United States v. O'CONNELL, 523

• Decision Date: 16 May 1974
• Docket Number: Docket 73-2149.,No. 523,523
• Citation: 496 F.2d 1329
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. John V. O'CONNELL and Jopat Realty Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

496 F.2d 1329 (1974)

UNITED STATES of America, Plaintiff-Appellant, v. John V. O'CONNELL and Jopat Realty Corporation, Defendants-Appellees.

No. 523, Docket 73-2149.

United States Court of Appeals, Second Circuit.

Argued March 5, 1974.

Decided May 16, 1974.

Taggart D. Adams, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty. for the Southern District of New York, and Gerald A. Rosenberg, Asst. U. S. Atty., on the brief), for plaintiff-appellant.

Frank J. Delany, Washington, D. C., for defendants-appellees.

Before LUMBARD, OAKES and TIMBERS, Circuit Judges.

LUMBARD, Circuit Judge:

The issue for decision here is a question of real property law of the sort rarely coming before this court. Claiming that it was the owner of easements by implication in two pieces of property located in Peekskill, New York, the United States commenced this action for a declaratory judgment, permanent and preliminary injunctions, and damages on January 4, 1973, in the Southern District of New York. Under Rule 65(a)(2), F.R.Civ.P., the hearing on a preliminary injunction was combined with the trial on the merits, and on March 20, 1973, a bench trial was held before Judge Duffy. He ruled in favor of the defendants, John V. O'Connell and the Jopat Realty Corporation and dismissed the government's complaint, D.C., 358 F.Supp. 925, and judgment was entered on April 30, 1973. This appeal by the United States followed. Since we find that the district court applied an erroneous rule of law, we vacate and remand.

I.

Three parcels of land are involved in this dispute. Parcel A includes two lots. The major part of Parcel A is some 5.7 acres, bounded by Sherman Avenue on the north and Welcher Avenue on the south, which are the site of the Patricia Gardens housing project. The rest of Parcel A is a parking lot 100 feet by 150 feet located on the other side of Sherman Avenue. Parcel B is a lot 60 feet by 150 feet which is immediately east of the portion of Parcel A that is north of Sherman Avenue. Parcel B is also a parking lot. Parcel C is a private roadway about 50 feet wide and 550 feet long which connects Sherman and Welcher Avenues to the west of the project. Several apartments in the Patricia Gardens project front on this private roadway and the roadway provides access to two parking lots within the project.

All the land in these three parcels was originally owned by O'Connell or the Jopat Realty Corporation of which O'Connell is the majority shareholder. Sometime in 1958 O'Connell decided to build a housing project of duplex apartments called Patricia Gardens. In November 1958 he applied for mortgage insurance from the Federal Housing Administration (FHA) in connection with the project. In August 1959 O'Connell received a commitment for insurance from the FHA. Apparently because of a then applicable FHA regulation, 24 C.F.R. § 232.17 (1959), a separate corporation, Patricia Gardens, Inc., was formed to build and operate the project. In April 1960 O'Connell transferred to Patricia Gardens, Inc. the project and the FHA commitment for 100 shares of common stock. The FHA held the preferred stock in the corporation. Sometime after this the land on which the project was to be built was conveyed to Patricia Gardens, Inc. There is no evidence in the record that Jopat, listed in the stipulation of facts as being the prior owner of this part of Parcel A, received any consideration for this land.

On July 7, 1960, Patricia Gardens, Inc. entered into a mortgage agreement with the County Trust Co. of Tarrytown, New York. The mortgage covered the land transferred to Patricia Gardens, Inc., and required it to follow all municipal ordinances in its use of the property. In January 1961 the directors of Patricia Gardens, Inc., for reasons which are unclear, authorized the company to acquire that part of Parcel A that was north of Sherman Avenue for parking space and to place it under the mortgage. From the record it does not appear whether Patricia Gardens, Inc., gave any consideration for this land nor does it appear that Jopat or O'Connell received any. On February 7, 1961, a spreader agreement was executed so that all of Parcel A became subject to the mortgage.

The City of Peekskill's zoning ordinance required that such projects be submitted to its Planning Commission for approval prior to construction. Under the ordinance in effect at the time the site plan for the project was approved by the Planning Commission, October 5, 1960, there had to be 1.5 parking spaces for every apartment, or 150 in all. The ordinance also required that the spaces be within 500 feet walking distance of the apartments and that the spaces be in the same ownership as the apartments and subject to a deed restriction, filed with the county clerk, binding the owner, his heirs and assigns to continue to maintain the required number of spaces throughout the existence of the project or until alternative spaces were provided.

Despite these provisions, the plan as approved provided for two lots within the project holding 46 automobiles, a lot on the north side of Sherman Avenue encompassing part of Parcel A and all of Parcel B holding 56 automobiles and spaces on the roadway that is Parcel C holding 50 automobiles for a total of 152 spaces. Parcels B and C were and are owned by either Jopat or O'Connell. The stipulation of facts state that Parcel B was owned by Jopat and Parcel C by either Jopat or O'Connell. O'Connell at trial, however, testified that he owned Parcel C and that either he or Jopat owned Parcel B and that there was not much difference in who owned it.

Even at this late date it is not clear why Patricia Gardens, Inc. was not given title to all the land used for access to parts of the project and parking spaces used in connection with the project. It is clear that local and federal officials did not complain about this severance of ownership. Local officials in letters did comment about the number of spaces but never the ownership. An employee of the planning commission said that no effort was made to see if the restrictions on land use necessary to ensure the continued availability of parking had been filed with the county clerk. No indication is given why FHA officials, who required that the land be surveyed, did not comment on this matter.

Construction of the project literally had rocky beginnings as outcropping of rocks forced modification of plans, caused delay, and created financial difficulties. These difficulties continued after Peekskill authorities issued certificates of occupancy and the FHA endorsed the mortgage for insurance in August 1962. During the period of 1963 to 1965 the mortgage note went into default. The mortgage had been assigned to the State of New York which in turn assigned it to the FHA under the insurance agreement. In 1967 the FHA foreclosed and in 1968 the United States acquired title to Parcel A under a marshal's deed as the highest bidder at a foreclosure sale.

From the time tenants began occupying the buildings they used Parcel B for parking and Parcel C for access and parking. A brochure advertising the project showed Parcels B and C as integral parts of the project. There is no evidence that Patricia Gardens, Inc. ever paid O'Connell or Jopat any fee for the use of their land. Certainly the United States after it became owner never paid any fee for the use of the land. The fact that the United States did not own Parcels B and C apparently surfaced early in 1971. A letter was sent by an official of the Department of Housing and Urban Development to O'Connell, saying that a survey had disclosed that O'Connell or Jopat owned the land and asking if the land was for sale. O'Connell said that the land was available and said that its value was $50,000.00. In a later letter O'Connell asked if he could acquire Parcel A by private negotiation. He was informed that this was not possible. Negotiations on purchase of Parcels B and C evidently fell through, and in November 1972, O'Connell erected steel posts which prevented access to Parcel B by tenants of Patricia Gardens and threatened to do the same with Parcel C. This action followed.

II.

The parties have assumed, and we agree, that state law, here New York's, governs this action. While we have held that federal law governs FHA foreclosure proceedings, United States v. Walker Park Realty, Inc., 383 F.2d 732 (2d Cir. 1967); United States v. Merrick Sponsor Corp., 421 F.2d 1076 (2d Cir. 1970), we see no reason for a rule of nation-wide uniformity in determining precisely what property the buyer at the foreclosure sale had purchased. This case is analogous to United States v. Certain Property Located in Borough of Manhattan, 306 F.2d 439 (2d Cir. 1962), in which we held that state law governs the determination of what property the United States took when it took all real property in an area by condemnation. There is no suggestion here as there was in United States v. Little Lake Misere Land Co., 412 U.S. 580, 93 S.Ct. 2389, 37 L.Ed.2d 187 (1973), that state law is hostile to the federal scheme. We, therefore, hold that New York law governs here. See Coos County Sheep Co. v. United States, 331 F.2d 456 (9th Cir. 1964). Cf. United States v. Doyle, 468 F.2d 633 (10th Cir. 1972); United States v. 1,078.27 Acres of Land, 446 F.2d 1030 (5th Cir. 1971), cert. denied sub nom. Galveston City Co. v. United States, 405 U.S. 936, 92 S.Ct. 945, 30 L.Ed.2d 811 (1972); United States v. Williams, 441 F.2d 637 (5th Cir. 1971). See generally Friendly, In Praise of Erie — And of the New Federal Common Law, 37 N.Y.U.L. Rev. 383 (1964). Since, as will be seen below, New York courts have not yet passed upon the questions presented by this case, we must exercise our "prophetic judgment" in determining what New York courts would do if faced with the problem. Cooper v. American Airlines, Inc., 149 F.2d 355, 359 (2d Cir. 1945).

III.

As the Restatement of Property notes, creation of easements by implication...