U.S. Postal Serv. v. Ester

• Decision Date: 09 September 2016
• Docket Number: No. 14-35100,14-35100
• Citation: 836 F.3d 1189
• Parties: United States Postal Service, Plaintiff-Appellee, v. Lorraine Ester, Defendant, and Bellevue Post Office LLC, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

836 F.3d 1189

United States Postal Service, Plaintiff-Appellee,

v. Lorraine Ester, Defendant,andBellevue Post Office LLC, Defendant-Appellant.

No. 14-35100

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 6, 2016, Seattle, Washington

Filed September 9, 2016

David R. West (argued) and Jeffrey Young, Garvey Schubert Barer, Seattle, Washington, for Defendant-Appellant.

Teal Luthy Miller (argued) and Christina Fogg, Assistant United States Attorneys; United States Attorney's Office, Seattle, Washington, for Plaintiff-Appellee.

Before: A. WALLACE TASHIMA, M. MARGARET McKEOWN, and MILAN D. SMITH, JR., Circuit Judges.

OPINION

M. SMITH

, Circuit Judge:

This case involves a dispute over a lease and purchase option between the Bellevue Post Office LLC (Bellevue) and the United States Postal Service (USPS). In 1963, USPS and Bellevue's predecessor-in-interest entered into a twenty-year initial lease with five options to renew the lease and an option to purchase the property. When USPS attempted to exercise the purchase option, Bellevue refused to honor it, arguing that the lease had terminated as early as 1983 because USPS had failed to strictly comply with the option requirements for the lease renewals. The district court granted summary judgment for USPS and ordered specific performance of the sale of the property. We affirm.

FACTS AND PRIOR PROCEEDINGS

The lease in this dispute spans a fifty-year time period, during which the parties to the contract changed several times. The contractual relationship began in 1963, when Baugh Construction Company (Baugh) and USPS entered into a lease for a certain parcel of real property in Bellevue, Washington. Since that time, USPS has continuously operated a branch Post Office location on the property. The 1963 lease featured an initial twenty-year term, to be followed by options for one ten-year and four five-year renewal periods respectively. All told, USPS could lease the property for a total of fifty years, and the lease would expire in May 2013 if USPS exercised all of its options to extend the term of the lease. In order to exercise a renewal option, USPS was required to give the Lessor (which was defined in the 1963 lease as “Baugh Construction Company, ... its successors, and assigns”) written notice of its intent to exercise the next option at least 90 days before the end of the then lease term.

The lease also granted USPS an option to purchase the property at the end of the initial twenty-year lease term, at the end of each option term, and at the end of the full fifty-year term, assuming all the previous lease options had previously been exercised. At each potential purchase point, the purchase price was lower than the last one. At the end of the full fifty-year term, assuming all the options to extend the term of the lease had previously been exercised, USPS had the option to purchase the property for $300,000. Bellevue estimates the current value of the property to be in excess of $20,000,000.

The first change in the property's ownership occurred in 1964. In January 1964, Baugh transferred the property to Edward Ester, Lorraine Ester, Josef Diamond, and Violett Diamond, who were each granted an undivided 25% interest in the property. In May of that year, despite Baugh's previous transfer of the property to the Esters and the Diamonds, Baugh purported to assign to John Hancock Life Insurance Company all rights to receive rent resulting from the lease. John Hancock thereupon executed a “Power of Attorney to Receive Rent,” in which it purported to “appoint an attorney in fact to receive rents for [the] premises.” Specifically, it appointed Edward Ester and Josef Diamond as its “true and lawful attorneys” to “ask, demand, collect, and receive from the Postmaster of Bellevue, Washington, all rents due for the period beginning the first day of June, 1964.” Thus, as of June 1, 1964, USPS paid rent to Edward Ester and Josef Diamond as “attorney[s] in fact” for John Hancock.

In 1968, the Esters and the Diamonds, as the owners of the property, amended the lease with USPS. The amended lease defined the “Lessor” as “Edward R. Ester and Lorraine M. Ester, his wife; and Josef Diamond and Violett Diamond, his wife.”

The amendment lowered the annual rental payments in exchange for a promise from USPS to assume the obligation to pay property taxes. The amended lease stated that “[i]n all other respects, the said lease shall remain the same and is hereby confirmed.”

In May 1978, Josef and Violett Diamond transferred their interests in the property to the trustees of four trusts they had established for the benefit of their grandchildren. After this transfer, the property was owned by Edward and Lorraine Ester, who each owned an undivided 25% interest in the property, and the four trusts for the Diamond grandchildren, each of which owned an undivided 12.5% interest in the property.

When the initial twenty-year lease term was to expire in May 1983, USPS had its first opportunity to extend the term of the lease. On February 4, 1982, USPS mailed a form renewal to “Edward R. Ester and Josef Diamond Attorneys-in-Fact under Lease.” According to the 1964 Power of Attorney document, these individuals were authorized to receive rents from USPS. In the “remarks” section of the option exercise form, USPS requested that the recipient “[p]lease notify this office of any change in your address or the ownership of your property.” The option notice was delivered (although it was physically received by someone with an illegible signature), and all parties proceeded for the next ten years as if the exercise of the option to extend the term of the lease had been effective. USPS paid rent; the appropriate owners apparently received that rent because no one complained that he, she, or it had failed to receive it; and the owners made no attempt to evict USPS or contest the renewed lease. Moreover, none of the owners notified USPS of the change in ownership to the Diamond family trusts, or instructed USPS to direct correspondence to anyone other than Edward Ester and Josef Diamond.

The 1983 notice to exercise its option to extend the term of the lease was signed on behalf of USPS by Gary Duncan, identified as the “Contracting Officer[,] Seattle Field Office.” In the current litigation, Duncan submitted a declaration stating that he was the manager of that field office at the time he signed the notice. He could not recall the specific parameters of his contracting authority when he signed the option exercise notice, but testified that as part of his job he routinely confirmed that he was acting within his authority before signing contracts. He had no reason to believe that he did not follow that practice with regard to the 1983 option exercise notice, and could not recall having ever exceeded his delegated authority while at that post.

In 1989, the trustees of each of the four Diamond family trusts transferred the trust's interest in the property to the grandchild who was the beneficiary of that trust, such that each grandchild became the owner of an undivided 12.5% interest in the property, free of trust. Effective upon these transfers, the property was owned by Edward and Lorraine Ester, each as to an undivided 25% interest, and the four Diamond grandchildren, each as to an undivided 12.5% interest. None of the owners (or Edward Ester and Josef Diamond as “attorneys-in-fact”) notified USPS about any of the transfers.

In October 1992, a few months before the expiration of the ten-year option term, USPS sent another notice evincing its intention to exercise its option to extend the term of the lease for another five-year term, as permitted by the 1963 lease. This option exercise notice was addressed to “Edward R & Lorraine M Ester,” and the four Diamond grandchildren—“Steven Foreman, Michelle Foreman, Cynthia L Diamond & Jonathan Diamond.” This correctly named all of the owners at the time of the option exercise notice. The record indicates that USPS sent a single copy of this option exercise notice to Edward Ester's address, and that he signed the delivery receipt.

This time, the option exercise notice was signed by USPS employee John A. Logan, whose position was a “Principal Real Estate Specialist” in the Seattle Field Office. Logan submitted a declaration stating that during his tenure, he “held a Contracting Officer's warrant with monetary authority” to execute contracts on behalf of the government, and that he “made it a point to be aware of” the extent of that authority. He did not recall whether he independently confirmed his authority to sign this particular option exercise notice, but it was his practice to do so. USPS could not produce Logan's contracting warrant under which he operated in 1992, but did provide his contracting warrant from 2002, when he worked in the Dallas office. USPS's Rule 30(b)(6) witness testified that the 2002 warrant, which gave Logan Level 1 contracting authority, was a reduction from his authority in previous positions. This indicated (albeit circumstantially) that Logan had a higher level of authority in 1992, and would have had authority to sign the option exercise notice.

As with the previous option exercise, all parties involved proceeded as if the option exercise had been effective. USPS remained in the property and paid rent and property taxes on the property for the next five years; the owners received the rent, and took no action seeking to evict USPS or contest the validity of the lease option exercise.

In January 1993, the four Diamond grandchildren transferred their interests in the property to Edward and Lorraine Ester, whereupon the Esters each became the owner of an undivided 50% interest in the property. There is no evidence in the record that the Esters or any other person informed USPS of the transfers by the Diamond grandchildren.

In November 1993, Edward Ester died, leaving his undivided 50% interest to his estate. Lorraine Ester was appointed as...