_________________________________________________ RESPONDENT'S MOTION TO DISMISS DENIED: August 8, 1995 _________________________________________________ GSBCA 13125 ADELAIDE BLOMFIELD MANAGEMENT COMPANY, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Darryl L. Thompson, Anchorage, AK, counsel for Appellant. Nora A. Huey, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), BORWICK, and NEILL BORWICK, Board Judge. This appeal involves a claim for alleged Government breach of a restoration clause of a lease. Respondent, General Services Administration (GSA), has filed a motion to dismiss for lack of jurisdiction; GSA maintains that appellant--Adelaide Blomfield Management Company (ABMC)--is not in privity of contract with the Government because Ms. Adelaide Blomfield, not ABMC, entered into the lease with the Government. GSA also maintains that ABMC lacks privity because Prudential Insurance Company of America (Prudential), the beneficiary of a deed of trust, foreclosed on the building, and that Prudential is therefore the real party in interest. GSA also maintains that before the end of the lease term, ABMC transferred the property to the Blomfield & Blomfield (B&B) partnership, an invalid assignment which annuls the contract and ABMC's claim. Respondent's motion is supported by affidavits, as is ABMC's opposition. Therefore, we treat the motions as motions for summary relief. Irvin Technologies Inc. v. Department of the Army, GSBCA 11988-P, 93-1 BCA 25,539, 1992 BPD 271. We deny respondent's motion. There was a change in the name of the lessor, but the change in name did not change the identity of the sole proprietorship and does not deprive ABMC of privity of contract. We also conclude that the foreclosure did not deprive ABMC of privity. Prudential's foreclosure and purchase of the property took place after the alleged breach of the restoration covenant. Therefore, the claim stays with the holder of the leasehold interest at the time of the alleged breach. As for the transfer of the property to B&B partnership, we conclude that the transfer of the property did not transfer the lease to B&B. Such a transfer of the lease would have violated the Anti-Assignment Act, 41 U.S.C. 15 (1988), because the transfer was without notice to the Government, and the Government did not ratify the purported transfer. The effect of the invalid assignment is to void any transfer of the lease to B&B, and leave the claim under the lease with ABMC. We conclude that the circumstances of the transfer to B&B do not require invocation of the annulment provision of the Anti-Assignment Act, so as to void ABMC's claim, as there is no showing that the assignment was intended to deceive the Government or subject the Government to multiple liability on this claim. Findings of Fact The following facts are not in dispute. 1. On March 27, 1978, Charles A. Blomfield and Adelaide Blomfield entered into a deed of trust for Lot 7A, Block 107 in Anchorage, Alaska, with Lawyer's Title Insurance Agency as trustee and Prudential as the beneficiary, securing a note issued by Prudential to Charles A. Blomfield and Adelaide Blomfield. Respondent's Motion to Dismiss, Exhibits 2, 8. On September 14, 1978, Charles A. Blomfield issued a statutory quitclaim deed for Lot 7A, Block 107, together with all appurtenances, to the Blomfield partnership. Id., Exhibit 3. On March 1, 1984, the Blomfield partnership issued a statutory warranty deed for Lot 7A, Block 107, to Adelaide Blomfield. Id., Exhibit 5. 2. On February 15, 1985, Adelaide Blomfield entered into a lease with GSA for premises located at Lot 7A, Block 107. Appeal File Exhibit 1. The lease term was from May 1, 1985 through April 30, 1990, with one five year option period. Id. The Government renewed the lease, thus extending the lease term through April 30, 1995. Id. From the beginning of the lease until May 1, 1989, rent checks were made payable to Adelaide Blomfield in care of John Blomfield Properties. Id. at 56-61. From that date until June 1992, rent checks were payable to Adelaide Blomfield in care of John Blomfield. Id. at 61-64. From June 1992 until termination of the lease, rent checks were made payable to Adelaide Blomfield in care of Landmark Realty Advisors. Id. at 64-65. 3. Effective April 10, 1985, GSA and ABMC entered into supplemental lease agreement (SLA) one in which ABMC agreed to install computer electrical outlets, power conditioner connections and emergency power off switches on the premises for $22,476. Appeal File, Exhibit 2. In SLA two, ABMC agreed to provide a fence, paging equipment, a door to the outside of the building, an outside vent for the photocopying room, a steel door and a variety of deadbolts for $15,417.80. Id., Exhibit 3. SLAs one and two contain the contractual basis for the restoration claim: a briefly stated provision which reads below the alteration lists for each SLA: "Building to be brought back to original condition at end of lease." Id., Exhibits 2, 3. 4. In accepting the lease payments, Adelaide Blomfield has acted as a sole proprietor throughout the entire period of the lease, doing business until 1986 as "A. Blomfield Properties" and conducting business from 1986 to the present as "Adelaide Blomfield Management Company." Affidavit of John Blomfield 3, 6 (June 22, 1995) (Blomfield Affidavit) and Appellant's Opposition to Respondent's Motion to Dismiss, Exhibits A-D. 5. On January 22, 1993, Adelaide Blomfield issued a quitclaim deed for Lot 7A, Block 107 to Blomfield and Blomfield (B&B), a partnership consisting of Adelaide Blomfield, her son John Blomfield and another son, James Vincent Blomfield. Respondent's Motion to Dismiss, Exhibit 6; Blomfield Affidavit 11, 12. There never has been an intent to prosecute an appeal both on behalf of Adelaide Blomfield and B&B, and B&B disclaims any intent to seek recovery if the Board determines that Adelaide Blomfield is the proper party to the appeal. Blomfield Affidavit 19, 20. 6. The GSA Senior Leasing Manager states that on February 15, 1985, GSA entered into a lease with Adelaide Blomfield, that Adelaide Blomfield represented herself as a sole proprietor, that GSA did not enter into a novation or lease assumption with Adelaide Blomfield doing business as Adelaide Blomfield Management Company or B&B, and that the lease file "does not contain any novations or lease assumptions." Respondent's Motion to Dismiss, Exhibit 1 (Affidavit of Ulysses Cubit, GSA Senior Leasing Manager (Cubit Affidavit) (May 17, 1995)). 7. On June 18, 1993, GSA advised ABMC that it would quit the premises at the close of business on September 17, 1993. Adelaide Blomfield Management Co. v. General Services Administration, GSBCA 12851, 95-1 BCA 27,514, at 137,133, Finding 8. 8. On September 9, 1993, the B&B partnership entered into a security and impound agreement with Prudential. Respondent's Motion to Dismiss, Exhibit 7. Under the agreement, B&B agreed to deposit with a bailee for the benefit of Prudential, any and all rents or revenues arising from the property, Lot 7A, Block 107, including rental payments due from GSA. Id. 2. Prudential agreed that B&B retained any and all claims arising out of or in connection with the relocation of the Forest Service offices from the property and that such claims shall remain the sole and exclusive property of B&B following any action or proceeding concerning the property. Id. 8. 9. On September 17, 1993, GSA vacated the leased premises. Complaint VIII; Answer VIII (admitting allegation). On October 6, 1993, by a notice of default and sale, the loan secured by the property was declared in default and a sale of the property announced, to take place on January 7, 1994. Respondent's Motion to Dismiss, Exhibit 8. On July 8, 1994, the default not having been cured, a trustee sold the property at a foreclosure sale to Prudential. Id., Exhibit 9. Discussion ABMC claims damages for respondent's breach of a restoration clause under the lease. Respondent argues that as an appellant under the Contract Disputes Act (CDA), 41 U.S.C. 601-613 (1988), ABMC must demonstrate privity of contract with the Government. Respondent argues that ABMC is not in privity because GSA entered into the lease with Adelaide Blomfield, not ABMC. Respondent's Motion to Dismiss at 10. Even if ABMC at one time had privity to maintain the appeal, respondent argues that it is not now in privity because of Prudential's foreclosure on the building. Respondent argues that the benefit ABMC seeks to enforce is an alleged contractual right to restore the building to its original condition; respondent maintains that right runs with the land. Respondent argues that as all interests have been transferred by operation of law to Prudential, it is Prudential, not ABMC, who is the real party in interest to pursue that claim. Respondent's Motion to Dismiss at 11. We disagree with respondent that ABMC is not in privity of contract with the Government. "Adelaide Blomfield Management Company" is simply the current name for the sole proprietorship of Adelaide Blomfield, who at one time conducted business as A. Blomfield Properties. Finding 4. Such a change of name does not affect appellant's privity; the Government signed a lease with the sole proprietorship of Adelaide Blomfield; Adelaide Blomfield Management Company is the sole proprietorship by another name. Healy Tibbits Builders Inc., ASBCA 45269, 94-1 BCA 26,409, at 131,370-71 n.1. The foreclosure did not deprive ABMC here of interested party status. We have held that a claim for rent accruing before foreclosure belongs to the landlord, not the landlord's lender, unless the cause of action for the rent has been expressly transferred by the landlord. Universal Development Corp. v. General Services Administration, GSBCA 12138(11520)-REIN, et al., 93-2 BCA 25,653, at 127,650. Respondent maintains that this case is different from Universal Development because a claim for restoration runs with the land, touches and concerns the land, and benefits the land, which is now the concern of Prudential, not appellant. Only Prudential is in a position to restore the building, respondent maintains. Respondent's Motion to Dismiss at 13. Respondent takes too narrow a view of the economic purposes underlying the covenant. Cases involving an analogous clause-- covenants by tenants to surrender a building in the same condition as when leased1--recognize that the consequences of the breach adversely affect the landlord by ignoring the lower rent the landlord may have charged as a result of the covenant or by reducing the marketability of the property. Matoba v. Blackhawk Enterprises, 701 P.2d 604, 606-07 (Colo. Ct. App. 1984); Farrell Lines, Inc. v. New York, 281 N.E.2d 162, 166 (N.Y. 1972).2 Thus, a landlord can recover from the tenant for a breach of the covenant of surrender when a foreclosure has occurred after the breach of the covenant, Matoba, 701 P.2d 605, and even when the leased premises will subsequently be demolished by the landlord. Farrell Lines, Inc., 281 N.E.2d at 166. Covenants of surrender are considered to run with the land only if the breach of the covenant occurs after the transfer. Cote v. Bayless Markets, 626 P.2d 602, 608 (Ariz. Ct. App. 1981). Here, the alleged breach of the covenant occurred on September 17, 1993, when GSA vacated the property without making restoration. Prudential did not buy the property until July 8, 1994, when a trustee sold the property to Prudential at a foreclosure sale. Finding 9. As the breach took place before foreclosure, and no ____________________ 1 We see little difference between a covenant to surrender a building in its condition before the lease and a covenant to restore a building to its condition before the lease. The obligation involved in both covenants--to return the building to its pre-lease condition--is the same. Such covenants are breached only when the term is at an end. Covenants to keep in continual repair can be breached during the term. Middendorf v. _____________ Fuqua Industries, 623 F.2d 13, 18 (6th Cir. 1980). ________________ 2 The measure of damages for a breach of a covenant of restoration is the cost of the restoration, or the diminution in the marketability of the property caused by the lessee's non- performance, whichever is less. If the fair market value of the property is greater in its unrestored condition than it would be if restored in accordance with the covenants of the lease contract, the landlord has suffered no damage. Dodge Street ____________ Building Corp. v. United States, 341 F.2d 641, 644 (Ct. Cl. _________________________________ 1965). The emphasis on the market value of the building as the constraining factor in measuring of damages merely illustrates that the purpose of awarding damages for breach of the covenant is to make the landlord whole, not to improve the building. attempted sale of the property expressly purports to transfer the right of restoration, any claim for damages from the alleged breach should rightly be considered as retained by the original lessor. The right to restoration cannot be considered to have passed to any subsequent purchaser. A complicating factor is appellant's quitclaim deed to the B&B partnership in January of 1993 without notice to the Government. Findings 5, 6.3 In general, a transfer of property to a third party transfers the lease and all rights under the lease to the transferee, including rights under a surrender clause. Premock v. Jew, 680 P.2d 1347, 1348 (Colo. Ct. App. 1984). When the Government is involved in a contract, the Anti- Assignment Act, which limits rights of transfer, applies. The Anti-Assignment Act provides in pertinent part: No contract or order, or any interest therein, shall be transferred by the party to whom such contract or order is given to any other party, and any such transfer shall cause the annulment of the contract or order transferred, so far as the United States are concerned. All rights of action, however, for any breach of such contract by the contracting parties, are reserved to the United States. 41 U.S.C. 15 (1988).4 The first sentence of the above-quoted provision has two consequences: it prohibits transfers of ____________________ 3 In a reply to appellant's opposition to respondent's motion, GSA argues that the property was encumbered with assignments before B&B obtained the property, thereby limiting B&B's, and presumably appellant's, rights. GSA proffers an assignment to Prudential dated March 27, 1978, of the Blomfields' lease of the building to the State of Alaska "and all other leases upon or affecting the premises now or hereafter during the existence of this agreement. . . ." Respondent's Memorandum in Reply to Appellant's Opposition to Respondent's Motion to Dismiss, Exhibit 10. GSA suggests that Prudential obtained an advance assignment to the GSA lease, as well as assignment of the Alaska lease as early as 1978. We disagree with GSA. The GSA lease commenced in 1985. GSA has presented no evidence that the assignment document was in effect when the GSA leased commenced or, if the assignment document had been in effect, that appellant fulfilled a contractual commitment and actually assigned the GSA lease to Prudential. 4 Section 2451 of the Federal Acquisition Streamlining Act, Pub. L. 103-355, 108 Stat. 3243, 3324 (1994) amended and reorganized the Anti-Assignment Act, now codified at 41 U.S.C.A. 15 (West Supp. 1995). This law was enacted on October 13, 1994. Since the transfer in this case occurred on January 23, 1993, before the amendment, we cite to the version in effect on that date. applicable contracts from one party to another, and it provides for annulment of the underlying contract. The purpose of this provision, along with its sister provision, the Assignment of Claims Act, 31 U.S.C. 3727 (1988), is to prevent persons from buying up claims against the United States and to enable the United States to deal exclusively with the original claimant instead of several parties, thereby eliminating confusion of conflicting demands for payment and the chances of multiple liability, Tuftco Corp. v. United States, 614 F.2d 740, 744 (Ct. Cl. 1980). In addition, this provision is intended to ensure that the Government is dealing with an entity that has the legal right to perform and against whom the United States has recourse. United States Investigative Service v. United States, 26 Cl. Ct. 892, 898 (1992). These statutes are not to be strictly construed, but are to be applied pragmatically with a view to effectuating their purposes. Id. The Government has the right to ratify a transfer of a lease despite the Anti-Assignment Act. See, e.g., Tuftco Corp., 614 F.2d at 745. In this case, however, the Government did not approve the transfer of the lease to the B&B partnership. Finding 6. Thus, Adelaide Blomfield's transfer of the lease to B&B is invalid under this statute. The effect of an invalid assignment is not to forfeit a claim; an invalid assignment "leave[s the claim] where it was before the assignment, that is, with assignor." R. W. Electronics Corp., ASBCA 39486, 91-3 BCA 24,220, at 121,132. The annulment provision of the Anti-Assignment Act is not self-executing, but merely enables the Government at its option to annul assigned contracts. Thompson v. Commissioner of Internal Revenue, 205 F.2d 73, 78 (3d Cir. 1953); Urban Laboratories Inc., ASBCA 24,824, et al., 82-2 BCA 15,872, at 78,730.5 We cannot conclude that this annulment provision voids appellant's lease, claim and this appeal. In the recent case of NGC Investment and Development Inc. v. United States, No. 93-227C, 1995 WL 307,759 (Fed. Cl. May 22, 1995), the court relied on the annulment language of 41 U.S.C. 15 in dismissing an assignor's claim, when during contract performance the contracting officer had rejected the proposed assignment. The Government rejected the assignment because the contract required the contractor to use at least twenty percent of its own labor to complete the contract and the Government needed to know the identity of the contractor to monitor compliance with that requirement. Despite the explicit rejection of the assignment by the Government, the contractor assigned the ____________________ 5 We see a distinction between the annulment provision of the Assignment of Claims Act which, as construed, is not self executing, and theAct's prohibition of transfer of contracts. contract and then tried to hide it. The contracting officer treated the contract as nullified. NGC Investment is a unique case and easily distinguishable from this appeal. There, the contractor/assignor attempted to hide the entity performing the contract so that the Government could not monitor contract performance. Consequently, the court found a deliberate intent to deceive the Government and voided the claim of the assignor since the policies of the assignment statutes had been contravened. The rule of pragmatic consideration dictates a different result here. Respondent has not shown prejudice to the Government during contract performance arising from the assignment. United States Investigative Service v. United States, 26 Cl. Ct. 892, 898 (1992). On this point, the contracting officer's affidavit in support of respondent's motion to dismiss is as remarkable for what the contracting officer does not say as for what he does say. The contracting officer did not state that as a result of the lack of notice of assignment, the Government had not obtained the benefit of its bargain, or that the Government was in any way hindered in its tenancy of the building. Thus, despite the invalid transfer of the lease to B&B, it appears the Government obtained what it bargained for from ABMC; lease performance continued until it was terminated during the option period. Secondly, there is no proof of a deliberate intent to deceive, rather, there was a movement of assets within a family business which in no manner prejudiced the Government. We conclude that the purposes of the Anti-Assignment Act were not contravened and that the transfer to B&B does not void the contract or the associated claim, but merely leaves it where it was before the assignment, with ABMC. Furthermore, we see little likelihood of duplicative litigation. Respondent argues that it faces litigation from Prudential. But, for the reasons discussed above, the restoration claim belongs to appellant, not Prudential. As to the possibility of litigation by the B&B partnership, this is speculative, and the partnership has specifically disclaimed such an intent. Finding 5. Decision Respondent's motion to dismiss is DENIED. _________________________ ANTHONY S. BORWICK Board Judge We concur: _________________________ _________________________ STEPHEN M. DANIELS EDWIN B. NEILL Board Judge Board Judge ny