Resolution Trust Corp. v. CedarMinn Bldg. Ltd. Partnership

Decision Date27 March 1992
Docket Number91-1972,Nos. 91-1902,91-2287 and 91-2546,s. 91-1902
PartiesRESOLUTION TRUST CORPORATION, as Receiver for Midwest Savings Association, F.A., Appellant, v. CEDARMINN BUILDING LIMITED PARTNERSHIP, a Minnesota limited partnership; Cedar Minn Realty Corp., its general partner; Minncedar Land Limited Partnership; Midunited Building Company Limited Partnership, a Minnesota limited partnership; Midrock Land Corp., its general partner; RockMinn Leasing Corp., CedarMinn Building Limited Partnership, a Minnesota limited partnership; Chemical Bank; Norstar Bank; Federal Home Loan Bank of Des Moines, Appellees. CEDARMINN BUILDING LIMITED PARTNERSHIP, a Minnesota limited partnership; MinnCedar Land Limited, a Minnesota limited partnership; Midunited Building Limited Partnership, a Minnesota limited partnership; RockMinn Leasing Corp., a Minnesota corporation, Appellees, v. RESOLUTION TRUST CORPORATION, a government corporation, and in its capacity as Receiver of Midwest Federal Savings and Loan Association of Minneapolis and as Conservator and Receiver for Midwest Savings Association, F.A., Appellant. Midwest Federal Savings and Loan Association of Minneapolis, in Receivership; Midwest Savings Association, F.A., in Receivership and Conservatorship. RESOLUTION TRUST CORPORATION, as Receiver for Midwest Savings Association, F.A., Plaintiff-Appellee, v. CEDARMINN BUILDING LIMITED PARTNERSHIP, a Minnesota limited partnership; Cedar Minn Realty Corp., its general partner; MinnCedar Land Limited; Midunited Building Company Limited Partnership, a Minnesota limited partnership; Midrock Land Corp., its general partner; RockMinn Leasing Corp.; CedarMinn Building Limited Partnership, a Minnesota limited partnership, Defendants-Appellants. Chemical Bank; Norstar Bank; Federal Home Loan Bank of Des Moines, Defendants. CEDARMINN BUILDING LIMITED PARTNERSHIP, a Minnesota limited partnership; MinnCedar Land Limited, a Minnesota limited partnership; Midunited Building Limited Partnership, a Minnesota limited partnership; RockMinn Leasing Corp., a Minneso
CourtU.S. Court of Appeals — Eighth Circuit

Dorothy L. Nichols, Washington, D.C., argued (Richard T. Aboussie, Colleen B. Bombardier, Richard J. Osterman, Jr., Jose P. Ceppi, Lawrence H. Richmond and Terrill A. Rupp, on the brief), for Resolution Trust Corp.

Roger B. Kaplan, Woodbridge, N.J., argued (Laura V. Studwell, Woodbridge, N.J. and Robert R. Weinstine, Steven C. Tourek and David A. Kristal, St. Paul, Minn., on the brief), for CedarMinn Bldg. Ltd. Partnership, et al.

Before FAGG, Circuit Judge, TIMBERS, * Senior Circuit Judge, and MAGILL, Circuit Judge.

MAGILL, Circuit Judge.

The Resolution Trust Corporation (RTC) appeals the district court's determination that the repudiation of certain leases by RTC as the receiver for a failed savings and loan was untimely. We find this result in error and, therefore, reverse.

I.

Midwest Federal Savings & Loan Association was mired in financial straits. Conjuring up a short-term solution to keep federal regulators at bay, Midwest Federal contracted with a group of investment partnerships to sell and lease back nineteen branch offices of the thrift. Under the two sale-leaseback agreements reached in 1985 and 1986, Midwest Federal sold nineteen branch offices to the partnerships (hereinafter collectively referred to as CedarMinn) at inflated prices. CedarMinn, in turn, agreed to lease the branches back to Midwest Federal at inflated rents. This agreement enabled Midwest Federal to show significant income during the years the sales were recognized.

Midwest Federal wholly financed the purchase by CedarMinn through a non-recourse loan to the partnerships. Midwest Federal structured its lease payments to service the debt. Midwest Federal issued two letters of credit totalling $11.8 million to ensure payment. The agreements' entire risk, therefore, devolved upon Midwest Federal. 1 The district court found that the contractual rents under the agreements were more than five times the market rate. RTC v. CedarMinn Bldg. Ltd. Partnership, No. 4-90-828, slip op. at 24 (D.Minn. May 22, 1991).

The Federal Home Loan Bank Board on February 13, 1989, declared Midwest Federal insolvent and appointed the Federal Savings and Loan Insurance Corporation (FSLIC) as conservator. On May 4, 1989, FSLIC transferred the assets and liabilities of Midwest Federal to a new entity, Midwest Savings Association. FSLIC was appointed receiver of Midwest Federal and conservator of Midwest Savings.

Congress passed the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in August of 1989. Under FIRREA, RTC statutorily succeeded FSLIC as conservator of Midwest Savings. After negotiations aimed at selling Midwest Savings in its entirety failed, the conservator sold Midwest Savings' deposits to other institutions in October of 1990. On October 5, 1990, RTC was appointed receiver of Midwest Savings. Shortly thereafter, on October 29, 1990, RTC repudiated the CedarMinn leases.

RTC brought an action in district court seeking a declaratory judgment that its repudiation was timely. CedarMinn sued for damages and the right to draw on the letters of credit.

The district court held: (1) RTC's repudiation of the leases was invalid because it was not made within a reasonable period after RTC's appointment as conservator or receiver; and (2) CedarMinn was enjoined from drawing on the letters of credit so long as RTC continued to make timely rental payments because RTC's attempted repudiation did not constitute a default. Both sides appeal. 2

II.

RTC repudiated the leases under 12 U.S.C.A. § 1821(e)(1) (West 1989), 3 which provides that the conservator or receiver for any insured depository institution may disaffirm or repudiate any burdensome contract or lease. In so doing, the conservator or receiver must make the repudiation determination within a reasonable period after its appointment. 12 U.S.C.A. § 1821(e)(2). The liability for a conservator or receiver which timely repudiates a lease in which it was the lessee is limited to the contractual rent accrued through the

date of disaffirmance. 12 U.S.C.A. § 1821(e)(4)(B)(i). 4 The lessor loses any claim under an acceleration clause or penalty provision of the lease. 12 U.S.C.A. § 1821(e)(4)(B)(ii).

CedarMinn argues that the "reasonable period" for repudiation commences when RTC is first appointed as a conservator or receiver. CedarMinn contends the October 1990 repudiation, which came fourteen months after RTC's initial appointment under FIRREA, therefore, was untimely. RTC asserts that the statute gives both the conservator and receiver an independent right to repudiation and a separate "reasonable period" in which to make the repudiation decision. The period during which it could repudiate the leases, therefore, renewed itself when RTC was appointed receiver of Midwest Savings in October 1990. The district court declared the repudiation ineffective, ruling that RTC was required to make the repudiation determination within a reasonable period of its first appointment as conservator or receiver. RTC v. CedarMinn Bldg. Ltd. Partnership, No. 4-90-828, slip op. at 19-20 (D.Minn. Mar. 4, 1991).

A. Independent Repudiation Rights

The plain language of FIRREA grants independent rights of repudiation to RTC in both its capacity as conservator and receiver of an institution. Therefore, even though RTC may succeed itself in the capacity of conservator or receiver of the same institution, it retains the right to repudiate leases, regardless of whether it accepted the leases in its prior capacity.

The statute at issue reads in its...

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