL SERVICE, Defendant-Appellant. ocket 96-6129.
• Court: U.S. Court of Appeals — Second Circuit

Page 988

116 F.3d 988

William J. KERIN, Plaintiff-Appellee, v. UNITED STATES POSTAL SERVICE, Defendant-Appellant.

No. 1308, Docket 96-6129.

United States Court of Appeals, Second Circuit.

Argued April 28, 1997.

Decided July 7, 1997.

Philip L. Steele, Hartford, CT, for Plaintiff-Appellee.

Constance A. Wynn, Appellate Staff, Civil Division, Department of Justice, Washington, DC (Frank W. Hunger, Assistant Attorney General, Civil Division, Department of Justice; Christopher Droney, United States Attorney for the District of Connecticut; Marc Richman, Appellate Staff, Department of Justice), for Defendant-Appellant.

Before: KEARSE and CALABRESI, Circuit Judges, and OBERDORFER, ^* District Judge.

CALABRESI, Circuit Judge.

I. BACKGROUND

The plaintiff William J. Kerin owns the building and premises that the United States Postal Service uses as its South Windsor, Connecticut, postal facility. The office was built in 1968 pursuant to a Postal Service standard form agreement to lease ("Agreement to Lease") entered into by the Post Office Department (the predecessor of the Postal Service) and W.O. Kierstead, of which the plaintiff was then president. After the post office was completed, the parties signed a standard-form government lease ("Lease") on December 9, 1969, which expressly incorporated the terms and conditions of the Agreement to Lease and gave the Postal Service the right to possession until December 31, 1999. In January 1970, Kerin purchased the premises from Kierstead and received an assignment of all of Kierstead's rights and obligations under the Lease.

The focal point of this litigation is which of the parties was responsible for maintaining the sewerage system and the parking lot at the postal facility, given the language of the Lease and an alleged thirty-person occupancy restriction.

Neither the lessor nor the lessee had the sewerage system's septic tanks pumped out from the inception of the Lease until the tanks overflowed in December of 1984. From December 7, 1984 to July 1, 1985, the Post Office had the tanks emptied on a weekly basis. Thereafter, nothing was done to the sewerage system until February 1989, when the septic tanks again overflowed. Postal officials then arranged for the system to be repaired and for the septic tanks to be pumped twice weekly until July 1993, at which time the facility was connected to the city sewer system.

There were also problems with the parking lot. In August 1982, the Postal Service became aware that the rear parking lot was not draining properly and so notified the plaintiff. Kerin hired a construction company to make repairs, but the Postal Service alleged that the problems continued. In 1986, the Postal Service had the parking lot repaired and sought reimbursement from the plaintiff. The plaintiff refused to compensate the Postal Service.

In April 1990, the plaintiff sued the Postal Service for breach of the Lease and for unjust enrichment; he sought ejectment in addition to money damages. ¹ Kerin claimed that the defendant had violated a thirty-person occupancy restriction in the Lease and that this overuse had damaged the septic system and the parking lot, as well as other parts of the facility. He also contended that the defendant had failed to meet its obligations to pump and clean the septic tanks and to maintain the parking lot. The defendant countered that the Lease contained no such occupancy restriction, and that the Lease required the plaintiff to maintain the septic tanks and the parking lot. The defendant therefore counterclaimed for the expenditures it had made to repair the tanks and lot.

After the defendant's motion for summary judgment was denied by Judge Alan H. Nevas, the parties agreed to have the case heard by Magistrate Judge Thomas P. Smith. On October 14, 1994, Magistrate Judge Smith held that the Postal Service had breached the Lease by: (1) allowing more than thirty employees to use the facility; and (2) failing to maintain the sewerage system and the parking lot. The magistrate judge then determined that these breaches had led to damage to the septic tanks, to the parking lot, and to other parts of the facility. He concluded, however, that money damages, and not ejectment, was the appropriate remedy.

On March 6, 1996, the district court awarded the plaintiff $126,802. This sum included damages for the following breaches of the Lease: (1) $20,000 for increased maintenance costs due to the excessive number of employees working at the facility; (2) $23,316 for harm to the sewerage system; (3) $486 in charges for use of the city sewer system in 1994 and 1995; and (4) $18,000 for damage to the parking area. The balance of the sum was an unjust enrichment award of $65,000 to compensate the plaintiff for the benefits the Postal Service had obtained by having more than thirty employees at the facility.

This appeal ensued.

II. DISCUSSION

The issues to be determined are: (A) whether the district court erred in awarding damages for breaches of the Lease; and (B) whether the district court was mistaken in finding unjust enrichment. The plaintiff does not challenge the decision that ejectment was inappropriate.

A. The District Court Did Not Err in Awarding Damages for Breaches of the Lease

The district court awarded damages for two independent breaches of the Lease--the defendant's overuse of the postal facility and its failure to maintain the sewer system and the parking lot. Both of these findings were based on interpretations of provisions in the Lease and the Agreement to Lease. The defendant challenges these findings on the ground that the district court misinterpreted the relevant provisions.

As an initial matter, we must address the question of whether federal common law or state law applies to the interpretation of Postal Service Leases. The only two circuits to have directly addressed the issue have given different answers. Compare Forman v. United States, 767 F.2d 875 (Fed.Cir.1985) (federal common law applies), with Powers v. United States Postal Serv., 671 F.2d 1041 (7th Cir.1982) (state law applies). The magistrate judge in this case did not refer to either Powers or Forman, but relied instead on our decision in United States v. Bedford Assocs., 657 F.2d 1300, 1309 (2d Cir.1981), which held that federal common law applies to resolve certain disputes between the United States and its lessors. The magistrate judge, however, did not address the fact that, in distinguishing Bedford, Powers stated that Bedford 's analysis did not apply to issues arising under existing Post Office Leases. Powers, 671 F.2d at 1045. There is, we believe, "room for fair debate" about whether the interpretation of Postal Service Leases like the one before us "is an area appropriate for application of uniform federal law." Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2d Cir.1987). But as in Victrix, we need not resolve the question here, since the "application of both federal and state law lead to the same result." Id.

In construing the Lease, we must first consider whether the relevant provisions were, as the district court predominantly found them to be, ambiguous. We do this under both federal common law and Connecticut law, which, the parties agree, would be the applicable state law. The existence of ambiguity is a question of law that we review de novo. Tourangeau v. Uniroyal, Inc., 101 F.3d 300, 306 (2d Cir.1996); Pacific Indem. Ins. Co. v. Aetna Cas. & Sur. Co., 240 Conn. 26, 688 A.2d 319, 321 (1997). If we find that the provisions were indeed ambiguous, we review the district court's resolution of that ambiguity for clear error. Tourangeau, 101 F.3d at 306; 24 Leggett Street Ltd. Partnership v. Beacon Indus., 239 Conn. 284, 685 A.2d 305, 311 (1996).

1. The Overuse Claim

Both parties acknowledge that the Agreement to Lease contained a construction specification that the sewerage system was for "a maximum occupancy of 30 employees," Agreement to Lease, Applicable Notes p 6, and that the terms of the Agreement to Lease were incorporated into the Lease, Lease p 17. The parties also do not dispute that since 1981, more than thirty employees have been employed at the facility, although they do dispute whether there were more than thirty employees working in the building at any given time.

The crux of the disagreement is whether the construction specification constituted an occupancy restriction. We agree with the court below that the provision is ambiguous; the specification is not an explicit cap on occupancy, but its natural consequence would seem to require the occupancy of the building to be limited to thirty. We also find that the magistrate judge did not err in resolving that ambiguity in favor of the plaintiff. In so doing, the judge simply emphasized common sense, concluding that it was unreasonable for the defendant to assume that it could make "virtually unlimited use ... of the facility and its septic system," given that it knew that the septic system was not designed for more than thirty. The defendant alleges in the alternative that, even assuming that the construction specification was an occupancy restriction, it only referred to the number of workers in the building at one time. The court's further finding that the occupancy restriction referred to all persons using the building in a normal workday, and not to persons using the building at one time, is also not clearly erroneous. While the defendant's interpretation might not be unreasonable if all that were involved were use of the parking lot, it seems unlikely in this case given that it would allow almost unrestricted use of a highly limited sewerage system.

2. The Claims Regarding Maintenance of the Sewer System and the Parking Lot

Paragraph six of the Lease imposes on the lessor the duty to "furnish and pay for sewerage service." Lease p 6. The defendant maintains that this provision unambiguously obligates the plaintiff to provide a...