Powers v. U.S. Postal Service

Decision Date02 March 1982
Docket NumberNo. 81-2421,81-2421
Citation671 F.2d 1041
PartiesDonald S. POWERS, Plaintiff-Appellant, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Palmer C. Singleton, Jr., Highland, Ind., for plaintiff-appellant.

Charles B. Miller, Asst. U. S. Atty., R. Lawrence Steele Jr., U. S. Atty., Hammond, Ind., for defendant-appellee.

Before SPRECHER and POSNER, Circuit Judges, and BONSAL, Senior District Judge. *

POSNER, Circuit Judge.

The question we are called upon to decide in this case-one of first impression in this circuit-is whether state law or federal common law is to be used to decide a dispute between the United States Postal Service, as tenant, and a private landlord, concerning the landlord's right to terminate the lease for nonpayment of rent.

The landlord (appellant in this court) is an Indiana man named Powers, and the leased premises are used as a post office in Munster, Indiana. The lease, a standard form lease used by the old Post Office Department, was signed in 1964 in Indiana. The lease was for ten years, at an annual rent of $10,200, with an option to the tenant to renew through 1994 at the same rent. Naturally the option has been exercised; inflation unforeseen in 1964 has made the fixed-rent feature of the lease uncommonly advantageous to the tenant, the Postal Service.

In 1979 the Postal Service notified Powers that the post office needed to be painted-at his expense. But the lease is silent on whether the landlord's maintenance obligation includes painting, and Powers refused to paint. The Service then hired someone to do it, at a cost of $1600, and deducted this amount from the rent. Powers then served written notice on the Postal Service that unless it paid the full rent within 10 days he would exercise his rights under Ind.Code § 32-7-1-5 and terminate the lease. When the Service refused either to pay up or to quit the premises, Powers brought this lawsuit, in federal court of Indiana, for the rent due and for ejectment. He based federal jurisdiction on 39 U.S.C. § 409(a), which gives the federal courts, concurrently with the state courts jurisdiction over suits by or against the Postal Service.

The district court held that the law applicable to Powers' claims was federal common law rather than the law of Indiana, that under federal common law painting is not a part of the landlord's maintenance obligation, and therefore that Powers was entitled to the $1600 in withheld rent. The Postal Service has not appealed this ruling.

The court rejected Powers' claim for ejectment, however. Judging from the footnote which is all that the court wrote on this phase of the case, its holding was based mainly on two unreported federal district court decisions from Pennsylvania, one of which was summarily affirmed by the Third Circuit in an unpublished order. Although it is unclear whether federal common law or Pennsylvania law was applied in those decisions, the court below must have been using them as evidence of what the applicable federal common law is. For there is no dispute that if state law is applicable to this case it is the law of Indiana and not the law of Pennsylvania that applies and the court below had earlier held that federal common law rather than state law was applicable.

This appeal is from the district court's refusal to order ejectment. Powers argues that Indiana rather than federal common law should govern the parties' rights under the lease, even though the tenant is a federal agency, and that under Indiana law he is entitled to eject the Postal Service for having withheld the $1600 from the rent due him. The court below made no findings on Powers' rights under Indiana law and the Postal Service did not brief or argue the question of those rights either in this court or below.

The first issue that we must consider is whether the federal courts have been authorized to create federal common law for application to questions arising under Postal Service leases. There is no federal statute prescribing the rights or duties of parties to leases with the Postal Service, except with regard to wages paid to workers constructing or repairing leased facilities, see 39 U.S.C. § 410(d)(1), which of course has no application here. The jurisdictional statute, 39 U.S.C. § 409(a), is not a promising source of substantive duties either. It confers merely concurrent jurisdiction on the federal courts. If Congress by enacting section 409(a) had wanted the federal courts to apply federal common law, it probably would not have given the state courts concurrent jurisdiction. They are not expert in devising federal common law, and, as we shall see, there is no ready-made body of federal landlord-tenant law lying about that a state court could merely apply, without having to invent. This interpretation of section 409(a) is reinforced by Peoples Gas, Light & Coke Co. v. United States Postal Service, 658 F.2d 1182, 1189 (7th Cir. 1981), which holds, albeit in a different context, that section 409(a) is not a source of substantive rights but merely a waiver of the government's sovereign immunity from suit.

We believe, however, that the statutes creating the Postal Service, 39 U.S.C. §§ 101 et seq., considered as a whole, empower the federal courts to create substantive principles governing suits by and against the Postal Service in both federal and state court, to the extent that such creation is necessary to carry out the purposes of those statutes. That is the essential teaching of Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), which made clear that Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), had not extinguished the power of the federal courts to formulate common law but had merely confined that power to cases where there was a substantive federal interest. This is such a case since the interpretation of post office leases could conceivably affect the Postal Service's ability to carry out the mission that Congress has entrusted to it.

However, the fact that federal courts have the power to create federal common law applicable to Postal Service leases does not mean that they have to exercise that power. If state law would provide as good or better rules of decision, a federal court can apply state law instead of creating its own rules. This is a frequent choice, especially in real property law, of which landlord-tenant law is a part. Even during the era of rampant federal common law that Erie brought to an end, federal courts usually deferred to state law in matters of real property. For example, in United States v. Fox, 94 U.S. 315, 320, 24 L.Ed. 192 (1877), the Supreme Court held that state law governed the bequest of real estate to the United States because "the disposition of immovable property, whether by deed, descent, or any other mode, is exclusively subject to the government within whose jurisdiction the property is situated."

It is true that the Clearfield opinion contains some broad language (see 318 U.S. at 367, 63 S.Ct. at 575), and United States v. County of Allegheny, 322 U.S. 174, 183, 64 S.Ct. 908, 913, 88 L.Ed. 1209 (1944), even broader language, suggesting that all federal contracts are governed by federal common law. See also Priebe & Sons, Inc. v. United States, 332 U.S. 407, 411, 68 S.Ct. 123, 125, 92 L.Ed. 32 (1947) ("It is customary, where Congress has not adopted a different standard, to apply to the construction of government contracts the principles of general contract law"). Although none of these cases involved real estate contracts, their language led the Third Circuit in several early cases to hold that federal common law governed the interpretation of real estate contracts to which the U.S. was a party. See Girard Trust Co. v. United States, 149 F.2d 872, 874 (3d Cir. 1945), 161 F.2d 159, 161 (3d Cir. 1947); American Houses, Inc. v. Schneider, 211 F.2d 881, 882-83 (3d Cir. 1954). The Court of Claims took the same view in Brooklyn Waterfront Term. Corp. v. United States, 90 F.Supp. 943, 948, 117 Ct.Cl. 62 (1950), relying on the Girard decisions. The two unreported Pennsylvania district court decisions that the court below cited are the echo of the early Third Circuit cases. They are a faint echo, because they do not cite those cases or discuss the source of the law being applied, which for all that appears may have been the law of Pennsylvania; but a slightly earlier Pennsylvania district court decision, J. & R. Realty Co. v. United States, 418 F.Supp. 391 (E.D.Pa.1976), indicates that the district courts in the Third Circuit are, as one would expect, continuing to adhere to Girard and Schneider.

But the tide of case law is running strongly against the idea that there is a federal common law of real property. See United States v. Certain Property in Manhattan, 306 F.2d 439, 444 (2d Cir. 1962), 344 F.2d 142, 144-45 (2d Cir. 1965); United States v. Williams, 441 F.2d 637, 643 (5th Cir. 1971); United States v. Doyle, 468 F.2d 633, 636 (10th Cir. 1972); United States v. O'Connell, 496 F.2d 1329, 1332 (2d Cir. 1974); United States v. Irby, 618 F.2d 352, 355 (5th Cir. 1980); United States v. California, 655 F.2d 914, 916-17, 919-20 (9th Cir. 1980). This trend has been helped along by a series of Supreme Court decisions. United States v. Brosnan, 363 U.S. 237, 241-42, 80 S.Ct. 1108, 1111, 4 L.Ed.2d 1192 (1960), adopted "state law governing divestiture of federal tax liens" in order to avoid "severe dislocation to local property relationships which would result from ... disregarding state procedures." United States v. Yazell, 382 U.S. 341, 86 S.Ct. 500, 15 L.Ed.2d 404 (1966), held the Texas law of coverture applicable to loan contracts of the Small Business Administration. United States v. Little Lake Misere Land Co., 412 U.S. 580, 595-96, 93 S.Ct. 2389, 2398, 37 L.Ed.2d 187 (1973), intimated that state real property...

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