Resolution Trust Corp. v. Diamond

• Decision Date: 02 March 1994
• Docket Number: No. 55,D,55
• Citation: 18 F.3d 111
• Parties: RESOLUTION TRUST CORPORATION, as Receiver for Nassau Savings and Loan Association, F.A., Plaintiff-Appellant, v. Selma DIAMOND, Ira Kaufman, Jerome Lederer, Peggy Lehman, Susan Solomon Patullo, Lloyd Ribner, as executor of the estate of Muriel Ribner, Horace Solomon, Lillian Solomon, Denise Tucker, Angelo Aponte, Commissioner of the Division of Housing and Community Renewal of the State of New York, and Robert Abrams, Attorney General of the State of New York, Defendants-Appellees, and New York State Division of Housing and Community Renewal, Appellee. ocket 92-6244.
• Court: U.S. Court of Appeals — Second Circuit

Page 111

18 F.3d 111

62 USLW 2566

RESOLUTION TRUST CORPORATION, as Receiver for Nassau Savings and Loan Association, F.A., Plaintiff-Appellant, v. Selma DIAMOND, Ira Kaufman, Jerome Lederer, Peggy Lehman Susan Solomon Patullo, Lloyd Ribner, as executor of the estate of Muriel Ribner, Horace Solomon, Lillian Solomon Denise Tucker, Angelo Aponte, Commissioner of the Division of Housing and Community Renewal of the State of New York and Robert Abrams, Attorney General of the State of New York, Defendants-Appellees and New York State Division of Housing and Community Renewal, Appellee.

No. 55, Docket 92-6244.

United States Court of Appeals, Second Circuit.

Argued Dec. 20, 1993.

Decided March 2, 1994.

Dennis S. Klein, Washington, DC (Abraham D. Sofaer, Lawrence F. Bates, Kevin M. Crotty, Hughes, Hubbard & Reed, Washington, DC, Frank H. Penski, New York, NY, Nixon, Hargrave, Devans & Doyle, New York, NY, of counsel), for plaintiff-appellant.

Gary R. Connor, New York (Attorney General's Office, State of New York, New York, NY, Robert A. Machleder, New York, NY, Steven Raison, New York, NY (Colleen F. McGuire, New York, NY, on the brief), for defendant-appellee Lloyd Ribner.

Wien, Malkin & Bettex, New York, NY, Don D. Buchwald, New York, NY, Buchwald & Kaufman, New York, NY, of counsel), for defendants-appellees.

Before PRATT, McLAUGHLIN and JACOBS, Circuit Judges.

JACOBS, Circuit Judge:

Resolution Trust Corporation ("RTC") is a government corporation that acts as receiver or conservator for federally-insured thrift institutions in financial distress. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), directs RTC to realize a maximum recovery on the value of the thrift assets that come into its possession, and has conferred on RTC a number of extraordinary powers to help it in doing so. Among the powers granted to RTC by Congress is the power to disaffirm or repudiate the contracts or leases which it finds to be burdensome. RTC came into possession of nine occupied condominium apartments located at 444 East 57th Street in New York City, and has sought to disaffirm or repudiate the nine tenancies, each of which is subject to local and state rent regulation. The United States District Court for the Southern District of New York (Carter, J.) granted summary judgment to the tenants and New York State and denied summary judgment to RTC on the ground that the tenancies in question, by virtue of the rent regulation laws, are "statutory" tenancies rather than leases or contracts subject to disaffirmation or repudiation by RTC 801 F.Supp. 1152. We hold that these tenancies are founded upon contract and lease obligations subject to the disaffirmation and repudiation power of RTC, and we therefore reverse.

BACKGROUND

A. FIRREA and RTC

RTC was created by Congress in 1989 as part of a comprehensive legislative initiative to mitigate a financial crisis that had engulfed the thrift industry and the Federal Savings and Loan Insurance Corporation ("FSLIC"). H.R.Rep. No. 54(I), 101st Cong., 1st Sess. (1989), reprinted in 1989 U.S.C.C.A.N. 86, 98. The Government Accounting Office had estimated that FSLIC's operating deficit was $56 billion at the end of 1988. Id. at U.S.C.C.A.N. 100; see also S.Rep. No. 19, 101st Cong., 1st Sess. 2 (1989) ("Current estimates of the remaining cost to the Federal deposit insurance system of resolving the problem range from $50 billion to more than $150 billion....").

FIRREA, adopted on August 9, 1989, Pub.L. No. 101-73, 103 Stat. 364 (codified in scattered sections of 12 U.S.C.), "constitute[d] emergency legislation" to stop the financial hemorrhaging. S.Rep. No. 19 at 3. 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. 54(I) at U.S.C.C.A.N. 86, 104. RTC, a "wholly-owned government corporation," was created "to manage and dispose of the assets acquired from failed thrifts." Id.

RTC's primary purpose is to act as conservator or receiver for failed thrift institutions. 12 U.S.C. Sec. 1441a(b)(3)(A) (1989 & Supp.). Congress required that RTC conduct its operations "in a manner which [ ] maximizes the net present value return from the sale or other disposition of" thrift assets that come into its hands. 12 U.S.C. Sec. 1441a(b)(3)(C)(i); see also S.Rep. No. 19 at 352 (Congress intended that RTC "conduct its operations so as to maximize recovery on assets it acquires, make efficient use of funds it obtains ... and minimize losses incurred in resolving cases.").

To help RTC in carrying out this mandate, Congress armed it with the power to disaffirm or repudiate contracts or leases that RTC in its discretion determines to be burdensome. 12 U.S.C. Sec. 1821(e)(1) (made applicable to RTC by 12 U.S.C. Sec. 1441a(b)(4)(A)). The reach of that power is the primary issue on this appeal.

B. Rent Regulations

Owners of residential rental property in New York City have been subject to some form of rent regulation for over fifty years. Originally imposed by the federal government during World War II (Emergency Price Control Act of 1942, Jan. 30, 1942, ch. 26, Title I, Sec. 1, 56 Stat. 23), rent controls were continued by state legislation in 1946 (Emergency Housing Rent Control Law, L.1946, c. 274 (codified at N.Y.Unconsol.Laws Secs. 8581-8597 (McKinney 1987))). Since 1962, the City of New York has enforced its own local rent regulations, which (like the federal and state measures) regulate rents and evictions in privately owned residential housing. Admin.Code of City of N.Y., Secs. 26-401-415 (reported following N.Y. Unconsol.Law Sec. 8617 (McKinney 1987)) ("N.Y.C.Admin.Code"). Authorized by the State Legislature, these City laws were enacted pursuant to a City Council finding

that a serious public emergency continues to exist in the housing of a considerable number of persons in the city, which emergency was created by [World War II], the effects of war and the aftermath of hostilities ... [and therefore] such action, as a temporary measure to be effective until ... such emergency no longer exists ... [requires the council to intervene] to prevent exactions of unjust, unreasonable and oppressive rents and rental agreements....

N.Y.C.Admin.Code Sec. 26-401. This finding of emergency was renewed most recently by L.1985, c. 907 (effective Sept. 1, 1986).

Currently, there are two systems of rent regulation in New York: rent control and rent stabilization. Some of the nine rent-regulated condominium units at issue are rent controlled; the others are rent stabilized.

The maximum rent for each rent-controlled property is set by an administrative board on a biennial basis. N.Y.C.Admin.Code Sec. 26-405a(4), N.Y.Comp.Codes R. & Regs. tit. 9, Sec. 2201.5(a) ("9 NYCRR Sec. ----"). Upon certain enumerated contingencies, such as an increase in operating expenses, a landlord may petition the rent control board for an extraordinary increase. N.Y.C.Admin.Code Sec. 26-405g, 9 NYCRR Sec. 2202. So long as the tenant continues to pay the regulated rent, the landlord may not institute eviction proceedings. N.Y.C.Admin.Code Sec. 26-408a. Rent control does not require or contemplate a current written and signed lease. In this way, the rent-controlled tenancy survives the lease-term of the original lease instrument (and any written renewals thereof), and becomes a so-called "statutory" tenancy. See, e.g., W.T. Associates v. Huston, 123 Misc.2d 24, 472 N.Y.S.2d 562, 564 (Sup.Ct.1984).

The second program--rent stabilization--was adopted in 1969 in response to a perceived failure of rent control to adequately relieve the wartime housing emergency. N.Y.C.Admin.Code Secs. 26-501-520 (McKinney 1987); see 8200 Realty Corp. v. Lindsay, 27 N.Y.2d 124, 313 N.Y.S.2d 733, 742, 261 N.E.2d 647, 653 (1970). Unlike rent control, rent stabilization does require and contemplate a current written lease-contract, 9 NYCRR Sec. 2522.5, and requires the landlord to offer a renewal lease to the tenant before the end of each lease term. N.Y.C.Admin.Code Sec. 26-511c(4), 9 NYCRR Sec. 2522.5(b)(1). In that way, the rent-stabilized tenant, like his rent-controlled neighbor, enjoys occupancy for so long as he wishes. The City's rent guidelines board regularly fixes the maximum rent increase for one-year and two-year leases, N.Y.C.Admin.Code Sec. 26-512, the allowable percentage increase being based in part on market conditions. N.Y.C.Admin.Code Sec. 26-510b, 9 NYCRR Secs. 2521-22. It was thought that by adopting a regulatory scheme more sensitive to market prices, and giving property owners (at that time) a choice between rent control and stabilization, new construction would flourish and the persistent housing emergency would abate. 8200 Realty Corp., 313 N.Y.S.2d at 742-43, 261 N.E.2d at 653-54. However, the wartime housing emergency has been found to continue to this day, leaving most rental properties in New York subject to what the state's Court of Appeals once characterized as "an impenetrable thicket, confusing not only to laymen but to lawyers." In Matter of 89 Christopher, Inc. v. Joy, 35 N.Y.2d 213,

360 N.Y.S.2d 612, 618, 318 N.E.2d 776, 780 (1974).

C. Martin Act

Rent regulation is also implemented by certain provisions of New York's blue sky law, the Martin Act. N.Y.Gen.Bus.Law, Art. 23-A, Secs. 352-359-h (McKinney 1984). Essentially an antifraud securities statute, see Abrams v. Long Beach Oceanfront Associates Limited Partnership, 136 Misc.2d 137, 518 N.Y.S.2d 323, 325 (Sup.Ct.1987), the act regulates (inter alia ) the offer and sale of securities evidencing an ownership interest in residential real property that has undergone a conversion to condominium or cooperative ownership. When the owner of an apartment building proposes such a conversion, the ...