United States v. 300 Units of Rentable Hous., Located on Approximately 57.81 Acres of Eielson Air Force Base, 09–35990.

• Citation: 668 F.3d 1119,2012 Daily Journal D.A.R. 1995,12 Cal. Daily Op. Serv. 1870
• Decision Date: 14 February 2012
• Docket Number: No. 09–35990.,09–35990.
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. 300 UNITS OF RENTABLE HOUSING, LOCATED ON APPROXIMATELY 57.81 ACRES OF EIELSON AIR FORCE BASE, Defendant,andPolar Star Alaska Housing Corporation, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

12 Cal. Daily Op. Serv. 1870

2012 Daily Journal D.A.R. 1995

668 F.3d 1119

UNITED STATES of America, Plaintiff–Appellee,

v.300 UNITS OF RENTABLE HOUSING, LOCATED ON APPROXIMATELY 57.81 ACRES OF EIELSON AIR FORCE BASE, Defendant,andPolar Star Alaska Housing Corporation, Defendant–Appellant.

No. 09–35990.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 29, 2011.Filed Feb. 14, 2012.

Thomas F. Geselbracht (argued), DLA Piper LLP, Chicago, IL; Cory R. Borgeson, Borgeson & Burns, P.C., Fairbanks, AK, for the defendants-appellants.

Ignacia S. Moreno, Assistant Attorney General; John L. Smeltzer (argued), John O. Holm, David O. Vollenweider, United States Dept. of Justice, Washington D.C., for the United States, plaintiff-appellee.

Appeal from the United States District Court for the District of Alaska, Ralph R. Beistline, Chief District Judge, Presiding. D.C. No. 4:06–cv–00023–RRB.Before: BETTY B. FLETCHER, ANDREW J. KLEINFELD, and CONSUELO M. CALLAHAN, Circuit Judges.

OPINION

PER CURIAM:

At the end of a twenty-year lease program in which Polar Star Alaska Housing Corp. (“Polar Star”) owned 300 units of family housing located on Eielson Air Force Base, Alaska, and leased them back to the Air Force, Polar Star and the United States could not agree on the purchase price of the houses. They similarly could not agree on the amount of rent payable for an additional year of the lease. The United States first sent notice of a one-year renewal of the lease, then filed a protective eminent domain action to condemn a five-month leasehold in the houses. The district court ruled that the United States' renewal notice was effective, and therefore no taking had occurred. The district court then concluded that Polar Star's request that the court determine the amount of rent due on the renewal term was, in essence, a claim on the contract over which it lacked jurisdiction, and dismissed. Polar Star appeals a number of the district court's rulings. Because each of these rulings was correct, we affirm

BACKGROUND

In 1984, the United States Air Force (at times referred to as “Air Force,” “United States,” or “Government”) solicited bids for a military housing project on Eielson Air Force Base (“Eielson AFB”) called the Cool Home Housing Project. In this first-of-its-kind project, the Air Force would permit a developer to build 300 houses on Eielson AFB. The Government would retain ownership of the real property on which the houses would be built, but the developer would own the houses and lease them to the Air Force for a term of 20 years. As part of the project, the Air Force would lease approximately 57.81 acres of land to the winning developer for a period of 23 years. The 23–year period was designed to encompass the 20–year term of the project lease and allow for a three-year period of construction.

Ben Lomond, Inc. (“Lomond”) submitted the successful bid, and the Air Force awarded it the contract. The parties executed two leases: a Ground Lease, in which the Government leased the land to Lomond to build the houses, and a Project Lease, in which Lomond leased the houses it built back to the Government. At the end of the Ground Lease, the Government had the option to purchase the houses, renew the lease, or have Lomond remove the houses from the property.

The executed Ground Lease is not simply the draft Ground Lease with the blanks filled in by hand. Rather, the Ground Lease was completely retyped, and several significant changes were made in addition to filling in the blanks for party names and dates (including the addition of several conditions that were not in the draft lease). As provided in the draft lease, the total rent under the Ground Lease was one dollar. The Ground Lease purports to encompass “a term of twenty-three (23) years, beginning 7 January, 1985, and ending 6 January, 2007,” which is a span of only 22 years. This discrepancy apparently went unnoticed by the parties until sometime in late 2006, when the Government first asserted its position that the lease expired on 6 January 2008, 23 years after the beginning date, rather than 6 January 2007.

Lomond performed the Project Lease until sometime in 1994, when it became embroiled in a dispute with Fairbanks North Star Borough over property taxes, which resulted in Lomond defaulting on its financing obligations to Aetna Life Insurance Co. The Alaska Supreme Court eventually decided that Lomond's leasehold interest was subject to property tax. Cool Homes, Inc. v. Fairbanks North Star Borough, 860 P.2d 1248 (Alaska 1993). Thereafter, Aetna foreclosed. Polar Star purchased the housing units from Aetna in 1995. During the purchase process, the Air Force issued a Lease Status Report, which repeats the mistake in the underlying contract: “The Outlease [Ground Lease] is for a term of twenty-three (23) years, beginning 7 January 1985, and ending 6 January 2007....”

The Government and Polar Star also executed a novation of the leases at issue. Pursuant to the novation, Polar Star assumed all rights and obligations from Aetna (which had received Lomond's rights and obligations through the foreclosure proceeding), specifically including the Ground Lease and the Project Lease. The novation did not describe in detail the provisions of the leases or the terms thereof.

The Project Lease was the first lease set to expire, with an expiration date of August 6, 2006. As the expiration date approached, it became clear that the parties would not be able to agree on a purchase price in time for the Government to obtain Congressional approval for the payment before the expiration date. As a result, the Government exercised its option to renew the Project Lease for an additional year by giving notice of a one-year renewal on May 18, 2006. The parties discussed the rent for the renewal term, but again, were unable to agree prior to the expiration of the original lease.

The United States then filed an eminent domain action to condemn a five-month leasehold interest in the houses, which evolved into a quiet title action. In a series of rulings on various motions, the district court first decided that the United States had renewed the Project Lease for one year and therefore no taking had occurred. As a result, Polar Star was not entitled to just compensation. Following additional motions and briefing, the district court decided, based on United States v. Park Place Associates, Ltd., 563 F.3d 907 (9th Cir.2009), that it did not have jurisdiction to set the rent for the renewal term and dismissed the action. Polar Star appeals. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

DISCUSSION

A. Standard of Review

A district court's interpretation of a lease, like any contract, is reviewed de novo. Conrad v. Ace Property & Cas. Ins. Co., 532 F.3d 1000, 1004 (9th Cir.2008). The district court considered evidence and made findings of fact reforming the contract. Findings of fact made in an award of reformation, an equitable remedy, will not be disturbed unless clearly erroneous. Bentley Ranches, Inc. v. Borgerson, 732 F.2d 1395, 1396 (9th Cir.1984) (reviewing district court's reformation of a contract for clear error pursuant to Fed.R.Civ.P. 52).

B. Renewal of a Governmental Lease

Polar Star contends the Government's May 18, 2006 renewal notice was insufficient to renew the Project Lease because the renewal option did not specify the amount of rent for the renewal term, and because the parties were not able to reach agreement on the rent for the renewal term. Polar Star reasons that therefore a taking occurred when the Government filed its eminent domain claim and declaration of taking. The Government responds that the parties need not agree on the rent to make the renewal effective because the option contained a method for determining the rent and because the option only required notice to effect a valid renewal. Specifically, Article V of the Project Lease provides:

Upon expiration of the twenty (20) year lease term, this Lease may be renewed for subsequent annual periods at the Lessee's [Government's] option. The rent for such subsequent periods must be renegotiated based upon the remaining equity investment. The renegotiated rent each year will not exceed ten (10%) percent of the fair market value of the improvements erected on the land as determined by a duly qualified appraiser selected with the approval of the Lessor and Lessee. Any disagreement with the appraisal shall be subject to Article XIV, Disputes, herein. Lessor will submit to the Lessee all required evidence necessary for renegotiation.... The statement of intent of the Lessee to renew the Lease must be mailed to the Lessor no later than sixty (60) days prior to the expiration of the lease term.

Both parties agree that federal law governs construction of the agreements. Where Congress prescribes no rule by statute, federal courts generally “apply to the construction of government contracts the principles of general contract law.” Priebe & Sons, Inc. v. United States, 332 U.S. 407, 411, 68 S.Ct. 123, 92 L.Ed. 32 (1947). Because we have not previously addressed whether the amount of rent for a renewal term must be specified in the option to renew a governmental lease to make that renewal valid, we look to such general contract law principles. Where a contract provides a practicable method for establishing the amount of rent in the event the parties cannot themselves agree, the option is enforceable. Altman v. Alaska Truss & Mfg. Co., Inc., 677 P.2d 1215, 1221 (Alaska 1983) (citing 2 M. Friedman, Friedman on Leases § 14.1, at 561 (1974) (“[T]he amount of the renewal rent is sometimes left for future determination. If the determination is to be made by arbitration or appraisal, the renewal is enforceable.”)). See also Arbitron, Inc. v. Tralyn Broad., Inc., 400 F.3d 130, 137 (2d Cir.2005) (applying New York law); Baer v. Chase, 392 F.3d 609, 619 (3d Cir.2004) (applying New Jersey law). We...