U.S. v. Marin
| Decision Date | 22 May 1981 |
| Docket Number | 80-1217,Nos. 80-1216,s. 80-1216 |
| Citation | 651 F.2d 24 |
| Parties | 81-2 USTC P 9506 UNITED STATES, et al., Plaintiffs, Appellees, v. Carlos MARIN, Defendant, Appellant, and Caribbean Restaurants, Inc., Defendant, Appellee. UNITED STATES of America, et al., Plaintiffs, Appellees, v. Carlos MARIN, Defendant, Appellee, and Caribbean Restaurants, Inc., Defendant, Appellant. |
| Court | U.S. Court of Appeals — First Circuit |
Francisco Castro Amy, San Juan, P. R., for appellant Carlos Marin.
Nestor M. Mendez Gomez, with whom McConnell, Valdes, Kelley, Sifre, Griggs & Ruiz-Suria, San Juan, P. R., was on brief, for appellant Caribbean Restaurants, Inc.
John J. McCarthy, Attorney, Tax Division, Dept. of Justice, Washington, D. C., with whom Raymond L. Acosta, U. S. Atty., San Juan, P. R., M. Carr Ferguson, Asst. Atty. Gen., Michael L. Paup, David E. Carmack, and Marc E. Albert, Attys., Tax Division, Department of Justice, Washington, D. C., were on brief, for appellees.
Before CAMPBELL and BOWNES, Circuit Judges, and HOFFMAN, * Senior District Judge.
This is the latest in a series of cases arising from the United States' efforts to collect some $2,600,000 in taxes owed by the late Felix Benitez Rexach, a Puerto Rican engineer who earned large sums from construction projects in the Dominican Republic between 1944 and 1958. See United States v. Lucienne D'Hotelle, 558 F.2d 37 (1st Cir. 1977) and related cases cited therein at 38 n.1. The action from which these appeals are taken grew out of the government's attempt to reach Benitez's major remaining asset: The Normandie Hotel in San Juan.
To explain these proceedings, it is necessary to outline the history of a previous related action brought by the United States against Benitez on February 10, 1964 (United States v. Benitez, Civil Action No. 67-64, D.P.R.). At that time, Benitez was sole owner, as well as President and a director, of Escambron Development Company. Escambron, in turn, owned and operated the Normandie Hotel as its principal business. The other directors of Escambron were Modesto Bird, Sr., who also served as Treasurer, and Modesto Bird, Jr., who served as Secretary. In its suit, the United States sought to foreclose against Benitez's 100 percent stock interest in Escambron, and to have a receiver appointed who would liquidate Escambron to satisfy Benitez's tax liabilities. The government also sought to have assigned to it a debt of Escambron to Benitez in excess of $1 million.
On February 20, 1964, the parties to that suit, including Escambron and the two Birds, stipulated to the entry of an injunction pendente lite which prohibited them from "selling, assigning, pledging, encumbering, or otherwise disposing of any assets" of Escambron except "in exchange for fair and sufficient consideration in the regular course of business and provided that the consideration given in exchange for any assets is delivered in Puerto Rico to the Escambron Development Company at the time of any such transfer." This injunction continues in force to the present. 1 Felix Benitez Rexach died on November 2, 1975, while the government's suit against him was pending. On January 19, 1976, the court appointed Jorge Guillermety as receiver for the assets of Escambron,
for the purpose of conserving and managing said assets pending adjudication of the plaintiff's lien claims asserted in this action and for the purpose of selling said assets at the best possible price for the purpose of satisfying the liens of the United States as set forth in the judgment of this court entered on October 20, 1975 in the related Civil Action No. 531-64. 2
On March 30, 1977, the government received a judgment in No. 67-64 against Benitez's estate for $2,622,127.13, plus interest, along with assignment to it of Escambron's debt to Benitez.
The events leading to the present action, No. 77-121, occurred between the time of Benitez's death and the conclusion of the government's suit against his estate (No. 67-64). At the time of Benitez's death, a portion of the ground floor of the Normandie Hotel was occupied by a franchise of McDonald's Restaurant. On January 2, 1976, Modesto Bird, Sr., purporting to act on behalf of Escambron, 3 signed a contract leasing to Carlos Marin the portion of the Hotel then occupied by McDonald's. The lease was for an initial term of three years with renewal at Marin's option for up to a total of 17 years. The district court found that Marin was fully aware of the ongoing litigation and pending receivership. 4 The court also found that the directors of Escambron never adopted a resolution authorizing execution of the lease.
Between February and May 1976, Marin sought to have the newly appointed receiver recognize the lease. Guillermety reported this development to attorneys for the government, informing them that the lease was for a total of three years. 5 The government made no objection to a three-year lease, and Guillermety informed Marin by a letter dated May 20, 1976, that Marin could take possession of the premises.
During this time, Marin was negotiating with Caribbean Restaurants, Inc., to sublease the property for use as a franchise of Burger King. The court found that Caribbean participated in these negotiations with full awareness of the litigation and of the receivership. Caribbean insisted that Marin's lease be registered as a public deed. The January 2 lease could not be registered because it was not notarized, because it was not authorized by the corporation, and because of its reference to a receivership. Marin and Modesto Bird, Sr., therefore executed a new lease on June 16, 1976, omitting the reference to a receiver. The new lease was notarized, and Modesto Bird, Jr., executed a "Certificate" stating that the corporation had authorized the registration of a deed. 6 The lease was registered, and Marin and Caribbean entered into a sublease, which was also registered, on September 20, 1976.
Sometime after May 20, 1976, Guillermety became aware that Marin's lease was for a total of not three, but 17 years. He brought this fact to the attention of government attorneys, who expressed their objections to Marin's attorney. Marin's attorney responded by reiterating that the lease was for three years, and assuring the government that the prospective sublessee was aware of its objections. On October 13, 1976, the receiver petitioned the district court for instructions regarding Marin's claims under the leases. The court declined to give instructions and advised Guillermety to act on advice of his attorney. In January 1977, the government and the receiver brought this suit seeking to void the leases and sublease.
The court found numerous defects in both leases and declared them void. 7 Finding that Marin had obtained no right to occupy the property and therefore had no interest to convey to Caribbean, the court held that Caribbean had occupied the property as a trespasser, and that the receiver was entitled to damages measured by the fair market value of Caribbean's occupancy. The court set this amount at the rent provided in the sublease between Marin and Caribbean, 8 holding the two defendants jointly liable and allowing them to offset the rent paid by Marin to the receiver and Marin's expenditures for cleaning the premises. Both Marin and Caribbean have appealed, each asserting numerous claims of error.
Caribbean alone challenges the district court's jurisdiction. Caribbean claims that the district court erred in finding jurisdiction under various sections of the Judicial Code (28 U.S.C.) and the Internal Revenue Code (26 U.S.C.). However, the district court also explicitly found that the action "is ancillary to the parent case, Cause No. 67-64 in this court wherein the co-plaintiff, Jorge Guillermety, was appointed as Receiver." We agree with the district court that it had ancillary jurisdiction. Since this ancillary jurisdiction is sufficient, we need not reach Caribbean's arguments that there was no independent jurisdictional base. Teherpnin v. Franz, 485 F.2d 1251 (7th Cir. 1973), cert. denied, sub nom. McGurren v. Ettelson, 415 U.S. 918, 94 S.Ct. 1416, 39 L.Ed.2d 472 (1974). 9
Marin and Caribbean both claim that at least one of the two leases was valid and binding on the receiver. Caribbean further claims that even if the leases between Marin and Bird were defective, its own rights under the sublease are protected by Article 34 of the Mortgage Law of Puerto Rico, 30 P.R. Laws Ann. § 59. We have reviewed the record in detail, and we find no error in the court's conclusions on each of these claims. 10
The district court found the January 2 lease void on two independent grounds: first, Bird, as Treasurer of Escambron, lacked authority to contract for the corporation; and second, the directors of Escambron never adopted a resolution authorizing the lease. In addition, the court held that the lease violated the injunction pendente lite, and that even if the lease were valid, Marin's rights would be subordinate to those of the United States under the doctrine of lis pendens. We affirm the court's conclusion that the lease was never validly executed, and we therefore do not consider the effect of the injunction and the doctrine of lis pendens.
The by-laws of Escambron Development Company provide for contracts by the corporation as follows:
The President ... shall ... sign and execute all contracts when authorized to do so by the Board of Directors.
No contract binding the Company to the payment of money or other obligation, except for the purchase of ordinary supplies, shall be made, except by like approval and authorization of the Board.
With respect to the role of Treasurer, the by-laws provide that he
shall have the care and custody of the funds and securities of the Company in such bank or banks as the directors may elect. He shall countersign all...
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