U.S. v. Bedford Associates, s. 250

• Decision Date: 05 February 1980
• Docket Number: D,425 and 426,Nos. 250,s. 250
• Citation: 618 F.2d 904
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. BEDFORD ASSOCIATES, a partnership, Doris K. Carver and Samuel Ades, Individually and as partners of Bedford Associates, and Amcar Management Corp., Defendants-Appellees, The Bowery Savings Bank, Intervenor-Appellee. The BOWERY SAVINGS BANK, Plaintiff-Appellee, v. BEDFORD ASSOCIATES et al., Defendants-Appellees, and United States of America, Defendant-Appellant. ockets 79-6119, 79-6143 and 79-6175.
• Court: U.S. Court of Appeals — Second Circuit

Page 904

618 F.2d 904

UNITED STATES of America, Plaintiff-Appellant, v. BEDFORD ASSOCIATES, a partnership, Doris K. Carver and Samuel Ades, Individually and as partners of

Bedford Associates, and Amcar Management

Corp., Defendants-Appellees,

The Bowery Savings Bank, Intervenor-Appellee.

The BOWERY SAVINGS BANK, Plaintiff-Appellee, v. BEDFORD ASSOCIATES et al., Defendants-Appellees, and United States of America, Defendant-Appellant.

Nos. 250, 425 and 426, Dockets 79-6119, 79-6143 and 79-6175.

United States Court of Appeals Second Circuit.

Argued Oct. 5, 1979.

Decided Feb. 5, 1980.

William J. Brennan, Asst. U. S. Atty., New York City (Robert B. Fiske, Jr., U. S. Atty. for S. D. N. Y., Harvey J. Wolkoff, Peter C. Salerno, Asst. U. S. Attys., New York City, on the brief), for plaintiff-appellant.

Frank H. Wohl, New York City (Eugene Zemp DuBose, Jr., Ronald Jay Litchman, Rosenman, Colin, Freund, Lewis & Cohen, New York City, on the brief), for defendants-appellees Bedford Associates, et al.

Terence F. Gilheany, New York City (Howard R. Hawkins, Jr., Robert L. Sills, Vincent M. DiLorenzo, Cadwalader, Wickersham & Taft, New York City, on the brief), for plaintiff-appellee Bowery Savings Bank.

Before VAN GRAAFEILAND and KEARSE, Circuit Judges, and DOOLING, District Judge. ^*

KEARSE, Circuit Judge:

The United States appeals from various interlocutory orders entered by the United States District Court for the Southern District of New York, Henry F. Werker, Judge, in these consolidated actions involving a building occupied by the government and owned by defendant-appellee Bedford Associates ("Bedford"). The government formerly occupied the building pursuant to a lease which expired on October 31, 1978; it claims that a new lease agreement was entered into as of November 1, 1978. Bedford disputes the existence, or alternatively, the enforceability, of the new agreement. On March 20, 1979, Bedford notified the government that it planned to discontinue services to the building and to close it on March 23 unless the government agreed to pay a "reasonable and fair rent" for its occupancy. The government commenced suit on March 22 against Bedford and its agents, seeking preliminary and permanent injunctive relief against the threatened actions.

Meanwhile, on March 21, 1979, The Bowery Savings Bank ("Bowery"), the mortgagee of the property, commenced suit against Bedford and the government, seeking foreclosure of its mortgage and an assignment of rents. Bowery was allowed to intervene in the government's action, and eventually the two actions were consolidated.

A five-day hearing was held on the government's motion for a preliminary injunction against Bedford. Bowery supported the government's motion, but urged that it be granted only on condition that the government pay the rent to Bowery, and that such payments be made without any setoff by the government for its payment of utilities charges. The government expressed its willingness to pay the rent, but contended that it had the right to deduct its utilities payments from the rent payments. At the close of the hearing, the district court framed a preliminary injunction, filed on April 17, 1979, which, pending a trial on the merits, restrained Bedford and its agents from denying the government access and from terminating services to the building, and required the government to pay rent to Bowery and to bear the cost of all utilities without setoff from rent.

The government appeals, principally, from so much of the April 17, 1979 order as requires it to pay utilities without setoff from the rent, arguing that the district court was without jurisdiction to impose such a condition on the United States. The government appeals also from the denial of its motion by letter dated June 1, 1979, to require Bedford to post a bond. Appellees have moved for dismissal of the government's principal appeal for lack of appellate jurisdiction. ¹ We hold that we have jurisdiction to hear the principal appeal, and that the district court had jurisdiction to enter the preliminary injunction. However, we conclude that the preliminary injunction must be modified with respect to the amount the government is to be required to pay, and therefore remand so that the district court may modify its order in accordance with this opinion.

I

A. The Original Lease

Bedford, a partnership consisting of defendants-appellees Doris Carver and Samuel Ades, owns the twenty-one story office building at 120 Church Street in New York City. ² Bowery holds a consolidated first mortgage on the premises. The entire building is occupied by the Manhattan District Headquarters of the Internal Revenue Service ("IRS").

In 1962, the United States General Services Administration ("GSA") executed a lease of the premises with Bedford. The lease had an initial ten-year term, from November 1, 1963, through October 31, 1973, with two five-year renewal options exercisable by the government on notice at least 180 days prior to the expiration of the lease term. The government exercised its first renewal option in 1973, after obtaining successive reductions of the notice period to 90 and 30 days, and after obtaining several extensions of the deadline for notice necessitated by delays in securing the required Congressional approval. ³ The government did not exercise its second renewal option.

The lease required annual rent payments of $1,949,500 during the first ten years, $2,115,499 during the first five-year renewal term, and $2,226,194 during the second five-year renewal term. Bedford was obligated to provide and bear the cost of various services, including electricity, cleaning, security, maintenance and repairs. It was also to provide and pay for heat, air conditioning and elevator service from 8 A.M. to 6 P.M. during the week, and to provide those services at other times for specified rates of additional compensation.

From time to time, and with increasing frequency during the first renewal term, Bedford complained about losses it assertedly was incurring in the operation of the building. One point of contention concerned the government's responsibility for certain electricity charges. Over the course of its occupancy, the government has installed a number of new office machines which consume electricity. Since this office machinery was not included in the government's original solicitation, the government was responsible for the cost of the electricity it used. However, it appears that the parties have never determined the precise extent of these excess costs. The government concedes in this Court that it remains responsible for some electricity payments for such consumption.

The government, for its part, has often sought changes in the building's physical plant. As a result, the parties entered into a series of supplementary agreements under which Bedford made various alterations to the building and was reimbursed for them by the government. Supplemental agreement number 24 is of more immediate concern than the others because it also dealt with payment of utilities expenses.

Under this supplemental agreement, dated December 15, 1975, the owners released the government from any claims for excess electricity consumption through that date, and agreed to make specified alterations on four floors of the building, in return for which the government agreed to assume the cost of all utilities, in addition to the specified amount of rent, for the remainder of the first renewal term, through October 31, 1978. At about the same time, Bedford and Bowery executed a forbearance agreement, under which the mortgage payments were reduced and Bowery obtained the right to an assignment of rents in the event of default.

B. The Quest for a New Lease

By early 1977, Bedford was complaining that its losses were larger than ever. At the same time, IRS apparently had become quite dissatisfied with the 120 Church Street building. Thus, the government started looking for new premises. GSA conducted a market survey of lower Manhattan, and on the basis of information obtained from IRS, drafted a solicitation for bids which it sent to twelve potential offerors in June 1977. The solicitation called for offers of 317,000 square feet in lower Manhattan, to be occupied by IRS beginning November 1, 1978. GSA received three responses on the return date, August 15, 1977, one of which was a new offer from Bedford for the 120 Church Street building. GSA considered all three offers to be incomplete in various respects, and thus began to gather further information and to negotiate over terms with the three offerors. By December 1977, GSA had rejected the two other offers, leaving Bedford's new offer and the second renewal option as its only alternatives. The renewal option, for 369,000 square feet at an annual rent of $2,226,194, did not include the alterations needed to satisfy IRS.

Bedford's August 15, 1977 offer provided for 350,000 square feet at an annual rent of $3,073,000, and included various alterations which Bedford estimated would cost $1 million. GSA deemed the proposed alterations insufficient, and the offer was, on its face, for more space than the solicitation requested. (It later transpired that the parties disagreed on how the space was to be measured and, consequently, on how much space the building contained). The parties engaged in further negotiations. As these progressed, Bedford modified its offer by a series of letters. In a letter dated December 8, 1977, Bedford offered 317,000 square feet (with an option on 8000 more) for a fixed term of ten years, at an annual rent of $2,902,160, ⁴ with alterations estimated by Bedford to cost $2.6 million. In its original offer and in all modifications made during the following six months, Bedford was to pay for utilities.

As noted above, the solicitation requested that the premises be ready for occupancy on November 1, 1978. Nevertheless, the solicitation recognized that the...