Plymouth Mills, Inc. v. FDIC

• Decision Date: 13 February 1995
• Docket Number: Civ. A. No. CV-92-4652.
• Citation: 876 F. Supp. 439
• Parties: PLYMOUTH MILLS, INC., Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of New York

876 F. Supp. 439

PLYMOUTH MILLS, INC., Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant.

Civ. A. No. CV-92-4652.

United States District Court, E.D. New York.

February 13, 1995.

Bill S. Light, Jaffe, Segal & Ross, New York City, for plaintiff.

Silvia M. Lederman, F.D.I.C., New York City, for defendant.

MEMORANDUM AND ORDER

TRAGER, District Judge:

The plaintiff, Plymouth Mills, Inc., had leased for several years office space to the Community National Bank and Trust Company of New York. On November 8, 1991, the bank was declared insolvent by the Office of the Comptroller of the Currency. On that same date, the Federal Deposit Insurance Corporation (FDIC) was appointed the receiver of the bank, and the FDIC or Chemical Bank, to whom the FDIC had provided an option on the insolvent bank's loan portfolio, used the leased premises until approximately the end of May 1992 when the insolvent bank's business was concluded there. Although Chemical Bank declined the option in January 1992, it remained and continued to have the loans serviced at the premises, at the FDIC's request, until April 23, 1992, while the FDIC purportedly sought a new buyer for the loans. The rent for the premises was paid by the FDIC or Chemical Bank until the premises were vacated, as the FDIC repudiated the lease, effective May 31, 1992, by a letter to Plymouth dated May 4, 1992.

In this suit, Plymouth seeks to collect the remainder of the rent due on the lease (the lease did not expire until September 30, 1994), and contends that the FDIC's breach of the lease constitutes a taking under the Fifth Amendment. Plymouth also alleges in its complaint claims for physical damage to the leased premises, and for converted fixtures.

Plymouth moves for partial summary judgment, to require the FDIC to pay the rent in arrears. The FDIC has cross-moved for summary judgment to have dismissed the complaint in its entirety. For the reasons set forth below, the court denies Plymouth's motion for partial summary judgment, and grants in part the FDIC's cross-motion.

I. Background

This case arose under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183 (codified in title 12 and other titles of the United States Code), which was enacted to address the financial circumstances of the numerous failed savings and loans throughout the country. See H.R.Rep. No. 101-54(I), 101st Cong., 1st Sess. 291-312 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 87-108 (history of the savings and loan industry and review of the purposes and major aspects of the Act). The motions in this case raise issues about two features of FIRREA. First, FIRREA requires that a claimant must file an administrative claim with the FDIC before it seeks damages in district court. 12 U.S.C. § 1821(d). This is a jurisdictional requirement. Heno v. FDIC, 20 F.3d 1204, 1207 (1st Cir.1994); Office and Professional Employees Int'l Union, Local 2 v. FDIC, 962 F.2d 63, 66 (D.C.Cir.1992); Resolution Trust Corp. v. Elman, 949 F.2d 624, 627 (2d Cir.1991); Coleman v. FDIC, 826 F.Supp. 31, 32 (D.Mass.1993); Capital Data Corp. v. Capital Nat'l Bank, 778 F.Supp. 669, 674, 677-78 (S.D.N.Y.1991).

Second, FIRREA empowers the FDIC as receiver or conservator¹ to repudiate or disaffirm leases and other contracts so long as the FDIC repudiates the contract within a "reasonable period." 12 U.S.C. § 1821(e)(2). For contracts or leases repudiated timely, FIRREA has limited the damages available to a claimant. Generally, if the lease was repudiated timely, rent could be demanded only up until the time the lease effectively was disaffirmed. The lessor may not collect future rent. § 1821(e)(4); Resolution Trust Corp. v. Ford Motor Credit Corp., 30 F.3d 1384, 1387-88 (11th Cir.1994); Resolution Trust Corp. v. Cedarminn Bldg. Ltd. Partnership, 956 F.2d at 1449. Under the language of the Act, other compensatory damages were limited to the time the FDIC was appointed as receiver, except if certain specified contracts were at issue. § 1821(e)(3).

Critically, thus, the FDIC, when presented with an administrative claim, must have repudiated the subject contract within a "reasonable period" to have preserved FIRREA's damage limits. In this case, the parties disputed whether Plymouth filed sufficient administrative claims for all of the relief it has sought in this lawsuit, and whether the FDIC timely repudiated the subject lease.

II. Administrative Claims

On November 10, 1991, two days after it was appointed receiver, the FDIC sent notice to Plymouth that proofs of claim had to be submitted to the FDIC by February 21, 1992, the bar date. Plymouth filed a proof of claim on February 20, 1992, in which it asserted that the FDIC had not timely repudiated the lease, and demanded $328,125 for rent due on the lease, as well as relief for the damages allegedly done to the premises.

In the May 4, 1992 letter in which the FDIC informed Plymouth that the lease was repudiated, the FDIC notified Plymouth that if it wished to have this disaffirmance administratively reviewed, it had to file a proof of claim by June 5, 1992. Plymouth did not thereafter file a proof of claim in which it contested the timeliness of the disaffirmance.

The FDIC has conceded, nevertheless, that Plymouth's February 1992 proof of claim, in which Plymouth alleged that the FDIC failed to have repudiated the lease timely, met the requirements of the administrative claims review process insofar as Plymouth has sought judicial review of the timeliness of the disaffirmance of the lease and its demand for future rent. The FDIC has not argued that Plymouth was required, by the May 4th notice, to file another proof of claim with respect to the timeliness of the disaffirmance. However, with respect to Plymouth's claims of property damage and converted fixtures, the FDIC moved for summary judgment as it contended that Plymouth's February 1992 proof of claim was insufficient. Although, in that proof of claim, Plymouth noted generally its "damages to premises," just as it had asserted the untimeliness of the disaffirmance, the FDIC considered the claims for physical damages to the leased premises infirm for lack of specificity, because these claimed damages, as well as Plymouth's claims for converted fixtures, allegedly were based on events which occurred after the February 21, 1992 bar date.

The court disagrees with the FDIC's argument. On June 4, 1992, Plymouth sent a letter to the FDIC which discussed the damages which the premises allegedly sustained, and the items allegedly converted. In a recent case, indeed, the FDIC conceded that for damages which arose post-bar date, the claimant's post-bar date detailed letters would be deemed to have satisfied the administrative claims review process. Heno v. FDIC, 20 F.3d 1204 (1st Cir.1994). Thus, based on Plymouth's February 1992 proof of claim, and its June 4, 1992 letter, Plymouth has satisfied the administrative claims review process.

III. Reasonable Period Standard

Plymouth sought summary judgment on its claim that the lease was repudiated untimely under the "reasonable period" standard contained in § 1821(e)(2), and demanded in its motion damages for rent unpaid to date. The FDIC cross-moved for summary judgment, and claimed that the lease was in fact timely repudiated under the "reasonable period" standard. FIRREA did not further define this timeliness clause. Resolution Trust Corp. v. Cedarminn Bldg. Ltd. Partnership, 956 F.2d 1446, 1455 (8th Cir.), cert. denied, ___ U.S. ___, 113 S.Ct. 94, 121 L.Ed.2d 56 (1992). However, legislative history indicated that bankruptcy law was a model for FIRREA's receivership/conservatorship scheme. Resolution Trust Corp. v. Diamond, 18 F.3d 111, 122 (2d Cir.) ("12 U.S.C. § 1821(e) was `closely modeled on parallel provisions of section 365 of the Bankruptcy Code.'") (quoting S.Rep. No. 101-19, 101st Cong., 1st Sess., at 314), vacated and remanded on other grounds sub nom., Solomon v. Resolution Trust Corp., ___ U.S. ___, 115 S.Ct. 43, 130 L.Ed.2d 5 (1994). See also 1185 Avenue of the Americas Assocs. v. Resolution Trust Corp., 22 F.3d 494, 497 (2d Cir.1994) ("we note that Chapter 3 of the Bankruptcy Code provides a helpful analogy" to the authority of a FIRREA receiver or conservator to repudiate contracts); Unisys Finance Corp. v. Resolution Trust Corp., 979 F.2d 609, 611 (7th Cir.1992) (FIRREA receivership scheme parallels bankruptcy law); Office and Professional Employees Int'l Union, Local 2 v. FDIC, 962 F.2d 63, 68 (D.C.Cir.1992) (court looks to bankruptcy law to construe FIRREA's claims procedure); Monument Square Assocs., Inc. v. Resolution Trust Corp., 792 F.Supp. 874, 876 (D.Mass.1991) (court analogizes FIRREA receiver's power to repudiate to that of a bankruptcy trustee).

In Resolution Trust Corp. v. Cedarminn Bldg. Ltd. Partnership, the Eighth Circuit explained that FIRREA "and its legislative history emphasize that the powers granted RTC under FIRREA parallel the powers granted conservators or receivers under the former law." 956 F.2d at 1453. The court went on to note that "it has been recognized for at least a century that receivers may repudiate contracts and leases." Id. (citing Sunflower Oil Co. v. Wilson, 142 U.S. 313, 322, 12 S.Ct. 235, 237, 35 L.Ed. 1025 (1892)). Bankruptcy trustees historically have had the power to repudiate contracts, and this "option involved not only a privilege but also a duty to ascertain within a reasonable period of time whether or not there was a possible profit in the contract for the estate." 2 Collier on Bankruptcy ¶ 365.01 & n. 3 (15th ed.1994) (citing Sunflower Oil Co.).

Under the Bankruptcy Act of 1898, the trustee in reorganization proceedings or the debtor-in-possession had a reasonable time to decide whether to accept or reject an unexpired lease. Philadelphia Co. v. Dipple, 312 U.S. 168, 174, 61 S.Ct. 538, 541, 85 L.Ed. 651 (1941); In re United

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