McAndrews v. Fleet Bank of Massachusetts, N.A.

• Decision Date: 01 February 1993
• Docket Number: No. 92-2104,92-2104
• Citation: 989 F.2d 13
• Parties: Edward McANDREWS, as Trustee of Iyanough Realty Trust, Plaintiff, Appellant, v. FLEET BANK OF MASSACHUSETTS, N.A., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 13

989 F.2d 13

61 USLW 2581

Edward McANDREWS, as Trustee of Iyanough Realty Trust Plaintiff, Appellant, v. FLEET BANK OF MASSACHUSETTS, N.A., et al., Defendants, Appellees.

No. 92-2104.

United States Court of Appeals First Circuit.

Heard Feb. 1, 1993.

Decided March 19, 1993.

Edward R. Wiest, with whom Edward D. Tarlow and Tarlow, Breed, Hart, Murphy & Rodgers, P.C., were on brief, for plaintiff, appellant.

Leonard G. Learner and Hutchins, Wheeler & Dittmar, P.C., on brief, for defendant, appellee Fleet Bank of Massachusetts, N.A.

S. Alyssa Roberts, with whom Ann S. DuRoss, Asst. Gen. Counsel, and Richard J. Osterman, Jr., Senior Counsel, were on brief, for defendant, appellee Federal Deposit Ins. Corp.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and CYR, Circuit Judge.

SELYA, Circuit Judge.

A property owner appeals from a ruling that keeps intact a bank's lease notwithstanding both the bank's failure and a clause in the lease ostensibly permitting the landlord to opt out upon the tenant's insolvency. Because enforcing the lease despite the termination-upon-insolvency clause comports with the provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183 (codified as amended in scattered sections of 12 U.S.C.), and because such enforcement constitutes neither a retroactive application of the newly enacted statute nor an unconstitutional taking of appellant's property, we affirm the judgment below.

I. BACKGROUND

In 1986, plaintiff-appellant Edward McAndrews, in his capacity as trustee of the Iyanough Realty Trust, purchased real estate situated at 375 Iyanough Road, Hyannis, Massachusetts (the Hyannis property). At the time, the premises were under lease to Merchants Bank & Trust Company of Cape Cod. The lease, executed in 1969, provided for a 20-year term with a 20-year renewal option. After appellant acquired the Hyannis property, the Bank of New England (BNE) merged with Merchants Bank and seasonably exercised the option.

Subsequently, Congress enacted FIRREA, thus providing a mechanism to deal with financially distressed banks in a manner that preserves their going concern value and enhances the prospects of orderly administration during troubled times. FIRREA includes a provision allowing the Federal Deposit Insurance Corporation (FDIC), as receiver, to enforce contracts previously entered into by failed banks notwithstanding contractual provisions designed to guard against exactly that eventuality. See 12 U.S.C. § 1821(e)(12)(A) (Supp. III 1991). ¹ This section has particular pertinence in the present situation since the Hyannis lease contains a termination-upon-insolvency clause (which we shall call an ipso facto clause) permitting the lessor to abrogate the lease if any regulatory authority, such as the FDIC, takes over the tenant bank. ²

FIRREA was effective on the date of its enactment, viz., August 9, 1989. See Demars v. First Serv. Bank for Sav., 907 F.2d 1237, 1238-39 (1st Cir.1990). Seventeen months thereafter, BNE failed. The FDIC was appointed as receiver on January 6, 1991. It organized a so-called bridge bank, see 12 U.S.C. § 1821(n)(1)(A) (Supp. III 1991), named it New Bank of New England (NBNE), and assigned the leasehold interest in the Hyannis property to it. See 12 U.S.C. § 1821(n)(3)(A) (Supp. III 1991). When appellant, relying on the lease's terms, served NBNE with a notice to quit, the bank stood fast, asserting that FIRREA rendered the ipso facto clause unenforceable.

Appellant then sought a declaration of rights in federal district court, naming NBNE and FDIC as defendants. ³ He argued that section 1821(e)(12)(A) should only be applied to leases executed after FIRREA's effective date. In appellant's view, applying the statute to a preexisting lease containing an ipso facto clause effectively nullifies the clause, therefore constituting an improper retroactive application of the statute; and, moreover, effects a taking without compensation in violation of the Fifth Amendment.

The district court rejected these twin asseverations and granted summary judgment in defendants' favor. See McAndrews v. New Bank of New England, 796 F.Supp. 613, 616 (D.Mass.1992). McAndrews appeals.

II. RETROACTIVE APPLICATION

It is a settled rule that courts should not apply statutes retroactively when doing so would significantly impair existing substantive rights and, thus, disappoint legitimate expectations. See, e.g., Bradley v. Richmond Sch. Bd., 416 U.S. 696, 711, 94 S.Ct. 2006, 2016, 40 L.Ed.2d 476 (1974); FDIC v. Longley I Realty Trust, 988 F.2d 270, 273 (1st Cir.1993); C.E.K. Indus. Mechanical Contractors, Inc. v. NLRB, 921 F.2d 350, 358 n. 7 (1st Cir.1990); cf. American Trucking Ass'ns v. Smith, 496 U.S. 167, 191, 110 S.Ct. 2323, 2338, 110 L.Ed.2d 148 (1990) (explaining retroactivity principles in respect to judge-made law). In the instant case, appellant posits that applying section 1821(e)(12)(A) to trump a preexisting escape clause must be considered a retroactive application of FIRREA and, as such, improper. We do not agree.

The determination of whether a statute's application in a particular situation is prospective or retroactive depends upon whether the conduct that allegedly triggers the statute's application occurs before or after the law's effective date. Hence, a statute's application is usually deemed prospective when it implicates conduct occurring on or after the effective date. See Cox v. Hart, 260 U.S. 427, 434-35, 43 S.Ct. 154, 156-57, 67 L.Ed. 332 (1922); EPA v. New Orleans Pub. Serv., Inc., 826 F.2d 361, 365 (5th Cir.1987); see also Allied Corp. v. Acme Solvents Reclaiming, Inc., 691 F.Supp. 1100, 1110 (N.D.Ill.1988); King v. Mordowanec, 46 F.R.D. 474, 482 (D.R.I.1969). Even when the later-occurring circumstance depends upon the existence of a prior fact, that interdependence, without more, will not transform an otherwise prospective application into a retroactive one. See New York Cent. & Hudson River R.R. Co. v. United States (No. 2), 212 U.S. 500, 505-06, 29 S.Ct. 309, 311-12, 53 L.Ed. 624 (1909) (holding that a statute prohibiting rebates could validly be applied to a rebate paid after the act's effective date with respect to property transported before the act's effective date); Gonsalves v. Flynn, 981 F.2d 45, 48-49 (1st Cir.1992) (holding that an amendment to a tolling provision operates prospectively when it bars a suit filed after its enactment, even if the claim accrued before the law changed). Phrased another way, a statute does not operate retroactively simply because its application requires some reference to antecedent facts. See Cox, 260 U.S. at 435, 43 S.Ct. at 157; see also New Orleans Pub. Serv., 826 F.2d at 365 ("A law is not made retroactive because it alters the existing classification of a thing.").

This means, of course, that a statute may modify the legal effect of a present status or alter a preexisting relationship without running up against the retroactivity hurdle. The key lies in how the law interacts with the facts. So long as a neoteric law determines status solely for the purpose of future matters, its application is deemed prospective. See New Orleans Pub. Serv., 826 F.2d at 365.

Employing these first principles, FIRREA's reach in this case cannot be deemed retroactive. Signing a lease containing an ipso facto clause does not in itself unleash section 1821(e)(12)(A). Only subsequent events can pull the trigger. Here, for example, FIRREA was brought into play through a collocation of circumstances, all occurring well after the law's effective date: the tenant's insolvency, the FDIC's appointment as receiver, and the landlord's attempt to utilize the lease's escape hatch. It follows that, because the conduct triggering the statute's application occurred long after FIRREA's enactment, using section 1821(e) to trump the ipso facto clause constitutes a prospective use of the statute regardless of when the lease was executed. ⁴ Any other result would twist FIRREA's structure, do violence to its clear language, and needlessly frustrate Congress's intent to "deal expeditiously with failed financial institutions." H.R.Conf.Rep. No. 101-222, 101st Cong., 1st Sess. (1989), reprinted in 1989 U.S.C.C.A.N. 86, 432. After all, if courts were to construe FIRREA so as to shield from its grasp all claims arising from contracts formed before FIRREA's enactment, Congress's efforts to protect the public from existing and anticipated bank failures would be hamstrung.

Our conclusion that the district court's use of section 1821(e) did not constitute a retroactive application is fortified by three other pieces of supporting data. The first is the opinion in Hawke Assocs. v. City Fed. Sav. Bank, 787 F.Supp. 423 (D.N.J.1991). To all intents and purposes, Hawke is squarely on point. There, the court applied section 1821(e)(12)(A) to render unenforceable a lease termination clause similar to the one at issue here. See id. at 426-27. While the parties in Hawke signed the lease nearly two years before FIRREA's enactment, the tenant entered receivership four months after the statute's effective date. ⁵ See id. at 424.

Second, we find instructive the caselaw construing section 365(e)(1) of the Bankruptcy Code, 11 U.S.C. § 365(e)(1) (1988). Courts have consistently held that section 365, an enactment which renders termination-upon-insolvency clauses unenforceable in bankruptcy, applies to leases predating the Code. See, e.g., Matter of Triangle Lab., Inc., 663 F.2d 463, 467 (3d Cir.1981) (observing that § 365(e)(1) controls "leases ... executed prior to the effective date of the Code" when "the event which trigger[s] the bankruptcy termination clause occur[s] after the effective date of the Code"); In re Sapolin Paints, Inc., 5 B.R. 412, 414-17 (Bankr.E.D.N.Y.1980) (nullifying a termination-upon-bankruptcy clause in a lease that predated the Code where the lessee's...