816 F.2d 1562 (Fed. Cir. 1987), 86-634, Alvin Ltd. v. United States Postal Service

Docket Nº:Appeal No. 86-634.
Citation:816 F.2d 1562
Party Name:ALVIN, LTD., et al., Appellants, v. UNITED STATES POSTAL SERVICE, Appellee.
Case Date:April 14, 1987
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit

Page 1562

816 F.2d 1562 (Fed. Cir. 1987)

ALVIN, LTD., et al., Appellants,



Appeal No. 86-634.

United States Court of Appeals, Federal Circuit

April 14, 1987

Keith D. Krakaur, Williams & Connolly, Washington, D.C., argued, for appellants. Raymond W. Bergan, Williams & Connolly, of Washington, D.C., was on the brief, for appellants.

Eva M. Plaza, Commercial Litigation Branch, Dept. of Justice, Washington, D.C., argued, for appellee. With her on the brief were Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director and M. Susan Burnett, Asst. Director. Helene M. Goldberg, Commercial Litigation Branch, Dept. of Justice, Washington, D.C., is counsel of record.

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Before DAVIS, Circuit Judge, BALDWIN, Senior Circuit Judge, [*] and NEWMAN, Circuit Judge.

PAULINE NEWMAN, Circuit Judge.

The Postal Service Board of Contract Appeals ("Board" or "PSBCA") held that, subsequent to amendment to the California Constitution, Cal. Const. art. XIIIA (1978) (hereinafter "Proposition 13" or "Article XIIIA"), the United States Postal Service was not obligated to pay, under existing lease agreements, certain levies imposed by California taxing authorities. Alvin, Ltd., et al., 85-3 B.C.A. (CCH) p 18,216 (1985). We reverse.


The appellants are thirty limited partnerships 1 (collectively "Alvin") that own real property comprising postal facilities leased to the Postal Service in the state of California. The Postal Service entered into long-term leases for the properties starting in the 1950s, the most recent lease at issue having first been executed in 1974. Each lease agreement was in substantially the same form, provided by the Postal Service, and contained a Tax Clause Rider substantially as follows:

The lessor shall present to the Government the general real estate tax bills of each taxing authority for taxes due and payable on the land and buildings hereby demised.... [T]he Government shall pay to the lessor, as additional rent due hereunder, the net amount of said taxes by check made payable to the lessor and the taxing authority issuing said tax bill....

In 1975 a definition of "general real estate taxes" was added to the Rider by the Postal Service, as

taxes which are assessed on an ad valorem basis, ... without regard to benefit to the property, for the purpose of funding general governmental services.

No change in the lease terms accompanied this addition.

The Postal Service regulations include a definition of "special assessment" as follows:

A levy on property to pay for one or more specified public improvements to the property or to the immediate area, as for road construction, sidewalks, street lights, etc. Usually calculated pro rata to street frontage occupied by the property or by some other physical measure.

85-3 B.C.A. (CCH) at 91,434.

Proposition 13, added to the California Constitution as Article XIIIA on June 6, 1978, provided that ad valorem taxes on real property shall not exceed 1% of the assessed value of the property. Neither party disputes that the result was the immediate reduction of community revenues from ad valorem real estate taxes. Id.

This was not, however, the end of many of the community services that had been supported by general real estate taxes. Communities invoked alternative revenue collection methods, variously entitled special assessments, service charges, and benefit assessments. As the Board found, these assessments and charges, collectively referred to as special assessments, were for designated services of "flood control, mosquito abatement, lighting, garbage, sewer, sanitation, ... water...." Id. It was not contested, and the Board found,

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that "[m]any of the governmental services presently funded by special assessments were funded by general real estate taxes before Proposition 13. Thus, it was not the use of the funds that changed, but the basis on which they were assessed." Id.

For the tax years 1978 to 1981 the Postal Service paid the reduced general real estate taxes and some of the new special assessments levied against the leasehold properties, payment the Board held to be a "mistake". Id. at 91,433, 91,434. After 1981 the Postal Service refused to pay anything other than taxes denominated "general real estate taxes" and assessed on an ad valorem basis, pointing to the letter of the lease agreements. It was stipulated that as a result the Postal Service's lease costs decreased, with corresponding increases in costs to the lessors.

The Board found that, as a matter of contractual intent at the time the leaseholds were entered into, "the parties expected the lessors' costs to be stabilized ... with...

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