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United States Postal Service v. Sunshine Development

December 9, 2009

UNITED STATES POSTAL SERVICE, PLAINTIFF
v.
SUNSHINE DEVELOPMENT, INC., DEFENDANT



The opinion of the court was delivered by: Judge Conner

MEMORANDUM

This is a property dispute arising between the United States Postal Service ("USPS") and Sunshine Development, Incorporated ("Sunshine"). USPS contends that it appropriately exercised a purchase option provision contained in a lease governing a United States Post Office branch in Chambersburg, Pennsylvania and is thereby entitled to purchase fee simple title to the property. Sunshine rejects this contention, argues that the lease expired, and claims that USPS is a holdover tenant liable for fair market rents. Presently before the court is Sunshine's motion for partial summary judgment. (See Doc. 20.) For the reasons that follow, the motion will be granted.

I. Statement of Facts*fn1

On November 7, 1962, the United States Post Office Department*fn2 entered into a leasing agreement (the "Lease") with Sunshine for use of a building located at 308 Lincoln West Way, Chambersburg, Pennsylvania. (Doc. 22 ¶ 1; Doc. 26 ¶ 1.) The Lease grants USPS use of the premises as a postal facility for a base term of twenty years at an annual rate of $28,000 per year. (See Doc. 20, Ex. A.) The Lease contained one ten-year renewal option and four five-year renewal options. (See id.) At the conclusion of each term, including the base term, the ten-year renewal term, and all of the five-year renewal terms, the Lease provides USPS with an option to purchase fee simple title to the premises. (See id. ¶ 16.) Exercise of the purchase option provision requires that "the Government [] give the Lessor notice of election to purchase at least one year in advance" of the relevant term's expiration. (Id.)

USPS fulfilled the base term, exercised its ten-year renewal option, and thereafter opted to renew for three five-year periods. (Doc. 22 ¶ 5; Doc. 26 ¶ 5.) In the winter of 2006, however, USPS real estate specialist Dennis Perry ("Perry") approached USPS Eastern Facilities Service Office manager Tom Russell ("Russell") about exercising the purchase option instead of renewing for an additional five years. (See Doc. 25, Ex. B at 77.) At the time, Russell was a duly appointed USPS contracting officer with binding authority on contracts in the gross amount of $5 million or less.*fn3 (See Doc. 25, Ex. F.) Russell was receptive to Perry's purchase proposal, and he instructed Perry to "[p]ut all the paperwork together. Do the due diligence to get financial approval so we can . . . make this happen, [and] acquire the property." (Id.) Over the next several months, Perry arranged for completion of an appraisal of the leased property and a decision analysis report. (See Doc. 25, Ex E at 110; id., Ex. J; id., Ex. K.) Once the required reports were produced, they were reviewed by multiple USPS executives. (See Doc. 25, Ex. K.) On August 16, 2006, Russell received written authorization to purchase the property from Alexander Lazaroff, vice president of the Eastern Area Office. (See Doc. 25, Ex. P.) Russell thereafter told Perry, "It's approved. Send out the notice [to purchase]." (Doc. 25, Ex. B at 77.)

On September 27, 2006, Perry sent written correspondence to Sunshine president Nickson Oyer ("Oyer") which stated, inter alia, "This letter is to notify you that the US Postal Service . . . will be exercising its purchase rights to the subject property located at 308 Lincoln Way East, Chambersburg, PA 17201." (Doc. 20, Ex. B.) The parties do not dispute that when Perry delivered this document, he possessed only "Level I" contracting authority, as defined by USPS regulations.*fn4

(See Doc. 22 ¶ 9; Doc. 26 ¶ 9.) Level I Postal Service lack authority to contractually bind the government in real estate transactions absent a specific delegation of authority by an appropriate superior officer. (See Doc. 20, Ex. D.) In fact, Perry testified that this was the first purchase option he had ever signed, and stated that the exercise of purchase option provisions is not part of his regular employment duties. (See Doc. 31 at 53-55.) Furthermore, according to Esther Tinort ("Tinort"), manager of the Real Estate Branch at USPS's Facilities Service Office in Greensboro, North Carolina, purchase options are typically signed by USPS employees with actual contracting authority to do so. (See Doc. 20, Ex. M at 28-29.) Tinort explained that a USPS employee lacking the required authority to bind the government to a purchase option should simply not attempt to execute the option.*fn5

(See id.)

Other than Perry's September 27 letter, no USPS official contacted Sunshine prior to October 14, 2006-the final day on which USPS could exercise the purchase option. (See Doc. 22 ¶ 6; Doc. 26 ¶ 6.) On May 27, 2007, counsel for Sunshine sent Perry return correspondence that read as follows: "[I]n your letter of September 27, 2006, you state that the US Postal Service 'will be exercising its purchase rights to the subject property . . .' My client has received no such notice from a duly authorized Contracting Officer; therefore, he expects the lease to continue in full force and effect."*fn6 (Doc. 20, Ex. F.) Sunshine delivered another letter on October 5, 2007, wherein it objected to USPS's "holdover tenancy for any specific or additional term and at the current rental rate." (Doc. 22 ¶ 12; Doc. 26 ¶ 12.) Two days later, USPS sent Sunshine a check for purchase of the property in the amount of $90,000.*fn7

Sunshine promptly returned the proffered payment. (Doc. 25, Ex. L.) The Lease expired on October 14, 2007. (Doc. 22 ¶ 6; Doc. 26 ¶ 6.) USPS continues to occupy and use the building, however, and has not paid rent since the date on which the Lease expired. (Doc. 22 ¶¶ 14, 17; Doc. 26 ¶¶ 14, 17.)

The instant suit was commenced when USPS filed a complaint for specific performance on November 16, 2007. (Doc. 1.) In particular, USPS seeks an order directing Sunshine to sell the Chambersburg property on the terms specified in the Lease purchase option. (Id. at 8 ¶¶ 1-2.) On August 8, 2008, Sunshine counterclaimed, requesting: (1) a declaratory judgment that USPS failed to exercise the purchase option, and that the Lease expired, (2) fair market rents during the period of USPS's alleged holdover tenancy, and (3) damages as a result of an unconstitutional taking. (Doc. 15.) Sunshine then filed the instant motion for partial summary judgment, which requests that the court reject USPS's specific performance claim, declare the government's notice of election legally ineffective and the Lease expired, and find that USPS has taken its property without just compensation and is liable for fair market rents. (Doc. 20.) These issues have been fully briefed by the parties, and they are now ripe for disposition.

II. Standard of Review

Through summary adjudication the court may dispose of those claims that do not present a "genuine issue as to any material fact" and for which a jury trial would be an empty and unnecessary formality. See FED. R. CIV. P. 56(c). The burden of proof is upon the nonmoving party to come forth with "affirmative evidence, beyond the allegations of the pleadings," in support of its right to relief. Pappas v. City of Lebanon, 331 F. Supp. 2d 311, 315 (M.D. Pa. 2004); FED. R. CIV. P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). This evidence must be adequate, as a matter of law, to sustain a judgment in favor of the non-movant on the claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-57 (1986); Matsushita Elec. ...


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