STRAUS et al v. UNITED STATES POSTAL SERVICE

Filing 37

MEMORANDUM AND ORDER THAT PLAINTIFFS MOTION FOR SUMMARY JUDGMENT IS DENIED. DEFENDANT'S MOTION FOR SUMMARY JUDGMENT IS GRANTED; ETC.. SIGNED BY HONORABLE WENDY BEETLESTONE ON 11/7/17. 11/7/17 ENTERED AND E-MAILED.(jl, )

-For PublicationIN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MICHAEL S. STRAUS, LAURENCE A.
STRAUS AND WILLIAM M. STRAUS,
Plaintiffs,

CIVIL ACTION

v.
NO. 16-4117
UNITED STATES POSTAL SERVICE,
Defendant.

OPINION
In 1966, Plaintiffs Laurence A. Straus, Michael S. Straus, and William M. Straus’
(“Straus Brothers”) father leased to Defendant United States Postal Service (“USPS”) a building
which has since housed the Richmond Station Post Office (“Richmond Station”).1 The first lease
agreement provided an option for USPS to purchase the property and the land on which it stood
for a fixed price. An amendment to the agreement, which was signed in 1982, also contained an
option for USPS to purchase the property but for fair market value. USPS now wishes to buy the
property. It maintains that it is entitled to do so for the fixed price. The Strauss Brothers
disagree and have sued seeking a declaratory judgment that they have no obligation to sell the
property to USPS for either a fixed price or for market value. They also claim that USPS, which
still occupies the building, is a holdover tenant which owes them back rent.
Both parties filed cross motions for summary judgment. The Plaintiffs seek an order
affirming their right not to sell Richmond Station and denying that USPS’ has a right to

1

The Straus Brothers obtained ownership of Richmond Station in 1999.

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continued possession of and to exercise any purchase option. USPS, in turn, seeks an order
compelling Plaintiffs to convey Richmond Station to USPS.
I.

Facts

The following facts are not in dispute between the parties. On August 1, 1966, USPS2
and the Straus Brothers’ father, Howard Straus, entered into a lease concerning Richmond
Station (the “1966 Lease”). Paragraph 5 of the 1966 Lease provides USPS with six consecutive
renewal options, each for a term of five years. Paragraph 6 grants USPS an option to purchase
Richmond Station at certain times for a fixed price – $240,000 (the “Fixed Price Option”).
In 1982, the parties executed an amendment to the 1966 Lease (the “1982 Amendment”),
which became effective on July 1, 1982. Paragraph 5 of the 1982 Amendment reduces the
annual rent for the property from the $18,850 set forth in the 1966 Lease to $17,054 for the
remainder of the original lease term and for six renewal term options, each for a set period of
five years. The 1982 Amendment also grants USPS an option to purchase the property at fair
market value at any time during the remaining term of the lease and any renewal term (the “Fair
Market Value Option”).
USPS renewed its tenancy through the last renewal option term paying the rent rate set
out in the 1982 Amendment. On July 28, 2015, one year and a few days prior to the expiration
of the final renewal term, it sent a letter to exercise the option to purchase the property. The
letter purported to “constitute[] notice” that USPS “has elected to purchase the fee simple title to
the leased premises . . . including the underlying land, at the end of the sixth 5-year renewal
option term for the purchase price of $240,000.00, as provided in Paragraph 6 of the Post Office

2

The Postal Reorganization Act established USPS on August 12, 1970. See Pub. L. No. 91–375, 84 Stat. 719. The
Post Office Department was its predecessor, and it was the original party to the lease. For the purposes of this
opinion, the term “USPS” refers to the entity extant at the relevant times.

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Department Lease, dated August 1, 1966.” The letter did not refer to the 1982 Amendment.
USPS scheduled a closing for the transfer of Richmond Station. The Straus Brothers did not
appear, disputing USPS’ right to exercise the Fixed Price Option. The Straus Brothers then
brought this suit against USPS.
I.

Legal Standard

“[S]ummary judgment is appropriate where there is no genuine issue as to any material
fact and the moving party is entitled to a judgment as a matter of law.” Alabama v. North
Carolina, 560 U.S. 330, 344 (2010) (citations and internal quotation marks omitted); see also
Fed. R. Civ. P. 56(a). The Court must grant summary judgment “against a party who fails to
make a showing sufficient to establish the existence of an element essential to that party’s case,
and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986). The same standard applies to cross-motions for summary judgment. See
Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir. 2008).
“A genuine issue is present when a reasonable trier of fact, viewing all of the record
evidence, could rationally find in favor of the non-moving party in light of his burden of proof.”
Doe v. Abington Friends Sch., 480 F.3d 252, 256 (3d Cir. 2007) (citing Celotex Corp. at 322-26);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-52 (1986). “The non-moving party may not
merely deny the allegations in the moving party’s pleadings; instead he must show where in the
record there exists a genuine dispute over a material fact.” Doe, 480 F.3d at 256 (citing Celotex,
477 U.S. at 322-26). In ruling on a motion for summary judgment, a court must “view the facts
in the light most favorable to the non-moving party and draw all reasonable inferences in that
party’s favor.” Burton v. Teleflex Inc., 707 F.3d 417, 425 (3d Cir. 2013).

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II.

Analysis

Plaintiffs’ argument on their motion for partial summary judgment is that a plain reading
of the 1966 Lease and the 1982 Amendment shows that the Fixed Price Option to purchase the
property was superseded by the Fair Market Value Option in the 1982 Amendment. They
contend further that having failed to timely pursue the Fair Market Value Option and the lease
agreement for the Property now having expired, USPS is a holdover tenant at Richmond Station.
In its motion for summary judgment USPS asks for a judgment directing the Straus Brothers to
specifically perform – to tender title to the leased premises to USPS in accordance with the Fixed
Price Option set forth in the 1966 Lease.
1. The Inter-Relationship of the 1966 Lease and 1982 Amendment Terms
Preliminarily, both motions require an analysis of the inter-relationship of the terms of
the 1966 Lease and the 1982 Amendment. More specifically, the question before the Court is,
given the language in the relevant provisions of the two documents, what effect the Fair Market
Value Option of the 1982 Amendment had on the Fixed Price Option in the 1966 Lease.3 The
focus is thus on whether the language of the provisions unambiguously supports either Plaintiffs’
or Defendant’s construction. Whether an ambiguity exists is a question of law that may be
decided on a motion for summary judgment. See United States v. Hardwick, 544 F.3d 565, 570
(3d Cir. 2008) (stating that interpretation of a contract is a question of law). However, if a
3

The parties agree that federal law controls interpretation of the lease. And, they are right. “[F]ederal law governs
questions involving the rights of the United States arising under nationwide federal programs.” See United States v.
Kimbell Foods, 440 U.S. 715, 726 (1979); see also United States v. Allegheny County, 322 U.S. 174, 183 (1944);
Clearfield Trust Co. v. United States, 318 U.S. 363, 366-67 (1943). The United States Postal Service is
unquestionably a federal program, see U.S. Const. Art. I, § 8, cl. 7, and “the interpretation of post office leases could
conceivably affect the Postal Service’s ability to carry out the mission that Congress has entrusted to it.” Powers v.
U.S. Postal Serv., 671 F.2d 1041, 1043 (7th Cir. 1982). Thus, federal law applies to the interpretation of the lease.
See also Girard Trust Co. v. United States, 149 F.2d 872, 874 (3d Cir. 1945) (applying federal law to leases to
which the United States is a party).

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review of the relevant provisions leads to the conclusion that the contract is ambiguous, the
meaning of the contract is a question for the trier of fact and summary judgment will be denied.
See Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 362 (3d Cir. 1987) (“The process of
interpreting a document is potentially a two-step process with the court and factfinder playing
defined roles. If a contract is ambiguous, its intended meaning is determined as question of
fact.”). Here, where neither Plaintiffs nor Defendant has requested a jury, the meaning of the
contract is for the Court to decide.
“In contract interpretation, the plain and unambiguous meaning of a written agreement
controls.” Arko Exec. Servs., Inc. v. United States, 553 F.3d 1375, 1379 (Fed. Cir. 2009)
(internal citations omitted). When construing a contract, a court should strive to ascribe meaning
to all of its provisions. See Arnold M. Diamond, Inc. v. Gulf Coast Trailing Co., 180 F.3d 518,
522 (3d Cir. 1999); see also RESTATEMENT (SECOND) OF CONTRACTS, § 203 (1981) (“[A]n
interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to
an interpretation which leaves a part unreasonable, unlawful, or of no effect.”). Contract
interpretation first requires looking to the language of the contract, which is the “strongest
objective manifestation of [the] intent” of the parties. Baldwin v. Univ. of Pittsburgh Med. Ctr.,
636 F.3d 69, 75-76 (3d Cir. 2011).
Contractual ambiguity arises when the words might be subject to more than one
reasonable interpretation; latent ambiguity arises when the terms of a contract are made uncertain
due to facts beyond the four corners of the contract. Id. at 76. To determine whether a contract
term is ambiguous, a court will consider the words of a contract, the alternative meaning
suggested by counsel, and the nature of the objective evidence to be offered in support of that

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meaning. Id. However, the parties will remain bound by the “appropriate objective definition of
the words they use to express their intent.” Id. (internal citations omitted).
a. The Unambiguous Terms of the 1982 Amendment Preserve USPS’ Fixed Price
Option.
As a preliminary matter, a review of the language of Paragraph 8 of the 1982 Amendment
leads to the conclusion that the Fixed Price Option in the 1966 Lease was preserved even while
an additional option – the Fair Market Value Option – was created.
Paragraph 8 reads, “This option is in addition to any other purchase options available
under the lease of this property.” The paragraph is preceded by Paragraphs 6 and 7, which deal
with, respectively, the Fair Market Value Option and the method of determining through a series
of appraisals what the Fair Market Value is at the time the option is exercised. The two words
that begin Paragraph 8 – “This option” – when viewed in the context of the previous two
paragraphs unambiguously refers to the Fair Market Value Option. The next sub-phrase of
Paragraph 8, the words “in addition to,” is a prepositional phrase indicating something that is
over and above what has already been stated4 and functions to ensure the Fixed Price Option
remains in the 1966 Lease, as amended, despite granting USPS a new Fair Market Value Option.
Thus, the plain text of Paragraph 8 of the 1982 Amendment discloses that the Fair Market Value
Option was joined to something – in this case, the other purchase options available under the
lease.5 To read the Fixed Price Option out of the 1966 Lease, as amended, would deprive this

4

“Addition,” defined, is the “act or process of adding: the joining or uniting of one thing to another.” WEBSTER’S
THIRD NEW INTERNATIONAL DICTIONARY 24 (Philip Babcock Gove ed., 1993).
5

It is apparent from the other language of the 1982 Amendment that the term “lease” in Paragraph 8 encompasses
the terms of the 1966 Lease except as specifically amended. See Paragraph 11 of the 1992 Amendment (“All
provisions of the aforementioned lease unaffected by this amendment are hereby confirmed and shall remain the
same.”). That conclusion is buttressed by the introductory recitals to the 1982 Amendment which defines the lease
as that created in 1966, stating “W[hereas] by lease dated August 1, 1966.” Similarly, the recitals refer to the
“aforesaid lease.”

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phrase of its clear meaning. See United States v. Johnson, 43 F.3d 1308, 1310 (9th Cir. 1995)
(finding in an almost identical context that the words “in addition to any other purchase options”
would be deprived of any effect if the fixed price option was read out of the lease).6
Given the clear language of Paragraph 8, Plaintiffs’ suggestion that the phrase “in
addition to any other purchase options” ought to be interpreted to refer to the eminent domain
powers of the federal government, granted to USPS by statute, see 39 U.S.C. § 401(9) (entitling
the Postal Service “to exercise . . . the right of eminent domain”), is untenable. See Viera v. Life
Ins. Co. of N. Am., 642 F.3d 407, 419-20 (3d Cir. 2011) (“Where there is only one reasonable
interpretation of a contract, that interpretation controls because straightforward language in [a
contract] should be given its natural meaning.”) (internal citations omitted).
Plaintiffs also assert that Paragraph 8 of the 1982 Amendment does not preserve the
Fixed Price Option because it is “boilerplate” language used by USPS, and the same clause
appears in amendments to leases that originally contained no purchase options. Assuming,
without deciding, that the existence of other leases between Howard Straus and USPS are
relevant and properly considered, the argument still lacks merit. The clause “in addition to any
other purchase options available under the lease of this property” does not exclude the possibility
that there are no other purchase options available. It unambiguously provides that available
purchase options, if any, be preserved for USPS.
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Similarly, in U.S. Postal Serv. v. JAMKE, the Eastern District of California held that the language of the contract
preserved the prior fixed price option. U.S. Postal Serv. v. JAMKE, 2017 WL 131991, at *7 (E.D. Cal. Jan. 11,
2017). Describing Johnson as having “nearly identical facts,” the JAMKE Court reasoned as follows:
Defendants argue that Johnson is inapposite because it dealt with whether the district court erred
in refusing to consider parol evidence to clarify the meaning of the amendment. This argument
misses the point. The Johnson court affirmed the district court's decision not to consider parol
evidence because, as is the case here, the contract language unambiguously supported USPS’s
right to exercise the fixed price purchase option.
Id. at *7-8. The Straus Brothers point to no record evidence in this case that materially distinguishes the issue here.

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Of course, this reading of the lease provides USPS with the choice between exercising its
option either at a fixed price (as set forth in the 1966 Lease) or at the fair market value (under the
1982 Amendment). But this does not make the options inconsistent. Inconsistent provisions
exist when “both cannot be operative at the same time.” See Bechtel Corp. v. Local 215,
Laborers’ Int’l Union, 544 F.2d 1207, 1212 (3d Cir. 1976) (applying federal law and explaining
when inconsistency might exist); cf Carbetta Enters., Inc. v. United States, 58 Fed. Cl. 563, 567
(2003) (addition of an inconsistent contract term rescinds the earlier, inconsistent term.). “[T]he
question whether provisions of two contracts are inconsistent can only be answered on a case-bycase basis; there is no litmus test for inconsistency by which [the] two contracts can be judged
other than a test of common sense and plain meaning.” Bechtel Corp., 544 F.2d at 1212 (internal
citations omitted). In this case, the Fixed Price Option and the Fair Market Value Option are not
inconsistent with each other. More specifically, the Fair Market Value Option offers USPS a
choice to purchase at any point during the lease. If USPS chose to purchase the property at the
end of a renewal term, USPS could choose to purchase Richmond Station at either the fixed price
or the fair market value. This would be no different than granting an option to sell at the lesser
of two prices. Presumably, if Richmond Station’s value went down instead of up, the Plaintiffs
here would have wanted USPS to exercise the Fixed Price Option, and USPS would rather
exercise the Fair Market Value Option. This does not lead to the conclusion that both could not
be available to USPS at the same time. Thus, the contract is unambiguous that USPS had the
right to exercise either option.
2. USPS is Entitled to Specific Performance.
USPS contends that it is entitled to specific performance of its option to purchase
Richmond Station for the Fixed Price Option of $240,000. It is black letter law that an option to
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purchase is in the nature of a continuing offer to sell that when accepted by the lessee completes
a contract of sale. Willard v. Tayloe, 75 U.S. 557, 560 (1869). First, the optionee to a contract
must exercise the option unconditionally and “strictly in accordance with its terms.” U.S. Postal
Serv. v. Ester, 836 F.3d 1189, 1195-96 (9th Cir. 2016) (citations omitted). Second, the party
seeking specific performance must establish that there is a valid and enforceable contract, that
the party substantially performed its part of the contract, and that both parties can perform. See,
e.g., Nemer Jeep-Eagle, Inc. v. Jeep-Eagle Sales Corp., 992 F.2d 430 (2d Cir. 1993); United
States v. Turley, 2016 WL 8671924 (E.D. Okla. Nov. 18, 2016).
In this instance, the terms of the 1966 Lease Agreement provide that the government has
“the option to purchase the fee simple title to the leased premises, including underlying land” for
$240,000, mandating that “the Government shall give the lessor notice of election to purchase at
least one year in advance of the end of the renewal period.” It is undisputed that in a timely
manner, USPS provided notice to each of the Straus Brothers in the form of a letter that it “has
elected to purchase the fee simple title to the leased premises . . . including the underlying land . .
. as provided in Paragraph 6 of the Post Office Department Lease, dated August 1, 1966.” The
Straus Brothers point to correspondence among them after they received that notice showing that
they believed that USPS was exercising the Fair Market Value Option. Accordingly, they argue
that, under the principle of contra proferentem, their interpretation of the Lease – that only the
Fair Market Value Option was available to USPS, should prevail. This argument is untenable,
not only because the contra proferentem construct generally is used in the interpretation of
insurance contracts and is “not universally applied to other contracts,” but also because it applies
only where there are ambiguities in the insurance contract, at which point the ambiguities are
resolved in favor of the insured. Heasley v. Belden & Blake Corp., 2 F.3d 1249, 1257 (3d Cir.
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1993). Here, the 1966 Lease and the 1982 Amendment unambiguously provide that USPS has
the option of exercising either the Fixed Price Option or the Market Price Option. It opted for
the later and exercised the option strictly in accordance with its terms. It thus completed the
contract of sale with the Straus Brothers. Specific performance shall be granted because USPS
has a valid and enforceable contract, it substantially performed its part of the contract, and
Plaintiffs do not contest that both parties are able to perform.
3. USPS is a Holdover Tenant
Plaintiffs argue that because USPS’s lease on the Richmond Station expired on July 31,
2016, with no further options to renew and that USPS has continued to occupy the premises
without paying rent, USPS is a holdover tenant and they are entitled to compensation from USPS
for its continued occupancy of the Richmond Station. USPS has not challenged this contention
in its responsive briefs and, has accordingly, conceded that it is a holdover tenant and owes rent
to the Strauss Brothers for the period it has occupied the building through to the closing of the
sale of the property to USPS. See Jacobs v. Contract Callers, Inc., 2016 WL 1696818, at *3
(E.D. Pa. Apr. 28, 2016).
An appropriate order follows.

BY THE COURT:

/s/Wendy Beetlestone, J.
_______________________________
WENDY BEETLESTONE, J.

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