Hyaire v. FDIC CV-93-274-SD 01/05/95 UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW HAMPSHIRE

Hyaire

v. Civil No. 93-274-SD

Federal Deposit Insurance Corporation as Receiver for Numerica Savings Bank; Shawmut Bank NH, f/k/a New Dartmouth Bank

O R D E R

In this civil action, Hyaire, a New Hampshire general

partnership, asserts breach of lease claims against defendants

Federal Deposit Insurance Corporation as Receiver for Numerica

Savings Bank (FDIC) and Shawmut Bank NH, formerly known as New

Dartmouth Bank (Shawmut). Presently before the court is FDIC's

motion for summary judgment on Counts I and II of Hyaire's Second

Amended Complaint, both of which assert that FDIC failed to

repudiate a lease between Hyaire and Numerica within a reasonable

period of time under

(e)(2). Also before the

court is Shawmut's motion to dismiss Count III under Rule

12(b)(6), Fed. R. Civ. P. Plaintiff objects to both motions. Background

On or about July 14, 1987, Hyaire and Numerica Savings Bank

entered into a lease agreement whereby Numerica agreed to lease

certain property owned by Hyaire on the corner of Mast Road and

Daniel Plummer Road in Goffstown, New Hampshire (the Mast Road

property). Said property was used by Numerica as a branch bank

location.

On October 10, 1991, the Office of Thrift Supervision

appointed FDIC as receiver for Numerica and six other New

Hampshire banks. On the same day, FDIC, both in its corporate

capacity and in its capacity as receiver for Numerica,entered

into aPurchase and Assumption Agreement (P&A) with New Dartmouth

Bank (NDB) under which NDB acguired certain Numerica assets and

liabilities. See P&A (attached as Exhibit D to FDIC's motion).

Section 4.6(b) of the P&A states.

The Receiver hereby grants to the Assuming Bank an exclusive option for the period of ninety (90) days commencing on the Commencement Date to cause the Receiver to assign to the Assuming Bank any or all lease agreements for leased Bank Premises, if any, which have been continuously occupied by the Assuming Bank from Bank Closing to the date of its exercise of such option, to the extent that such lease agreements can be assigned; provided, that the exercise of this option with respect to any lease must be as to all premises subject to such lease. If an assignment cannot be made of any such lease agreements, the Receiver may, in its discretion, enter into sublease agreements

2 with the Assuming Bank containing the same terms and conditions provided under existing lease agreements for such leased Bank Premises. The Assuming Bank shall give written notice to the Receiver within the option period of its intent regarding acceptance or non-acceptance (or sublease) of any or all lease agreements. The Assuming Bank hereby agrees to assume all leases assigned pursuant to this Section 4.6 and to enter into subleases provided for in this Section 4.6.

The lease agreement entered into between Hyaire and Numerica for

the Mast Road property was one of the leases NDB could elect to

take assignment of under section 4.6(b).

By letter dated November 19, 1991, FDIC reminded NDB of its

options under section 4.6(b), and also reguested, under section

4.6(f) of the P&A, that NDB make monthly lease payments for bank

premises leased by the former banks (in this case, Numerica) to

the appropriate third parties rather than to the Receiver.

Letter from Jan Simpson, FDIC Liguidation Assistant, to Daniel P.

Gobin, Vice President, Administration, NDB (attached as Exhibit G

to FDIC's motion). The letter further reguired NDB to include

with said payments a statement indicating that "New Dartmouth

Bank is acting as agent for the Federal Deposit Insurance

Corporation as receiver for" the former bank and that the payment

"in no way constitutes ratification of the contract."

.

By letter dated January 8, 1992, Gobin notified FDIC that,

3 pursuant to section 4.6(b) of the P&A, NDB was exercising its

option "not to accept an assignment, or sublease, of the lease

between the former Bank #4408 [Numerica] and Hyaire General

Partners for the leased Bank Premises located at 558 Mast Rd.,

Goffstown, NH." Letter from Gobin to FDIC, Receiver of Numerica

(attached as Exhibit I to FDIC's motion and as Exhibit B to

Hyaire's objection).

FDIC, in turn, notified Hyaire by letter dated February 14,

1992, that "the Receiver has elected to disaffirm the referenced

contract1 as of April 30, 1992, to the full extent, if any, that

it represents an enforceable obligation of the [Numerica Savings]

Bank and the Receiver as successor thereto." Letter from FDIC to

Hyaire (attached as Substituted Exhibit M to FDIC's motion).

Prior to notifying FDIC that it was opting not to accept an

assignment or sublease of the Mast Road property, NDB expressed

its interest in remaining at the Mast Road location in a

December 9, 1991, letter to Hyaire. See Letter from Tony

Bammarito, AVP-Facilities Management, to Hyaire (attached as

Exhibit H to FDIC's motion). The letter further stated, "While

New Dartmouth Bank expresses its interest in the property, the

negotiating of financial terms and conditions acceptable to both

1The "referenced contract" is identified in the heading of the letter as "Lease Agreement - 558 Mast Road Goffstown, New Hampshire 03045."

4 parties will be critical in the decision to retain the current

premises."2

Hyaire and NDB subsequently entered into negotiations

regarding the lease of the Mast Road property. See Letters

attached as Exhibits N and 0 to FDIC's motion; Affidavit of

Gossett W. McRae 5 7 (attached to Hyaire's objection). These

negotiations broke down in May of 1992, and by letter dated

November 12, 1992, NDB notified Hyaire of its intent to vacate

the Mast Road property effective December 15, 1992. McRae

Affidavit 5 7; Letter from Bammarito to McRae (Exhibit 0). NDB

vacated the Mast Road property on December 15. McRae Affidavit

5 7. This action followed.

2In anticipation of working out a new lease for the Mast Road property with Hyaire, NDB arranged to purchase the furniture, fixtures, and equipment located on said premises from FDIC. See Letter from Gobin to Bob Riley, Section Chief, FDIC (attached as Exhibit J to FDIC's motion); Letter from Riley to Gobin (Exhibit K); Settlement Account Transaction Form (Exhibit L ) . In the letter initiating said purchase, the Mast Road property was identified under "[p]remises which were under lease by the former banks that New Dartmouth Bank has formerly notified the FDIC of its intention to vacate, which premises New Dartmouth Bank fully intends to negotiate successor leases for and occupy beyond the April 7, 1992 vacancy date." Letter from Gobin to Riley at 2 (Exhibit J ) .

5 Discussion

A. FDIC's Motion for Summary Judgment

1. Summary Judgment Standard

Under Rule 56(c), Fed. R. Civ. P., summary judgment is

appropriate "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."

Summary judgment is a procedure that involves shifting burdens between the moving and the nonmoving parties. Initially, the onus falls upon the moving party to aver "'an absence of evidence to support the nonmoving party's case.'" Garside v. Osco Drug, Inc.,

(1st Cir. 1990) (guoting Celotex Corp. v. Catrett,

(1986)). Once the moving party satisfies this reguirement, the pendulum swings back to the nonmoving party, who must oppose the motion by presenting facts that show that there is a "genuine issue for trial." Anderson v. Liberty Lobby, Inc.,

(1986) (citing Fed. R. Civ. P. 56(e)) . . . .

LeBlanc v. Great American Ins. Co.,

(1st Cir.

1993), cert, denied. ___ U.S. , 114 S. C t . 1398 (1994).

In determining whether summary judgment is appropriate, the

court construes the evidence and draws all justifiable inferences

in the nonmoving party's favor.

.

6 2. Count I

Under the Financial Institutions Reform, Recovery and

Enforcement Act of 1989 (FIRREA),

Stat.

183 (codified in scattered sections of 12 U.S.C.), FDIC, as

receiver for Numerica, had the authority to disaffirm or

repudiateany contract or lease (1) to which Numerica was a

party, (2) the performance of which FDIC, in its discretion,

determined to be burdensome, and (3) the disaffirmance of which

FDIC, in its discretion, determined would "promote the orderly

administration of [Numerica's] affairs."

(e)(1).

See also Lawson v. FDIC,

(1st Cir. 1993). FDIC was

further required to "determine whether or not to exercise the

rights of repudiation . . . within a reasonable period following"

its appointment as a receiver.

(e) (2) .

In Count I, Hyaire asserts.

Despite the notice sent to Hyaire on February 14, 1992, the FDIC did not determine to disaffirm the Lease as of that date, and had no intention of doing so, and in fact the FDIC and/or its designee New Dartmouth Bank occupied the Leased Premises well after April 30, 1992. The FDIC did not make a determination to repudiate the Lease within a reasonable period following its appointment. Since the FDIC did not exercise its right of repudiation under

(e) within a reasonable period, no such right of repudiation of the Lease is available to the FDIC. Therefore, §14.1.1 of the Lease controls, and Hyaire is entitled to the full

7 amount of accelerated rent until the expiration of the Lease term, along with appropriate costs, interest and attorneys' fees.

Second Amended Complaint 55 17-19.

It is undisputed in this action that FDIC notified Hyaire in

a letter dated February 14, 1992, that it had elected to

disaffirm the lease on the Mast Road property as of April 30,

1992. The evidence submitted by FDIC further shows that FDIC did

not occupy the Mast Road property after April 30, 1992.

Affidavit of Paula Fierravanti 5 11 (attached as Exhibit A to

FDIC's motion). However, Hyaire contends that the continued

occupancy of the Mast Road property by NDB after April 30, 1992,

renders FDIC's repudiation of the lease ineffective. The court

finds this argument to be entirely without merit.

The evidence before the court clearly demonstrates that NDB

and Hyaire were in the process of negotiating a new lease

agreement at the time FDIC's repudiation of the original lease

between Hyaire and Numerica became effective. The evidence

further shows that after April 30, 1992, NDB continued to occupy

the Mast Road property and to pay the monthly rental rate set

forth in the original lease as "a gesture of good faith" in its

negotiations with Hyaire toward a new lease "which reasonably

reflects current market conditions." Letter from Robert P.

Keller, President and CEO of NDB to McRae (attached to FDIC's motion as part of Exhibit 0). However, there is no evidence

before the court which shows, or even suggests, that FDIC was

involved in the lease negotiations between NDB and Hyaire, or

that NDB, in attempting to negotiate a new lease with Hyaire, was

acting on FDIC's behalf.

On the basis of the evidence before it, the court finds and

rules that FDIC's February 14, 1992, letter to Hyaire constitutes

an effective repudiation of the lease in guestion under

(e)(1). The court further finds that the evidence before

it is insufficient to support a finding that said repudiation was

somehow altered or rendered ineffective by the subseguent conduct

of FDIC or NDB. FDIC's motion for summary judgment is therefore

granted as to Count I .

3. Count II

In Count II, Hyaire asserts.

If the FDIC's notice date of February 14, 1992 is taken to be the effective date of its determination to repudiate the Lease, that date also is beyond a reasonable time following the FDIC's appointment provided in

(e) (2) .

Second Amended Complaint 5 21. Therefore, Hyaire maintains, FDIC

had no right of repudiation and section 14.1.1 of the lease

controls.

5 22.

FIRREA does not define what constitutes "a reasonable

period" under section 1821(e)(2). Instead, "[t]he amount of time that is reasonable must be determined according to the

circumstances of each case." RTC v. Cedarminn Bldq. Ltd.

Partnership,

, 1455 (8th Cir.), cert, denied, ___

U.S. ___ , 113 S. C t . 94 (1992). See also Monument Square

Assocs., Inc. v. RTC,

(D. Mass. 1991)

(whether the receiver "acted within a reasonable period should be

determined by looking at the circumstances of each case").3

On October 10, 1991, FDIC was appointed as receiver for

seven New Hampshire banks, including Numerica. "The simultaneous

closing of these seven banks was one of the largest bank closings

ever undertaken at one time by the FDIC." Affidavit of Paula

Fierravanti 5 4 (attached as Exhibit A to FDIC's motion).

FDIC Non-Asset Litigation Specialist Paula Fierravanti

indicates that in larger bank closings

(such as the closing of Numerica and other banks on October 10, 1991 in New Hampshire), it has been the practice of the FDIC to use a Purchase and Assumption Agreement under which an assuming bank has a ninety-day option period, with respect to any of the agreements under which the failed bank(s) leased bank premises, to take either an assignment of the lease or, alternatively, a sublease containing the same terms and conditions.

3The court notes that "Congress initially proposed limiting the reasonable period to 90 days, see H.R. Rep. No. 54(1), 101st Cong., 1st Sess. 331 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 127, but subseguently eliminated that provision." Monument Square, supra,

n.8. See also Cedarminn, supra, 956 F.2d at 1455 n.13; RTC v. United Trust Fund, Inc.,

(S.D. Fla. 1991).

10 Fierravanti Affidavit 5 6. Under the terms of the October 10,

1991, P&A, NDB was given such an option with respect to the lease

on the Mast Road property. See P&A § 4.6(b).

By letter dated January 8, 1992, NDB notified FDIC of its

decision not to accept an assignment or sublease of the lease on

the Mast Road property. Approximately five weeks later, FDIC

notified Hyaire of its decision to disaffirm said lease under

(e)(1). Accordingly, approximately four months

elapsed between FDIC's appointment as receiver for Numerica and

its disaffirmance of Numerica's lease on the Mast Road property.

Hyaire contends that, despite these undisputed facts,

summary judgment is inappropriate because "[t]he important facts,

such as what investigation FDIC-Receiver made into Hyaire's

Lease, what calculation or weighing of factors it made with

respect to whether Hyaire's Lease was burdensome, and most

importantly, how much time the investigation with respect to

Hyaire's Lease took, are conspicuously absent from the record."

Plaintiff's Objection at 8. However, the determination as to

whether a lease is "burdensome" and whether disaffirmance of the

lease would "promote the orderly administration" of a failed

bank's affairs are matters left to the FDIC's discretion under

section 1821(e)(1). Here, the letters of negotiation between

Hyaire and NDB, discussed infra at pp. 4-5, reveal a declining

real estate market and a corresponding drop in property rental

11 rates. This evidence shows that performance of the lease in

question, which was based on rental rates higher than the current

market rates, would have been burdensome to FDIC. See, e.g.,

1185 A v e . of Americas Assocs. v. RTC,

(2d Cir.

1994). Hyaire has submitted no other evidence showing that

FDIC's determination to disaffirm the lease was an abuse of its

discretion under section 1821(e)(1) or that the four months it

took FDIC to make said determination was an unreasonable period

of time.

Under the circumstances of this case, the court finds and

rules that FDIC's decision to disaffirm the lease on the Mast

Road property was made within a reasonable period of time. See,

e.g., 1185 Ave. of Americas Assocs., supra,

(where

assuming bank had been given 90-day option to accept assignment

of lease, it was not unreasonable for RTC to delay decision to

repudiate the lease in question until the end of that time

period); Hackel v. FDIC,

, 291 n.5 (D. Mass.

1994) (four and one-half months between appointment and

disaffirmance held to be reasonable where plaintiff failed to

introduce evidence to show that said period of time was

unreasonable under the circumstances); Fleet Na t '1 Bank v. FDIC,

(D. Mass. 1994) (repudiation of lease 60

days after FDIC's appointment as receiver not unreasonable);

Monument Sguare, supra,

(three and one-half

12 months between appointment as receiver and disaffirmance of lease

not unreasonable). Therefore, FDIC is not bound by the terms of

the lease, and Hyaire's damages are limited under

(e) (4) (A) - (B) .4

FDIC's motion for summary judgment is granted as to Count

II.

B. Shawmut's Motion to Dismiss

Shawmut moves to dismiss Count III of Hyaire's Second

Amended Complaint under Rule 12(b)(6), Fed. R. Civ. P. In

opposition to said motion, Hyaire submits a memorandum that makes

reference to several of the documents attached to FDIC's motion

for summary judgment and is itself accompanied by matters outside

the pleading. Accordingly, pursuant to Rule 12(b) Shawmut's

motion to dismiss is hereby converted to one for summary

judgment. The parties shall have until February 6, 1995, to file

any additional materials in support of or in opposition to

Shawmut's motion.

Conclusion

For the reasons set forth herein, FDIC's motion for summary

4Section 1821(e) (4) limits FDIC's liability to Hyaire for damages to "the contractual rent accruing before the later of the date--(I) the notice of disaffirmance or repudiation is mailed; or (II) the disaffirmance or repudiation becomes effective . . . ."

13 judgment on Counts I and II (document 26) is granted. Shawmut's

motion to dismiss (document 27) will be treated as a motion for

summary judgment. The parties shall file all additional

materials in support of or in opposition to Shawmut's motion by

February 6 , 1995.

SO ORDERED.

Shane Devine, Senior Judge United States District Court

January 5, 1995

cc: Stephanie A. Bray, Esg. Steven E. Hengen, Esg. Joseph F. Shea, Esg.

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