EFTA00187391.pdf
PDF not loading? Open directly | View extracted text
đź“„ Extracted Text (40,210 words)
404 27 FEDERAL SUPPLEMENT, 2d SERIES
process, messenger service, transportation, building. Government moved for partial sum-
and deposition transcripts). The Second Cir- mary judgment. The District Court, Chin, J.,
cuit, however, has disallowed reimbursement held that: (1) lease unambiguously provided
for computer research on the grounds that it that written consent to sublease was re-
"is merely a substitute for an attorney's time quired, precluding claim that government
that is compensable under an application for orally consented to sublease; (2) court could
attorneys' fees and is not`a separately tax- apply federal common law to question of
able cost." United Stalest Merritt Meridi- whether landlord's consent to sublease was
an Const. Corp, 95 F.3d 153, 173 (2d Cir. subject to requirement that it not be unrea-
1996); see also LeBlanc—Sternben I Fletch- sonably withheld; (3) court would apply law
er, 143 F.34 748, 763 (2d Cir.I998). There- of New York, as there was no federal com-
fore, I will not allow plaintiffs attorney to be mon law on question and no need to create
reimbursed $125.13 for her computer re- any; and (4) under New York law there was
search time. no requirement that consent not be unrea-
Accordingly, plaintiffs attorney is entitled sonably withheld.
to an award of costs in this case in the
amount of $3,525.86. Motion granted.
CONCLUSION
For the foregoing reasons, plaintiffs mo- 1. Contracts e=147(2)
tion for attorney's fees and costs, pursuant to If an agreement sets forth the parties'
42 U.S.C. § 1988, is granted in part, and intent clearly and unambiguously, a court
plaintiffs attorney, Margaret Somerset, is need look no further.
awarded $94,738.16. That sum shall be paid
within forty-fwe (45) days of the entry of this 2. Contracts e=,176(2)
order.
Whether the text of an agreement is
IT IS SO ORDERED.
ambiguous or unambiguous is a matter of law
to be decided by the court.
3. Contracts e=443(2)
A contract is not deemed ambiguous un-
less it is reasonably susceptible of more than
UNITED STATES of America, Plaintiff, one interpretation, and the court makes this
I determination by reference to the contract
Jeffrey E. EPSTEIN, Ivan S. Fisher, Ellyn alone.
Bank, Debra Elise Cohen, Diane Fisher
d/b/a the Fisher Group Fisher & Softer 4. United States 4=70(7)
a/k/a Fisher & Sophir, D. Ger- Provision of lease with United States as
zog, Robert lleilbrun, Suzanne McDer- landlord, that "Tenant may sublet...with the
mott, Christopher II. Martin, Jesse Sie- advance written permission of Landlord,"
gel a/k/a Jessie Siegel, Siegel, Martin & precluded any oral sublease agreement
Ileilbrun, Ron Softer, and Carmen Tau-
sik, Defendants. 5. Landlord and Tenant e=76(3)
No. 96 CIV. 8307(DC). Generally, under New York law, when a
United States District Court, lease requires a tenant to obtain the prior
S.D. New York. written consent of the landlord to sublet or
assign leased premises, a landlord may re-
March 31, 1998. fuse consent arbitrarily, unless the lease con-
tains a clause specifically stating that the
Federal government, as landlord, landlord may not unreasonably withhold such
brought proceeding to evict tenants from consent.
EFTA00187391
U.S. I. EPSTEIN 405
ale ss27 F.Suppld 404 (S.D.N.Y. 1918)
6. Federal Courts ea413 Suzanne McDermott, New York City, pro
Federal court could apply federal com- se.
mon law, as opposed to state law, to determi- Christopher H. Martin, New York Defend-
nation of rights under real property lease ers Service, New York City, pro se.
with government as landlord. Jessie Siegel, New York City, pro se.
7. Federal Courts ea413 Siegel, Martin & Heilbrun, by Robert Heil-
Law of New York, rather than federal brun, New York City, pro se.
common law, would be applied to question Ron Softer, New York City, pro se.
whether consent of government, as landlord,
Carmen Tausik, New York City, pro se.
to tenant's sublease of premises was subject
to requirement that it not be unreasonably
OPINION
withheld; there was no body of federal com-
mon law governing question and no pressing CHIN, District Judge.
need for national uniformity calling for cre- In this case, the United States (the "Gov-
ation of such law, while state law of landlord
ernment") seeks to evict defendants from a
and tenant was well developed and parties
building formerly used as a residence by the
probably entered into lease believing state Deputy Consul General of the Islamic Re-
law would apply.
public of Iran ("Iran"). After diplomatic and
8. United States ea70(7) consular relations with Iran were severed in
Under New York law, there was no re- 1980, the Office of Foreign Missions ("0FM")
quirement that consent of federal govern- of the United States Department of State
ment, as landlord, to sublease not be unrea- took poas.ssion of the budding pursuant to
sonably withheld; there was no provision to the Foreign Missions Act, 22 U.S.C. § 4301
that effect in lease, and under those circum- of seq. 0FM leased the building to defen-
stances consent could be withheld for any dant Jeffrey E. Epstein in 1992. Epstein
reason or no reason. sublet the building to defendant Ivan S. Fish-
er in 1996, purportedly without the Govern-
ment's consent. Fisher, in turn, sublet a
Mary Jo White, United States Attorney, portion of the building to several subtenants.
by Serene K. Nakano, Assistant United In 1996, the Government purported to ter-
States Attorney, New York City, for the minate Epstein's lease and brought this ac-
United States. tion to eject Epstein and Fisher from the
Wachtel & Masyr, LLP, by Steven J. Co- building. The Government later amended its
hen, New York City, for Jeffrey E. Epstein. complaint to assert a claim for ejectment
against the subtenants as well.' The Gov-
Gage & PayRs, by G. Robert Gage, Jr, ernment also sought to recover back rent
Ellen J. Casey, New York City, for Ivan S. from Epstein and Fisher.
Fisher, Diane Fisher, Fisher & Softer.
Epstein and Fisher oppose ejectment on
Ellyn Bank, New York City, pro se. numerous grounds, some of which were re-
Debra Elise Cohen, New York City, pro jected when I heard oral argument in this
se. case on December 17, 1997. Defendants'
sole remaining defenses are that (1) 0FM
D. Gerzog, New York City, pro orally consented to Epstein's proposed sublet
se. of the premises to Fisher, and (2) 0FM did
Robert Heilbrun, New York City, pro se. not properly terminate Epstein's lease be-
I. The additional defendants are Ellyn Bank. De- Ron Soifer, and Carmen Tausik (collectively, the
bra Elisa Cohen• Diane Fisher dAda The Fisher -Subtenants"). The Subtenants were added as
sher & Soifer a4/a Fisher & Sophir, defendants after the Government learned that
Ma D. Gerzog, Robert Heilbrun. Suzanne
McDermott, Christopher H. Martin. Jesse Siegel
Fisher had sublet to them without consent of
OFM.
wlr/a Jessie Siegel, Siegel• Martin & Heilbrun,
EFTA00187392
406 27 FEDERAL SUPPLEMENT, 2d SERIES
cause it breached an implied covenant of signment and Sublease Clause. Epstein was
good faith and fair dealing by unreasonably granted, however, a right of rust refusal to
withholding written consent to Epstein's re- renew the lease upon its expiration at the
quest to sublet to Fisher. end of January, 1997.
Because I fmd as a matter of law that (1) Epstein and his family continued to reside
the lease unambiguously required the prior at the Premises until January of 1996, at
written consent of OFM for Epstein to sublet which time Epstein abandoned. OFM did
or assign the premises, thereby rendering not discover that Epstein had abandoned the
any alleged oral consent invalid, and (2) OFM Premises, however, until several months la-
was entitled under the lease to unreasonably ter. In March of 1996, Epstein commenced
withhold its written consent to Epstein's re- negotiations with Xenophon Galinas for a
quest to sublet to Fisher, the Government's possible sublease or assignment of the Prem-
motion for partial summary judgment on its ises. The proposed arrangement between
claim for ejectment is granted as against all Epstein and Galinas included payment by
defendants. Galinas to Epstein of $100,000 for improve-
ments to the Premises made by Epstein dur-
BACKGROUND ing his tenancy. At the same time, Epstein
also commenced negotiations to sublet the
A. The Facts Premises to Fisher. Fisher informed Ep-
The premises at 34 East 69th Street in stein, however, that he would not enter into a
Manhattan (the "Premise?) were once the sublease unless it was approved by the State
residence of the former Deputy General Con- Department and Fisher could be assured
sul of Iran. When the United States severed that he could remain in the Premises beyond
diplomatic ties with Iran in 1980, the Deputy January 31, 1997. Epstein told Fisher that
General Consul vacated, but the Premises he had a right of first refusal under the lease
remained the property of Iran. The Govern- amendment, and that pursuant to this right,
ment, through the Secretary of State, was he would take all necessary steps to renew at
entrusted with the care and maintenance of the end of the lease term.
the Premises under the Foreign Missions Act In the meantime, Galinas contacted OFM
("FMA"), 22 U.S.C. § 4305(c), and the Vien- directly about a new lease for the Premises
na Convention on Consular Relations, Apr. beginning in February of 1997. Negotiations
24, 1963, art. 27(1)(a), 21 U.S.T. 77, 596 between Galinas and OFM culminated in a
U.N.T.S. 261, a multilateral treaty entered "letter agreement" dated April 12, 1996 by
into by the United States and Iran, among which Galinas agreed to rent the Premises
other nations. for a five-year term beginning February 1,
In 1992, OFM entered into a two-year 1997 for $16,000 per month, with yearly in-
lease with Epstein, to run from February 1, creases, up to $18,000 per month for the last
1992 through January 31, 1994. The agreed year of the lease term. This agreement was
rent was $15,000 per month. Pursuant to expressly made subject to Epstein exercising
the lease's Use Clause, only Epstein, his his right of first refusal and renewing his
family, servants, or approved subtenants or lease for personal use only. In other words,
assignees could occupy the premises, Under OFM told Galinas that it would not consent
the Assignment and Sublease Clause, Ep- to any request by Epstein for a sublet be-
stein was required to obtain prior written yond January 31, 1997, and that it would
consent of OFM to assign or sublet the permit Epstein to renew the lease beyond
Premises. The lease contained no clause that date only if he occupied the premises
prohibiting OFM from unreasonably with- personally.
holding its consent to a sublet or assignment. On April 16, 1996, Epstein notified OFM
On August 28, 1992, OFM and Epstein by letter that he intended to exercise his
extended the lease for three more years, to right of first refusal and renew the lease.
January 31, 1997. The lease amendment did Epstein contends that in a telephone confer-
not alter either the Use Clause or the As- ence between Richard Massey of OFM and
EFTA00187393
U.S. 1 EPSTEIN 407
Cites, 27 PSupp.2.41 41111 (S.D.N.Y. 1990
Jeffrey Schantz, Epstein's transaction coun- May 10, 1996, OFM again wrote to Epstein
sel, on April 19, 1996, OFM orally consented reiterating that the exercise of his right of
to Epstein's request to sublet the Premises first refusal was premature, and explaining
to Fisher. The same day, Epstein wrote that the prior arrangement with Gaines was
back, requesting "written confirmation" of not a binding contract, but rather merely an
OFM's alleged approval. By letter dated "expression of interest: Then, on May 16,
April 26, 1996, OFM formally responded to 1996, OFM officials visited the Premises and
Epstein's request, In this letter, Thomas E. discovered that Fisher, not Epstein, was in
Burns, a representative of OFM, informed possession.
Epstein of OFM's intention to lease the Throughout this period, Epstein continued
Premises to Galines beginning February 1, to pay, and OFM continued to accept, rent
1997 in the event that Epstein decided not to for the Premises, despite its knowledge that
renew the lease and occupy the premises Fisher was in possession. OFM accepted
personally, and denied Epstein's request to and deposited Epstein's May 1996 rent check
sublet the Premises to Fisher. OFM's stat- on May 28, 1996. On June 3, 1996, OFM
ed reasons for the denial were to (1) "mini- sent Epstein a notice of default, as required
mize any difficulties in turning over the by the lease, stating that he was in violation
house to the tenant we have selected should of (1) the Use Clause, because he was no
Mr. Epstein decide not to reoccupy the longer personally occupying the premises,
premises under the new lease," and (2) "mini- and (2) the Assignment and Sublease Clause,
mize the potential for damage to the premis- because he had sublet to Fisher without prior
es from a short-term tenant occupancy." written consent of OFM. Consistent with the
(Schantz Aft, Exh. D). OFM did, however, terms of the Lease, Epstein was given 30
grant Epstein permission to sublet the Prem- days to cure the default. On June 28, 1996,
ises to Calines for the remainder of 1996. OFM accepted Epstein's June rent check.
On May 3, 1996, Epstein again wrote to The cure period then expired on July 10,
OFM, formally exercising his right of first 1996. Epstein had not cured by this time,
refusal, believing such right to have been but rather than terminating the lease, OFM
triggered by the April 12, 1996 letter agree- served Epstein with a 10-day notice to cure
ment between OFM and Cannes. Thereaf and demanded the July rent. OFM then
ter, on May 7, 1996, Epstein and Fisher accepted Epstein's check for the July rent.
entered into a sublease agreement at a rental Finally, on August 7, 1996, OFM notified
price of $20,000 per month, despite OFM's Epstein that the amended lease would be
express denial of Epstein's request for per- terminated as of August 23, 1996 for failure
mission to sublet to Fisher. Fisher claims to to cure the defaults. OFM demanded that
have entered into the sublease agreement Epstein vacate the Premises and return the
based on Epstein's representations that the keys on o• before that date.
sublease was approved by the State Depart- Despite OFM's notice of termination, Ep-
ment and that Epstein had properly exer- stein tendered August rent on August 30,
cised his right of first refusal to renew the 1996. On September 18, 1996, OFM wrote to
lease. The original sublease was to com- Epstein stating that rent was being accepted
mence May 7, 1996 and terminate on January only through August 23, 1996, and refunded
31, 1997. In the event that Epstein's lease the balance to Epstein. On September 16,
with OFM was extended, and the new rent 1996, OFM wrote to Fisher advising that the
under that lease did not exceed $20,000 per lease agreement between OFM and Epstein
month, the sublease would be automatically had been terminated, that he was occupying
extended for an additional five-year period. the premises illegally, and demanded that the
On May 8, 1996, OFM wrote to Epstein Premises be vacated immediately. Fisher
informing him that his attempt to exercise met with an Assistant United States Attor-
his right of first refusal was premature be- ney on September 23, 1996, who informed
cause OFM had not yet made a formal offer Fisher that Richard Massey, the OFM repre-
to lease the Premises to someone else. On sentative with whom Epstein dealt, would
EFTA00187394
408 27 FEDERAL SUPPLEMENT, 2d SERIES
swear under oath that he never orally ap- I heard oral argument on the motions on
proved the sublet to Fisher. Fisher con- December 17, 1997. Collectively, Epstein
tends that he offered to continue paying rent and Fisher asserted four arguments in oppo-
directly to OFM rather than to Epstein, an sition to the Government's motion for sum-
offer to which the Government never re- mary judgmenta They contend that there
sponded. At that time, Fisher stopped pay- are genuine issues of material fact as to
ing rent to Epstein pursuant to the sublease. whether the Government properly terminat-
ed the lease entered into between OFM and
B. Prior Proceedings Epstein. Specifically, they argue, factual
questions exists as to (1) whether the Gov-
1. The Original Actions ernment waived Epstein's alleged default of
the lease by accepting rent after the Govern-
The Government commenced this action
ment became aware that Fisher was occupy-
against Epstein and Fisher in October of ing the premises; (2) whether the OFM-
1996. It seeks a declaration by the Court
Epstein lease permitted oral approval of an
that it is entitled to exclusive possession of
assignment or sublease (ie., whether the As-
the Premises and that it is entitled to have signment and Sublet Clause is ambiguous on
Epstein and Fisher ejected therefrom be-
the issue of whether an assignment or sublet
cause Epstein's lease was properly terminat-
could be approved orally); (3) whether OFM
ed as of August 23, 1996. In addition, the
in fact orally approved the sublease to Fish-
Government seeks dismissal of Fisher's first er; and (4) whether the Government breach-
and second counterclaims, which seek equita-
ed an obligation of good faith and fair dealing
ble relief against the Government.' Finally, inherent in its lease with Epstein by unrea-
the Government demands back rent from sonably withholding written approval of a
Epstein and/or Fisher. sublet to Fisher, assuming the Court holds as
In February of 1997, Epstein commenced a a matter of law that oral approval was, not
holdover proceeding in the Civil Court of the permitted by the lease.
City of New York against Fisher for nonpay- At the conclusion of the argument, I re-
ment of rent under the terms of the sublease. solved several of the issues pertaining to
Fisher removed the state court action to this these motions on the record. As an initial
Court. matter, I denied Epstein's motion to remand
The Government moved for partial sum- and granted Fisher's motion to consolidate.
mary judgment on its claim for ejectment of I then addressed the Government's motion
Epstein and Fisher. In addition, it sought for summary judgment and its application
an order requiring Epstein and Fisher to pay concerning the creation of an escrow fund.
into an escrow fund $15,000 per month from I granted summary judgment in favor of
August 23, 1996 to the date this action is the Government on Epstein's and Fisher's
finally decided. Epstein cross-moved against waiver argument, holding that "no reason-
Fisher to remand its holdover action to state able fact finder could conclude from [the)
court, and Fisher cross-moved against Ep- undisputed facts and the sequence of events,
stein for consolidation of the holdover action including the acceptance of rent after the
with the pending federal action. cure period but before the actual termination
2. In its first counterclaim, Fisher seeks a declara- still has an interest in the Court's decision as to
tion that the sublease is valid and that Fisher is whether OFM properly terminated its lease with
lawfully entitled to full possession and use of the Epstein. Moreover, Fisher's rights as subtenant
premises. In its second counterclaim, Fisher derive from Epstein's rights as overtenant. for if I
seeks a declaration that the sublease was auto- decide as a matter of law that the lease was
matically renewed for a five-year term. com- properly terminated on August 23, 1996. neither
mencing January 31, 1997, because Epstein Epstein nor Fisher has any right to occupy the
properly exercised his right of first refusal. Premises beyond that date. Thus, I will treat all
3. Technically. Epstein asserted only the first ar- four arguments in opposition to the Govern.
gument, and Fisher asserted all four arguments. ment's motion as though they were asserted by
Epstein is no longer occupying the Premises, but Epstein and Fisher jointly.
EFTA00187395
U.S. I EPSTEIN 409
CI144027 F.3059.241 404 (S.D.N.Y. 1991)
of the lease, that that could constitute a Group and Ron Softer, agreed to be bound
waiver in light of the very clear nonwaiver by any order I entered with respect to Fish-
clause in the lease." (Tr. at 39). I reserved er's right to occupy the Premises. On March
decision, however, on the following issues: 13, 1998, after the Government submitted its
(1) whether the lease unambiguously re- motion, Diane Fisher executed the stipula-
quired that OFM's consent to an assignment tion and order, also agreeing to be bound.
or sublet be in writing, in which case Massey To date, Soifer still has not executed the
could not have orally consented, as a matter stipulation. Hence, the Government's motion
of law, to Epstein's sublet of the Premises to for summary judgment against the Subten-
Fisher, (2) whether OFM was permitted un- ants is still pending with respect to Softer
der the lease to unreasonably withhold con- only.
sent to Epstein's consent to a sublet to Fish-
er, or whether it was bound by an implied DISCUSSION
obligation of good faith and fair dealing, and
(3) whether, assuming the latter, OFM in fact A. Standards for Summary Judgment
withheld its consent unreasonably. The standards applicable to motions for
Finally, I ordered Epstein to pay into an summary judgment are well-settled. A court
escrow fund eight days worth of the $15,000 may grant summary judgment only where
rent for the month of August 1996 and an there is no genuine issue of material fact and
additional $15,000 for September 1996 (be- the moving party is therefore entitled to
cause OFM had already accepted his tender judgment as a matter of law. See Fed.
of rent through August 23, 1996, and Epstein R.Civ.P. 56(c). Accordingly, the court's task
had collected rent from Fisher through Sep- is not to "weigh the evidence and determine
tember 30, 1996). Additionally, I ordered the truth of the matter but to determine
Fisher to pay into the fund $15,000 per whether thre is a genuine issue for trial."
month, beginning October 1, 1996 to date, Anderson I Liberty Lobby, Inc, 477 U.S.
and continuing for each month thereafter. 242, 249, 106 S.Ct. 2605, 91 L.Ed.2d 202
(1986). Summary judgment is inappropriate
2. The Government's Addition of the if, resolving all ambiguities and drawing all
Subtenants as Defendants inferences against the moving party,id. at
In the course of discovery on its claims for 255, 106 S.Ct. 2505 (citing Adickes I S.H.
relief against Epstein and Fisher, the Gov- Kress & Ca, 398 U.S. 144, 158-59, 90 S.Ct.
ernment learned that Fisher had further sub- 1598, 26 L.Ed.2d 142 (1970)), there exists a
let the Premises to the Subtenants, also with- dispute about a material fact "such that a
out the prior written consent of OFM. The reasonable jury could return a verdict for the
Government then sought leave to amend the nonmoving party." Anderson, 477 U.S. at
complaint pursuant to Federal Rule of Civil 248 106 S.Ct. 2606.
Procedure 15 to name the Subtenants as Once the moving party meets its initial
additional defendants in the action. I grant- burden of production, the burden shifts to
ed the Government's motion on the record at the nonmoving party to demonstrate that
the December 17, 1997 oral argument. The there exist genuine issues I material fact.
Government thereafter filed a second amend- Matsushita Elec. Indus. Ca Zenith Radio
ed complaint and served a copy on each of Corp., 476 U.S. 574, 585-86, 106 S.Ct. 1348,
the Subtenants. 89 L.Ed2d 638 (1986). To defeat a motion
In an effort to settle the case, I held a for summary judgment, however, the non-
conference on January 28, 1998. At the con- moving party "must do more than simply
clusion of that conference, the Government show that there is some metaphysical doubt
requested permission to file a motion seeking as to the material facts." Id. at 586, 106
partial summary judgment against the Sub- S.Ct. 1348. There is no issue for trial unless
tenants. By stipulation and order dated there exists sufficient evidence in the record
March 6, 1998, all of the named Subtenants, favoring the party opposing summary judg-
except for Diane Fisher &Wa The Fisher ment to support a jury verdict in that party's
EFTA00187396
410 27 FEDERAL SUPPLEMENT, 2d SERIES
favor. Anderson, 477 U.S. at 249, 106 S.Ct. ises to Fisher. The Assignment and Sublet
2506. As the Supreme Court stated in Clause expressly states that "Tenant may
Anderson, "If the evidence is merely color- sublet all or part of the Premises, or assign
able, or is not significantly probative, sum- this lease or permit any other person to use
mary judgment may be granted." Id at the Premises with the advance written per-
249-50, 106 S.CL 2506 (citations omitted). mission of Landlord" (Massey Decl., Exh.
With these standards in mind, I turn to the B at 4) (emphasis added). Epstein's and
Government's motions for partial summary Fisher's argument that the word "may" sug-
judgment. gests that OFM could approve a sublease or
assignment in writing or orally is tortured.
B. The Government's Motion for Partial Only one interpretation of this clause is tena-
Summary Judgment against Epstein ble: prior written consent of OFM was re-
and Fisher quired for a sublet. Epstein's and Fisher's
argument would render the language of the
1. Whether the Lease Permitted Oral
clause meaningless, and I am obliged to read
Consent to a Proposed Sublet or As-
the lease in a manner that gives full force
signment
and effect to all clauses contained therein.
Epstein and Fisher contend that summary See Lloyds Bank PIC Republic of Ecua-
judgment should be denied because there dor, No. 96 Civ. 1789 ( ), 1998 WL 118170,
exists a genuine issue of material fact as to at •8 (S.D.N.Y. Mar. 16, 1998). Accordingly,
whether OFM orally consented to Epstein's OFM could not have orally consented to Ep-
request to sublet the Premises to Fisher. stein's proposed sublet to Fisher, as a matter
The Government, on the other hand, argues of law, and, therefore, I need not reach the
that the lease unambiguously required that a question of whether OFM actually gave oral
sublet or assignment of the Premises be ap- consent.
proved in advance in writing, and that, there-
fore, even if OFM did orally consent, such 2. Whether the Lease Permitted OFM
consent was invalid as a matter of law. to Unreasonably Withhold Written
11-31 In contract disputes, the Court be- Consent to a Proposed Sublet
gins by examining the language of the con- The last issue to be decided on this motion
tract itself to determine the parties' intent. is whether OFM was entitled to refuse Ep-
Stroll I Epstein 818 F.Supp. 640, 643 stein's proposed sublet to Fisher arbitrarily,
(S.D.N.Y.), affd, 9 FM 1637 (2d Cir.1993). or whether it breached a duty of good faith
If the agreement sets forth the parties' in- and fair dealing implicit in the lease agree-
tent clearly and unambiguously, the Court ment by unreasonably refusing to grant such
need look no further. See Sterling Drug Inc. consent in writing. Resolution of this issue
Bayer AG, 792 F.Supp. 1357, 1366-66 turns on whether federal contract law or
(S.D.N.Y.1992), red in part, remanded in New York landlord-tenant law applies.
part, 14 F.3d 738 (2d Cir.1994). Whether the
[51 Generally, under New York law,
text of an agreement is ambiguous or unam-
where a lease requires a tenant to obtain the
biguous is a matter of law to be decided by
prior written consent of the landlord to sub-
the Court. Sterling Drug, 792 F.Supp. at
let or assign leased premises, a landlord may
1366. A contract is not deemed ambiguous
refuse consent arbitrarily, unless the lease
unless it is reasonably susceptible of more
contains a clause specifically stating that the
than one interpretation, and the Court makes
landlord may not unreasonably withhold such
this determination by reference to the con-
consent See Dress Shirt Sales, Inc., Hotel
tract alone. Banque Ambe et Internationale
Martinique Assocs., 12 N.Y2d 339, 239
D'Investissement I. Maryland Nat'l Bank,
N.Y.S.2d 660, 662, 190 N.E2d 10 (Ct.App.
67 F.3d 146, 162 (2d Cir.1995).
1963). The Assignment and Sublet Clause in
141 The lease clearly provides that Ep- the lease between OFM and Epstein re-
stein was required to obtain the advance quired Epstein to obtain prior written con-
written consent of OFM to sublet the Prem- sent of OFM to a proposed sublet, but it
EFTA00187397
U.S. EPSTEIN 411
ch.. 27 F.Suppld 404 (5.D.N.Y. 1991)
contained no provision prohibiting OFM from of landlord and tenant. Powers t United
unreasonably withholding such written con- Skates Postal Seru, 671 F.2d 1041, f042, 1046
sent. (7th Cir.1982); Reed United States Postal
The Government, relying on New York Sera., 660 F.Supp. 178, 181 (D.Mass-1987).
landlord-tenant law, asserts that it was enti- The question remains, therefore, what law
tled to withhold its consent to Epstein's pro- applies in the absence of a federal rule on
posed sublet to Fisher for any reason, or for point.
no reason at all. Epstein and Fisher, howev- As the Supreme Court has made clear, my
er, disagree. They contend that, because the power to create federal common law in the
Government is a party to the lease, interpre- absence of federal landlord-tenant law is lim-
tation of the lease is governed by principles ited. Several recent Supreme Court deci-
of federal common law, not New York State sions have reaffirmed the principle that the
law. Pursuant to federal common law of con- power of the federal courts to fashion princi-
tracts, Epstein and Fisher continue, the lease ples of federal common law is limited. See,
between OFM and Epstein contains an im- e.g., O'Melveny & Myers FDIC, 512 U.S.
plied covenant of good faith and fair dealing, 79, 87-88, 114 S.Ct. 20487 129 L.Ed.2d 67
citing Neal & Co. !t United States, 36 Fed. (1994) (noting that cases where the formula-
Cl. 600 (1996), re 121 F.3d 683 (Fed.Cir. tion of a "special federal rule" are "few and
1997). The requirement of good faith and restricted"); Kamen I Kemper Fin. Servs.,
fair dealing, they argue, prohibits OFM from Inc., 500 U.S. 90, sir, 111 S.Ct. 1711, 114
withholding consent unreasonably. OFM's L.Ed.2d 152 (1991) (noting that a federal
refusal to consent to Epstein's proposed sub- court "should endeavor to fdl the interstices
let of the Premises to Fisher, they contend, of federal remedial schemes with uniform
was motivated by its desire to enter into a federal rules only when the scheme in ques-
lease with Galinas at a higher rent beginning tion evidences a distinct need for nationwide
February 1, 1997. Such conduct was unrea- legal standards or when express provisions in
sonable, they argue, and, therefore, OFM analogous statutory schemes embody con-
breached the implied covenant of good faith gressional policy choices readily applicable to
and fair dealing in the lease. the matter at hand") (citations omitted).
(6,7) I conclude that New York landlord- While this recent Supreme Court authority
tenant law rather than general federal con- leaves room for federal courts to create prin-
tract principles should apply. As a threshold ciples of federal common law in certain nar-
matter, although I agree as a policy matter row circumstances, generally a "significant
that federal law should apply, there is no conflict between some federal policy or inter-
federal statutory or common law governing est and the use of state law" is required
landlord-tenant relations. Federal law before "judicial creation of a special federal
should apply because the United States is a rule (is) justified." O'Melveny, 512 U.S. at
party. I have jurisdiction over this action 87, 114 S.Ct. 2048. While few courts have
based on 28 U.S.C. § 1345 and the FMA 22 addressed the precise issue of whether leases
U.S.C. § 4301 et seq. The subject matter of to which the Government is a party are
this action is a landlord-tenant dispute, how- governed by general federal common law of
ever, and while application of federal law is contracts or state landlord-tenant law, there
appropriate in federal question cases where is some case law on point. The Second Cir-
applicable federal substantive law exists, cuit has not yet spoken definitively on this
there is no federal statutory or common law issue,4 but recently noted the existence of a
4. In United Stales! Bedford Associates, 657 Ii.2d to apply federal law in disputes between the
1300 (2d Cir.1981 , cert. denied, 456 U.S. 914. United States and its lessors?' Id. at 1309 n. 7.
102 S.Ct. 1767, 72 L.Ed.2d 173 (1982). the Sec. The court in Kerin I. United States Postal Sera.,
and Circuit upheld the district court's applies• 116 F.3d 988 (2d ir.1997), acknowledged the
tion of federal contract law to determine whether Bedford Associates decision, but implied that Bed.
the United States and a potential lessor of a ford Associates involved the issue of creation of a
commercial building had in fact made a contract, lease only, stating that there is "room for fair
stating that "tilhis court undoubtedly has power debate" as to whether federal or state law ap.
EFTA00187398
412 27 FEDERAL SUPPLEMENT, 2d SERIES
conflict between the Federal Circuit and the termined under state law, even when the
Seventh Circuit concerning "whether federal United States is a party." United States 1
common law or state law applies to the inter- O'Block, 788 F.2d 1423, 1435 (10th Cir.198M
pretation of Postal Service Leases?' Kerin (citing Oregon ex rel. State Land lid
United States Postal Sera, 116 F2d 988, Corvallis Sand & Gravel Co., 429 U.S. 363,
990 (2d Cir.1997). On the one hand, the 378-81, 97 S.Ct. 582, 60 L.Ed.2d 650 (1977)).7
Federal Circuit has held that federal law Second, application of state substantive
applies to resolve disputes between the Unit- law directly on point is eminently more logi-
ed States and its lessors or tenants. See. cal than application of general principles of
e.g., Forman I United States, 767 F.2d 875, federal contract law. While application of
879-80 (Fed. ir.1985); 6 Kelley United general federal contract law to Government
State* 19 CI.Ct. 155, 162 (1989). On the contracts may be appropriate in certain in-
other hand, the Seventh Circuit has held that stances, where, as here, the particular gov-
state substantive law governs in landlord- ernment contract is a lease for the use of
tenant disputes involving the Government. real property, the adoption of state common
See Powers United States Postal Sett, 671 law of landlord-tenant relations, a body of
F.2d 1041,1043-46 (7th Cir.1982).. law that has developed precisely to address
The Second Circuit in Kerin did not reach the rights and duties of individuals in the
the issue of whether federal common law or unique relationship of landlord and tenant,
state law applied because, in that case, feder- makes sense. Application of the state rule,
al law and state law led to the same result. which permits a landlord to refuse consent to
See Kerin, 116 F.3d at 991. I agree with the a sublet or assignment arbitrarily in the ab-
Seventh Circuit's conclusion, for two reasons. sence of a clause to the contrary, better
serves the interests of the Government as a
First, although Epstein and Fisher argue
landlord because it permits the Government
that a federal rule should be created to pro-
mote the creation of a uniform body of law in to have unfettered discretion in deciding who
occupies its property. Given the sensitive
landlord-tenant disputes involving the Gov-
political considerations that often come into
ernment, there is no "distinct need" for a
play when governmental property, such as
nationwide legal standard or a uniform na-
the property here in issue owned by Iran, is
tional rule. See Kamen, 500 U.S. at 98 Ill
S.Ct, 1711. Landlord-tenant law traditional- involved, the Government should have as
much discretion as possible.
ly has been a matter of state law. There is
no compelling reason to disrupt expectations Noting that federal landlord-tenant law
that tenants and landlords may have under does not exist, Judge Posner stated in Pow-
state law merely because they are entering
into a lease with the federal government. The Federal Courts could of course create
Courts have long held that, "[albsent control- that law, picking and choosing among ex-
ling federal legislation or rule of law, ques- isting state laws and proposed reforms in
tions involving real property rights are de- accordance with the recommendations of
plies to the interpretation of a lease to which the kited by the Government must pay the Govern-
Government is a party. Id. at 990-91. ment a reasonable rent for the period of his
occupancy); Reed. 660 F.Supp. at 181 (holding
5. While the Forman court stated that federal law that Massachusetts law governs the rights of the
governs in landlord-tenant disputes involving the parties under a Postal Service lease).
Government, it nevertheless relied on state law
cases in interpreting the particular provision of
the Postal Service lease at issue. See 767 P.M at 7. Indeed, the Supreme Court has articulated that
88041. the normal federal disposition where no substan-
tive federal provision Is relevant to the legal issue
6. Other courts, too, have applied state substan- at hand is for "federal courts [to) 'Incorporatk)
tive law as the rule of decision In landlord-tenant [state law] as the federal rule of decision.'"
disputes involving the Government. See, e.g., Kamen, 500 U.S. at 98, III S.Ct. 1711 (emphasis
Braxton'. United States, 858 F.2d 650. 655 (11th added) (quoting United States I. Kimbell Foods,
Cir.19881 (holding that Florida law applies to Inc., 440 U.S. 715, 728, 99- S.M. 1448, 59
determine whether one who occupies land for- L.Ed.2d 711 (1979)).
EFTA00187399
U.S. â– EPSTEIN 413
CIO: as 27 F.Survad 404 (S.D.N.Y. 1998)
eminent scholars and practitioners. It is like cases to landlord-tenant disputes. A
not to be expected that the federal courts construction contract does not implicate the
would do a very good job of devising a Government's rights, as a possessor of a
model code of landlord-tenant law, since valuable leasehold, to regulate the possession
they have very little experience in land- and use of real property under its control.
lord-tenant matters; and though eventual- Thus, as between general federal contract
ly some body of law would emerge it would principles and specific state landlord-tenant
not in all likelihood be a uniform body, law, the latter should be applied. Land is
because there are [thirteen] federal cir- unique. It is logical, therefore, that a land-
cuits and the Supreme Court could be lord should have virtually complete say in
expected to intervene only sporadically who occupies its property. See Mann The-
atres Corp. I Mid-Island Shopping Plaza
• • (Vie do not have to balance compet- Ca, 94 A.D.2d 466, 464 N.Y.S.2d 793, 798 (2d
ing federal and state interests in this case Dep't 1983) (noting that landlords have a
after all. The overriding federal interest "substantial interest in controlling the as-
here is in certainty of right and obligation signability of leases"), eV, 62 N.Y.2d 930,
flowing from conformity to known law; the 479 N.Y.S.2d 213, 468 N.E2cl 51 (CLApp.
state interest is in offering its landlords a 1984). It makes sense for the law to permit
like certainty. These interests converge in a landlord to unreasonably withhold consent
favor of adopting . .. state law rather than to a proposed sublet unless the parties spe-
federal common law. cifically bargain otherwise. See Alex M.
Powers, 671 F.2d at 1045-46. This reasoning Johnson, Jr., Correctly Interpreting Long-
is quite convincing, particularly in a case Term Leases Pursuant to Modern Contract
such as this, where the Government and Law: Toward a Theory of Relational Leases,
Epstein, in all likelihood, "entered [a) legal 74 Va. L.Rev. 751, 758 (1988) (discussing the
relationship with the expectation that their majority view that absent contractual agree-
rights and obligations would be governed by ment to the contrary landlords are permitted
state-law standards." Kamen, 600 U.S. at to unreasonably withhold consent to a sublet
98, 111 S.Ct. 1711. or assignment, and noting that the rule
Finally, Er Win's and Fisher's reliance on stems from the "paramount importance of
Neal & Ca United States, 36 Fed. Cl. 600 the lessor's ability to control the selection of
(1996), alrd 121 F
process, messenger service, transportation, building. Government moved for partial sum-
and deposition transcripts). The Second Cir- mary judgment. The District Court, Chin, J.,
cuit, however, has disallowed reimbursement held that: (1) lease unambiguously provided
for computer research on the grounds that it that written consent to sublease was re-
"is merely a substitute for an attorney's time quired, precluding claim that government
that is compensable under an application for orally consented to sublease; (2) court could
attorneys' fees and is not`a separately tax- apply federal common law to question of
able cost." United Stalest Merritt Meridi- whether landlord's consent to sublease was
an Const. Corp, 95 F.3d 153, 173 (2d Cir. subject to requirement that it not be unrea-
1996); see also LeBlanc—Sternben I Fletch- sonably withheld; (3) court would apply law
er, 143 F.34 748, 763 (2d Cir.I998). There- of New York, as there was no federal com-
fore, I will not allow plaintiffs attorney to be mon law on question and no need to create
reimbursed $125.13 for her computer re- any; and (4) under New York law there was
search time. no requirement that consent not be unrea-
Accordingly, plaintiffs attorney is entitled sonably withheld.
to an award of costs in this case in the
amount of $3,525.86. Motion granted.
CONCLUSION
For the foregoing reasons, plaintiffs mo- 1. Contracts e=147(2)
tion for attorney's fees and costs, pursuant to If an agreement sets forth the parties'
42 U.S.C. § 1988, is granted in part, and intent clearly and unambiguously, a court
plaintiffs attorney, Margaret Somerset, is need look no further.
awarded $94,738.16. That sum shall be paid
within forty-fwe (45) days of the entry of this 2. Contracts e=,176(2)
order.
Whether the text of an agreement is
IT IS SO ORDERED.
ambiguous or unambiguous is a matter of law
to be decided by the court.
3. Contracts e=443(2)
A contract is not deemed ambiguous un-
less it is reasonably susceptible of more than
UNITED STATES of America, Plaintiff, one interpretation, and the court makes this
I determination by reference to the contract
Jeffrey E. EPSTEIN, Ivan S. Fisher, Ellyn alone.
Bank, Debra Elise Cohen, Diane Fisher
d/b/a the Fisher Group Fisher & Softer 4. United States 4=70(7)
a/k/a Fisher & Sophir, D. Ger- Provision of lease with United States as
zog, Robert lleilbrun, Suzanne McDer- landlord, that "Tenant may sublet...with the
mott, Christopher II. Martin, Jesse Sie- advance written permission of Landlord,"
gel a/k/a Jessie Siegel, Siegel, Martin & precluded any oral sublease agreement
Ileilbrun, Ron Softer, and Carmen Tau-
sik, Defendants. 5. Landlord and Tenant e=76(3)
No. 96 CIV. 8307(DC). Generally, under New York law, when a
United States District Court, lease requires a tenant to obtain the prior
S.D. New York. written consent of the landlord to sublet or
assign leased premises, a landlord may re-
March 31, 1998. fuse consent arbitrarily, unless the lease con-
tains a clause specifically stating that the
Federal government, as landlord, landlord may not unreasonably withhold such
brought proceeding to evict tenants from consent.
EFTA00187391
U.S. I. EPSTEIN 405
ale ss27 F.Suppld 404 (S.D.N.Y. 1918)
6. Federal Courts ea413 Suzanne McDermott, New York City, pro
Federal court could apply federal com- se.
mon law, as opposed to state law, to determi- Christopher H. Martin, New York Defend-
nation of rights under real property lease ers Service, New York City, pro se.
with government as landlord. Jessie Siegel, New York City, pro se.
7. Federal Courts ea413 Siegel, Martin & Heilbrun, by Robert Heil-
Law of New York, rather than federal brun, New York City, pro se.
common law, would be applied to question Ron Softer, New York City, pro se.
whether consent of government, as landlord,
Carmen Tausik, New York City, pro se.
to tenant's sublease of premises was subject
to requirement that it not be unreasonably
OPINION
withheld; there was no body of federal com-
mon law governing question and no pressing CHIN, District Judge.
need for national uniformity calling for cre- In this case, the United States (the "Gov-
ation of such law, while state law of landlord
ernment") seeks to evict defendants from a
and tenant was well developed and parties
building formerly used as a residence by the
probably entered into lease believing state Deputy Consul General of the Islamic Re-
law would apply.
public of Iran ("Iran"). After diplomatic and
8. United States ea70(7) consular relations with Iran were severed in
Under New York law, there was no re- 1980, the Office of Foreign Missions ("0FM")
quirement that consent of federal govern- of the United States Department of State
ment, as landlord, to sublease not be unrea- took poas.ssion of the budding pursuant to
sonably withheld; there was no provision to the Foreign Missions Act, 22 U.S.C. § 4301
that effect in lease, and under those circum- of seq. 0FM leased the building to defen-
stances consent could be withheld for any dant Jeffrey E. Epstein in 1992. Epstein
reason or no reason. sublet the building to defendant Ivan S. Fish-
er in 1996, purportedly without the Govern-
ment's consent. Fisher, in turn, sublet a
Mary Jo White, United States Attorney, portion of the building to several subtenants.
by Serene K. Nakano, Assistant United In 1996, the Government purported to ter-
States Attorney, New York City, for the minate Epstein's lease and brought this ac-
United States. tion to eject Epstein and Fisher from the
Wachtel & Masyr, LLP, by Steven J. Co- building. The Government later amended its
hen, New York City, for Jeffrey E. Epstein. complaint to assert a claim for ejectment
against the subtenants as well.' The Gov-
Gage & PayRs, by G. Robert Gage, Jr, ernment also sought to recover back rent
Ellen J. Casey, New York City, for Ivan S. from Epstein and Fisher.
Fisher, Diane Fisher, Fisher & Softer.
Epstein and Fisher oppose ejectment on
Ellyn Bank, New York City, pro se. numerous grounds, some of which were re-
Debra Elise Cohen, New York City, pro jected when I heard oral argument in this
se. case on December 17, 1997. Defendants'
sole remaining defenses are that (1) 0FM
D. Gerzog, New York City, pro orally consented to Epstein's proposed sublet
se. of the premises to Fisher, and (2) 0FM did
Robert Heilbrun, New York City, pro se. not properly terminate Epstein's lease be-
I. The additional defendants are Ellyn Bank. De- Ron Soifer, and Carmen Tausik (collectively, the
bra Elisa Cohen• Diane Fisher dAda The Fisher -Subtenants"). The Subtenants were added as
sher & Soifer a4/a Fisher & Sophir, defendants after the Government learned that
Ma D. Gerzog, Robert Heilbrun. Suzanne
McDermott, Christopher H. Martin. Jesse Siegel
Fisher had sublet to them without consent of
OFM.
wlr/a Jessie Siegel, Siegel• Martin & Heilbrun,
EFTA00187392
406 27 FEDERAL SUPPLEMENT, 2d SERIES
cause it breached an implied covenant of signment and Sublease Clause. Epstein was
good faith and fair dealing by unreasonably granted, however, a right of rust refusal to
withholding written consent to Epstein's re- renew the lease upon its expiration at the
quest to sublet to Fisher. end of January, 1997.
Because I fmd as a matter of law that (1) Epstein and his family continued to reside
the lease unambiguously required the prior at the Premises until January of 1996, at
written consent of OFM for Epstein to sublet which time Epstein abandoned. OFM did
or assign the premises, thereby rendering not discover that Epstein had abandoned the
any alleged oral consent invalid, and (2) OFM Premises, however, until several months la-
was entitled under the lease to unreasonably ter. In March of 1996, Epstein commenced
withhold its written consent to Epstein's re- negotiations with Xenophon Galinas for a
quest to sublet to Fisher, the Government's possible sublease or assignment of the Prem-
motion for partial summary judgment on its ises. The proposed arrangement between
claim for ejectment is granted as against all Epstein and Galinas included payment by
defendants. Galinas to Epstein of $100,000 for improve-
ments to the Premises made by Epstein dur-
BACKGROUND ing his tenancy. At the same time, Epstein
also commenced negotiations to sublet the
A. The Facts Premises to Fisher. Fisher informed Ep-
The premises at 34 East 69th Street in stein, however, that he would not enter into a
Manhattan (the "Premise?) were once the sublease unless it was approved by the State
residence of the former Deputy General Con- Department and Fisher could be assured
sul of Iran. When the United States severed that he could remain in the Premises beyond
diplomatic ties with Iran in 1980, the Deputy January 31, 1997. Epstein told Fisher that
General Consul vacated, but the Premises he had a right of first refusal under the lease
remained the property of Iran. The Govern- amendment, and that pursuant to this right,
ment, through the Secretary of State, was he would take all necessary steps to renew at
entrusted with the care and maintenance of the end of the lease term.
the Premises under the Foreign Missions Act In the meantime, Galinas contacted OFM
("FMA"), 22 U.S.C. § 4305(c), and the Vien- directly about a new lease for the Premises
na Convention on Consular Relations, Apr. beginning in February of 1997. Negotiations
24, 1963, art. 27(1)(a), 21 U.S.T. 77, 596 between Galinas and OFM culminated in a
U.N.T.S. 261, a multilateral treaty entered "letter agreement" dated April 12, 1996 by
into by the United States and Iran, among which Galinas agreed to rent the Premises
other nations. for a five-year term beginning February 1,
In 1992, OFM entered into a two-year 1997 for $16,000 per month, with yearly in-
lease with Epstein, to run from February 1, creases, up to $18,000 per month for the last
1992 through January 31, 1994. The agreed year of the lease term. This agreement was
rent was $15,000 per month. Pursuant to expressly made subject to Epstein exercising
the lease's Use Clause, only Epstein, his his right of first refusal and renewing his
family, servants, or approved subtenants or lease for personal use only. In other words,
assignees could occupy the premises, Under OFM told Galinas that it would not consent
the Assignment and Sublease Clause, Ep- to any request by Epstein for a sublet be-
stein was required to obtain prior written yond January 31, 1997, and that it would
consent of OFM to assign or sublet the permit Epstein to renew the lease beyond
Premises. The lease contained no clause that date only if he occupied the premises
prohibiting OFM from unreasonably with- personally.
holding its consent to a sublet or assignment. On April 16, 1996, Epstein notified OFM
On August 28, 1992, OFM and Epstein by letter that he intended to exercise his
extended the lease for three more years, to right of first refusal and renew the lease.
January 31, 1997. The lease amendment did Epstein contends that in a telephone confer-
not alter either the Use Clause or the As- ence between Richard Massey of OFM and
EFTA00187393
U.S. 1 EPSTEIN 407
Cites, 27 PSupp.2.41 41111 (S.D.N.Y. 1990
Jeffrey Schantz, Epstein's transaction coun- May 10, 1996, OFM again wrote to Epstein
sel, on April 19, 1996, OFM orally consented reiterating that the exercise of his right of
to Epstein's request to sublet the Premises first refusal was premature, and explaining
to Fisher. The same day, Epstein wrote that the prior arrangement with Gaines was
back, requesting "written confirmation" of not a binding contract, but rather merely an
OFM's alleged approval. By letter dated "expression of interest: Then, on May 16,
April 26, 1996, OFM formally responded to 1996, OFM officials visited the Premises and
Epstein's request, In this letter, Thomas E. discovered that Fisher, not Epstein, was in
Burns, a representative of OFM, informed possession.
Epstein of OFM's intention to lease the Throughout this period, Epstein continued
Premises to Galines beginning February 1, to pay, and OFM continued to accept, rent
1997 in the event that Epstein decided not to for the Premises, despite its knowledge that
renew the lease and occupy the premises Fisher was in possession. OFM accepted
personally, and denied Epstein's request to and deposited Epstein's May 1996 rent check
sublet the Premises to Fisher. OFM's stat- on May 28, 1996. On June 3, 1996, OFM
ed reasons for the denial were to (1) "mini- sent Epstein a notice of default, as required
mize any difficulties in turning over the by the lease, stating that he was in violation
house to the tenant we have selected should of (1) the Use Clause, because he was no
Mr. Epstein decide not to reoccupy the longer personally occupying the premises,
premises under the new lease," and (2) "mini- and (2) the Assignment and Sublease Clause,
mize the potential for damage to the premis- because he had sublet to Fisher without prior
es from a short-term tenant occupancy." written consent of OFM. Consistent with the
(Schantz Aft, Exh. D). OFM did, however, terms of the Lease, Epstein was given 30
grant Epstein permission to sublet the Prem- days to cure the default. On June 28, 1996,
ises to Calines for the remainder of 1996. OFM accepted Epstein's June rent check.
On May 3, 1996, Epstein again wrote to The cure period then expired on July 10,
OFM, formally exercising his right of first 1996. Epstein had not cured by this time,
refusal, believing such right to have been but rather than terminating the lease, OFM
triggered by the April 12, 1996 letter agree- served Epstein with a 10-day notice to cure
ment between OFM and Cannes. Thereaf and demanded the July rent. OFM then
ter, on May 7, 1996, Epstein and Fisher accepted Epstein's check for the July rent.
entered into a sublease agreement at a rental Finally, on August 7, 1996, OFM notified
price of $20,000 per month, despite OFM's Epstein that the amended lease would be
express denial of Epstein's request for per- terminated as of August 23, 1996 for failure
mission to sublet to Fisher. Fisher claims to to cure the defaults. OFM demanded that
have entered into the sublease agreement Epstein vacate the Premises and return the
based on Epstein's representations that the keys on o• before that date.
sublease was approved by the State Depart- Despite OFM's notice of termination, Ep-
ment and that Epstein had properly exer- stein tendered August rent on August 30,
cised his right of first refusal to renew the 1996. On September 18, 1996, OFM wrote to
lease. The original sublease was to com- Epstein stating that rent was being accepted
mence May 7, 1996 and terminate on January only through August 23, 1996, and refunded
31, 1997. In the event that Epstein's lease the balance to Epstein. On September 16,
with OFM was extended, and the new rent 1996, OFM wrote to Fisher advising that the
under that lease did not exceed $20,000 per lease agreement between OFM and Epstein
month, the sublease would be automatically had been terminated, that he was occupying
extended for an additional five-year period. the premises illegally, and demanded that the
On May 8, 1996, OFM wrote to Epstein Premises be vacated immediately. Fisher
informing him that his attempt to exercise met with an Assistant United States Attor-
his right of first refusal was premature be- ney on September 23, 1996, who informed
cause OFM had not yet made a formal offer Fisher that Richard Massey, the OFM repre-
to lease the Premises to someone else. On sentative with whom Epstein dealt, would
EFTA00187394
408 27 FEDERAL SUPPLEMENT, 2d SERIES
swear under oath that he never orally ap- I heard oral argument on the motions on
proved the sublet to Fisher. Fisher con- December 17, 1997. Collectively, Epstein
tends that he offered to continue paying rent and Fisher asserted four arguments in oppo-
directly to OFM rather than to Epstein, an sition to the Government's motion for sum-
offer to which the Government never re- mary judgmenta They contend that there
sponded. At that time, Fisher stopped pay- are genuine issues of material fact as to
ing rent to Epstein pursuant to the sublease. whether the Government properly terminat-
ed the lease entered into between OFM and
B. Prior Proceedings Epstein. Specifically, they argue, factual
questions exists as to (1) whether the Gov-
1. The Original Actions ernment waived Epstein's alleged default of
the lease by accepting rent after the Govern-
The Government commenced this action
ment became aware that Fisher was occupy-
against Epstein and Fisher in October of ing the premises; (2) whether the OFM-
1996. It seeks a declaration by the Court
Epstein lease permitted oral approval of an
that it is entitled to exclusive possession of
assignment or sublease (ie., whether the As-
the Premises and that it is entitled to have signment and Sublet Clause is ambiguous on
Epstein and Fisher ejected therefrom be-
the issue of whether an assignment or sublet
cause Epstein's lease was properly terminat-
could be approved orally); (3) whether OFM
ed as of August 23, 1996. In addition, the
in fact orally approved the sublease to Fish-
Government seeks dismissal of Fisher's first er; and (4) whether the Government breach-
and second counterclaims, which seek equita-
ed an obligation of good faith and fair dealing
ble relief against the Government.' Finally, inherent in its lease with Epstein by unrea-
the Government demands back rent from sonably withholding written approval of a
Epstein and/or Fisher. sublet to Fisher, assuming the Court holds as
In February of 1997, Epstein commenced a a matter of law that oral approval was, not
holdover proceeding in the Civil Court of the permitted by the lease.
City of New York against Fisher for nonpay- At the conclusion of the argument, I re-
ment of rent under the terms of the sublease. solved several of the issues pertaining to
Fisher removed the state court action to this these motions on the record. As an initial
Court. matter, I denied Epstein's motion to remand
The Government moved for partial sum- and granted Fisher's motion to consolidate.
mary judgment on its claim for ejectment of I then addressed the Government's motion
Epstein and Fisher. In addition, it sought for summary judgment and its application
an order requiring Epstein and Fisher to pay concerning the creation of an escrow fund.
into an escrow fund $15,000 per month from I granted summary judgment in favor of
August 23, 1996 to the date this action is the Government on Epstein's and Fisher's
finally decided. Epstein cross-moved against waiver argument, holding that "no reason-
Fisher to remand its holdover action to state able fact finder could conclude from [the)
court, and Fisher cross-moved against Ep- undisputed facts and the sequence of events,
stein for consolidation of the holdover action including the acceptance of rent after the
with the pending federal action. cure period but before the actual termination
2. In its first counterclaim, Fisher seeks a declara- still has an interest in the Court's decision as to
tion that the sublease is valid and that Fisher is whether OFM properly terminated its lease with
lawfully entitled to full possession and use of the Epstein. Moreover, Fisher's rights as subtenant
premises. In its second counterclaim, Fisher derive from Epstein's rights as overtenant. for if I
seeks a declaration that the sublease was auto- decide as a matter of law that the lease was
matically renewed for a five-year term. com- properly terminated on August 23, 1996. neither
mencing January 31, 1997, because Epstein Epstein nor Fisher has any right to occupy the
properly exercised his right of first refusal. Premises beyond that date. Thus, I will treat all
3. Technically. Epstein asserted only the first ar- four arguments in opposition to the Govern.
gument, and Fisher asserted all four arguments. ment's motion as though they were asserted by
Epstein is no longer occupying the Premises, but Epstein and Fisher jointly.
EFTA00187395
U.S. I EPSTEIN 409
CI144027 F.3059.241 404 (S.D.N.Y. 1991)
of the lease, that that could constitute a Group and Ron Softer, agreed to be bound
waiver in light of the very clear nonwaiver by any order I entered with respect to Fish-
clause in the lease." (Tr. at 39). I reserved er's right to occupy the Premises. On March
decision, however, on the following issues: 13, 1998, after the Government submitted its
(1) whether the lease unambiguously re- motion, Diane Fisher executed the stipula-
quired that OFM's consent to an assignment tion and order, also agreeing to be bound.
or sublet be in writing, in which case Massey To date, Soifer still has not executed the
could not have orally consented, as a matter stipulation. Hence, the Government's motion
of law, to Epstein's sublet of the Premises to for summary judgment against the Subten-
Fisher, (2) whether OFM was permitted un- ants is still pending with respect to Softer
der the lease to unreasonably withhold con- only.
sent to Epstein's consent to a sublet to Fish-
er, or whether it was bound by an implied DISCUSSION
obligation of good faith and fair dealing, and
(3) whether, assuming the latter, OFM in fact A. Standards for Summary Judgment
withheld its consent unreasonably. The standards applicable to motions for
Finally, I ordered Epstein to pay into an summary judgment are well-settled. A court
escrow fund eight days worth of the $15,000 may grant summary judgment only where
rent for the month of August 1996 and an there is no genuine issue of material fact and
additional $15,000 for September 1996 (be- the moving party is therefore entitled to
cause OFM had already accepted his tender judgment as a matter of law. See Fed.
of rent through August 23, 1996, and Epstein R.Civ.P. 56(c). Accordingly, the court's task
had collected rent from Fisher through Sep- is not to "weigh the evidence and determine
tember 30, 1996). Additionally, I ordered the truth of the matter but to determine
Fisher to pay into the fund $15,000 per whether thre is a genuine issue for trial."
month, beginning October 1, 1996 to date, Anderson I Liberty Lobby, Inc, 477 U.S.
and continuing for each month thereafter. 242, 249, 106 S.Ct. 2605, 91 L.Ed.2d 202
(1986). Summary judgment is inappropriate
2. The Government's Addition of the if, resolving all ambiguities and drawing all
Subtenants as Defendants inferences against the moving party,id. at
In the course of discovery on its claims for 255, 106 S.Ct. 2505 (citing Adickes I S.H.
relief against Epstein and Fisher, the Gov- Kress & Ca, 398 U.S. 144, 158-59, 90 S.Ct.
ernment learned that Fisher had further sub- 1598, 26 L.Ed.2d 142 (1970)), there exists a
let the Premises to the Subtenants, also with- dispute about a material fact "such that a
out the prior written consent of OFM. The reasonable jury could return a verdict for the
Government then sought leave to amend the nonmoving party." Anderson, 477 U.S. at
complaint pursuant to Federal Rule of Civil 248 106 S.Ct. 2606.
Procedure 15 to name the Subtenants as Once the moving party meets its initial
additional defendants in the action. I grant- burden of production, the burden shifts to
ed the Government's motion on the record at the nonmoving party to demonstrate that
the December 17, 1997 oral argument. The there exist genuine issues I material fact.
Government thereafter filed a second amend- Matsushita Elec. Indus. Ca Zenith Radio
ed complaint and served a copy on each of Corp., 476 U.S. 574, 585-86, 106 S.Ct. 1348,
the Subtenants. 89 L.Ed2d 638 (1986). To defeat a motion
In an effort to settle the case, I held a for summary judgment, however, the non-
conference on January 28, 1998. At the con- moving party "must do more than simply
clusion of that conference, the Government show that there is some metaphysical doubt
requested permission to file a motion seeking as to the material facts." Id. at 586, 106
partial summary judgment against the Sub- S.Ct. 1348. There is no issue for trial unless
tenants. By stipulation and order dated there exists sufficient evidence in the record
March 6, 1998, all of the named Subtenants, favoring the party opposing summary judg-
except for Diane Fisher &Wa The Fisher ment to support a jury verdict in that party's
EFTA00187396
410 27 FEDERAL SUPPLEMENT, 2d SERIES
favor. Anderson, 477 U.S. at 249, 106 S.Ct. ises to Fisher. The Assignment and Sublet
2506. As the Supreme Court stated in Clause expressly states that "Tenant may
Anderson, "If the evidence is merely color- sublet all or part of the Premises, or assign
able, or is not significantly probative, sum- this lease or permit any other person to use
mary judgment may be granted." Id at the Premises with the advance written per-
249-50, 106 S.CL 2506 (citations omitted). mission of Landlord" (Massey Decl., Exh.
With these standards in mind, I turn to the B at 4) (emphasis added). Epstein's and
Government's motions for partial summary Fisher's argument that the word "may" sug-
judgment. gests that OFM could approve a sublease or
assignment in writing or orally is tortured.
B. The Government's Motion for Partial Only one interpretation of this clause is tena-
Summary Judgment against Epstein ble: prior written consent of OFM was re-
and Fisher quired for a sublet. Epstein's and Fisher's
argument would render the language of the
1. Whether the Lease Permitted Oral
clause meaningless, and I am obliged to read
Consent to a Proposed Sublet or As-
the lease in a manner that gives full force
signment
and effect to all clauses contained therein.
Epstein and Fisher contend that summary See Lloyds Bank PIC Republic of Ecua-
judgment should be denied because there dor, No. 96 Civ. 1789 ( ), 1998 WL 118170,
exists a genuine issue of material fact as to at •8 (S.D.N.Y. Mar. 16, 1998). Accordingly,
whether OFM orally consented to Epstein's OFM could not have orally consented to Ep-
request to sublet the Premises to Fisher. stein's proposed sublet to Fisher, as a matter
The Government, on the other hand, argues of law, and, therefore, I need not reach the
that the lease unambiguously required that a question of whether OFM actually gave oral
sublet or assignment of the Premises be ap- consent.
proved in advance in writing, and that, there-
fore, even if OFM did orally consent, such 2. Whether the Lease Permitted OFM
consent was invalid as a matter of law. to Unreasonably Withhold Written
11-31 In contract disputes, the Court be- Consent to a Proposed Sublet
gins by examining the language of the con- The last issue to be decided on this motion
tract itself to determine the parties' intent. is whether OFM was entitled to refuse Ep-
Stroll I Epstein 818 F.Supp. 640, 643 stein's proposed sublet to Fisher arbitrarily,
(S.D.N.Y.), affd, 9 FM 1637 (2d Cir.1993). or whether it breached a duty of good faith
If the agreement sets forth the parties' in- and fair dealing implicit in the lease agree-
tent clearly and unambiguously, the Court ment by unreasonably refusing to grant such
need look no further. See Sterling Drug Inc. consent in writing. Resolution of this issue
Bayer AG, 792 F.Supp. 1357, 1366-66 turns on whether federal contract law or
(S.D.N.Y.1992), red in part, remanded in New York landlord-tenant law applies.
part, 14 F.3d 738 (2d Cir.1994). Whether the
[51 Generally, under New York law,
text of an agreement is ambiguous or unam-
where a lease requires a tenant to obtain the
biguous is a matter of law to be decided by
prior written consent of the landlord to sub-
the Court. Sterling Drug, 792 F.Supp. at
let or assign leased premises, a landlord may
1366. A contract is not deemed ambiguous
refuse consent arbitrarily, unless the lease
unless it is reasonably susceptible of more
contains a clause specifically stating that the
than one interpretation, and the Court makes
landlord may not unreasonably withhold such
this determination by reference to the con-
consent See Dress Shirt Sales, Inc., Hotel
tract alone. Banque Ambe et Internationale
Martinique Assocs., 12 N.Y2d 339, 239
D'Investissement I. Maryland Nat'l Bank,
N.Y.S.2d 660, 662, 190 N.E2d 10 (Ct.App.
67 F.3d 146, 162 (2d Cir.1995).
1963). The Assignment and Sublet Clause in
141 The lease clearly provides that Ep- the lease between OFM and Epstein re-
stein was required to obtain the advance quired Epstein to obtain prior written con-
written consent of OFM to sublet the Prem- sent of OFM to a proposed sublet, but it
EFTA00187397
U.S. EPSTEIN 411
ch.. 27 F.Suppld 404 (5.D.N.Y. 1991)
contained no provision prohibiting OFM from of landlord and tenant. Powers t United
unreasonably withholding such written con- Skates Postal Seru, 671 F.2d 1041, f042, 1046
sent. (7th Cir.1982); Reed United States Postal
The Government, relying on New York Sera., 660 F.Supp. 178, 181 (D.Mass-1987).
landlord-tenant law, asserts that it was enti- The question remains, therefore, what law
tled to withhold its consent to Epstein's pro- applies in the absence of a federal rule on
posed sublet to Fisher for any reason, or for point.
no reason at all. Epstein and Fisher, howev- As the Supreme Court has made clear, my
er, disagree. They contend that, because the power to create federal common law in the
Government is a party to the lease, interpre- absence of federal landlord-tenant law is lim-
tation of the lease is governed by principles ited. Several recent Supreme Court deci-
of federal common law, not New York State sions have reaffirmed the principle that the
law. Pursuant to federal common law of con- power of the federal courts to fashion princi-
tracts, Epstein and Fisher continue, the lease ples of federal common law is limited. See,
between OFM and Epstein contains an im- e.g., O'Melveny & Myers FDIC, 512 U.S.
plied covenant of good faith and fair dealing, 79, 87-88, 114 S.Ct. 20487 129 L.Ed.2d 67
citing Neal & Co. !t United States, 36 Fed. (1994) (noting that cases where the formula-
Cl. 600 (1996), re 121 F.3d 683 (Fed.Cir. tion of a "special federal rule" are "few and
1997). The requirement of good faith and restricted"); Kamen I Kemper Fin. Servs.,
fair dealing, they argue, prohibits OFM from Inc., 500 U.S. 90, sir, 111 S.Ct. 1711, 114
withholding consent unreasonably. OFM's L.Ed.2d 152 (1991) (noting that a federal
refusal to consent to Epstein's proposed sub- court "should endeavor to fdl the interstices
let of the Premises to Fisher, they contend, of federal remedial schemes with uniform
was motivated by its desire to enter into a federal rules only when the scheme in ques-
lease with Galinas at a higher rent beginning tion evidences a distinct need for nationwide
February 1, 1997. Such conduct was unrea- legal standards or when express provisions in
sonable, they argue, and, therefore, OFM analogous statutory schemes embody con-
breached the implied covenant of good faith gressional policy choices readily applicable to
and fair dealing in the lease. the matter at hand") (citations omitted).
(6,7) I conclude that New York landlord- While this recent Supreme Court authority
tenant law rather than general federal con- leaves room for federal courts to create prin-
tract principles should apply. As a threshold ciples of federal common law in certain nar-
matter, although I agree as a policy matter row circumstances, generally a "significant
that federal law should apply, there is no conflict between some federal policy or inter-
federal statutory or common law governing est and the use of state law" is required
landlord-tenant relations. Federal law before "judicial creation of a special federal
should apply because the United States is a rule (is) justified." O'Melveny, 512 U.S. at
party. I have jurisdiction over this action 87, 114 S.Ct. 2048. While few courts have
based on 28 U.S.C. § 1345 and the FMA 22 addressed the precise issue of whether leases
U.S.C. § 4301 et seq. The subject matter of to which the Government is a party are
this action is a landlord-tenant dispute, how- governed by general federal common law of
ever, and while application of federal law is contracts or state landlord-tenant law, there
appropriate in federal question cases where is some case law on point. The Second Cir-
applicable federal substantive law exists, cuit has not yet spoken definitively on this
there is no federal statutory or common law issue,4 but recently noted the existence of a
4. In United Stales! Bedford Associates, 657 Ii.2d to apply federal law in disputes between the
1300 (2d Cir.1981 , cert. denied, 456 U.S. 914. United States and its lessors?' Id. at 1309 n. 7.
102 S.Ct. 1767, 72 L.Ed.2d 173 (1982). the Sec. The court in Kerin I. United States Postal Sera.,
and Circuit upheld the district court's applies• 116 F.3d 988 (2d ir.1997), acknowledged the
tion of federal contract law to determine whether Bedford Associates decision, but implied that Bed.
the United States and a potential lessor of a ford Associates involved the issue of creation of a
commercial building had in fact made a contract, lease only, stating that there is "room for fair
stating that "tilhis court undoubtedly has power debate" as to whether federal or state law ap.
EFTA00187398
412 27 FEDERAL SUPPLEMENT, 2d SERIES
conflict between the Federal Circuit and the termined under state law, even when the
Seventh Circuit concerning "whether federal United States is a party." United States 1
common law or state law applies to the inter- O'Block, 788 F.2d 1423, 1435 (10th Cir.198M
pretation of Postal Service Leases?' Kerin (citing Oregon ex rel. State Land lid
United States Postal Sera, 116 F2d 988, Corvallis Sand & Gravel Co., 429 U.S. 363,
990 (2d Cir.1997). On the one hand, the 378-81, 97 S.Ct. 582, 60 L.Ed.2d 650 (1977)).7
Federal Circuit has held that federal law Second, application of state substantive
applies to resolve disputes between the Unit- law directly on point is eminently more logi-
ed States and its lessors or tenants. See. cal than application of general principles of
e.g., Forman I United States, 767 F.2d 875, federal contract law. While application of
879-80 (Fed. ir.1985); 6 Kelley United general federal contract law to Government
State* 19 CI.Ct. 155, 162 (1989). On the contracts may be appropriate in certain in-
other hand, the Seventh Circuit has held that stances, where, as here, the particular gov-
state substantive law governs in landlord- ernment contract is a lease for the use of
tenant disputes involving the Government. real property, the adoption of state common
See Powers United States Postal Sett, 671 law of landlord-tenant relations, a body of
F.2d 1041,1043-46 (7th Cir.1982).. law that has developed precisely to address
The Second Circuit in Kerin did not reach the rights and duties of individuals in the
the issue of whether federal common law or unique relationship of landlord and tenant,
state law applied because, in that case, feder- makes sense. Application of the state rule,
al law and state law led to the same result. which permits a landlord to refuse consent to
See Kerin, 116 F.3d at 991. I agree with the a sublet or assignment arbitrarily in the ab-
Seventh Circuit's conclusion, for two reasons. sence of a clause to the contrary, better
serves the interests of the Government as a
First, although Epstein and Fisher argue
landlord because it permits the Government
that a federal rule should be created to pro-
mote the creation of a uniform body of law in to have unfettered discretion in deciding who
occupies its property. Given the sensitive
landlord-tenant disputes involving the Gov-
political considerations that often come into
ernment, there is no "distinct need" for a
play when governmental property, such as
nationwide legal standard or a uniform na-
the property here in issue owned by Iran, is
tional rule. See Kamen, 500 U.S. at 98 Ill
S.Ct, 1711. Landlord-tenant law traditional- involved, the Government should have as
much discretion as possible.
ly has been a matter of state law. There is
no compelling reason to disrupt expectations Noting that federal landlord-tenant law
that tenants and landlords may have under does not exist, Judge Posner stated in Pow-
state law merely because they are entering
into a lease with the federal government. The Federal Courts could of course create
Courts have long held that, "[albsent control- that law, picking and choosing among ex-
ling federal legislation or rule of law, ques- isting state laws and proposed reforms in
tions involving real property rights are de- accordance with the recommendations of
plies to the interpretation of a lease to which the kited by the Government must pay the Govern-
Government is a party. Id. at 990-91. ment a reasonable rent for the period of his
occupancy); Reed. 660 F.Supp. at 181 (holding
5. While the Forman court stated that federal law that Massachusetts law governs the rights of the
governs in landlord-tenant disputes involving the parties under a Postal Service lease).
Government, it nevertheless relied on state law
cases in interpreting the particular provision of
the Postal Service lease at issue. See 767 P.M at 7. Indeed, the Supreme Court has articulated that
88041. the normal federal disposition where no substan-
tive federal provision Is relevant to the legal issue
6. Other courts, too, have applied state substan- at hand is for "federal courts [to) 'Incorporatk)
tive law as the rule of decision In landlord-tenant [state law] as the federal rule of decision.'"
disputes involving the Government. See, e.g., Kamen, 500 U.S. at 98, III S.Ct. 1711 (emphasis
Braxton'. United States, 858 F.2d 650. 655 (11th added) (quoting United States I. Kimbell Foods,
Cir.19881 (holding that Florida law applies to Inc., 440 U.S. 715, 728, 99- S.M. 1448, 59
determine whether one who occupies land for- L.Ed.2d 711 (1979)).
EFTA00187399
U.S. â– EPSTEIN 413
CIO: as 27 F.Survad 404 (S.D.N.Y. 1998)
eminent scholars and practitioners. It is like cases to landlord-tenant disputes. A
not to be expected that the federal courts construction contract does not implicate the
would do a very good job of devising a Government's rights, as a possessor of a
model code of landlord-tenant law, since valuable leasehold, to regulate the possession
they have very little experience in land- and use of real property under its control.
lord-tenant matters; and though eventual- Thus, as between general federal contract
ly some body of law would emerge it would principles and specific state landlord-tenant
not in all likelihood be a uniform body, law, the latter should be applied. Land is
because there are [thirteen] federal cir- unique. It is logical, therefore, that a land-
cuits and the Supreme Court could be lord should have virtually complete say in
expected to intervene only sporadically who occupies its property. See Mann The-
atres Corp. I Mid-Island Shopping Plaza
• • (Vie do not have to balance compet- Ca, 94 A.D.2d 466, 464 N.Y.S.2d 793, 798 (2d
ing federal and state interests in this case Dep't 1983) (noting that landlords have a
after all. The overriding federal interest "substantial interest in controlling the as-
here is in certainty of right and obligation signability of leases"), eV, 62 N.Y.2d 930,
flowing from conformity to known law; the 479 N.Y.S.2d 213, 468 N.E2cl 51 (CLApp.
state interest is in offering its landlords a 1984). It makes sense for the law to permit
like certainty. These interests converge in a landlord to unreasonably withhold consent
favor of adopting . .. state law rather than to a proposed sublet unless the parties spe-
federal common law. cifically bargain otherwise. See Alex M.
Powers, 671 F.2d at 1045-46. This reasoning Johnson, Jr., Correctly Interpreting Long-
is quite convincing, particularly in a case Term Leases Pursuant to Modern Contract
such as this, where the Government and Law: Toward a Theory of Relational Leases,
Epstein, in all likelihood, "entered [a) legal 74 Va. L.Rev. 751, 758 (1988) (discussing the
relationship with the expectation that their majority view that absent contractual agree-
rights and obligations would be governed by ment to the contrary landlords are permitted
state-law standards." Kamen, 600 U.S. at to unreasonably withhold consent to a sublet
98, 111 S.Ct. 1711. or assignment, and noting that the rule
Finally, Er Win's and Fisher's reliance on stems from the "paramount importance of
Neal & Ca United States, 36 Fed. Cl. 600 the lessor's ability to control the selection of
(1996), alrd 121 F