Winkal Mgmt., LLC v. Fed. Deposit Ins. Corp.
Winkal Mgmt., LLC v. Fed. Deposit Ins. Corp.
Opinion of the Court
Winkal Management, LLC ("plaintiff" or "Winkal") brings this action against the Federal Deposit Insurance Corporation ("defendant" or "FDIC") in its capacity as the Receiver for now-defunct Washington Mutual Bank ("WaMu"). Winkal seeks compensation under
Currently before the Court are the parties' cross-motions for summary judgment. See Dkts. ## 33, 34. Upon consideration of the parties' submissions and the entire record, Winkal's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART without prejudice, and the FDIC's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART. In particular, I conclude that Winkal is entitled to summary judgment on its "unpaid rent" claim for the expenses associated with repairing the Premises. The particular amount of damages owed to Winkal, however, remains an open question, and I thus deny Winkal summary judgment on the issue of damages without prejudice. With respect to the FDIC's summary judgment motion, I conclude that the FDIC has shown, under
BACKGROUND
A. The Winkal-WaMu Lease
On December 17, 2007, Winkal entered into a ten-year lease agreement (the "Lease") with WaMu for commercial retail space at a property located in San Gabriel, California. See Decl. of Richard Yarmy ("Yarmy Decl.") [Dkt. # 34-3] Ex. A ("Lease"). The Lease contemplated that WaMu would lease the Premises from Winkal for the purposes of operating a bank branch. Lease art. I, § 3. The Lease set forth the mutual rights and obligations of Winkal and WaMu, as well as provisions governing the rent due to Winkal from WaMu. Three portions of the Lease are particularly relevant here.
First, in Article XXV of the Lease, Winkal agreed to perform certain "Landlord's Work" prior to turning over the property to WaMu. Specifically, Winkal agreed to: 1) install a new roof; 2) install a new HVAC system; and 3) resurface the parking lot.
Second, Article VI of the Lease establishes Winkal's and WaMu's obligations *37with respect to "Maintenance and Repair of the Premises." Lease art. VI. The provision specifies that "[a]s additional rent and at the sole cost and expense of Tenant, Tenant shall at all times keep all parts of the Premises ... in suitable condition for Tenant's conduct of business and in good order, good condition and good repair."
Third, in a section of Article VII entitled "Alterations and Improvements," the Lease contains provisions governing any "Tenant's Work" that WaMu elected to perform.
B. WaMu's Commencement of "Tenant's Work" and Subsequent Receivership
In anticipation of its occupancy, WaMu contracted with an architectural firm to develop plans for WaMu's "Tenant's Work" on the Premises. See Decl. of Donald J. Rethman ("Rethman Decl.") [Dkt. # 34-4] ¶ 3. The planned work included, among other things, the addition of new bathroom facilities, storage areas, administrative offices, and a sprinkler system; upgrades to the floors, doors, and lighting; and complete replacement of all plumbing and electrical and mechanical systems.
Following approval of the "Tenant's Work" plans, WaMu contracted with Metro Construction Company to complete the planned construction activities. See Decl. of George Lomeli ("Lomeli Decl.") [Dkt. # 34-5] ¶¶ 3-4. The agreement projected that the work would cost $547,170 in total.
WaMu's stop-work order to Metro Construction was not a coincidence: The now-defunct bank was in the process of entering into receivership. On September 25, 2008, the FDIC was appointed WaMu's Receiver and assumed responsibility for WaMu's financial dealings and contracts. See Compl. Ex. 2 [Dkt. # 1-2]. WaMu *38never opened for business on the Premises. Yarmy Decl. ¶ 9.
C. The FDIC's Surrender of the Premises and Repudiation of the Lease
In late January 2009, the FDIC, acting in its capacity as Receiver for WaMu, surrendered the Premises to Winkal.
Not surprisingly, considering that Metro Construction had already performed over $200,000 worth of demolition and preparation work on the Premises, the evidence demonstrates that the Premises was in a state of disrepair when surrendered. Yarmy Decl. ¶¶ 8-11; Decl. of David Mouck ("Mouck Decl.") [Dkt. # 34-6] Ex. A, at 7.
In June 2009, Winkal entered into a lease with a company called Nails Supply House, Inc. ("Nails Supply").
D. Winkal's Proof of Claim and Judicial Action
In mid-2009, as it was performing work to restore the Premises, Winkal filed a Proof of Claim with the FDIC. See Proof of Claim. The Proof of Claim sought a total of $427,499.33 from the FDIC, which comprised: 1) $50,655.33 in "[u]npaid rental due under the lease through the date of [the] Notice of Lease Repudiation"; 2) $130,633 in [a]ctual direct compensatory damages in the form of out-of-pocket costs incurred by Winkal to "prepare space for tenant occupancy"-that is, the amount Winkal spent to perform its "Landlord's Work"; and 3) $246,211 in "[a]ctual direct compensatory damages caused by the Tenant *39as a result of its partial demolition of the leasehold property which the Landlord is now required to correct and/or restore." Proof of Claim Ex. A.
In November 2009, the FDIC issued its decision on Winkal's Proof of Claim. The FDIC accepted and paid Winkal's claim for $55,655.33 in "unpaid rental," but denied Winkal's "Landlord's Work" claim and its claim for expenses required to "correct and/or restore" damage caused by WaMu's demolition of the Premises. See Yarmy Decl. Ex. J, Pl.'s Mot. Summ. J. Ex. 5 [Dkt. # 34-7]. As a basis for its denial, the FDIC explained that Winkal's claimed expenses were either associated with work Winkal was required to perform under the Lease, or represented categories of damages that are not recoverable under the relevant statutory provisions. See Pl.'s Mot. Summ. J. Ex. 5, Answers of FDIC to Winkal's Interrogs. 1-4.
On January 15, 2010, Winkal sued in this Court to challenge the FDIC's denial of its claims. See generally Compl. [Dkt. # 1]. In its First Amended Complaint, Winkal asserts three claims-one for breach of contract, one for unjust enrichment, and one for promissory estoppel-each seeking damages in excess of $375,000. See First Am. Compl. ¶¶ 26-45. Following a lengthy stay of this case pending resolution of a related action in California, the parties completed discovery and filed the cross-motions for summary judgment currently pending before this Court.
STANDARD OF REVIEW
A. FIRREA
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") sets forth the FDIC's powers and duties when acting as receiver of a failed financial institution. See Pub. L. No. 101-73,
Winkal does not challenge the FDIC's authority to repudiate the Winkal-WaMu Lease. This case instead concerns the extent of the FDIC's liability for its repudiation. Under FIRREA, courts determine a party's available damages not by applying "ordinary contract principles," but instead by looking to FIRREA's detailed regime governing the FDIC's repudiation liability. MCI Commc'ns Servs., Inc. v. FDIC ,
The legal questions in this case center around two subsections of FIRREA. The first is FIRREA's "general" damages provision, located in § 1821(e)(3). As relevant here, that provision states: "Except as otherwise provided in subparagraph (C) and paragraphs (4), (5), and (6), the liability of the conservator or receiver for the disaffirmance or repudiation of any contract" shall be "limited to actual direct compensatory damages."
Subsection (e)(3) thus points to a second relevant provision, subsection (e)(4). Subsection (e)(4) concerns the FDIC's liability for disaffirming or repudiating "a lease under which the insured depository institution was the lessee."
A party seeking damages for the repudiation of a contract must first file a Proof of Claim with the FDIC requesting the relevant damages. Only after doing so may a party seek judicial review. See Westberg v. FDIC ,
B. Summary Judgment
Summary judgment is proper when the pleadings and evidentiary record show that there is "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see Celotex Corp. v. Catrett ,
When evaluating cross-motions for summary judgment, the reviewing court examines each motion "separately on its own merits to determine whether any of the parties deserves judgment as a matter of law." Lee Mem'l Health Sys. v. Burwell ,
ANALYSIS
Citing FIRREA's repudiation-liability provisions, Winkal contends that it is entitled to three categories of payments *41from the FDIC. First, Winkal argues that it is entitled to recover its expenditures for performing the "Landlord's Work" under FIRREA's "actual direct compensatory damages" provision.
A. Winkal's Claim for Performing "Landlord's Work"
Winkal first argues that it is entitled to recover $130,633 in "reliance damages," which represents the amount Winkal spent to perform its "Landlord's Work" in preparation for turning the Premises over to WaMu. Winkal argues that such reliance damages are recoverable under FIRREA's general damages provision, which allows recovery of "actual direct compensatory damages." Mem. P. & A. Supp. Pl.'s Mot. Summ. J. ("Winkal Mem.") 12 (quoting
Winkal correctly notes that FIRREA's general damages provision extends the repudiation liability of a receiver to "actual direct compensatory damages,"
" 'Any,' after all, means any." Ford v. Mabus ,
*42
B. Winkal's Claim for Repairing and Restoring Premises
Winkal next claims that it is entitled to recover expenses associated with repairing the damage done to the Premises by WaMu and restoring the Premises to allow for occupancy by a new tenant. Winkal argues that such recovery is appropriate under the "unpaid rent" provision of FIRREA because the Lease bound WaMu to maintain the Premises as "additional rent" for WaMu's occupancy. Lease art. VI. Under that theory, Winkal seeks: 1) its out-of-pocket expenses to repair the Premises, which total $101,046.85; and 2) the $86,352.95 expended by Nails Supply to complete the necessary repairs. See Pl.'s Reply 14. For the reasons discussed below, I conclude that Winkal is entitled to summary judgment on the FDIC's liability under the "unpaid rent" provision, but I deny without prejudice summary judgment on the issue of Winkal's damages.
1. Liability
As discussed, pursuant to FIRREA's lease repudiation provisions, a lessor such as Winkal has a "claim for any unpaid rent" owed by the institution-lessee "as of the date of the appointment" of a receiver.
Central to the analysis is Article VI of the Lease, which sets forth the parties' duties for "maintenance and repair of the premises." Lease art. VI (capitalization altered). Article VI specifies that "[a]s additional rent and at the sole cost and expense" of WaMu, WaMu "shall at all times keep all parts of the Premises ... in good order, good condition and good repair."
Pursuant to Article VI of the Lease, then, it was WaMu who took on the "duty" to maintain and keep the Premises in good order and to return the Premises to Winkal in "as good condition" as when the Lease commenced. Qi ,
The FDIC's primary counterargument is that it owes no "unpaid rent" to Winkal because WaMu's obligation to surrender the Premises in as good condition as received was not "due," and thus had not accrued, at the time of the receivership. See, e.g. , FDIC Opp'n 6-8. That argument makes little sense when it comes to ongoing contractual obligations, such as the obligation to maintain a leased property. The FDIC asserts that ongoing contractual obligations accrue only at the end of the original contract term. Yet in the context of a repudiation, the appointment of a receiver necessarily occurs prior to the end of the original contract term. Thus, under the FDIC's "accrual" theory, it would be virtually impossible for a property-lessor such as Winkal to recover "unpaid rent" following a FDIC repudiation, even when a lessee-institution with a contractual obligation to maintain the leased property leaves the property in a state of disrepair.
*44Our Circuit has previously rejected similar FDIC arguments. See Office & Prof'l Emps. Int'l Union, Local 2 v. FDIC ,
2. Damages
The fact that the FDIC is liable under the "unpaid rent" provision does not answer just how much money Winkal may recover. As discussed, the FDIC's "unpaid rent" liability stems from WaMu's contractual obligations to "keep all parts of the Premises ... in good order, good condition and good repair" and to "surrender the Premises ... in as good condition as the same is on the Commencement Date." Lease art. VI. As such, the amount of "unpaid rent" due is the value of the work: 1) that is necessary to return the Premises to "as good condition as" it was on the Commencement Date and 2) that is chargeable to WaMu as "additional rent" under Article VI of the Lease, rather than carved out and made chargeable to Winkal under other provisions of the Lease. From those two limitations, it follows that Winkal is not entitled to recover the value of construction work for which it, and not WaMu, was responsible. Nor is Winkal entitled to recover the cost of construction activities beyond the scope of work necessary to repair (rather than upgrade) the Premises.
Under those principles, the question of Winkal's asserted damages remains open. To begin, on Winkal's own admission, "the parties dispute a $47,507 charge from the Gill Company for reestablishing electrical service to the building and related electrical work," and Winkal thus has not pursued summary judgment on that set of expenses. Pl.'s Statement of Genuine Issues Opp'n to FDIC's SOMF 7 n.3 [Dkt. # 37-1]. In addition, and unsurprisingly given that the FDIC's liability was not settled at the time Winkal filed its motion for summary judgment, neither Winkal nor the FDIC has briefed the question of damages in a way that reflects the proper scope of the FDIC's "unpaid rent" liability. In general, Winkal has not adequately explained why certain expenses are properly categorized as necessary repairs under Article VI of the Lease-and thus encompassed by the "unpaid rent" provision-rather than upgrades contemplated by WaMu's abandoned "Tenant's Work" plans. Winkal has not clarified, for example, why it should be entitled to recover expenses associated with installing a "fire suppression system" when there was no such system on the Premises when WaMu took possession. See Rethman Decl. ¶ 5. The same goes for the expenses associated with bringing the building into ADA compliance.
In short, I am not presently convinced, given the current record and briefing, that there remain no genuine issues of material fact with respect to Winkal's damages. After considering this Court's liability holding and, in particular, the issues just discussed, Winkal may file a renewed summary judgment motion addressing damages. The parties may also, of course, seek to resolve the outstanding issue of damages without need for additional intervention by this Court. For now, I will deny summary judgment to Winkal on the question of damages without prejudice.
C. Winkal's Claim for Completing "Tenant's Work"
The final category of damages Winkal seeks is $153,078.33 for hiring a contractor *45to complete WaMu's abandoned "Tenant's Work." Pl.'s Mem. 15. According to Winkal, that work would have resulted in a "completely upgraded Premises, including all ADA access requirements, a remodeled exterior, and all new interior improvements as required for a typical bank building." Winkal SOMF ¶ 43. Winkal argues that its "Tenant's Work" claim represents "additional 'unpaid rent' " under
Winkal's "Tenant's Work" claim falters from the start. That is because the claim was not among the categories of claims presented to the FDIC in Winkal's Proof of Claim. Winkal concedes that FIRREA "requires a claimant to file an administrative claim with the FDIC before it seeks damages in district court." Pl.'s Mem. 7 (citing
Winkal's Proof of Claim sought reimbursement for the work performed to "correct and/or restore" the Premises "as a result of" WaMu's "partial demolition of the leasehold property."
Therefore, this is not a situation in which Winkal is seeking an additional "dollar amount" for "the same" claim originally filed with the FDIC. Interlease Corp. v. FDIC ,
To be sure, Winkal is not receiving the same relief to which it would be entitled were this a traditional contract case. But this half-a-loaf result is dictated by FIRREA's limitations on the FDIC's repudiation liability-limitations that, according *46to our Circuit, help advance Congress's "interest of maximizing the number of creditors who can recover some portion of what they are owed" by failed institutions such as WaMu. Nashville Lodging Co. ,
CONCLUSION
For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART without prejudice Winkal's Motion for Summary Judgment and GRANTS IN PART and DENIES IN PART the FDIC's Motion for Summary Judgment. An Order consistent with this decision accompanies this Memorandum Opinion.
The FDIC unconvincingly disputes that the Premises was in a state of disrepair when turned over to Winkal, going so far as to argue that the Premises was in better condition than when WaMu took possession because "a significant amount of Tenant Work had taken place." Opp'n of FDIC to Pl.'s Mot. Summ. J. ("FDIC Opp'n") [Dkt. # 36] 20; see also id. at 20-21. That FDIC argument ignores that the key portion of the completed Tenant's Work was demolition work-a fact entirely consistent with the evidence that Winkal inherited a Premises in a "state of destruction." Pl.'s Reply 11; see also, e.g. , App. to FDIC Opp'n [Dkt. # 36-3] 22 (Habben's Home Inspections Report) ("Much work will be needed to return this property to rentable condition, most notably is the electrical service and plumbing, along with slab repairs.").
Our Circuit has not addressed the interplay between
In addition, as the Third Circuit has persuasively explained, Winkal's reading of (e)(4)(A) renders subsection (e)(4)(B)(iii) superfluous: If subsection (e)(4)(A) only precludes recovery of damages flowing directly from a repudiation, then the (e)(4)(B)(iii) "unpaid rent" exception would be unnecessary because "[s]uch unpaid rent is not a claim that steins from the disaffirmance or repudiation of the lease." First Bank Nat'l Assn ,
Contrary to the FDIC's argument, the fact that Nails Supply agreed to perform some of the necessary repair work does not excuse the FDIC from its statutory duty to pay any "unpaid rent" owed to Winkal at the time of the appointment. Indeed, as Winkal points out, the value of the work performed by Nails Supply "is a means by which to calculate" the amount of WaMu's unpaid rent obligation. Pl.'s Opp'n to Def.'s Mot. Summ. J. [Dkt. # 37] 11 n.8.
Winkal also hints that its "Tenant's Work" claim falls within subsection (e)(3)'s allowance for "actual direct compensatory damages." That claim fails for the same reasons explained in the discussion of Winkal's "Landlord's Work" claim.
Because Winkal's failure to exhaust is dispositive, I do not address the validity of Winkal's "Tenant's Work" claim beyond briefly noting my skepticism. At bottom, Winkal's claim seeks to avoid its loss of "the benefit of its bargain to receive $547,170 of work to be completed on its Premises" and "greater rental [rates] for the Premises than it was later able to receive." Pl.'s Mem. 15 n.6 (emphasis omitted); Mouck Decl. Ex. A, at 6. Our Circuit and others, however, have noted that FIRREA bars recovery of those kinds of expectation damages. See Office & Prof'l Emps. Int'l Union, Local 2 ,
Winkal's amended complaint also seeks damages under the contract law doctrines of unjust enrichment and promissory estoppel. See First Am. Compl. Claims II-III. The purpose of FIRREA's finely wrought damages regime, however, is to "limit[ ] damages for repudiation to those enumerated" in the statute. Alltel Info. Servs., Inc. , 194 F.3d at 1039. FIRREA's scheme would be all but meaningless were a company able to sidestep those statutory limitations by asserting alternative contract law theories such as those Winkal presses. Cf. MCI Commc'ns Servs., Inc. ,
Reference
- Full Case Name
- WINKAL MANAGEMENT, LLC v. FEDERAL DEPOSIT INSURANCE CORPORATION
- Cited By
- 2 cases
- Status
- Published