767 Third Ave. Associates v. U.S.

• Decision Date: 03 March 1995
• Docket Number: No. 94-5075,94-5075
• Citation: 48 F.3d 1575
• Parties: 767 THIRD AVENUE ASSOCIATES and Sage Realty Corporation, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1575

48 F.3d 1575

767 THIRD AVENUE ASSOCIATES and Sage Realty Corporation Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.

No. 94-5075.

United States Court of Appeals Federal Circuit.

March 3, 1995.

Robert John Ward, Richards & O'Neil, New York City, argued for plaintiffs-appellants. With him on the brief were Shari C. Reig and Peter W. Smith.

Joan M. Pepin, Atty., Dept. of Justice, Washington, DC, argued for defendant-appellee. With her on the brief were Lois J. Schiffer, Acting Asst. Atty. Gen., David C. Shilton, James E. Brookshire and Alan Brenner, Attys.

Before LOURIE, Circuit Judge, BENNETT, Senior Circuit Judge, and SCHALL, Circuit Judge.

LOURIE, Circuit Judge.

767 Third Avenue Associates and Sage Realty Corporation (collectively "Sage") appeal from a judgment of the United States Court of Federal Claims granting the government's motion for summary judgment. 767 Third Ave. Assocs. v. United States, 30 Fed.Cl. 216 (1993). Because Sage failed to establish that the government's actions effected a taking of private property without compensation in violation of the Fifth Amendment of the United States Constitution, we affirm.

BACKGROUND

Sage Realty Corporation, as agent for 767 Third Avenue Associates, entered into leases in 1981 with three organizations from the Socialist Federal Republic of Yugoslavia (SFRY). The Consulate General of the Socialist Federal Republic of Yugoslavia (Consulate) and the Yugoslav Press and Cultural Center (Cultural Center) leased the 17th and 18th floors, respectively, of the premises at 767 Third Avenue, New York City, New York, beginning in February 1981. The Yugoslavia Chamber of Economy (Chamber of Economy) leased a portion of the 24th floor of the same building beginning in March 1981. Each lease was for a ten-year period.

Article 45 of each lease provided options for extensions. It read as follows:

ARTICLE 45

EXTENSIONS OF TERM

45.01 Tenant shall have the right to extend the term of this Lease for two (2) additional, consecutive terms of five (5) years each.... The options contained in this Article 45 to extend the term of this Lease shall in each instance be subject to the following terms and conditions: (i) Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the term of this Lease at least eighteen (18) months but nor [sic] more than twenty-four (24) months prior ....

to the commencement of the relevant Extension Term....

45.03 If Tenant does not send an Extension Notice pursuant to the provisions of Section 45.01 hereof, this Article 45 shall have no further force or effect, and the term of this Lease shall expire on the last day of the initial term thereof or on the last day of the Extension Term then in progress, as the case may be.

None of the tenants provided an Extension Notice at least eighteen months prior to the expiration of the leases. However, less than one month prior to the expiration of its lease, the Chamber of Economy entered into a written agreement extending its lease to August 31, 1996. Likewise, after the expiration of its leases, the Cultural Center on October 21, and the Consulate on October 28, 1991, entered into similar written agreements extending its leases to September 30, 1994, and August 31, 1996, respectively.

At the time the tenants extended their leases, the SFRY was experiencing significant turmoil. In June 1991, two of the six Yugoslav republics, Croatia and Slovenia, voted to secede from the SFRY. By July, the country was on the brink of a full-fledged civil war. Over that summer, violence erupted, which ultimately led to a bloody ethnic war. On May 24, 1992, the United States formally acknowledged that the SFRY ceased to exist. See 767 Third Ave., 30 Fed.Cl. at 218.

One day later, the United States Department of the Treasury ordered the closure of the Consulate, including the Cultural Center, and directed that operations at these offices cease by May 31, 1992. Shortly thereafter, on May 30, President Bush declared that "all property and interests in property in the name of the Government of the Socialist Federal Republic of Yugoslavia or the Government of the Federal Republic of Yugoslavia that are in the United States ... are hereby blocked." Exec.Order No. 12,808, 57 Fed.Reg. 23,299 (1992). This order specifically included the Chamber of Economy. Id. at 23,300. A second Executive Order issued on June 5 in which the President expanded the sanctions, freezing Yugoslav assets in the United States. Exec.Order No. 12,810, 57 Fed.Reg. 24,347 (1992). These Executive Orders were issued pursuant to the President's delegated authority under the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. Secs. 1701-1706 (1988 & Supp. V 1993), which was enacted in 1977.

In response to the United States government's actions, the Cultural Center and the Consulate sent lease termination notices on May 27 and 28, respectively. Sage responded on May 29 by notifying them that they were in default of the leases due to arrears in rent payments. Sage sent a similar notice to the Chamber of Economy on June 11, 1992. Because the three tenants did not cure their defaults, Sage filed suit against them in the United States District Court for the Southern District of New York on July 2, 1992, seeking past due rent. Sage, however, did not seek damages for the default by the SFRY organizations pursuant to Article 18 of the lease agreements, which provided for damages. ¹

Thereafter, on July 9, 1992, as part of the implementation of President Bush's Executive Orders, Treasury agents entered and inspected the offices of the Yugoslav organizations at 767 Third Avenue. After the inspection and upon leaving, the agents posted the following notice on the doors of the three offices:

THESE PREMISES HAVE BEEN CLOSED BY ORDER OF THE UNITED STATES DEPARTMENT OF THE TREASURY.

....

NO ACCESS TO THESE PREMISES IS PERMITTED WITHOUT SPECIFIC AUTHORIZATION FROM THE OFFICE OF FOREIGN ASSETS CONTROL, U.S. TREASURY DEPARTMENT.

FOR FURTHER INFORMATION CONTACT THE OFFICE OF FOREIGN ASSETS CONTROL AT 202/622-2430.

Criminal Penalties for violation of this order may include up to ten years imprisonment, $500,000 in corporate, and $250,000 in individual fines. In addition, civil penalties of up to $10,000 per count may be imposed administratively.

On one occasion after these notices were posted, Sage requested access to the premises in order to ensure the building's safety. The government granted the request. Sage made no other such access requests. On August 28, 1992, the government sent a letter informing Sage that it was "free to take possession of the space formerly occupied by the Yugoslav Consulate General." The letter further provided that Sage "may disregard and remove the sign posted there." Similar letters on September 18 and September 23 notified Sage that it could take possession of the premises formerly occupied by the Cultural Center and the Chamber of Economy.

Prior to the posting of the notices restricting access to the premises, Sage had filed suit against the government in the Court of Federal Claims on June 12, 1992. Sage alleged that the closure of the Consulate, Cultural Center, and Chamber of Economy constituted a regulatory taking of its property, consisting of the benefits of its leases, for which it was entitled to just compensation under the Fifth Amendment. After the government posted the notices, Sage amended its complaint to allege that the government physically seized the SFRY offices by such posting, which it believed constituted a taking for which it was entitled to just compensation. In response, the government filed a motion for summary judgment, which the Court of Federal Claims granted. 767 Third Ave., 30 Fed.Cl. at 217.

The court held that Sage had no compensable investment-backed expectation "to be free from government interference with [its] contract rights." ² Id. at 222. In so holding, the court determined that the appropriate date for analysis of Sage's expectations was 1991, when the parties extended the leases, not 1981, when the parties initially entered into the lease agreements. Id. at 220. The court indicated, however, that even if 1981 were the appropriate year to analyze Sage's expectations, Sage still had no investment-backed expectation to be free from government interference with its interests in the leases. Therefore, the court held that Sage failed to establish that there was a taking of property within the meaning of the Fifth Amendment.

The trial court further held that the government's actions did not constitute a per se physical taking because the government "did not take physical possession of the subject premises and Sage was never physically denied access to the property on those occasions when it asked for access." Id. at 222. In so finding, the court held that posting signs and restricting access at the premises did not constitute a separate physical taking. Id. Pursuant to the court's grant of summary judgment, the court issued an order to dismiss Sage's complaint. Sage now appeals.

DISCUSSION

Whether the Court of Federal Claims properly granted summary judgment is "a question of law subject to complete and independent review" by this court. Tabb Lakes,

Ltd. v. United States, 10 F.3d 796, 799 (Fed.Cir.1993) (citation omitted). Thus, we review the record de novo to determine whether any genuine issue of material fact exists, and if not, whether the movant is entitled to a judgment as a matter of law. Id.; Fed.R.Civ.P. 56(c).

I. Alleged Regulatory Taking

Sage first argues that the court erred in granting summary judgment on the fact-intensive question concerning whether there was a regulatory taking, because numerous issues of fact exist as to whether Sage's expectations were reasonable given the regulatory environment. ³ Sage also argues that the proper date for measuring its expectations is 1981, when its leases...