Louis A. EHRLICH, Appellant, v. UNITED STATES of America, Appellee.
No. 16712.
United States Court of Appeals Fifth Circuit.
Feb. 13, 1958.
If this provision of
We are therefore of the opinion that this second and lаst ground advanced by Daloia for issuance of a writ of habeas corpus is without merit.
The trial court did not err in dismissing the application without issuance of an order to show cause.
Affirmed.
Wm. P. Congdon, Augusta, Ga., Congdon & Leonard, Augusta, Ga., of counsel, for appellant.
William C. Calhoun, U. S. Atty., William T. Morton, Asst. U. S. Atty., Augusta, Ga., for appellee.
Before HUTCHESON, Chief Judge, and TUTTLE and WISDOM, Circuit Judges.
WISDOM, Circuit Judge.
This action is an outgrowth of the provision in the Lanham Act giving veterans priority and a preferential price in purchasing homes from the Public Housing Administration.1 Veterans may buy housing units at the сonstruction cost to the government; other purchasers pay the actual market price.
The United States brought suit in the District Court for the Southern District of Georgia to cancel, on the ground of
I.
Appellant contends that the United States District Court has no jurisdiction to hear the suit, under an express provision of the Lanham Act,
“* * * any proceedings for the recovery of possession of any property * * * under this subchapter shall be brought by the Administrator in the courts of the States having jurisdiction of such causes and the laws of the States shall be applicable thereto * * *”
This provision of the Lanham Act was intended to apply to eviction proceedings, in order to avoid the inconvenience of tenants having to travel to distant federal courts.2 It has no application to this suit for cancellation of title.
II.
Two of the defendants, Robert Hambrick and John Wren, filed answers denying that they had any connection with
The other defendants, Robert Jarvis and Raymond Eades are apples off another tree. They testified that they had no intention of buying homes for themselves. At a price, they served as straw men for Ehrlich for whom the properties were really purchased. The price, to Ehrlich, turned out to be heavier than he bargained for. Ehrlich was indiсted, convicted on two counts under
In the proceedings below the District Court, without a jury, found that Ehrlich fraudulently and illegally acquired for himself title to the properties occupied by the six other defendants. The Court held that the United States is entitled to recover all of the properties without making restitution of the purchase priсe and that Louis Ehrlich should be directed to pay to the United States the total gross amount of rent he received from the property.
We have studied the record very carefully. The evidence clearly supports the trial judge‘s findings as to Jarvis and Eades, who were the principal witnesses in the criminal case against Ehrlich. On the other hand, it seems to a majority of the panel that the evidence does not support the trial judge‘s findings of fraud in the trаnsactions involving the other veterans. As to their conveyances, the judgment of the district court was clearly erroneous.
It has been four years since the transfer of title. Wren, Hambrick, Lindsey, and Buck still occupy their homes. And they still oppose the government taking their homes from them. Ehrlich‘s character may be forever tainted by his criminal conviction arising out of the Jarvis and Eades transactions. Jarvis and Eades may be tainted. But the taint from Jarvis and Eades dоes not just rub off on Wren, Hambrick, Lindsey, and Buck because they were all veterans living in Oglethorpe Homes who had contracts with Ehrlich. There may be collateral estoppel as to the Jarvis and Eades transactions. State of Oklahoma v. State of Texas, 1921, 256 U.S. 70, 41 S.Ct. 420, 65 L.Ed. 831; Emich Motors Corp. v. General Motors Acceptance Corp., 1951, 340 U.S. 558, 71 S.Ct. 408, 95 L.Ed. 534; Local 167 etc. v. United States, 1934, 291 U.S. 293, 54 S.Ct. 396, 78 L.Ed. 804. There is no collateral estoppel as to the other transactions; and therе is only surmise and suspicion to support the finding as to these other transactions.
Wren swore on the stand that he intended to keep the property as his home and that his agreement with Ehrlich was only a financing agreement. He stated that he went to the Veterans Administration, to banks, to loan companies, and to “numerous other places and they all said they could not give me a loan on the house”. Wren said that he “checked with Mr. Pitt to see if it was аll right” to buy and transfer to Ehrlich, and Mr. Pitt said that “there was nothing wrong with it”. Mr. Pitt was in charge of the sale for the Public Housing Administration. The Wrens have painted their house, “fixed it up on the inside and put in a new heater”, “to make it a little nicer to live in * * * as a home.”
Hambrick testified that he “had a fellow that was going to finance it” but the
Lindsey testified that he tried to get a G.I. loan, tried a bank, triеd the Metropolitan Life Insurance Company, but could not get a loan from these sources because of the condition of the property. “I wanted to keep it as a home * * * for my wife and children. My wife had been sick since 1949 and it was convenient to the hospital.” He intends to keep on living there. Sergeant Lindsey knew that he was to convey title to Ehrlich: “He couldn‘t offer to finance it for me without some security.” He did not understand that he was “tо convey the property” to Ehrlich.
Buck testified that he “didn‘t have any way of purchasing the house at that time and I didn‘t know exactly what I was going to do. I had three children at that time, a baby just born.” He approached Ehrlich who told him that “he‘d help me buy the house”.3 Buck said: “Yes, sir. I mean to stay there just as long as possible. I am making it my home and I have got three children and I hope to make it their home.”
There is no doubt that the government has proved that, as tо Jarvis and Eades, Ehrlich had a fraudulent scheme in which these two veterans were straw purchasers. There is no doubt that Ehrlich approached other veterans living in Oglethorpe Homes, with the idea of conniving with them to take advantage fraudulently of the veteran‘s preference. But each transaction must be considered separately.
So far as the Wren, Hambrick, Lindsey, and Buck transactions are concerned, the government‘s case seems to rest on inferences drawn from the agreement Ehrlich entered into with the veterans. The agreement provided that Ehrlich would put up the money for the veteran to pay in cash for the house he was occupying; the veteran would then convey to Ehrlich who would give the veteran a lease on the property for seven months at the same rental the veteran was paying for the house. At the end of seven months, the veteran had an option for sixty days to repurchase in cash for a period of sixty days at a fixed amount, if no repairs or improvements had been made; if the property had been repaired or improved, the cost would be added to the base price. The government infers that the agreement was a mere sham: if the veteran could not
Accordingly, we reverse the judgment below as to Wren, Hambrick, Lindsey, and Buck, and hold that the conveyances to them and their conveyances to Ehrlich should not be annulled as fraudulent.
III.
This is a suit in equity to rescind a sale on the ground of fraud. The general rule governing such cases is that he who seeks equity must do equity; that one cannot rescind a sale, even for fraud, without first making restitution of the purchase price. Thackrah v. Haas, 1886, 119 U.S. 499, 7 S.Ct. 311, 30 L.Ed. 486; Grymes v. Sanders, 1876, 93 U.S. 55, 23 L.Ed. 798; Neblett v. Macfarland, 1875, 92 U.S. 101, 23 L.Ed. 471. The party seeking rescission must undertake to perform whatever conditions the Court may decide to be equitаble, if it eventually declares the right of rescission. Twin Lakes Land & Water Co. v. Dohner, 6 Cir., 1917, 242 F. 399, 402. The object, of course, of an equitable suit for rescission is to restore the status quo, not to punish a transgressor. The harm should be undone but there is no reason to reward the victim. Bottemiller v. Ball, 1929, 130 Or. 255, 279 P. 542, 69 A.L.R. 951.
The government contends that there is an exception to these principles in favor of the United States government, citing Pan-American Petroleum & Transport Co. v. United States, 1927, 273 U.S. 456, 47 S.Ct. 416, 71 L.Ed. 734; United States v. Trinidad Coal Co., 1890, 137 U.S. 160, 11 S.Ct. 57, 34 L.Ed. 640; and American Jurisprudence.4 See also Restatement, Contracts (1932) Vol. 2, Sec. 480(1).5
We cannot agree that thе government of the United States is subject to a lower standard of equity than private individuals. We cannot agree that the government of the United States may be unjustly enriched; private individuals may not.
The cases relied on by the government are distinguishable on the facts and on principle. In United States v. Trinidad Coal Co. certain individuals bought coal lands from the government and then conveyed the land to a corporation, in violation of a statute limiting the land an association сould purchase. The Court held that the United States could rescind
“It is contended * * * that the government asking equity must do equity * * *. The rule referred to should not be enforced in a case like the present one. In the matter of disposing of the vacant coal lands of the United States, the government should not be regarded as occupying the attitude of a mere seller of real estate for its market value * * * in making regulations for disposing of them, Congress took no thought of their pecuniary value, but, in the discharge of a high public duty, and in the interest of the whole country, sought to develop the material resources of the United States by opening its vacant coal lands * * * at prices below their actual value. The controlling object of this and similar suits is to enforce a public statute against those who have violated its provisions * * * the defendant is a wrong-doer against whom the government seeks to vindicate its policy * * *”
Pan-American Petroleum & Transport Co. v. United States arose out of the Teapot Dome scandal. The Court held that the government did not have to make restitution in order to secure cancellation of fraudulent leases and contracts, since the agreements tend to defeat the policy of the United States to conserve petroleum reserves needed for national defense. Implicit in both cаses is the rationale that the proceedings were not just to recover title but to vindicate, by punitive action, a broad national policy.6 In one case the policy was to develop coal lands and in the other case the policy was to preserve oil reserves. In addition, in the Pan American case there was the question whether the government should have to pay for improvements it did not want and had no use for.
In these two cases and in the patent cases7 the lаnd recovered by the government had been part of the public domain, held by the United States in its sovereign right, and disposed of as part of a national development program in which the money received for the land was of little or no consequence compared with the other elements of the program.
In disposing of property under the Lanham Act, however, although veterans receive a preference, the governmеnt comes very close to occupying the position of an ordinary individual interested in selling real estate for its market value. There is no prohibition against selling to non-veterans, and they must pay the market value. Even veterans must pay a price equal to the costs of construction. Sales under the Lanham Act are business transactions; sales of the public domain are not business transactions but the machinery for opening up unsettled lands fоr settlement and development.
Restoration of the status quo in this case would not frustrate the laws of the United States or thwart public policy,
As to the Jarvis and Eades transactions: (1) the transfers to them and their transfers to Ehrlich should be rescinded, conditioned upon the United States making provision for restitution of the purchase price; (2) Ehrlich should not recover for any improvements; (3) Ehrlich should be liable for rents less interest on the moneys paid by him to the United States.
The views expressed in this section of the opinion, relative to the Jarvis and Eades transactions, are mine only. We all agree that the deeds to Jarvis and Eades and the deeds from them to Ehrlich should be rescinded, but Judges Hutcheson and Tuttle are of the opinion that the rescission should not be conditioned upon the United States making provision for restitution of the purchase price. We all agree that Louis Ehrlich should render an accounting for the Jarvis and Eades properties.
The judgment is affirmed in part, and reversed in part.
Judgment
It is now here ordered and adjudged by this Court that the judgment of the said District Court in this cause be, and the same is hereby, affirmed in part and reversed in part, in accordance with the opiniоn of this Court, as follows: (1) The judgment of the District Court as to the Wren, Lindsey, Hambrick and Buck deeds is reversed. The several deeds from the United States, acting through the Public Housing Administration, to defendants, Wren, Lindsey, Hambrick, and Buck, and their several deeds to the defendant Ehrlich shall not be annulled and cancelled. (2) The judgment of the District Court as to the Jarvis and Eades deeds is affirmed. The several deeds from the United States, acting through the Public Housing Administration, to the defendants, Jarvis and Eаdes, and their several deeds to the defendant Ehrlich are hereby annulled and cancelled without restitution of the purchase price, and the said defendant Ehrlich shall execute such deeds and render such accounting as is set forth more particularly in the judgment of the District Court.
HUTCHESON, Chief Judge.
I concur in much of what is said and all that is held in the opinion except the holding on the last page that the rescission of the transfers to Jarvis and Eades is “conditioned upon the United States making provision for restitution of the purchase price.”
I disagree with this holding not because I disagree with it in principle and think that this ought not to be the law, but because I think, that it is not a correct statement of the law under the decided cases, and that I am constrained thereby to disagree with it.
TUTTLE, Circuit Judge (dissenting in part).
I respectfully dissent. It seems clear to me that no appellate court could legally hold that this judgment was not so factually supportеd as to withstand the clearly erroneous test. On the face of the written documents themselves the Government proved a prima facie case, since they showed that each veteran had signed a deed to Ehrlich prior to his own acquisition of the property from the Government.
As to the legal point respecting the duty of the Government to offer restitution, I think this Court is bound by the cited decision of the Supreme Court. The harshness of the rule, which is not of our making, does not, it seems to me, warrant our not following it.