Port Gibson, Mississippi, Whitman "Grady" Mayo Scholarship Foundation, Inc. v. United States

Citations: 922 F. Supp. 1162; 1996 U.S. Dist. LEXIS 8183Docket: Civil Action No. 5:94-CV-137

Court: District Court, S.D. Mississippi; March 6, 1996; Federal District Court

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A lease contest has been initiated by the Port Gibson, Mississippi, Whitman “Grady” Mayo Scholarship Foundation, Inc. (the “Foundation”) seeking a declaratory judgment to validate its lease. The United States of America, as the Defendant, has responded with a counterclaim for lease cancellation, eviction, and damages. The Foundation is a non-profit organization established to support the homeless in a 12-county area of Southwest Mississippi and is incorporated under Mississippi law. The federal government owns a surplus property in Port Gibson, which may be leased under Title V of the Stewart B. McKinney Homeless Assistance Act (42 U.S.C. 11411), allowing certain federal properties to be made available to non-profit entities for homeless assistance.

On March 31, 1989, the Foundation applied to lease a two-story federal building and post office located on approximately 0.75 acres. The application included commitments for insurance and maintenance according to GSA regulations. A lease agreement was executed on February 1, 1990, with a primary term of ten years, renewable for an additional ten years. Key obligations of the Lessee include: continuous use of the property for public health purposes only; annual operational reporting; maintenance and repair of the property at its expense, preserving its condition; and maintaining specified insurance coverage. Breaches of these obligations grant the Lessee the right to terminate the lease and re-enter the premises.

Evan Doss, Jr., the Tax Assessor of Claiborne County and President of the Whitman “Grady” Mayo Scholarship Foundation, Inc., testified for the Plaintiff. The Defendant's witnesses included Jim Denson, Eula M. Samuel, and Brian J. Rooney, all affiliated with the Department of Health and Human Services. Prior to August 24, 1994, the Counter/Plaintiff communicated with Doss to address alleged lease violations by the Lessee, including failure to maintain the premises and pay utilities. However, the lease does not require the Lessee to share utility costs, and claims of promises regarding utility sharing lack documentation beyond testimony. On August 24, 1994, Kathleen Fumey Martin notified the Lessee of lease termination due to breaches, effective 30 days post-receipt. A follow-up on September 29 confirmed the cancellation date as September 30, 1994. The Foundation filed a complaint on October 6, 1994, in the Circuit Court of Claiborne County, seeking a declaration that it fulfilled its lease obligations. The case was later removed to federal court, where the Defendant counterclaimed, asserting that the Plaintiff violated the lease terms, leading to its effective cancellation and seeking eviction and damages for property restoration.

The Court will address two main issues: whether the Lessee maintained the premises adequately and complied with the insurance requirements. The Plaintiff acknowledged lapses in insurance coverage, conceding that while there may have been coverage at the time of termination, there was no fire or liability insurance on the trial date. The lease stipulates that obligations, including insurance, remain in effect until the Lessor takes possession after a 30-day notice of termination.

The Plaintiff filed a suit for declaratory relief while the Lessee continued to occupy the premises, leading the Court to determine that the Plaintiff had an absolute obligation to maintain insurance coverage, which it failed to do. Consequently, the Court ruled that the lease contract was breached, allowing the Counter/Plaintiff to terminate the lease. The Court noted significant deterioration of the property exceeding normal wear and tear, supported by evidence including a May 1990 video demonstrating this decline. Testimony from the Defendant’s witness was inconclusive regarding the building's condition at the lease's start. The Court concluded that since the lease began on February 1, 1990, the property suffered neglect, resulting in lease violations, particularly concerning a leaking roof and faulty air conditioning. Repairs costing $14,750 and $17,595 were made post-suit, funded by a grant from the State of Mississippi, which could have benefitted homeless individuals elsewhere. Despite these repairs being satisfactory to GSA, the Court emphasized that improvements after lease termination cannot reinstate the contract, which was effectively terminated via a letter dated August 24, 1994. Testimony revealed numerous requests from HHS for compliance with lease terms, which Mr. Doss often ignored, including obligations related to insurance and maintenance.

The Court acknowledges the challenges of maintaining property in a homeless environment, where issues such as vandalism and neglect are expected. Despite this, evidence shows a significant and ongoing neglect of the premises, evidenced by various deteriorations since 1990, including: non-functional exit lights, exposed electrical outlets, dysfunctional fire extinguishers, missing floor and ceiling tiles, damaged plaster posing health risks, dirt buildup in the ventilation system, unsanitary bathroom facilities, inoperable smoke detectors, and rust discoloration on the building's exterior. Although some cosmetic improvements have been made since the lawsuit was filed, including air conditioning and roof repairs, the Court finds these efforts to be of poor quality. The overall condition of the building is deemed to have deteriorated beyond ordinary wear and tear, rendering it unhealthy and unsafe. As a result, the Court concludes that the lease cancellation by the Defendant was justified due to the Lessee's failure to adhere to the contractual terms and their lack of cooperation. Extensive efforts by the Lessor to ensure lease compliance, including inspections and communications, were documented, yet the Lessee remained unresponsive, even hindering inspections at times. The Court also notes the presence of campaign materials for a political candidate during an inspection, which was presented as part of a children's activity by the Lessee.

Two key issues regarding alleged lease violations are examined, which do not individually invalidate the lease contract. The lease is silent on utility payments, with evidence suggesting their omission was an error. It is deemed unlikely that the U.S. government would agree to a ten-year lease without rent or utility payment obligations. Testimony indicates that complexities arose due to the U.S. Postal Service’s continued use of part of the building, making separate utility metering costly. Although there were demands for utility cost proration from the Counter/Plaintiff to Mr. Doss, these were not fulfilled.

Additionally, Mr. Doss installed radio equipment and operated a for-profit radio station without prior approval, despite demands for its removal. Although this constituted a lease violation, the Lessor later allowed the radio station to remain, effectively waiving the breach. Concerns arise over whether the U.S. government inadvertently paid for utilities related to this private business, as the evidence does not clarify who bore these costs. The government is criticized for providing free utilities to a private enterprise within a homeless shelter, raising questions of accountability.

Ultimately, the Court finds that the Plaintiff breached the lease by failing to maintain the property as required. Consequently, the Defendant was justified in terminating the lease, officially communicating this decision on August 24, 1994, with an effective termination date of September 30, 1994.

The Court determined that the Plaintiff breached the lease agreement by failing to maintain insurance on the premises. While there is no federal contract law statute, Supreme Court precedents indicate that public policy is a relevant consideration in deciding whether to enforce lease termination provisions. The Restatement of Contracts allows courts to derive a public policy against enforcing a contract from relevant legislation or the need to protect public welfare. Courts typically prioritize the enforcement of contracts, only refusing to do so when a contract clearly contravenes explicit and well-defined public policy derived from legal statutes and precedents. The Court found no public policy that would prevent the enforcement of the lease's termination provisions, thus mandating their enforcement. Consequently, the Defendant, Counter/Plaintiff is instructed to prepare and submit a judgment within ten days that cancels the lease, orders the Plaintiff's immediate eviction, and awards costs to the Defendant, Counter/Plaintiff. Although the Defendant has sought unspecified damages, these will not be included in the judgment but may be addressed later upon proper pleadings.