Case Name: UNITED STATES v. SMAIL et al. Ex parte O'LEARY et al.
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1928-03-12
Citations: 24 F.2d 786
Docket Number: No. 196
Parties: UNITED STATES v. SMAIL et al. Ex parte O’LEARY et al.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 24
Pages: 786–788

Head Matter:
UNITED STATES v. SMAIL et al. Ex parte O’LEARY et al.
Circuit Court of Appeals, Second Circuit.
March 12, 1928.
No. 196.
H. & J. J. Lesser, of New York City (Emory R. Buckner, John M. Harlan, and S. S. Isseks, all of New York City, of counsel), for appellant Realty Corporation.
William Harvey Smith, of New York City (John de Raismes Storey and William Harvey Smith, both of New York City, of counsel), for appellees O’Leary.
Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

Opinion:
L. HAND, Circuit Judge
(after stating the facts as above). In U. S. v. Gaffney (C. C. A.) 10 F.(2d) 694, where the complicity of the lessee with a sublessee was well established, we held that the lessor might forfeit the lease and re-enter under a decree upon such a cross-bill as that at bar. U. S. v. Duignan, 4 F.(2d) 983 (C. C. A. 2), affirmed 274 U. S. 195, 47 S. Ct. 566, 71 L. Ed. 996, went off on points of practice and cannot be treated as an authority. Grossman v. U. S., 280 F. 683 (C. C. A. 7), involved the cancellation of the lease of a guilty lessee, and Schlieder v. U. S., 11 F.(2d) 345 (C. C. A. 5), and U. S. v. Pepe, 12 F.(2d) 985 (C. C. A. 2), only the closing of the premises against the landlord. While the authority is meagre, we think that there may be situations in which a lease should be forfeited under section 23 because of the misconduct of a sublessee. This was assumed 'under a similar statute in Massachusetts (Healy v. Trant, 15 Gray, 312, O'Connell v. McGrath, 14 Allen, 289), and under a somewhat similar one in Oklahoma (Street v. Tull, 38 Okl. 689, 134 P. 871).
The question is therefore under what circumstances the sublessee's, fault should be-imputed to the lessee. That it is not enough merely to show that the sublessee was guilty of a violation nobody asserts, and no ease holds; the State decisions just cited are to' the contrary. Moreover, it must be remembered .that it is always possible for the lessor-to tell the lessee of any information he may acquire of the sublessee's offenses, and thus-to put the initiative upon him. If he fails to-do so, and, as here, seeks merely to gather information for the purpose of forfeiting the lease, there is good reason to assume that-his interest is rather in retaking his property than in protecting it from violations of the law. We recognize, however, that there may be information short of full knowledge which will suffice. Here, as elsewhere, a man charged with the duty to act may not close his eyes to circumstances which would lead an ordinary person to ascertain the facts more fully. We know of no other rule than that commonly applied in such situations; if the information is such that a reasonable person would áct upon it, if honestly disposed to prevent the unlawful use of his property, he is bound to follow it up, and, if he learns that his suspicions are justified, to take affirmative action. If he fails, the lessor may treat his inaction as connivance or participation, and apply to cancel the lease in such a suit as this. We think all this involved in our decision in U. S. v. Gaffney, 10 F.(2d) 694.
In the ease at bar there was no direct evidence of the lessee's knowledge; usually that is difficult to get. Liquor was indeed served freely in Smail's restaurant; but this was not done openly, although at times there were drunken people on the premises. However, the neighborhood was a poor one, and less seemliness was to be expected in a restaurant conducted there than in other parts of the town. It was noisy and offensive to some of the other tenants. A dentist found, or thought he found, that this affected his practice. One of the other tenants said that some of the rooms in No. 504 Ninth avenue were used for assignation; but she was plainly hostile to the lessee, having been dispossessed, and she had left before Smail got his lease. Two detectives employed by the lessors asked for leases in one of the buildings to be used for restaurants, and told the lessee that they meant to sell liquor. They were answered evasively, and were not refused outright, though they got no leases before the authorities closed up the place. A door had been cut through from No. 502 to No. 504 on the second floor, which the lessors argued led to assignation rooms; but the proof of this was very weak. The lessee's agent was often on the premises, and so was Shapanka, and perhaps Stem, though she denied it. On the other hand, the lessee proved by several tenants that they had seen nothing untoward on the premises, and Shapanka and Stem and their agent naturally disclaimed any knowledge of Smail's practices.
Upon this, as upon other cases of forfeiture, a court of equity does not look with a friendly eye. The penalty is severe, and the obligation upon the lessee heavy; it seems to us that more should be shown before a lease involving so much property is destroyed. That there is some likelihood that Shapanka and Stem, or their agent, did in fact know what was going on, we- cannot deny; but a lessor must go further than that, else nobody's estate will be safe. He must fasten upon the lessee some actual notice calling for action,'especially since, as we have said, it is always within his power to tell him his suspicions directly, and impose upon him a duty to act. Mere indifference to proposed violations of law does not prove knowledge, nor does notice of independent and existing wrongdoing. At most it shows a disposition not to act, and the inference from that seems to us too tenuous to bear so momentous a conclusion. We cannot find that Kinkel or Shapanka, on their visits to the restaurant, must have known or should have surmised that liquor was being dispensed.
Were it not that the District Judge had found otherwise, we should have been in small doubt. His conclusion has indeed given us pause, but he avoided finding that the lessee knew of the violation, and his finding that it ought to have known involves a conclusion as to its duty under the circumstances, a question we may review. We do not think the evidence plain enough to impose such a duty.
Decree of forfeiture upon the cross-bill reversed; cross-bill dismissed.