Resolution Trust Corp. v. Diamond
| Decision Date | 20 January 1995 |
| Docket Number | D,No. 55,55 |
| Citation | 45 F.3d 665 |
| 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 |
Dennis S. Klein, Washington, DC (Hughes Hubbard & Reed, of counsel), for plaintiff-appellant Resolution Trust Corp.
Carter G. Phillips, Washington, DC (Richard D. Bernstein, Peter D. Keisler, Sidley & Austin, on the brief), for defendants-appellees Lillian Solomon, Horace Solomon, Ira Kaufman, Peggy Lehman, and Denise Tucker-Kellen.
G. Oliver Koppell, Atty. Gen. State of N.Y. , for defendants-appellees G. Oliver Koppell, Atty. Gen., Donald Halperin, Com'r of Div. of Housing and Community Renewal, and Selma Diamond, and for appellee Div. of Housing and Community Renewal.
Don D. Buchwald, New York City, for defendant appellee Susan Solomon Patullo.
Colleen F. McGuire, New York City, for defendant-appellee Lloyd Ribner, as Executor of the Estate of Muriel Ribner, deceased.
Before: PRATT, McLAUGHLIN and JACOBS, Circuit Judges.
This matter returns to us following a remand by the Supreme Court. See Solomon v. Resolution Trust Corp., --- U.S. ----, 115 S.Ct. 43, 130 L.Ed.2d 5 (1994). Our previous decision reversed an order granting summary judgment in favor of the tenants and the state, and remanded to the district court with instructions to enter judgment for the Resolution Trust Corporation ("RTC"). Resolution Trust Corp. v. Diamond, 18 F.3d 111 (2d Cir.1994). 1 The Supreme Court vacated that decision, and remanded for reconsideration in light of its decision in O'Melveny & Myers v. FDIC, --- U.S. ----, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994), an opinion issued several months after our opinion in Diamond.
Having carefully considered O'Melveny, as well as the briefs contesting its proper impact on Diamond, we now reinstate our previous decision, with one modification affecting the remaining lease term of rent controlled tenancies, and we remand with instructions that the district court enter judgment for the RTC in accordance with this opinion and the reinstated opinion.
A full statement of the facts is in our previous decision. We presume familiarity with that opinion, and recount here only the few facts that bear upon the impact of the Supreme Court's decision in O'Melveny.
The individual tenant-defendants occupy rent-regulated condominium apartments in New York City that are now owned by the RTC--as receiver for the failed Nassau Savings and Loan Association, F.A. In late 1990 and early 1991, the RTC repudiated the leasehold interests of the tenants pursuant to authority granted by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). See 12 U.S.C. Sec. 1821(e)(1). After encountering resistance from the tenants and New York's Attorney General, the RTC filed a complaint in the United States District Court for the Southern District of New York, asking for (inter alia ) a declaration that the RTC possessed the repudiation power that it had exercised. New York countered with a separate lawsuit that was consolidated with the RTC's case. After briefing by the parties, the district court concluded that these tenancies were "statutory tenancies" rather than traditional leaseholds and that the RTC therefore lacked the power under FIRREA to repudiate them. The district court accordingly entered summary judgment in favor of New York and the tenants.
We reversed the district court's decision, vacated the grant of summary judgment to New York and the tenants, and ordered that judgment be entered for the RTC. In so doing, we held that the tenancies at issue--albeit "statutory tenancies" according to state law--were nevertheless rooted in lease or contract, and were therefore subject to the RTC's repudiation power. Diamond, 18 F.3d at 121. Under FIRREA, after RTC repudiation, the tenant may choose to "remain in possession of the leasehold interest for the balance of the term of the lease...." 12 U.S.C. Sec. 1821(e)(5)(A)(ii). In deciding the remaining term of these rent-regulated tenancies, we looked to state law, and concluded that rent-stabilized tenants could remain until the expiration of their current lease, and rent-controlled tenants could remain until expiration of a two-year period "commencing on the January 1 of the last biennial review set by the statute prior to notice of repudiation." 18 F.3d at 124. New York and the tenants filed a petition for a writ of certiorari. In Solomon v. Resolution Trust Corp., --- U.S. ----, 115 S.Ct. 43, 130 L.Ed.2d 5 (1994), the Supreme Court remanded this matter to us for reconsideration in light of O'Melveny.
O'Melveny involved a suit brought in 1989 by the FDIC, acting as receiver for a failed savings and loan ("S & L"), against the law firm that had represented the S & L in two 1985 real estate syndications. The FDIC asserted state-law tort claims of professional negligence and breach of fiduciary duty. The defendant law firm, O'Melveny & Myers, successfully moved for summary judgment on the grounds (1) that it owed no duty to the bank or its affiliates to uncover the S & L's own fraud; (2) that knowledge of misconduct by S & L officers is imputed to the S & L, and therefore to a receiver that stands in its shoes; and (3) that the FDIC was estopped by that imputed knowledge from pursuing its tort claims against the law firm. O'Melveny, --- U.S. at ----, 114 S.Ct. at 2052. The Ninth Circuit reversed the district court's grant of summary judgment in favor of the law firm. FDIC v. O'Melveny & Meyers, 969 F.2d 744 (9th Cir.1992).
The Supreme Court granted certiorari to consider two issues: (1) whether federal common law, rather than state law, "determines whether the knowledge of corporate officers acting against the corporation's interest will be imputed to the corporation;" and (2) even if state law decides that question, whether federal common law will "determine[ ] the more narrow question whether knowledge by officers so acting will be imputed to the FDIC when it sues as receiver of the corporation." O'Melveny, --- U.S. at ----, 114 S.Ct. at 2052.
Noting that "the FDIC was asserting in this case causes of action created by California law," the Court answered the first question in the negative, finding the Ninth Circuit's reliance on federal common law "plainly wrong." Id. The circuit court had relied on three cases in divining a federal common-law basis for its decision. The Supreme Court distinguished those cases on the principle that, while a federal cause of action may be governed by federal policies, state-law causes of action are properly governed by state law:
In Cenco, where the cause of action similarly arose under state common law, the Seventh Circuit's analysis of the "circumstances under which the knowledge of fraud on the part of the plaintiff's directors [would] be imputed to the plaintiff corporation [was] merely an attempt to divine how Illinois courts would decide that issue." Schacht, 711 F.2d, at 1347 (citing Cenco, 686 F.2d, at 455). Likewise, in Investors Funding, the District Court analyzed the potential affirmative defenses to the state-law claims by applying "[t]he controlling legal principles [of] New York law." 523 F.Supp., at 540. In Schacht, the Seventh Circuit expressly noted that "the cause of action [at issue] arises under RICO, a federal statute; we therefore write on a clean slate and may bring to bear federal policies in deciding the estoppel question." 711 F.2d, at 1347.
O'Melveny, --- U.S. at ----, 114 S.Ct. at 2053 () (alterations in original). We quote this passage at length because, as discussed below, it furnishes a principal point of distinction from Diamond.
The Supreme Court in O'Melveny "turn[ed], then, to the more substantial basis for the [Ninth Circuit decision], which asserts federal pre-emption not over the law of imputation generally, but only over its application to the FDIC suing as receiver." --- U.S. at ----, 114 S.Ct. at 2053. That question is made to depend in part on the statutory provision that provided the FDIC with the authority to bring the action in the first instance--12 U.S.C. Sec. 1821(d)(2)(A)(i)--which is captioned "Powers and duties of [the FDIC] as ... receiver," and which states that "the [FDIC] shall ... by operation of law, succeed to ... all rights, titles, powers, and privileges of the insured depository institution...." The O'Melveny opinion construed this language to place the FDIC as receiver "into the shoes of the failed S & L, obtaining the rights of the insured depository institution that existed prior to receivership." O'Melveny, --- U.S. at ----, 114 S.Ct. at 2054 (internal quotations and citations omitted).
The Court rejected the FDIC's argument that this statutory provision "should be read as a nonexclusive grant of rights to the FDIC receiver, which can be supplemented or modified by federal common law," concluding that the argument is "demolished by those provisions of FIRREA which specifically create special federal rules of decision regarding claims by, and defenses against, the FDIC as...
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