U.S. v. Bedford Associates, s. 967

• Citation: 713 F.2d 895
• Decision Date: 14 July 1983
• Docket Number: 1107,D,Nos. 967,s. 967
• 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, and The Bowery Savings Bank, Intervenor-Appellee. The BOWERY SAVINGS BANK, Plaintiff-Appellee, v. BEDFORD ASSOCIATES, a Partnership, Doris K. Carver and Samuel Ades, individually and as partners of Bedford Associates, Defendants-Appellees, and United States of America, Defendant-Appellant. ockets 82-6307, 83-6003.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 895

713 F.2d 895

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,

and

The Bowery Savings Bank, Intervenor-Appellee.

The BOWERY SAVINGS BANK, Plaintiff-Appellee, v. BEDFORD ASSOCIATES, a Partnership, Doris K. Carver and Samuel Ades, individually and as partners of

Bedford Associates, Defendants-Appellees,

and

United States of America, Defendant-Appellant.

Nos. 967, 1107, Dockets 82-6307, 83-6003.

United States Court of Appeals,

Second Circuit.

Argued March 31, 1983.

Decided July 14, 1983.

William J. Brennan, Asst. U.S. Atty., New York City (John S. Martin, Jr., U.S Arthur Richenthal, New York City (Richenthal, Abrams & Moss, New York City, on brief), for defendants-appellees Bedford Associates et al.

Atty., S.D.N.Y., Michael H. Dolinger, Thomas D. Warren, Asst. U.S. Attys., New York City, on brief), for plaintiff-appellant.

Terence F. Gilheany, New York City (Howard R. Hawkins, Jr., John F. Mariani, Terrence J. Connolly, Cadwalader, Wickersham & Taft, New York City, on brief), for plaintiff-appellee Bowery Sav. Bank.

Before KEARSE, PIERCE, and PRATT, Circuit Judges.

KEARSE, Circuit Judge:

In its third set of appeals to this Court in these consolidated actions, the United States challenges judgments and orders of the United States District Court, Henry F. Werker, Judge, which, principally, (1) awarded the United States nominal damages and limited restitution from defendants-appellees Bedford Associates, et al. ("Bedford"), ¹ for Bedford's breach of its lease agreement with the government for the building at 120 Church Street in New York City (the "building"), (2) denied the government any restitution from intervenor The Bowery Savings Bank ("Bowery") for payments made by the government to Bowery in connection with the building, and (3) ordered the government to make annual rental payments of $5.7 million, plus escalation, as "just compensation" for its condemnation of a leasehold interest in the building as of December 14, 1981. For the reasons below, we conclude that the judgments of the district court should be modified to (1) grant the government restitution from Bowery in the amount of approximately $76,000 paid by mistake and retained by Bowery with knowledge of the error, and (2) increase by $81,485 the amount of restitution awarded to the government from Bedford. In all other respects we affirm the judgments.

I. BACKGROUND

The factual background of the litigation is set forth in detail in our prior opinions in these cases, United States v. Bedford Associates, 618 F.2d 904 (2d Cir.1980) ("Bedford I "), and United States v. Bedford Associates, 657 F.2d 1300 (2d Cir.1981), cert. denied, 456 U.S. 914, 102 S.Ct. 1767, 72 L.Ed.2d 173 (1982) ("Bedford II "), familiarity with which is assumed. For the purposes of this appeal the facts may be summarized briefly as follows.

A. The Events Leading to Bedford I and II

The building is owned by Bedford and mortgaged to Bowery and has been occupied since 1962 by the United States Internal Revenue Service ("IRS"). In October 1978 IRS's lease expired, and the United States General Services Administration ("GSA") sought, having conducted tortuous negotiations with Bedford, to enter into a new lease with Bedford. See Bedford I, 618 F.2d at 908-11. Bedford refused to sign a lease at the rental tendered by the government, and eventually threatened IRS with discontinuation of services to the building. The government brought suit for specific performance of the alleged lease agreement, see id. at 916, 918, and obtained a preliminary injunction against the discontinuation of services; the injunction was granted on the condition that, pending determination of the merits of the suit, the government pay rent and utilities expense. ² In Bedford I we largely affirmed this injunction, although we reduced prospectively the utilities payments required from the government as a condition of its obtaining the injunction. Id. at 923. Following entry of our order reducing the amount to be paid, the government continued for three months to pay at the prior, higher rate Following our remand in Bedford I, a bench trial (the "1980 trial") was held on the merits of the various claims, which included the government's claim for specific performance, a counterclaim by Bedford for damages, and Bowery's claim for foreclosure of the mortgage. In an opinion reported at 491 F.Supp. 848 (1980), the district court ruled against the government and in favor of Bedford with respect to the lease dispute, and granted Bowery's foreclosure claim against Bedford and the government. Most pertinently for the purposes of the present appeal, the court ruled that (1) because of Bedford's repeated attempts to amend its lease offer to GSA and because of several open terms, no lease agreement had been formed between Bedford and the government, and (2) even if a contract had been formed it would have been unenforceable by the government against Bedford because of unconscionability, duress, and misrepresentation by GSA in its dealings with Bedford. The court thus entered judgment in June 1980 dismissing the government's action against Bedford and ordered the government to pay damages to Bedford based on the fair rental value of the building as of the date of trial.

                making its payments to Bowery, which had intervened and commenced a foreclosure action on the building.   Bowery, after consulting its counsel, elected to retain in silence such excess amounts as the government mistakenly paid, which apparently totaled about $76,000
                

We reviewed these rulings in Bedford II, in which we principally disagreed with the district court's view that no agreement to lease had been formed, see 657 F.2d at 1308-12, ³ but agreed that, in light of the findings of bad faith on the part of GSA, the court could properly deny the government specific performance of the lease agreement, id. at 1314. ⁴ We held that the agreement that had been formed would have required the government to pay Bedford rental of $2,226,194 per year (or $185,516 per month), plus increments for certain renovations of the building, and to pay annual rental of $2,902,160 (or $241,847 per month) when renovations were completed. Id. at 1304, 1311. We left it to the district court, however, to determine whether GSA's conduct should be deemed to have excused Bedford from making the renovations. We remanded the case in order for the government to make an election, within 60 days of our mandate, whether to vacate the building or to condemn some interest in it, and for the district court to determine what damages the government should recover from Bedford. We concluded as follows:

[W]e reverse the judgment of the district court insofar as it dismissed the government's action for damages and awarded damages to Bedford; modify it insofar as Id. at 1318-19.

                the monetary award to Bowery was based on fair market rental of the property rather than the rental specified in the lease;  and affirm it insofar as it denied specific performance to the government, declared that the government no longer has a leasehold interest in 120 Church Street, foreclosed Bowery's mortgage, quieted title to the building as requested by Bowery, and awarded Bowery an assignment of rents.   We remand the matter for adjustment of the rental due Bowery under the decree, for trial of the government's action for damages, and for such other proceedings as may be appropriate
                

B. The Proceedings and Decisions Following Bedford II

Our mandate in Bedford II issued in September 1981, and on November 19, 1981, the government elected to condemn a leasehold interest in the entire building, to commence on December 14, 1981, and continue through October 31, 1988, with options to renew for the two succeeding five-year periods. The government elected to assume responsibility for all services to the building.

The trial on damages (the "1981 trial") followed shortly. The government sought three categories of damages: (1) restitution, from both Bedford and Bowery, of so much of the rent and utilities it had paid during the course of the lawsuit as exceeded the amounts for which Bedford I and II had determined it was liable; (2) damages for the loss of its lease bargain, which it described as the amount by which the fair market value of the leasehold interest condemned as of December 14, 1981, would thenceforth exceed the rental set by the lease agreement; and (3) consequential damages on account of Bedford's alleged failure to maintain the building. The parties stipulated the precise amounts paid by the government for rent and utilities during various pertinent periods, and both sides presented evidence as to the fair market rental value of the building as of December 14, 1981. No evidence was presented as to the fair rental value at any earlier time.

In an opinion reported at 548 F.Supp. 732 (1982), the district court granted the government considerably less relief than was requested. As to the claim for restitution, the court ruled that the government was not entitled to recover excess utilities payments for any period prior to June 1980. It reasoned that the pre-June 1980 period was governed by the preliminary injunction and that the government's required payments during that period were " ' "the price of [preliminary injunctive] relief" ' " allowing the government to remain in the building, id. at 737 (quoting Bedford I, 618 F.2d at 917 (quoting Brotherhood of Locomotive Engineers v. Missouri-Kansas-Texas Railroad, 363 U.S. 528, 531, 80 S.Ct. 1326, 1328, 4 L.Ed.2d 1435 (1960))), and were therefore not subject to the equitable remedy of restitution. As to rental payments, the court ruled that since GSA's delays had "caused the commencement of renovations to be postponed until a time when construction costs had skyrocketed and...