New Hampshire Associates v. F.D.I.C.

• Decision Date: 23 September 1997
• Docket Number: Civil Action No. CCB-95-2144.
• Citation: 978 F.Supp. 650
• Parties: NEW HAMPSHIRE ASSOCIATES LIMITED PARTNERSHIP v. FEDERAL DEPOSIT INSURANCE CORPORATION, successor to Resolution Trust Corp., as Receiver for Potomac Federal Savings Bank.
• Court: U.S. District Court — District of Maryland

978 F.Supp. 650

NEW HAMPSHIRE ASSOCIATES LIMITED PARTNERSHIP v. FEDERAL DEPOSIT INSURANCE CORPORATION, successor to Resolution Trust Corp., as Receiver for Potomac Federal Savings Bank.

Civil Action No. CCB-95-2144.

United States District Court, D. Maryland.

September 23, 1997.

Cynthia L. Leppert, Hugh M. Bernstein, Neuberger, Quinn, Gielen, Rubin & Gibbler, P.A., Baltimore, MD, for Plaintiff.

Anne Kelly Laynor, Rosenberg Proutt Funk & Greenberg, LLP, Baltimore, MD, for Defendant.

MEMORANDUM

BLAKE, District Judge.

Now pending are cross-motions for summary judgment in this action alleging breach of a real property lease contract. The defendant claims that it properly disaffirmed the lease under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183 (codified in scattered sections of Titles 12 and 18 U.S.C.). No hearing is deemed necessary. See Local Rule 105.6. For the reasons that follow, the defendant's motion will be granted, in part, on the issue of disaffirmance of the lease, and the plaintiff's motion will be granted on the issue of pre-disaffirmance rent due.

BACKGROUND

The plaintiff is New Hampshire Associates Limited Partnership ("New Hampshire"), a Maryland Limited Partnership with its principal place of business in Montgomery County, Maryland. By a writing dated March 27, 1987, New Hampshire leased office space in Silver Spring, Maryland to the Potomac Savings Bank, F.S.B. ("Bank") for a term of fifteen years, which was to expire on June 30, 2002. The rent consisted of a base monthly rent of $29,647.13 (subject to annual increases) plus additional pass-throughs for common area maintenance and real estate taxes. The Bank operated an administrative office on the premises, and subleased part of the office space to sub-tenants.

The Bank was later declared insolvent, and through a chain of events (the precise detail of which is neither disputed nor pertinent to the issues raised in this case) the defendant Resolution Trust Corporation ("RTC"), a corporate instrumentality of the United States, was appointed receiver of the Bank effective February 25, 1994. Although the RTC was later statutorily succeeded by the Federal Deposit Insurance Corporation ("FDIC"), effective December 31, 1995, 12 U.S.C. § 1441a(m)(1) (providing for both termination of the RTC and its succession by the FDIC), the RTC was the receiver for the Bank during the events here at issue.¹ Thus, even though the FDIC is the party in interest in this litigation, for simplicity the defendant will be referred in this opinion simply as the RTC.

Ninety days after its appointment as receiver, the RTC attempted to disaffirm the lease by letter dated May 26, 1994. The letter was addressed, however, not to New Hampshire, but to its general partner, Marvin R. Lang. It stated that the RTC, as receiver for the Bank, had the power under 12 U.S.C. § 1821(e) to disaffirm any contract entered into by the Bank prior to the RTC's appointment. It then purported to disaffirm the lease:

The [Bank's] records indicate that the [Bank] was a party to that [sic] certain lease dated March 27, 1987, and any subsequent amendments, if any, between you and the [Bank] The purpose of this letter is to notify you that the Receiver has elected to disaffirm this lease to the full extent, if any, that the represented and enforceable obligation of the [Bank] effective as of July 31, 1994 [sic]. You are entitled to contractual rent through the effective date. You do not have a claim for damages under any acceleration or penalty clause. Further, the Receiver is entitled to any collateral pledged to secure the [Bank's] remaining obligations.

All creditors having claims against the [Bank] must present their claims, substantiated by legal proof, to the Receiver by August 24, 1994 (90 days from May 26, 1994).

On August 23, 1994, New Hampshire submitted a claim to the RTC for $1,948,442.48 in "[l]ost rent and operating expense payments ... due to breach/alleged disaffirmance of the Lease." (Pl.'s Compl., Ex. C.) Attached was a statement that New Hampshire was never officially notified that the lease was being disaffirmed, and thus the RTC had failed to comply with the repudiation requirements of 12 U.S.C. § 1821(e). The RTC disallowed the claim in full and New Hampshire timely filed this suit.

ANALYSIS

1. Standard for Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment

shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

The Supreme Court has clarified that this does not mean any factual dispute will defeat the motion:

By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (emphasis in original).

"The party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials of [its] pleading, but must set forth specific facts showing that there is a genuine issue for trial." Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 240 (4th Cir.1988). The court must "view the facts and draw reasonable inferences in a light most favorable to the nonmoving party," Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir. 1994), but it also must abide by its affirmative obligation to ensure that factually unsupported claims and defenses do not proceed to trial. Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986)).

2. "Reasonable Period"

FIRREA was enacted in 1989 to address the dire financial circumstances of the numerous failed, federally insured, savings and loans throughout the country at that time. It "`constitute[d] emergency legislation' to stop the financial hemorrhaging" of government coffers brought on by the savings and loan crisis. Resolution Trust Corp. v. Diamond, 18 F.3d 111, 113 (2d Cir.) (quoting S.Rep. No. 101-19, at 3 (1989)) (alteration in original), vacated sub nom. Solomon v. Resolution Trust Corp., 513 U.S. 801, 115 S.Ct. 43, 130 L.Ed.2d 5 (1994); aff'd in part, rev'd in part on other grounds, 45 F.3d 665, cert. denied, 515 U.S. 1158, 115 S.Ct. 2609, 132 L.Ed.2d 853 (1995); see also Plymouth Mills, Inc. v. F.D.I.C., 876 F.Supp. 439, 440 (E.D.N.Y.1995) (citing H.R.Rep. No. 101-54(I), at 291-312 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 87-108 (reviewing history of savings and loan industry and purposes and major aspects of the Act)). As the House Report put it: "The interests of the American taxpayer demand an expedited resolution to the monumental problems involved with the unprecedented costs of dealing with hundreds of insolvent thrifts and the orderly disposition of the assets of these failed institutions." H.R.Rep. No. 101-54(I), at 308, 1989 U.S.C.C.A.N. at 104.

While federally insured banks and savings and loan associations are not subject to bankruptcy law, 11 U.S.C. § 109(b)(2), the receivership provisions of 12 U.S.C.A. § 1821 (c)-(r) create a more or less parallel regime for those institutions. Unisys Finance Corp. v. Resolution Trust Corp., 979 F.2d 609, 611 (7th Cir.1992). There is at least one major difference, however. Under bankruptcy law, when the trustee or debtor in possession terminates the unexecuted portion of a lease or contract entered into by the bankrupt, the lessor can claim damages as a general creditor in the bankruptcy proceeding (although a lessor's damages are truncated). 11 U.S.C. § 502(b)(6). By contrast, under FIRREA the lessor's damages claim is completely extinguished except for back rent. 12 U.S.C. § 1821(e)(4). One commentator making the comparison between FIRREA and the Bankruptcy Code observed that the "banking agencies [such as the RTC and FDIC] have essentially the same powers as the trustee, but with two material additions. First, the agencies appear to retain almost unlimited discretion about whether to repudiate, in contrast to the bankruptcy court's supervision of a trustee's decision. [See 11 U.S.C. § 365(a).] Second, the agencies need not pay the full measure of contract damages that repudiation in bankruptcy requires; instead, the receiver or conservator is excused from payment for lost profits on contracts and for future rent on leases. [See 12 U.S.C. § 1821(e)(3)-(4).]" Peter P. Shire, Bank Insolvency Law Now That It Matters Again, 42 Duke L.J. 469, 485-86 (1992); see also Carol Anne Senello, Note, FIRREA's Damage Provisions: Inequitable, Unnecessary, and Costly To Boot, 45 Duke L.J. 183, 184 (1995) ("Whereas the Code aspires to change the relative rights existing at the date of bankruptcy as little as possible, ... FIRREA severely curtails the rights of parties who ... enter[ed] into agreements with financial institutions.").

Congress established the RTC to act as conservator or receiver for failed thrift institutions, 12 U.S.C. § 1441a(b), requiring it to conduct its operations "in a manner which [] maximizes the net present value return from the sale or other disposition of' thrift assets. 12 U.S.C. § 1441a(b)(3)(C)(i). Accordingly, Congress granted to the RTC the authority to disaffirm or repudiate any lease that the bank may have made before receivership if the RTC were to determine, in its discretion, both that the lease was "burdensome" and that disaffirmance would "promote the orderly administration of the institution's affairs." 12 U.S.C. § 1821(e)(1)(B-C).²

For a disaffirmance or repudiation to be...