Hillside Metro Assocs. LLC v. JPMorgan Chase Bank, NA
| Decision Date | 20 October 2011 |
| Docket Number | 10-CV-1772 (JG) (SMG) |
| Parties | HILLSIDE METRO ASSOCIATES, LLC, Plaintiff, v. JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, Defendant. |
| Court | U.S. District Court — Eastern District of New York |
FOR ONLINE PUBLICATION ONLY
APPEARANCES:
KASLING, HEMPHILL, DOLEZAL & ATWELL, LLP
By: Roy K. Kasling
- and -
DEWEY PEGNO & KRAMARSKY LLP
By: Adam Michael Smith
Dewy Pegno & Kramarsky LLP
MORGAN, LEWIS & BOCKIUS LLP
By: Heather Leigh Hopkins
CULLEN AND DYKMAN LLP
By: Cynthia Ann Augello
Justin F. Capuano
Hillside Metro Associates, LLC ("Hillside") brings this breach of contract action against JPMorgan Chase Bank, National Association ("Chase"). Hillside seeks to enforce a lease it originally entered into with Washington Mutual Bank ("WaMu"). After the lease was executed, WaMu was declared insolvent. The Federal Deposit Insurance Corporation ("FDIC") was appointed receiver for WaMu and assumed all assets and liabilities of the failed bank. Hillside alleges that the FDIC subsequently assigned the lease at issue to Chase, rendering Chase liable for the obligations that originally bound WaMu under the lease. Chase, which denies it is liable under the lease, has refused to perform those obligations. Accordingly, Hillside contends that Chase has breached, abandoned, and/or repudiated the lease, and it seeks damages in an amount upward of $2 million.
Hillside moves for summary judgment pursuant to Fed. R. Civ. P. 56. It argues that Chase is liable under the lease as a matter of law. Chase opposes Hillside's motion and cross-moves for summary judgment, seeking dismissal of Hillside's claim. The FDIC, which has intervened in the action, moves for dismissal of Hillside's claim under Rule 12(b)(1) for lack of subject matter jurisdiction or, in the alternative, under Rule 12(c) for failure to state a claim. Oral argument was held on June 23, 2011. For the reasons stated below, the motions are denied.
On April 30, 2008, Hillside and WaMu entered into a lease ("lease" or "Hillside lease") pertaining to a piece of real property located at 216-20 Hillside Avenue in Queens, New York ("property" or "Hillside property"). ( Hillside agreed to leasethe property to WaMu for a period of ten years, with options for renewal and for early termination. (Lease §§ 1.01 35.01; 38.01.) At the time the lease was executed, Hillside and WaMu intended that a bank branch would be constructed on the property, and that WaMu would use the bank branch in its banking operations. (Pl.'s 56.1 Stmt. ¶ 3.) A building was already located on the property, and Hillside undertook certain obligations for repairing the structure. (Lease § 7.01.) The lease granted WaMu permission to install in the building automated teller machines and a drive-through window, and attached to the lease was a "Concept Plan" depicting a fully constructed, operational bank branch. Although the record contains scant information about the condition of the structure on September 25, 2008, as of that date construction was not yet completed and WaMu was not conducting any banking business on the property. (Decl. Robert Corroon ¶ 7, May 2, 2011, ECF No. 24-2.) At oral argument on June 23, 2011, counsel for Hillside represented that his client had been engaged in renovating the structure on September 25, 2008, and that its transformation into a bank branch was seventy or eighty percent complete.
On September 25, 2008, the Office of Thrift Supervision ("OTS") declared WaMu insolvent and appointed the FDIC to serve as WaMu's receiver pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub. L. 101-73, § 212(a), 103 Stat. 183, 222-25, codified at 12 U.S.C. § 1821(c).1 Accordingly, as of that date, all of WaMu's assets and liabilities, including the lease, were taken over by the FDIC. Also on September 25, 2008, Chase and the FDIC executed a Purchase and AssumptionAgreement (the "PAA") respecting the assets and liabilities held by WaMu at the time it entered receivership. Pursuant to § 3.1 of the PAA, "all right, title, and interest of the Receiver in and to all of [WaMu's] assets" were transferred to Chase with certain specified exceptions. Among those assets specifically not transferred were "leased Bank Premises." (PAA §§ 3.1, 3.5, Schedule 3.5.)
"Bank Premises" are defined in the PAA as:
the banking houses, drive-in banking facilities, and teller facilities (staffed or automated) together with appurtenant parking, storage and service facilities and structures connecting remote facilities to banking houses, and land on which the foregoing are located, that are owned or leased by the Failed Bank and are occupied by the Failed Bank as of Bank Closing.
(PAA art. I.) Although Chase explicitly did not assume any leases for Bank Premises under the PAA, the PAA granted Chase an option to assume such leases within 90 days of September 25, 2008. (PAA § 4.6(a), Schedule 3.5.) The PAA required Chase to provide the FDIC with notice within the 90-day option period of its election either to accept or not to accept assignment of any Bank Premises lease. (PAA § 4.6(a).) Any lease that was not assumed by Chase within the 90 days would remain within the control of the FDIC as receiver. Pursuant to 12 U.S.C. § 1821(e), the FDIC, within a reasonable period after its appointment as receiver for WaMu, could repudiate any lease to which WaMu was a party as long as it determined, within its discretion, that that such lease was burdensome, and that its repudiation would promote the orderly administration of WaMu's affairs.
Apparently treating the Hillside lease as one for Bank Premises subject to § 4.6 of the PAA, Chase informed the FDIC in December 2008 that it did not wish to assume the lease. (Decl. Gregg Vogel ¶ 9, May 24, 2011, ECF No. 31-4; Decl. Robert C. Schoppe ¶ 7, May 24,2011, ECF No. 31-7.) Chase also sent a letter dated January 2, 2009 to Hillside, stating that Chase had the option to assume or not to assume the Hillside lease and had decided not to assume it. (JPMorgan Chase Bank Letter Re: 216-20 Hillside Avenue, Decl. Robert Corroon Ex. B, May 2, 2011, ECF No. 24-5.) By letter dated April 19, 2009, the FDIC informed Hillside that it had decided to disaffirm the lease. (FDIC Letter Re: FIN #10015, Decl. Robert C. Schoppe Ex. C, May 24, 2011, ECF No. 31-10.) The letter stated that Hillside would be entitled under the lease and under 12 U.S.C. § 1821(e)(4) to all rent accruing before the date of the letter, and that the FDIC's obligations under the lease on behalf of WaMu would terminate as of that date. (Id.) On March 9, 2010, Hillside sent a letter to Chase in which it argued that Chase had automatically assumed the lease under the PAA. (Hillside Letter Re: Net Lease, Decl. Robert Corroon Ex. C, May 2, 2011, ECF No. 24-6.) Hillside declared Chase in default of the lease and demanded that Chase remedy the purported default within ten days. (Id.)
The following month, on April 21, 2010, Hillside commenced this action against Chase, seeking damages for breach, abandonment and/or repudiation of the lease plus attorneys' fees. On July 7, 2010, the FDIC moved to intervene pursuant to Fed. R. Civ. P. 24 as the real party in interest; the unopposed motion was granted on July 12, 2010. On May 2, 2011, Hillside moved for summary judgment on its claim, pursuant to Fed. R. Civ. P. 56. On May 24, 2011, the FDIC cross-moved for dismissal of Hillside's claim pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction or, in the alternative, pursuant to Fed. R. Civ. P. 12(c) for judgment on the pleadings. Also on May 24, 2011, Chase cross-moved for summary judgment. Oral argument was held on June 23, 2011. For the reasons stated below, the motions are denied.
Hillside argues that Chase automatically assumed the lease by virtue of § 3.1 of the PAA. According to Hillside, the lease did not fall within any of the exceptions to that provision's wholesale assumption of assets. Specifically, Hillside contends that the leased property did not constitute Bank Premises as defined in the PAA because the structure located on the Hillside property was not yet a banking house, drive-in banking facility or teller facility, and WaMu did not yet occupy any such facilities on the property. Accordingly, Hillside concludes, Chase never had an option to accept or reject the lease under § 4.6. Instead, it automatically took WaMu's place as lessee and became liable for its obligations under the lease on September 25, 2008.
In response, Chase points out that Hillside's argument relies on an interpretation of the PAA, to which it is not a party or a third-party beneficiary. Chase contends that Hillside cannot rely on the PAA to establish privity with Chase and therefore lacks standing to assert its claim. And, even if Hillside does have standing, Chase argues, its claim fails on the merits, because the lease is for Bank Premises under the PAA, and Chase timely exercised its option not to assume the lease. Hillside conceded at oral argument that if the lease is for Bank Premises, Chase cannot be held liable, and Chase correspondingly conceded that if the lease is not for Bank Premises, it was automatically assumed by Chase pursuant to § 3.1, rendering Chase liable for all obligations under the lease.
The FDIC, in its motion to dismiss, joins Chase's argument...
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