United States v. Bedford Associates

• Decision Date: 07 July 1982
• Docket Number: No. 79 Civ. 1522 (HFW),79 Civ. 1482 (HFW).,79 Civ. 1522 (HFW)
• Citation: 548 F. Supp. 732
• Parties: UNITED STATES of America, Plaintiff, v. BEDFORD ASSOCIATES, a Partnership, Doris K. Carver and Samuel Ades, individually and as partners of Bedford Associates, and Amcar Management Corp., Defendants, and The Bowery Savings Bank, Intervenor. The BOWERY SAVINGS BANK, Plaintiff, v. BEDFORD ASSOCIATES, a Partnership, Doris K. Carver and Samuel Ades, individually and as partners of Bedford Associates, and United States of America, Defendants.
• Court: U.S. District Court — Southern District of New York

548 F. Supp. 732

UNITED STATES of America, Plaintiff, v. BEDFORD ASSOCIATES, a Partnership, Doris K. Carver and Samuel Ades, individually and as partners of Bedford Associates, and Amcar Management Corp., Defendants, and The Bowery Savings Bank, Intervenor.

The BOWERY SAVINGS BANK, Plaintiff, v. BEDFORD ASSOCIATES, a Partnership, Doris K. Carver and Samuel Ades, individually and as partners of Bedford Associates, and United States of America, Defendants.

Nos. 79 Civ. 1522 (HFW), 79 Civ. 1482 (HFW).

United States District Court, S. D. New York.

July 7, 1982.

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John S. Martin, Jr., U. S. Atty., S.D.N.Y., New York City, for the U. S.; William J. Brennan, Harvey J. Wolkoff, Asst. U. S. Attys., New York City, of counsel.

Rosenman, Colin, Freund, Lewis & Cohen, New York City, for Bedford; Frank H. Wohl, Douglas N. Gordon, Eugene A. Gaer, Douglas J. Clubok, New York City, of counsel.

Cadwalader, Wickersham & Taft, New York City, for the Bowery; Terence F. Gilheany, Howard R. Hawkins, Jr., John F. Mariani, New York City, of counsel.

OPINION

WERKER, District Judge.

These consolidated cases involve the adjudication of the rights and liabilities of Bedford Associates as owner-mortgagor, The Bowery Savings Bank as mortgagee, and the United States government as tenant of the 21 story office building located at 120 Church Street, in New York City. The background of these cases is contained in the prior opinions of this court and the Court of Appeals for the Second Circuit. United States v. Bedford Associates, 618 F.2d 904 (2d Cir. 1980), on remand, 491 F.Supp. 848 (S.D.N.Y.1980) and 491 F.Supp. 851 (S.D.N.Y.1980), aff'd in part, rev'd in part and remanded, 657 F.2d 1300 (2d Cir. 1981), cert. denied, ___ U.S. ___, 102 S.Ct. 1767, 72 L.Ed.2d 173 (1982). Reader familiarity with the opinions is assumed.

These actions presently are before the court following remand from the United States Court of Appeals for the Second Circuit for trial of the government's claim for damages arising from Bedford's breach of a lease of the premises. Also before the Court are (1) the government's condemnation of a leasehold interest in the entire premises at 120 Church Street pursuant to 28 U.S.C. § 2409a; and (2) Bowery's action for foreclosure of its consolidated first mortgage on the premises and a sale of the premises pursuant to the judgment of this court dated June 9, 1980.

THE GOVERNMENT'S ACTION FOR DAMAGES

In its second amended complaint, the government sought damages for Bedford's failure to alter the premises, to perform certain obligations with respect to the provision of electrical and other services to the premises, and to provide free and uninterrupted possession, use and enjoyment of the premises to the United States. The government seeks recovery for both past and prospective damages.

PAST DAMAGES

First, the government seeks to recover from Bowery as assignee of Bedford's right to receive rents under the lease all payments made to Bowery in excess of the rent and utilities payments due to Bedford under the terms of the lease. As the rent that the government was required to pay under the judgment of this court dated June 9, 1980 was modified as of October 1981 to reflect the rent due under the lease agreement as found by the Court of Appeals, at issue here is the recovery of overpayments of rent made by the government between November 1978 and September 1981. With respect to utilities payments, the government seeks to recover all utilities payments except for amounts allocated to "special equipment" and "overtime" between November 1978 and November 1981.

The government relies primarily on section 74 of the Restatement of Restitution (1937) which provides:

A person who has conferred a benefit upon another in compliance with a judgment, or whose property has been taken thereunder, is entitled to restitution if the judgment is reversed or set aside, unless restitution would be inequitable or the parties contract that payment is to be final; if the judgment is modified, there is a right to restitution of the excess.

An award of restitution is not a matter of right but rests in the sound discretion of the court. Atlantic Coast Line v. Florida, 295 U.S. 301, 310, 55 S.Ct. 713, 717, 79 L.Ed. 1451 (1935). "The court will not order it where the justice of the case does not call for it or where the retention is not shown to be contrary to equity and good conscience." Id.; see Rae v. Rosenberg, 67 Misc.2d 881, 324 N.Y.S.2d 898 (Sup.Ct. Kings County 1971). As discussed by Mr. Justice Cardozo in Atlantic Coastline v. Florida:

Decisions of this court have given recognition to the rule as one of general application that what has been lost to a litigant under the compulsion of a judgment shall be restored thereafter, in the event of a reversal, by the litigants opposed to him, the beneficiaries of the error.... But the rule, even though general in its application, is not without exceptions. A cause of action for restitution is a type of the broader cause of action for money had and received, a remedy which is equitable in origin and function. The claimant to prevail must show that the money was received in such circumstances that the possessor will give offense to equity and good conscience if permitted to retain it. The question no longer is whether the law would put him in possession of the money if the transaction were a new one. The question is whether the law will take it out of his possession after he has been able to collect it.

Atlantic Coastline v. Florida, 295 U.S. at 309-10, 55 S.Ct. at 716-17.

From the foregoing, it is plain that only a party who obtained a benefit to which he was not entitled may be required to make restitution of funds paid under a judgment that ultimately is reversed. Bowery, however, has applied all rents received to pay existing debts of Bedford and to maintain the premises.¹ Having received only that to which it was entitled under the terms of Bedford's mortgage, it is evident that Bowery did not benefit unjustly from the government's overpayments. See Equilease Corp. v. Hentz, 634 F.2d 850, 853 (5th Cir. 1981); see generally Lowenstein v. Reikes, 258 N.Y. 444, 180 N.E. 113 (1932); Millfield Realty Co. v. Joseph P. Day, Inc., 257 N.Y. 515, 178 N.E. 775 (1931); Youmans v. Edgerton, 91 N.Y. 403 (1883). Under these circumstances, it would be "patently unfair" to require Bowery which stands in the position of "an innocent payee who has received and used the money to satisfy a debt," to repay the money. Equilease Corp. v. Hentz, 634 F.2d at 853.

Bedford, on the other hand, did receive the benefit of satisfaction of pre-existing debts as a result of the government's overpayments. Consequently, it is Bedford and not Bowery that may be required to make restitution to the government. See Eightway Corp. v. V. Ponte & Sons, Inc., 99 Misc.2d 989, 420 N.Y.S.2d 836 (App. T. 2d Dep't 1979).

The next issue that must be determined is the amount of rent that the government was required to pay during renovations. The Court of Appeals held that the term concerning rent during renovations was fixed as that set forth in Bedford's November 1977 proposal, but required that this court consider on remand whether GSA's delay in securing congressional approval of the lease constituted a lack of cooperation sufficient to excuse Bedford from its obligation to renovate the premises within the period set forth in the lease.

It is the judgment of this court that Bedford was excused from any duty to renovate the premises by GSA's dilatory behavior in procuring the necessary approvals for the proposed lease. My conclusion is based on the well-settled principle that where one of the parties to a contract makes performance by the other materially more difficult or expensive, the latter will be discharged. 6 Corbin, Contracts § 1323 at 334 (1964); see United States v. Peck, 102 U.S. 64, 26 L.Ed. 46 (1880); Shear v. National Rifle Association of America, 196 D.C.App. 344, 606 F.2d 1251, 1255 (1979); Vanadium Corp. of America v. Fidelity & Deposit Co. of Maryland, 159 F.2d 105 (2d Cir. 1947); American Trading & Production Corp. v. United States, 172 F.Supp. 165 (D.Md.1959); George A. Fuller Co. v. United States, 108 Ct.Cl. 70, 69 F.Supp. 409 (1947); 11 Williston on Contracts § 1296 pp. 56-59 (3d ed. 1968 & Supp. 1981). In this case, there is no dispute that GSA's delay caused the commencement of renovations to be postponed until a time when construction costs had skyrocketed and performance would have been economically devastating to Bedford. 491 F.Supp. at 856, 864. Thus, the rent which should have been paid by the government was $241,846.66 per month from the date of commencement of the lease, November 1, 1978.

The Court of Appeals found that "Bowery was entitled to receive only the rental specified by the lease agreement" and that the June 9, 1980 judgment of this court should be modified accordingly. Id. at 1318 (emphasis added). In my opinion, this language contemplates restitution of overpayments made by the government pursuant to this court's June 9, 1980 judgment. In the exercise of this court's equitable powers, however, I find that restitution to the government of rental overpayments must be offset by any and all deficiencies in the monthly rental payments made by the government between November 1978 and May 1980.

The next issue is whether the government is entitled to restitution from Bedford of all overpayments of utilities from November 1978 to November 1981 except those made for "special equipment" and "overtime." On March 5, 1980, the Court of Appeals affirmed this court's decision requiring the government to pay all utilities expenses at 120 Church Street as a condition to the granting of a preliminary injunction in favor of the government, but modified prospectively the amount to be paid to $14,000 per month. Since the payment of utilities was required as a...