     Case: 12-11025            Document: 00512496503        Page: 1     Date Filed: 01/10/2014




               IN THE UNITED STATES COURT OF APPEALS
                        FOR THE FIFTH CIRCUIT
                                                                                  United States Court of Appeals
                                                                                           Fifth Circuit

                                                                                         FILED
                                           No. 12-11025                            January 10, 2014
                                                                                    Lyle W. Cayce
J. LEONARD SPODEK; ROSALIND SPODEK,                                                      Clerk


                                                      Plaintiffs – Appellants
v.

UNITED STATES POSTAL SERVICE,

                                                      Defendant – Appellee.


                        Appeal from the United States District Court
                             for the Northern District of Texas
                                  USDC No. 3:07-CV-1888


Before STEWART, Chief Judge, and DeMOSS and CLEMENT, Circuit Judges.
PER CURIAM:*
          This dispute arises from the lease of a building in Greenville, Texas. The
lessee, the United States Postal Service (“USPS”), 1 vacated the building in
2007 alleging that it was untenantable after asbestos was detected in dust
samples taken from various horizontal surfaces in the building. The lessors,
J. Leonard Spodek and Rosalind Spodek (the “Spodeks”), 2 sued the USPS for



         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
          *

be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
       The United States Postal Service is the successor in interest to the Post Office
          1

Department, the original lessee.

          2   The Spodeks are the successors in interest to the Penner-Ring Company, the original
lessor.
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                                       No. 12-11025
breaching the lease, and the USPS brought a breach of contract counterclaim.
The district court 3 found that the Spodeks “failed to prove by a preponderance
of the evidence that the USPS breached the lease.” Furthermore, the district
court found “[t]he USPS proved by a preponderance of the evidence that
Plaintiffs constructively evicted it from the leased property and defaulted on
the lease effective June 30, 2007.” For the reasons stated below, we vacate the
judgment of the district court and remand for reconsideration in light of this
opinion.
I.     BACKGROUND
       In the late 1960s the Post Office Department issued the “Advertisement
for Bids to Lease (Construction),” which called for bids for the construction and
lease of a postal facility in Greenville, Texas. As part of the bid, bidders were
required to provide an “Agreement to Lease,” a sample of which was provided
in the advertisement for bids. The sample “Agreement to Lease” stated in part:
       1. The undersigned hereby agree(s), upon acceptance of this
       agreement by the Government:
              (a) To lease for postal purposes the premises described below
              from the first day of the month following acceptance by the
              Government of the completed building and/or any
              contemplated improvements, additions, repairs or
              remodeling.
              ....
              (c) That all other terms and conditions of the basic lease term
              shall remain the same during the renewal option terms
              unless stated otherwise herein.
              ....




       3 With the consent of the parties, the case was transferred to the magistrate judge “to
conduct all further proceedings and the entry of judgment, in accordance with 28 U.S.C.
§ 636(c).” Because the magistrate judge was acting as a district judge, we will refer to the
magistrate court as “the district court.”

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                                  No. 12-11025
      2.(a) The property to be leased is located at: . . . A part of Block 184
      to the City of Greenville, Texas, . . . and which property will contain
      areas and spaces, improvements and appurtenances furnished and
      provided in accordance with Post Office Department Drawing(s)
      No(s). 10-68-152 dated 10/15/68 (Tentative Drawing for New
      Leased Postal Facility, Greenville, Texas) including Standard
      Details and Specifications, and POD Publication 39B dated Jan.
      1966 which said drawings are made a part of this agreement by
      reference thereto.
A host of stipulations by the parties was included in the district court’s pretrial
order, including the stipulation that “[p]rior to entry into the lease, based on a
bidding process with the plaintiffs’ predecessor in interest, the building was
built according to plans and specifications required by and approved by the
Postal Service, including the use of asbestos-containing materials.” The lease,
which was executed in 1970, is consistent with that stipulation. It states in
relevant part:
      It is expressly understood between the parties hereto that the
      terms and conditions of the Agreement to Lease executed by
      Penner-Ring Company and accepted by the Government on
      February 19, 1969, including any amendments or modifications
      thereto, are made part of this lease and are to be complied with as
      though fully set forth herein.
Additionally, Paragraphs 7 & 10 of the lease state in relevant part:
      7. The lessor shall, unless herein specified to the contrary,
      maintain the demised premises, including the building and any
      and all equipment, fixtures, and appurtenances, whether
      severable or non-severable, furnished by the lessor under this
      lease in good repair and tenantable condition, except in case of
      damage arising from the act or negligence of the Government’s
      agents or employees.
      ....
      10. (c) If any building or any part of it on the leased property
      becomes unfit for use for the purposes leased, the lessor shall put
      the same in a satisfactory condition, as determined by the Post
      Office Department, for the purposes leased. If the lessor does not
      do so with reasonable diligence, the Post Office Department in its
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                                  No. 12-11025
      discretion may cancel the lease. Unfitness for use does not include
      subsequent unsuitability arising from such matters as design, size
      or location of the building.
The parties further stipulated:
      2.2 The lease provided for a 20-year base term, beginning on
      July 1, 1970, and ending on June 30, 1990 . . . .
      2.3 The lease contained six five-year options, to be exercised by
      the Postal Service . . . .
      2.4 The Postal Service exercised the first four of the six five-year
      options, thus continuing their tenancy of the building through
      June 30, 2010.
      ....
      2.8 An inspection of the Greenville Post Office in June 1995
      confirmed that some of the building materials used in constructing
      the building were asbestos-containing materials (“ACM”).
      Specifically, the inspection confirmed the presence of asbestos in
      suspended acoustic ceiling tile, floor tile and mastic, baseboard
      mastic, pressboard flooring, and transit window panels . . . .
      ....
      2.12 In 2000, the United States Public Health Service performed
      an asbestos and lead inspection at the Greenville post office. It
      identified several asbestos-containing building materials,
      although it did not test the plaster covering the cinder block walls.
      The USPHS identified the asbestos fiber type contained in the
      ceiling tiles as amosite asbestos, and the remaining asbestos
      materials as containing chrysotile asbestos.
      ....
      2.31 In October 2006, the Postal Service relocated all of its
      operations from the Greenville post office to other sites within
      Greenville, Texas.
      ....
      2.35 On June 21, 2007, the contracting officer, Ms. Rybicki,
      terminated the lease, effective June 30, 2007, alleging that the
      leased space was unfit for occupancy, insofar as plaintiffs allegedly
      had failed to maintain the premises in good repair and tenantable
      condition, as required by paragraph 7 of the lease . . . .

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                                  No. 12-11025
                          Preliminary Matter
       Because the Spodeks initially appealed the USPS’s cancelation of the
lease administratively, we asked the parties to address whether “the
appellants knowingly and voluntarily elect[ed] to proceed under the Contract
Disputes Act.” The parties agree that the contracting officer misstated the
Spodeks’ appellate rights in the letter informing them of the lease termination.
Thus, we are satisfied that the Spodeks did not knowingly and voluntarily elect
to proceed under Contract Disputes Act. See Essex Electro Eng’rs, Inc. v.
United States, 702 F.2d 998, 1003-04 (Fed. Cir. 1983). Therefore, the Spodeks
were permitted to seek relief in federal district court.
II.    ANALYSIS
                             Standard of Review
       “The standard of review for a bench trial is well established: findings of
fact are reviewed for clear error and legal issues are reviewed de novo.” Preston
Exploration Co., L.P. v. GSF, L.L.C., 669 F.3d 518, 522 (5th Cir. 2012) (internal
quotation marks and citation omitted).
A.     Applicable Law and Burdens of Proof
       The Spodeks argue that federal common law applies, and although the
government did not brief this issue, the authority cited by the government
indicates that the government agrees that federal common law is applicable.
We will analyze this dispute regarding a government contract under federal
common law. See Forman v. United States, 767 F.2d 875, 879 (Fed. Cir. 1985).
       In Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir.
1987), the Federal Circuit stated: “[W]e conclude that the government should
bear the burden of proof with respect to the issue of whether termination for
default was justified, regardless of the forum and regardless of whose ‘claim’ is
being asserted. Thus, the burden of proof here was on the government on the
default issue.” Therefore, it is the government’s burden to demonstrate that
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                                  No. 12-11025
the Spodeks defaulted. “Once the government meets its burden, the burden
shifts to the contractor to demonstrate that its nonperformance was
excusable.” Lassiter v. United States, 60 Fed. Cl. 265, 268 (2004) (citing DCX,
Inc. v. Perry, 79 F.3d 132, 134 (Fed. Cir. 1996)).
      In addition to the general principles cited above, the lease itself contains
a provision that addresses liability if the building becomes untenantable.
Specifically, Paragraph 7 of the lease requires the lessors to maintain the
premises, “except in case of damage arising from the act or negligence of the
Government’s agents or employees.” The parties disagree about which party
bears the burden of proof under this provision. It is the Spodeks’ contention
that the government must prove not only that the building was untenantable,
but also that the government did not cause the damage which led to that
untenantable condition. The Spodeks fail to cite any authority in support of
their position. After reviewing cases addressing similar contractual language,
we find that if the lessee proves the building is untenantable, Paragraph 7 of
the lease places the burden on the lessor to demonstrate that the damage arose
from “the act or negligence of the Government’s agents or employees.” See
Russell & Assocs.-Fresno Ltd. v. United States, 1979 WL 16491, at *4, *16-17
& n.14 (Ct. Cl. Mar. 9, 1979); cf., Spodek v. United States, 73 Fed. Cl. 1, 10-12
(2006).
B.    The Asbestos Came From the Building
      Although the district court found that “[t]he source of the released
asbestos was never determined[,]” our review of the record convinces us that
the asbestos came from the building itself.
      Tracy K. Bramlett, was retained by the government to serve as an expert
in this case. The “Factual Description” portion of his March 9, 2009 report
stated in part:


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                            No. 12-11025
 Asbestos containing materials identified in the building consist of
 the following: 1. Non-friable floor planking; 2. Non-friable caulk; 3.
 Non-friable transite panels; 4. Non-friable floor tile and mastic; 5.
 Non-friable cove base mastic adhesive; 6. Non-friable texture over
 CMU block walls; and 7. Friable ceiling tiles.
 ....
 All of the surface samples collected within the USPS Greenville
 facility with the exception of five (5) have been determined to
 contain only Chrysotile asbestos. The other five (5) samples were
 determined to contain minor quantities of Amosite with Chrysotile
 asbestos being the dominate fiber in these samples.
 The asbestos survey of the facility indicates that the ceiling tiles
 which are friable contain Amosite asbestos. Chrysotile asbestos
 has been identified in the floor tile, floor tile mastic, caulk, cove
 base mastic and the texture on the CMU block walls in the
 structure. All of these materials are considered non-friable. Non-
 friable materials are difficult to get into the air unless they are
 abraded, sanded, cut, or ground. The only area in the facility that
 damaged non-friable materials were identified was on the north
 end of the processing area where there was exposed cove base
 mastic which had been disturbed at one time. In addition, damage
 was noted to the texture on the CMU block walls.
 It was also reported that there have been numerous fires in the
 surrounding area and that smoke from these fires entered the
 facility from the return air grills on the south side of the building.
 It is possible that the burning structures may have contained
 asbestos which became airborne and was transmitted into the
 building via the fresh air makeup system.
 From November 27, 1999 to September 25, 2006[,] an asbestos
 fiber release occurred in the Greenville Post Office. It is not
 possible to make a determination of the airborne asbestos levels at
 the time of the release. Air sampling was performed at [the]
 facility in June and October 2006 which did not detect any asbestos
 structures in the air within the facility. The Amosite asbestos
 detected in the wipe samples indicates a minor fiber release from
 the ceiling tiles. The Chrysotile asbestos on surfaces indicates that
 an unknown source either internal or external to the building has
 caused a fiber release.


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                                 No. 12-11025
      There are no industry standards regarding asbestos dust. The
      dust on the horizontal surfaces would not pose a health hazard to
      employees unless the material is disturbed and allowed to become
      airborne. However, the actions, taken by the USPS to evacuate
      the facility were appropriate and timely based on wipe sample
      results which indicate an unknown source of Chrysotile asbestos
      in the building on some horizontal surfaces. A fiber release did
      occur at the USPS Greenville facility. It is unlikely that USPS
      employees have been exposed to asbestos from other sources in the
      building unless materials were disturbed allowing asbestos fibers
      to be entrained in the air.
      Although the report stated that asbestos had been released from an
“unknown source either internal or external to the building,” the only potential
external sources of asbestos identified in the report were fires in the
surrounding area which caused smoke to enter the building. But at trial, Mr.
Bramlett indicated that there was actually a single fire. Specifically, Mr.
Bramlett was asked: “With respect to the possibility that [the asbestos] came
from the outside, other than having been told that there was a house fire in
the area, did you have any other data that you went by?”          Mr. Bramlett
responded: “No.” Mr. Bramlett’s answers to further questions demonstrated
that he was not aware of the specific details of that house fire. Furthermore,
our own review of the incident report from that house fire and the deposition
of the Fire Marshal addressing the same, revealed no evidence that asbestos
was released during the house fire or even that the house contained asbestos.
We agree with the Spodeks that Mr. Bramlett’s suggestion that the asbestos
may have come from outside the building was speculative and not supported
by the evidence. Additionally, the government has not directed us to evidence
in the record that there was another plausible source of asbestos which was
external to the building. Therefore, we find that the asbestos came from the
building itself.



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                                  No. 12-11025
C.    The Significance of the Building Plans and Specifications
      Turning to the asbestos in the building, the district court correctly
determined that the issue of whether the building plans and specifications
were relevant to the relationship of the parties was a “Threshold Issue” in its
analysis. In addressing this issue, the district court relied on United Post
Offices Corp. v. United States, 79 Ct. Cl. 173 (1934) (“UPOC”).
      In UPOC, the United States Court of Claims considered whether the
government or the lessor was responsible for updating the lighting under a
lease which required the lessor to provide “satisfactory . . . lighting fixtures.”
Id. at 177. The lessor argued that because the building was constructed with
the lighting required by the government’s plans and specifications, it was not
required to update the lighting after the government rearranged the furniture
and additional lighting was needed. Id. The UPOC court found:
      Under existing law the undertaking exacted two contracts, the
      first to be faithfully executed prior to the execution of the second,
      and it is under the second that this cause of action arises. The
      defendant’s obligation under the first was to enter into a lease of
      the building after its satisfactory completion. The first proposal
      did not fix the terms of the lease to be thereafter agreed upon.
      The plaintiff upon the record may not relieve itself of its assumed
      obligations under a ten-year lease by a contention that the plans
      and specifications for a building to be leased determine the
      relationship of landlord and tenant under the separate lease. The
      mere fact that the plans and specifications dealt expressly with the
      same subject matter in some respects is not determinable of the
      issue.    In the first instance the lighting system was a
      constructional detail. In the second place, it was a matter of
      meeting satisfactorily the necessities of the tenant with respect to
      lighting during the tenancy.
Id. at 178-79 (emphasis in original). Therefore, even though the building had
been built to the government’s specifications, the court found that the lessor
was responsible for updating the lighting under the lease. Id. at 179-80.


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                                  No. 12-11025
      Relying on UPOC, the district court below found, “[a]s a matter of law,
the duties of the parties in this case are governed by the terms of the lease, not
by the plans and specifications for the building.” This was a critical juncture
in the district court’s analysis because this determination necessarily caused
it to disregard the parties stipulation that “the building was built according to
plans and specifications required by and approved by the Postal Service,
including the use of asbestos-containing materials” and the related
stipulations and evidence regarding the plans and specifications.
      The Spodeks argue that the district court should have instead applied
Poorvu v. United States, 190 Ct. Cl. 640, 644-47 (1970), in which the United
States Court of Claims addressed who was responsible when a building which
was being leased by the government began to settle as a result of insufficient
foundation pilings under the maneuvering area. The Court of Claims found
that “[t]he documents which constitute the obligations undertaken by [the
lessors’ predecessors in interest] and the government are the government’s
advertisement for bids, the agreement to lease submitted by [the lessors’
predecessors in interest] and accepted by the government and the lease.” Id.
at 653. The Poorvu court distinguished UPOC stating:
      It is therefore evident that unlike the obligations undertaken by
      the plaintiff in [UPOC], the contract between [the lessors’
      predecessors in interest] and the government was of a dual
      nature—to build a post office facility in accordance with the
      government’s plans and to lease it. This was not a case of two
      contracts—one to build and one to lease. Such an interpretation is
      not consonant with the explicit references in the lease, to the plans
      on file with the Post Office Department.
Id. at 654. Based on United States v. Spearin, 248 U.S. 132 (1918), and its
progeny, the Poorvu court found that by providing plans and specifications the
government had created an implied warranty that a building “constructed in



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                                        No. 12-11025
accordance with [those plans and specifications] . . . would be fit for its intended
purpose.” 190 Ct. Cl. at 647-652. As the court explained:
      I can see no reason why a warranty which would arise if the
      government were the owner should not arise in this situation when
      it is the designerlessee. This conclusion becomes more obvious
      when it is realized that the government could not avoid a lease on
      a building which was built for it, in accordance with plans supplied
      by it, on the ground that the building was not sufficient for its
      needs. In the present situation, as in the situation where it is to
      be the owner of the facility, the government must answer for
      damage incurred because of inadequate plans it has furnished.
      Nor does the fact that in this case the proof of the deficiency in the
      plans did not manifest itself until after the building was standing
      for a number of years . . . remove it from the purview of the
      principles enunciated above. It would make little sense to impose
      the obligation of an implied warranty and then limit the life of the
      warranty to the period of construction. It is an implied warranty
      that the plans, if followed, will result in a properly constructed
      building; not merely a warranty that the contractor will be able to
      build a building within a given time period for a certain price.
Id. at 651 (emphasis added). The Poorvu court also rejected the contention
that the lessor’s obligation to “keep the demised premises . . . in good repair
and tenantable condition . . . except in case of damage arising from the act or
the negligence of the Government’s agents or employees,” 4 id. at 652, cut off
the government’s liability:
      The essence of this argument is that even if there is an implied
      warranty that the plans and specifications will be sufficient, when
      that warranty is weighed against the covenant to repair, the latter
      must reign supreme. This cannot be accepted. This court has often
      held that it will not give literal effect to broad exculpatory clauses
      (assuming for the moment that paragraph 7 is such a clause) if the
      result is to negate another provision of that contract. . . . Therefore,
      this paragraph 7 must be read to require the lessor to sustain the
      burden of repairing the premises if those repairs are not



      4   This language is nearly identical to the language of the lease in the present case.
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                                 No. 12-11025
       necessitated by damage caused by insufficient plans and
       specifications.
       Moreover, it may be further argued that paragraph 7 imposes no
       duty to repair upon the lessor in this case because of the proviso
       that he is not responsible for repairs ‘arising from the act or the
       negligence of the Government’s agents or employees.’ Since the
       decision to delete the pilings under the parking and maneuvering
       area is directly traceable to the [government], it may be concluded
       that this proviso negates any duty on the lessor to repair in this
       instance.
Id. at 652-53 (internal citations omitted). The Poorvu court then determined
that the government was responsible for the settling of the building. Id. at
667.
       In the present case, the building was built pursuant to the
“Advertisement for Bids to Lease (Construction),” the Agreement to Lease
which was accepted by the government (“Executed Agreement to Lease”), and
the lease. Although our review of the record did not reveal the Executed
Agreement to Lease, the sample Agreement to Lease in the “Advertisement for
Bids to Lease (Construction)” specifically incorporated the construction
specifications; the parties stipulated that the plans and specifications required
“the use of asbestos-containing materials”; Paragraph 19 of the executed lease
specifically incorporated the Executed Agreement to Lease; and the parties
have not identified any evidence in the record to suggest that the Executed
Agreement to Lease did not reference the construction specifications.
Therefore, we find that the Executed Agreement to Lease incorporated the
government’s construction specifications.
       Thus, similar to the situation in Poorvu, in the present case there was a
single agreement because the lease incorporated the Executed Agreement to
Lease which in turn incorporated the plans and specifications. Accordingly,
the district court below erred in finding that there were two separate
agreements. This error was significant because it caused the district court to
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                                       No. 12-11025
disregard the government’s construction plans and specifications and the
related stipulations and evidence regarding the asbestos containing materials
which were required by those plans and specifications. In short, the district
court’s finding that the plans and specifications were not relevant was central
to its conclusions regarding liability. Therefore, we vacate the judgment of the
district court and remand for reconsideration consistent with this opinion.
         On remand the threshold issue for the district court to consider is the
existence and scope of an implied warranty as set forth in Poorvu. 5
Importantly, the existence of an implied warranty does not necessarily mean
that the government is strictly liable for all of the consequences of the asbestos
in the building. For example, if the evidence demonstrates that the Spodeks
breached their maintenance responsibility under the lease and that such
breach contributed to the release of asbestos which was required by building
plans and specifications, the district court may find it appropriate to apportion
the damages “in accordance with the liability of each party.” Spodek v. United
States, 73 Fed. Cl. at 26. Because the existence and scope of an implied
warranty is a threshold matter, we decline to reach the remaining issues which
were briefed by the parties.
III.     CONCLUSION
         The district court erred in finding that the construction plans and
specifications were a part of a separate agreement than the lease and
irrelevant as a matter of law. Because the plans and specifications were part




         5The district court’s opinion contained the following statement: “Plaintiffs failed to
prove that asbestos-containing materials were a known contaminant when the plans and
specifications for the bidding were acquired and approved by the Department.” We are
unaware of any authority which supports the view that the government’s knowledge of a
defect is an element of an implied warranty.

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                                 No. 12-11025
of the same agreement as the lease, we vacate the judgment of the district court
in its entirety and remand for reconsideration in light of this opinion.
      VACATED and REMANDED.




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