## I N THE UNI TED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

No. 12-20367

EXCEL W ILLOWBROOK, L.L.C.; SOUTHSIDE/3500, LTD.; O RTB WAYSIDE, LTD.; M R/VM PARTNERS, LTD.; FL WESTHEIMER WILCHREST, LTD.; LSDSS RE ALTY GROUP, L.L.C.; EXCEL LITTLE YORK, L TD.; 3300 SAGE, LTD., Plaintiffs - Appellees

v. JP MORGAN CHASE BANK, NATIONAL ASSOCIATION., Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

A ppeal from the United States District Court for the Southern District of Texas

Consolidated with No. 12-20375 MR/VM PARTNERS, LTD., Plaintiff - Appellee

v. JPMORGAN CHASE BANK, N.A., U n i t e d S t a te s C o u r t o f A p p e al s F i f t h C i rc u i t 

## F I L E D January 10, 2014 Ly l e W . Cay ce Clerk Case: 12-20367 Document: 00512496731 Page: 1 Date Filed: 01/10/2014

### No. 12-20367

Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

A ppeal from the United States District Court for the Southern District of Texas

Consolidated with No. 12-20376 SOUTHSIDE/3500, LTD., Plaintiff - Appellee

v. JPMORGAN CHASE BANK, N.A., Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

A ppeal from the United States District Court for the Southern District of Texas

Consolidated with No. 12-20377 ORTB WAYSIDE, LTD.,

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### No. 12-20367

Plaintiff - Appellee

v. JPMORGAN CHASE BANK, N.A., Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

A ppeal from the United States District Court for the Southern District of Texas

Consolidated with No. 12-20378 EXCEL LITTLE YORK, LTD., Plaintiff - Appellee

v. JPMORGAN CHASE BANK, N.A., Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

A ppeal from the United States District Court for the Southern District of Texas

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### No. 12-20367 Consolidated with No. 12-20381 3300 SAGE, LTD., Plaintiff - Appellee

v. JPMORGAN CHASE BANK, N.A., Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

A ppeal from the United States District Court for the Southern District of Texas

Consolidated with No. 12-20382 FL WESTHEIMER WILCHREST, LTD.; LSDSS REALTY GROUP, L.L.C., Plaintiffs - Appellees

v. JPMORGAN CHASE BANK, N.A., Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

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### No. 12-20367

A ppeal from the United States District Court for the Southern District of Texas

Consolidated with No. 12-10784 WEICHSEL FARM LIMITED PARTNERSHIP, Plaintiff - Appellee

v.
JP MORGA N C H A S E B A N K , N

. A

. , S u c c e ssor-in-Interest to Washington Mutual Bank, Defendant - Appellant
FEDERAL DEPOSIT INSURANCE CORPORATION, a s R eceiver for Washington Mutual Bank, Intervenor - Appellant

A ppeal from the United States District Court f or the Northern District of Texas

Before HIGGINBOTHAM, CLEMENT, and PRADO, Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge: Washington Mutual B ank failed in 2008. Acti n g a s r e c eiver, the FDIC conveyed substantially all of W aMu’s assets and l iabilities to JPMorgan Chase, including certain long-term real-estate leases. At issue in this case is whether the owners of the leased tracts can enforce the leases a gainst Chase by virtue of the FDIC’s conveyance. The district court a warded summary j udgment to the landlords. We affirm.

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I. The facts of t his c ase are straightforward and undisputed. In early 2008, Washington Mutual B ank (“WaMu”) entered into lease agreements (“the Leases”) with several landlords (“the Landlords”) f or c ertain undeveloped tracts of l a nd, which WaMu planned to u se for future branch offices. However, WaMu failed on September 25, 2008, before it could complete any banking facilities on the tracts. Pursuant to i ts authority under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), t h e F D IC stepped into WaMu’s shoes and assumed all o f its assets and liabilities, including the Leases. The FDIC then s olicited bids from private financial institutions for t h e purchase and assumption of t h ose assets and l iabilities, ultimately accepting a $1.8 billion bid by JP Morgan Chase Bank, N.A. (“Chase”). After accepting Chase’s bid, the FDIC and Chase executed the Purchase and Assumption A g r e e m e n t ( t h e “ P & A A g r e e m e n t ” o r “ A g r e ement”). As relevant here, the Agreement split WaMu’s real-estate assets into “Bank Premises” and “Other Real Estate,” giving Chase a 90-day o ption to either a ccept or reject
assets t hat qualified as B ank Pre m i s e s b u t assigning a ll Other Real Estate to Chase outright. The Agreement defined Bank P r emises to include all banking facilities that WaMu owned or leased and actually occupied as of September 25, 2008, the date on which W aMu closed its doors. 1 

### The Agreement d efined Other Real Estate t o include “all interests in real estate” that did n ot qualify as Banking Premises, including a l l “ leasehold rights.” 2 

### It i s undisputed that WaMu

1 T he Agreem ent d ef

ined Bank P rem is es as “the b a n k i n g hous es , d rive- in bank ing f acilities , and teller f

ac i l i t i e s ( staf

f ed or autom ated ) together with ap p urtenant p ark ing,
s torage and s ervice f

acilities and s tructures connecting rem ote f acilities to bank ing hous es , and land on w hich the foregoing are located , that are ow ned or leas ed by [ WaM u] and that are occup ied by [ WaM u] as of Bank Clos ing. ”

2 The Agreem ent d ef

ined O ther Real Es tate as “all interes ts in real es tate ( other than Bank Prem is es and Fixtures ) , includ ing but n o t l i m i t ed to m ineral rights , leas ehold rights , cond om inium and coop erative interes ts , air rights and d evelop m ent rights that are ow ned by


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had not yet completed or occupied banking facilities on any o f the tracts subject
to the Leases a s of September 25, 2008. Hence, under the plain language of the Agreement, the Leas e s qualified as Other Real Estate assigned outright to Chase. Notably, Chase n ot only accepted the Leases but “expressly assume[d]”

a n d “ agree[d] to pay, perform and discharge” a ll of WaMu’s liabilitie s

— liabilities that included WaMu’s obligations under the Leases. Even though t h e Agreement thus a p p e a r e d to give C hase no option to reject the Leases or WaMu’s obligations thereunder, the F DIC has maintained
at all times t hat “both the FDIC and Chase

. . . understood that all of the Leases

are Bank Premises leases and that Chase therefore had a 90-day o ption to accept assignment of each Lease.” Consistent with this “u n d erstanding,” Chase rejected the Leases within 90 days. The FDIC accepted C h ase’s purported exercise of its option and therefore continued to r etain t he Leases in i ts capacity

as WaMu’s receiver. Thereafter, the FDIC determined that compliance with the Leases w ould be burdensome to t he WaMu receivership and, pur s u a n t to its statutory authority under FIRREA, elected to repudiate the Leases. T h e L a ndlords b rought eight s e p a r a t e c a s e s a g a i n s t C h a s e , a l l e g i n g b r e a c h of the Leases. Seven o f the c ases were either filed in or removed to the Southern District of Texas, where they w ere eventually consolidated. The eighth case was filed in t he Northern District of Texas. The FDIC intervened on behalf o f Chase in all eight cases and moved for summary judgment. I t contended that t he Landlords lacked “standing” to interpret o r enforce the P&A Agreement, as they

were neither parties n o r intended beneficiaries to the Agreement. H ence, the FDIC reasoned, they lacked a legal basis to assert the Leases against Chase. The Landlords cross-moved for summary judgment, rejoining that they

were quintessential creditor b eneficiaries to the P&A Agreement and thus had

[ WaM u]

. ”


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a contractual right to enforce Chase ’ s p r omise t o assume WaMu’s obligations under the Lea s es. I n the a lternative, the Landlords urged that the P&A Agreement unambiguously assigned the Lease s t o Chase, that t he Agreement thus brought C hase into “privity of estate” with the Landlords, and that under elementary p rinciples of Texas l a n d l o r d

- t e n ant law, the Landlords therefore had

a right to hold Chase liable for breach of the Leases even if the L andlords lacked contractual authority to enforce the P&A Agreement

. The district courts granted partial summary j u d g m e n t to the Landlords in all eight c a s e s , r eserving only the q uestion of damages. The parties then stipulated to damages, a nd t he district courts entered fin a l j u d g m e n t s
. A l t h o ugh the S o uthern District agreed with the FDIC that the Landlords were not thirdparty beneficiaries to the P&A Agreement, both distric t c o u r t s concluded that the Agreement u n a m b i g uously assigned t h e Leases to Chase without giving Chase a ny option to repudiate, thereby b ringing Chase into p rivity of e state with the Landlords and giving the Landlords a right to hold Chase liable for breach of the L eases. T h e F D I C appeals o n behalf of Chase in its capacity as intervenor. All eight cases are consolidated on appeal.

II. The threshold issue o n appeal is whether the L andlords qualify as inte n d e d b e neficiaries to t he P&A Agreement, in which c ase they have a contractual r ight to e n force Chase’s promise to a s sume WaMu’s obligations under the Leases. A s t he FDIC observes, the Eleventh Circuit and the Ninth Circuit have both r ecently addressed this question, declining to afford s imilarly situated l andlords third-party beneficiary s t a tus under t he same P&A Agreement at issue in this case
. 3 

### Our sister circuits reasoned t hat t h e r e i s a

3 See Interf

a ce Ka nner, LLC v
. JPM orga n Cha se B a nk , 704 F. 3d 927 ( 11th C ir. 2013) ; G E CCM C v
. JPM

orga n Cha se Ba nk , 671 F. 3d 1027 ( 9th Cir. 2012)

. 

### 8 Case: 12-20367 Document: 00512496731 Page: 8 Date Filed: 01/10/2014

### No. 12-20367

presumption a gainst third-party beneficiary status u n der g overnment c ontracts

— a presumption that, while it does n ot require the party seeking enforcement
to be “specifically or individually identified in the contract” to be overcome, does require proof that it “fall[s] within a class clearly intended to benefit” from the

a s s ignment. 4 

### As the FDIC’s assignment to Chase included a no-beneficiaries clause, the courts r easoned, the landlords c o uld not possibly o vercome this presumption. 5 

### We are not so sure. The interpretation and effect of the P&A Agreement is gove rned by the federal common law of contracts, 6 

### which draws on the “the c ore principles of the

c o m m o n l a w o f contracts that are in force i n most states.” 7 

### One of those principles is that a promisor who agrees t o satisfy an obligation that the promisee owes to a third party thereby confers enforcement rights to t he third party, who qualifies as a creditor beneficiary to the contract. 8 

### In the landlord4 G ECCM

C , 671 F. 3d at 1033; Interf a ce Ka nner , 704 F .3d at 933.

5 G ECCM

C , 671 F. 3d at 1034; Interf a ce Ka nner , 704 F .3d at 933.

6 It is w ell- es tablis hed that governm ent contracts are g overned by f ed eral com m on law

. E. g. , Cl em Perri n M

a ri ne Tow i ng, I

nc. v
. Pa na ma Ca na l Co. , 730 F. 2d 186, 189 ( 5th Cir. 1984)

. In any event, the P & A Agreem ent contains a choice- of

- law p rovis ion s electing f ed eral law

. We give ef f ect to choice- of

- law p rovis ions unles s a p arty can s how that the claus e is “unreas onable und er the circum s tances .” G i nter ex. rel

. Ba l l a rd v
. Bl etcher, Prenderga st & La p orte , 536 F

. 2d 439, 449 ( 5th Cir. 2008)

.

7 S m i th v
. U

ni ted Sta tes , 328 F. 3d 760, 767 ( 5th C ir. 2003) ( quoting Uni ted Sta t e s v
. N a t’l Steel Corp

. , 75 F. 3d 1146, 1150 ( 7th Cir. 1996) ).

8 See, e. g. , Resta tem ent ( Fi rst) of Contra cts § 136 ( 1932) ( “[ A] p rom is e to dis charge the p rom is e e ’ s d u t y c r eates a d uty of the p rom is or to the cred itor benef iciary to p erf

orm the p rom is e. ”) ; i d. § 133( 1) ( b) (“[ A] pers on is

. . . a cred itor benef iciary if

. . . p erf

orm ance of the p rom is e w ill s a t i s f

y a n actual or s up pos ed or as s erted d uty of the prom is ee to the benef iciary. ”)

. Sim ilarly, und er t h e Res tatem ent ( Second ) of Contracts “a benef iciary of a p rom is e is an intend ed benef iciary if recognition of a right to p erf orm ance in the benef

iciary is ap p rop riate to ef

f ectuate the intention of the p arties and

. . . the p erf orm ance of the p rom is e w ill s atis f

y an obligation of the prom is ee to p ay money to the benef icia ry[

. ] ” Resta tem ent ( Second) of Contra cts § 302( 1) ( a) ; see a l so i d. at § 302 cm t. b ( “The typ e of benef iciary covered by Subs ection (1) ( a) is of ten ref erred to as a ‘cred itor benef iciary. ’ In s uch cas es the p rom is ee is s urety f

or the p rom is or, the p rom is e is an as set of the p rom i s e e , a n d a d i rect action by


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### No. 12-20367

tenant context, it is thus w ell e stablished that a landlord is a creditor beneficiary to an assignment of a lease by the original tenant t o a s ubsequent t enant — at least if the subsequent tenant expressly agrees to perform the original tenant’s obligations under t he lease. 9 

### Here, Chase not o nly accepted t h e F DIC’s assignment of WaMu’s interest in the Leases but “express l y a s s u me[d]” and “agree[d] to pay, perform, and discharge” all of WaMu’s liabilities — liabilities
t h at include W aMu’s o bligations under the Leases. Hence, t he Landlor d s a p p e a r to be quintessential creditor beneficiaries to the P&A Agreement. True, the P&A Agreement contains a clause d i sclaiming any intention to create t hird-party beneficiaries. However, as the Landlords obs e r v e , the nobeneficiaries clause is q ualified by the modifying p hrase “ exce p t a s o therwise specifically provided i n this Agreement.” And u nder settled rules of contract construction, Chase’s unqualified promise to “expressly assume[]

. . . and agree[] to pay, perform, and discharge” all of WaMu’s obligations, under the Leases and otherwise, is arguably tantamount to “specifically” d e signating the Landlords as creditor beneficiaries. T hough Chase a nd t he FDIC now urge that they always understood the Agreement to give Chase a n option to reject the Leases, t h ey

be n e f i ciary agains t p rom is or is norm ally ap p rop riate to carry out the intention of p rom is or and p rom is ee, even though no intention is m anif e s t e d t o g ive the benef iciary the benef

it of the p rom is ed p erf

orm ance. ”)

.

9 See, e. g. , 49 A m
. Jur. 2d La ndl ord and Tena nt § 962 ( 2013) ( “An exp res s agreem ent by the as s ignee of a leas e w ith the as s ignor to as sum e the o b l i g a t ions of the leas e is enf orceable by the land lord as a third

- p arty benef iciary, regard les s of w he t h e r t h e l and lord is a p a r t y to the as s um p tion agreem ent.

. . . H ow ever, clearly, not every ref erence to or m ention of the covenants of a leas e in an agreem e n t b e t w e e n t he les s or and an as s ignee
am ounts to an as s um p tion of the covenants by the as s ignee. ”) ; Resta tem ent ( Second) of Prop erty, La nd. & Ten. § 16

. 1 , r p t r
. n. 4 ( 1977) ( “The trans feree of an interes t in the leas ed p rop erty, by virtue of the as signm ent, incurs liability on the burd ens of the leas e only to the extent s uch liability is bas ed on p rivity of es tate.

. . . If , how ever, the trans f eree p rom is es to p erf orm the c o n t r a c t u a l obligations of the leas e, his liability on the prom is es of the leas e is then p red icated on a p rivity o f c o n t r a ct in ad d ition to its bas is in p rivity of es tate. ”) ; 2- 17 Pow el l on Rea l Prop erty § 17. 04 ( s am e) ; Schos hins k i, A m eri ca n L aw of La ndl ord a nd Tena nt § 8. 12 ( 1980) ( s am e)

. 

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### No. 12-20367

have made no effort to reform the Agreement to reflect their late-arriving and atextual “understanding.” 1 0 

### The Ninth Circuit expressed concern that granting the landlords thirdparty beneficiary status to enforce the P&A Agreement would “open[] the door
to suits from any number of t hird parties who mi g h t c l a i m a benefit from the Agreement’s t erms.” 1 1 

### But this fear is exaggerated. T h e FDIC made an affirmative decision to assign the Leases to C hase. Chase not only accepted the assignment but e x p ressly covenanted to “pay, perform, and discharge” all of WaMu’s liabilities — including WaMu’s obligations under the Leases. Had the FDIC not assigned the Leases to Chase, o r assigned its interest i n t h e Leases without having Chase expres s l y a s s u m e W a M u ’ s l i a b ilities, the Landlords would
not qualify as credito r b e n e f i c iaries. 1 2 

### In our view, a ffording the Landlords enforcem e n t r i g h t s on the narrow facts of this c ase would not open the floodgates, as the c l a ss o f persons entitled to third-party beneficiary status would remain exceedingly narrow and subject to the FDIC’s control. Were we writing on a blank slate, we would conclude that the Landlords

ar e c r e d i tor beneficiaries to the P&A Agreement and t herefore have a contractual right to enforce Chase’s promise to assume the Leases. However, we cannot ignore that two of our sister circuits have reached a c o ntrary c o nclusion

on virtually identical fa c ts. In t he interest o f m aintaining uniformity in the

1 0 See Resta tem ent (Fi rst) of Contra cts § 136 ( 1932) (“Though the right of the cred itor bene f i c i a r y aris es im m ed iately on the f orm ation of the contract, his right, unlik e that of a d o nee benef

iciary, is not im m ed iately ind ef eas ible.

. . . [U ] ntil the cred itor brings s ui t , o r otherw is e m aterially changes his p os ition in reliance on the prom is e, he m ay los e his right or have it qualif

ied by a new ag r e e m e n t betw een the prom is or and the prom is ee. ”) ; see a l so Resta tem ent (

Second) of Contra cts § 311 cm t. f ( “in the abs ence of s uch an agreem ent [ betw een p rom is or and prom is ee not to vary a d uty to a benef i c i a r y w i t h o u t his cons ent] the p arties retain control over the contractual relation they created ”)

.

1 1 G ECCM

C , 671 F. 3d at 1035.

1 2 See sup ra note 9 and accom p anying text.


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construction and enforcement of federal contracts — an area where uniformity i s c r i t ical — we r eluctantly hold that on t he narrow facts of this case, t h e Landlords do not qualify as third-party beneficiaries.

III. T he next question is whether the district courts erred in concluding that the Landlords have a right to enforce the Leases against Chase by virtue of their “privity o f estate” with Chase. The Landlords c ontend that the P&A Agreement accomplished a complete, p resent conveyance o f t h e Leases that, under longstanding principles of real-property law, c reates p rivity of estate with Chase and gives the Landlords the legal right to enforce the Leases against Chase

—
even in the a bsence of contractual privity. The FDIC rejoins that the Landlords’
power to assert the Leases against Chase, i f any, must derive from a contractual right to enforce the P&A Agreement, and that privity of estate does not furnish

an independent, non-contractual, state- l a w basis f or holding Chase liable. Because the Land l o r d s a re neither parties nor third-party beneficiaries to the Agreement, t h e FDIC reasons, they lack “ standing” to interpret the P&A A g r e e m ent a nd conclude that it accomplishes a complete a ssignment. The FDIC’s circular reasoning ignores eight centuries of legal history. To be s ure, in medieval England, a l a n d l o rd h ad no right to enforce the
covenants in a lease against an assignee of t he original tenant: c o urts r easoned that while the original tenant remained contractually liable for his obligations under the lease ( e.g. , rent), there was no enforceable contract running between the l a ndlord and the assignee. 1 3 

### However, as n oted in the original Restatement of Property , “the inconveniences resulting from such a rule [were] manifest,” preventing both the landlord and the ultimate tenant f rom relying on covenants

1 3 See 2- 17 Pow el l on Rea l Prop erty § 17. 04[ 2] [ b] ( 2013)

. 

### 12 Case: 12-20367 Document: 00512496731 Page: 12 Date Filed: 01/10/2014

### No. 12-20367

i n t h e o r iginal lease. 1 4 

### Hence, English courts developed the concept of “real covenants,” 1 5 

### a concept that h as carried over into American law and the laws of Texas. R eal covenants a re covenants that “run with the l a n d ” a n d can be enforced by the landlord against an assignee tenant by virtue o f t heir “privity of estate” — notwithstand i ng the absence o f contractual privity

. 1 6 

### However, the
content of the conveyance b y the o r i g inal t e nant to the subsequent tenant remains critical, as the subsequent t enant only comes into “privity of e s tate” with t he landlord if the landlord can prove t h at the original te n a n t a s s i gned
away his entire interest in the lease (as opposed to a lesser-included portion, i.e. ,
a “sublease”). 1 7 

### The FDIC’s position, under which the landlord lacks “standing”
to prove the content and effect of the conveyance between the tenants because he i s not a party to the conveyance, would d efeat the concept o f real covenants, returning our law to that of twelfth-century England.

1 4 Resta tem ent (

F i rst) of Prop erty, Pa rt I I I , Introductory N

ote ( 1944)

.

1 5 2- 17 Pow el l on Rea l Prop erty § 17. 04[ 3] ( 2013)

.

1 6 Id. ; see al so, e. g
. , Fri edm a n on Lea ses § 7: 5. 1[ C] [1] [a] ( 5th ed

. 2008) ( “By receiving the
as s ignm ent

. . . the as s ignee acquires an interes t in the p rem is es that brings him into p rivity of es tate w ith the ow ner and m ak es him l iable to the ow ner f or the p aym ent of rent and on thos e covenants that run w ith the land

. ”) ; Tw el ve O a ks Tow er I, Ltd. v
. P rem ier A l l ergy, Inc. , 938 S. W. 2d 102, 114 ( T ex. Ap p.

— H ous ton [ 14th D is t. ] 1996, no writ) ( “Liability to the original les s or f or the p a y m e n t o f rent or the p erf orm ance of other leas e covenants m ay aris e f rom either p rivity of contract or p rivity of es tate.

. . . The as s ignee becom es the tenant in p lace of the original les s ee and is in p rivity of es tate w ith the les sor. Accord ingly, an as s ignee is liable f or the rent and f

or the p erf

orm ance of the covenants that run w ith the land

. ”) ; Fa bri que, Inc.
v
. Corm a n , 796 S

. W. 2d 790, 793 ( Tex. Ap p.

— San Antonio 1990, no w rit) ( s am e) ; M oore v
. Ki rga n , 250 S. W. 2d 759, 764 ( Tex. Civ. Ap p
. — El Pas o 1952, no w rit) ( s am e) ; Ca ubl e v
. H a nsen , 224 S. W. 922, 923 ( Tex. Civ. Ap p
. — El Pas o 1920, no w rit) (s am e)

.

1 7 2- 17 Pow el l on Rea l Prop erty § 17. 04[ 2] [a] , [ b] ( 2013) ; see a l so , e. g. , Tw el v e O a ks , 938 S. W. 2d at 113 ( “When a les s ee d ep a r t s w ith his entire interes t in all or p art of the p rop erty in q u e s t i o n , w ithout retaining any revers ionary interes t, an as s ignm ent is created

. O n the other hand , if the les s ee retains any revers ionary interes t, no m atter how s m all it m ay be, a s ubleas e is created

. ”) ; M o o r e , 250 S. W. 2d at 764 ( s am e) ; D a v i s v
. V i da l , 151 S. W. 290, 293 ( Tex. 1912) ( s am e)

. 

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Accepting that the Landlords have “standing” to prove t he content of the P&A Agreement, the n ext question i s whether t h e Agreement, p roperly construed, is a complete “ assignment” sufficient to create privity of estate under Texas l aw. T he answer t o this question is clearly yes. It is undisputed that the Agreement assigned all of WaMu’s “Other Real Estate” to Chase outright, and that the FDIC did not retain a ny i n terest in s uch real estate. It is als o undisputed that t h e Leases unambiguously fall w ithin th e d e f i n ition of Other Real Estate set f

o r t h i n t he Agreement. While the FDIC claims that it and Chase intended for the L e a s es to qualify as “ Bank Premises,” and that Chase therefore had an option to r e j e c t t h e m , it offers this Court n o reason to depart from the parol evidence rule, which rests on recognition t hat the best evidence of the parties’ intent at the t ime of execution is the la n g u a g e of the contract itself. Whether the parol evidence r ule applies is a question of federal common law, which is informed “by the core principles o f the common law of c o n t r a c t s that are in force in most states.” 1 8 

### Accordingly, we see no reason to depart from the g eneral principle of the common law of contracts that a non-party i n privity
to an agreement may assert the p a r o l e v idence r ule. 1 9 

### Because the plain language of the Agreement i n d i cates that the FDIC assigned a way i ts entire

1 8 Sm i th , 328 F. 3d at 767.

1 9 S ee , 11 Willis ton on Contracts § 33: 11 ( 4th ed

. 2013) (“[ I] t is generally agreed that the p arol evid ence rule w ill ap p ly w hen the third p arty attem p ts to as sert rights or claim s bas ed
on the ins trum ent. ”) ; Arthur Corbin, The Pa rol Ev i dence Rul e , 53 Y ale L. J. 603, 661- 62 ( 1944) ( “The ques tion has been rais ed whether ‘the p arol evid ence rule' is ap plicable in f avor of or agains t a third p arty w ho has not been a p arty to the w ritten integration. The ans w er is d ef initely in the af

f irm ative if the rule is correctly s tated and und ers tood

. ”)

. N ot s urp ris ingly, Texas law p arallels this majority rule. See Za p ata C nty. Ap

p ra i sa l D ist. v
. C

oa sta l O i l & G a s C

orp
. , 90 S. W. 3d 847, 852 ( T ex. Ap p
. — San Antonio 2002, no p et. ) ( “The p arol evid ence rule

. . . extend s only to p arties to the w ritten ins trum ent, those i n p ri v i ty w ith such a p a rty or one w ho claim s a right or benef it und er the c o n t r a c t ; t h e r ule is inap plicable to s ituations w here one of the litigants is a s tranger to the agreem ent. ” (em p has is ad d ed ) ( internal quotation mark s om itted ) ( citations om itted ) )

. B ecaus e Texas law p arallels the f ed eral com m on law , w e believe w hatever error the dis trict court m ad e in ap plying Texas law is harm les s
. 

### 14 Case: 12-20367 Document: 00512496731 Page: 14 Date Filed: 01/10/2014

### No. 12-20367

interest in the L eases and that Chase had no o pt i o n to reject them, the Landlords have established privity of estate with Chase. 2 0 

### Admittedly, some non-Texas cases s uggest that privity of estate cannot come into existence unless the assignee tenant actually takes possession of the underlying property, and that privity t erminates as s oon as the assignee tenant gives up possession. 2 1 

### Here, it is not clear from the record whether Chase e ver took possession of the leased properties. 2 2 

### However, aside from the fact that the FDIC (or rather, Chase) h as f orfeited any argument a bout possession by failing
to raise it below or in its briefs on a ppeal, the better v i ew i s that “[t]he acceptance of a bona fide ass i g n m e nt creates a privity of estate between the lessor and the assignee, a nd it is not material that the acceptance be followed by the assignee entering into p ossession o f t he premises.” 2 3 

### A nd while privity of

2 0 T o be m ore p recis e, the Land lord s have es tablis hed “vertical p rivity, ” i

. e. , p rivity betw een WaM u/ FD IC ( the as signor tenant) and Chas e ( the as s ignee tenant)

. Trad itionally, courts als o required “horizontal p rivity” in ord er enf orce real covenants agains t a s ucce s s or in interes t. H orizontal p rivity ref ers to the relations hip betw een the original covenanting p arties ( here, the Land lord s and WaM u) , and re q u i r e s t h e covenant to be created in conjunction w ith a conveyance of an es tate in land ( e. g
. , a leas ehold )

. H orizontal p rivity clearly exis ts in this cas e, as the covenants that the Land lord s s eek to enf orce are includ ed in t h e o r i g i n al leas es betw een the Land lord s and WaM u. H orizontal p rivity only becom es a p roblem w hen the original covenanting p arties reach their agreem ent ind ep end ent of any land conveyance ( e. g. , tw o neighbors covenant to d r ain their res p ective tracts to avoid creating
nes ting areas f

or m os quitos )

. Although T exas ap p ears to retain the horizont al p rivity requirem ent, see Cl ea r L a ke Ap ts, Inc. v
. Cl ea r L a ke Uti l i ti es Co. , 537 S. W. 2d 48, 51 ( Tex. Civ. Ap p
. — H ous ton [ 14th Dis t. ] 1976, w rit granted ), com m entators agree that it s hould be abolis hed , and m od ern courts rarely m ention it. 2- 17 Pow el l on Rea l Prop erty § 17. 04[ 3] [ c] [ iii] ( 2013)

.

2 1 See, e. g. , G atew a y I G roup , Inc. v
. Pa rk A v e. Physi ci a ns, PC , 62 A. D

. 3d 141, 148 ( N

. Y

. Ct. A p p
. 2009) ; FD IC v
. Ma rs , 821 P. 2d 826, 829 ( Colo. Ct. A p p
. 1991)

.

2 2 T he F D IC’s brief s ugges ts that p os s es s ion initially rem ained w ith the FD IC, and that af ter the F D IC rep ud iated the leas es , p os s es s ion returned to the Land lord s
.

2 3 49 Am

. Jur. 2d La ndl ord a nd Tena nt § 968 (collecting cas es ) ; see a l so, e. g. , F ri edm a n on Lea ses § 7: 5. 1[ C] [1] [ a] ( 5th ed

. 2008) ( “Accep tance of the as s ignm ent creates the p rivity of
es tate and its cons equent liability.

. . . It is not neces s ary f or the as signee to tak e p os s es s ion. It is s uf f icient that he have the right to p os s es s ion

. . . . An as s ignee m ay relieve him s elf of this


### 15 Case: 12-20367 Document: 00512496731 Page: 15 Date Filed: 01/10/2014

### No. 12-20367

estate terminates upon expiration of t he lease term or reassignment b y the assignee tenant to another, 2 4 

### the L eases i n this case do not expire for m any years and there is no evidence that Chase has assigned them to any third parties. However, t h e L a ndlords are not n ecessarily entitled to enforce a ll of the
terms of the L eases against Chase merely because they have established privity of e s tate; r ather, such privity only gives them the right to e nforce “covenants that run with the land,” i.e. , “real covenants.” 2 5 

### A covenant “runs with the land” if it “touches and concerns” the land. 2 6 

### W hile the scope of the “ t o u c h e s and concerns” t est has always been somewhat elusive, courts generally a g r e e that the appropriate inquiry is whe t h e r t h e covenant i s of a type personal to the original parties to the lease ( e.g. , t he original tenant is a skilled carpenter who promises to build a c ustom s hed), or of a type that t enants and landlords would typically expect t o a pply to all successors i n i n t e r e s t ( e.g. , rent). 2 7 

### Here, the

liability at any tim e by in turn as s igning to another

. . . . But a n a ctual as s ignm ent is
a p p arently neces s ary, rather than aband onm ent alone. ”) ; Resta tem ent ( Second) of Prop erty, La nd. & Ten. § 16. 1, rtp r. n. 6 ( 1977) ( s am e) ; Wi ll i a m s v
. Sa f e Dep osi t & Trust Co. , 175 A. 331, 333 (M d

. 1934) ( “N either d oes the liability of the as s ignee on the covenant d ep end , accord ing to the w eight of authority, up on his actual entry or tak ing p os s es s ion. I t is s uf f icient if the right of p os s es s ion exis t. ”)

.

2 4 2- 17 Pow el l on Rea l Prop erty § 17. 04[ 2] [ b] ( 2013)

.

2 5 Id. at § 17. 04[ 3] ; Resta t em ent ( Second) of Prop erty, La nd. & Ten. § 16. 1 ( 1977) ; see a l so, e. g. , Tw el v e Oa ks , 938 S. W. 2d at 114.

2 6 2- 12 Pow el l on Rea l P rop erty § 17. 04[ 3] (2013) ; Resta t em ent ( Second) of Prop e r t

y , L a n d

. & T

e n
. § 16. 1 ( 1977) ; see a l so, e. g. , Ba yw ood Esta tes Prop erty Ow ners A ss’n, Inc. v
. Ca ol o , 392 S. W. 3d 776, 782 ( Tex. Ap p
. — Tyler 2012, no p et. )

. While Texas cas es have held that the p arty to be burd ened m us t als o have actual or cons tructive notice of the covenant f or it to “run w ith the land , ” see B a yw ood E

sta te s , 3 9 2 S

. W

. 3 d at 782, thes e cas es conf us e real covenants w ith equitable s ervitud es
. Real covenants require p rivity of es tate and run w ith the land rega rdl ess of noti ce
. 2- 12 Pow el l on Rea l Prop erty § 60. 04[ 4] ( 2013)

. Equitable s ervitud es run agains t a s ucces s or in interes t even w here there is no privity of es tate, i f the s ucces s or has actual or cons tructive notice. Id. In es s ence, then, “the p rivity requirem ent f or real covenants is rep laced by the notice requirem ent f or equitable res trictions

. ” Id.

2 7 2- 12 Pow el l on Rea l Prop erty § 17. 04[ 3] ( 2013) (“[ T ] he bas ic id ea [ is ] that leas e covenants w ill not run to s ucces s ors of the tenant unles s the contracting p arties intend them


### 16 Case: 12-20367 Document: 00512496731 Page: 16 Date Filed: 01/10/2014

### No. 12-20367

landlords seek to recover damages arising only out o f C h a s e ’ s breach of the
covenants to pay r ent and taxes, both of which are standard in commercial leases and therefore, “run w ith the l and.” 2 8 

### Moreover, the district courts have entered judgments based on the parties’ stipulations o f facts, in which the parties agreed

as to the proper measure of damages arising out o f the breach of the leases. Accordingly, we affirm the judgments of the district courts. We are well aware of the Eleventh Circui t ’ s recent decision in Interface Kanner, LLC v. JPMorgan Chase Bank , 2 9 

### which held that a l a n d l ord lacked “standing” to assert a privity-of-estate-b a s e d theory of lease liability on facts

v i r t u ally identical to this case. 3 0 

### But our interest in uniformity, t h o u g h powerful, d oes not require us to adopt legal conclusions we believe to be in error. The K anner court devoted the vast majority of its o pinion to e xplaining why the landlord was n ot a n intended beneficiary to the P&A Agreement a nd thus lacked “standing” to i nterpret or enforce it. 3 1 

### While not fully persuaded, we can abide by this conclusion, the c ritical point for present purposes is t h a t the Kanner

to.

. . . [ M ] od ern cas es s eek to d eterm ine w hether the original p arties intend ed the covenant to be p ers onal to the prom is or and p rom is ee, or w hether the covenant was ins tead intend ed t o r e g u l a t e the relations of any p arties w ho m ight be acting as land lord and tenant of t h e af f ecte d p rem is es
. Excep t w hen the covenant is f ound to have a pers onal character, both benef it and burd en w ill run to the s ucces sors of the original land lord and tenant. ”)

.

2 8 S ee, e. g. , 2- 17 Pow el l on Rea l Prop erty § 17. 04[ 3] [ b] ( 2013) ( “Courts have held that the burd en of covenants runs to as s ignees of the tenant w here the covenants ad d res s the p aym ent of rent [ and ] the p aym ent of as s es sm ents or taxes

. ”) ; Resta tem ent ( Second) of Prop erty , La nd. & Ten. § 16. 1, rp tr. n. 3 ( 1977) ( “Prom is es in a leas e involving the p rom is e to p ay m oney are als o s u b j ect to m eeting the ‘touch and concern’ requirem ent as ap p lied by the courts

. . . . Liability of a trans f

eree on a p rom is e to p ay rent and taxes is w ell settled

. . . . In the area of p rom is es to p ay f

or ins urance, w hat little authority exis ts as to a “bare” p r o m i s e to ins ure hold s that s uch a p rom is e is p ers onal and d oes not run with the land .”)

.

2 9 704 F. 3d 927 ( 11th Cir. 2013)

.

3 0 See i d. at 933.

3 1 See i d. at 931–33. 

### 17 Case: 12-20367 Document: 00512496731 Page: 17 Date Filed: 01/10/2014

### No. 12-20367

court also concluded, in a two-sentence paragraph at the end o f its opinion, that the l a ndlord could not enforce his lease against Chase by v irtue o f his privity of
estate with Chase. 3 2 

### The court reasoned that the l andlord’s privity-based theory of liability “is dependent on [the l andlord’s] ability to enforce i ts interpretation of t he P &A A greement, which, as discussed above, [the l a ndlord] lacks standing
to do.” 3 3 

### This tautolo g y traces the FDIC’s reasoning here a nd fails to accommodate the concept o f p rivity of estate and real covenants. English courts developed privity of estate to allow a l andlord to enforce real c ovenants against

an assignee tenant even i n the absence o f contractual p r ivity

. And a l a n d l o rd always n eeds to prove the c ontent of the conveyance between the original tenant and the subsequent tenant in order to establish privity of estate with the latter,

as privity c omes into e xistence only where the original tenant assigns away her entire interest in the l ease. If we were to hold that a landlord lacks “standing,” ab initio , to prove the content and effect of an assignment between tenants, we would make enforcement of real covenants impracticable. In our view, the Kanner decision was — like the Ninth Circuit’s decision in GECCMC

— driven b y a f ear that holding Chase to t h e terms of leases it assumed under the P &A Agreement would somehow i nterfere w i th the FDIC’s ability to administer f ailed b anks. 3 4 

### With a l l r espect, we do not share this

concern. We d o not doubt that the F DIC r equires sweeping authority to manage

a failed bank’s affairs — authority that includes the power to repudiate leases if the F DIC determines that they would be burdensome and that repudiation

3 2 See i d. at 933.

3 3 Id.

3 4 See G ECCM

C , 671 F. 3d at 1035–36; cf

. Interf a ce Ka nner , 704 F. 3d at 933. 

### 18 Case: 12-20367 Document: 00512496731 Page: 18 Date Filed: 01/10/2014

### No. 12-20367

would promot e the orderly administration o f the conservatorship. 3 5 

### Here, however, the F DIC chose not to exercise that authority, i n s t e a d assigning the Leases out r i g ht to Chase in the P&A A greement. And, as aforementioned, Chase not only agreed to the assignment, b ut expressly assumed all of WaMu’s liabilities. The FDIC can avoid its present pl i g h t i n f u ture cases b y drafting contractual provisions for the right it seeks to claim. 3 6



### IV. We AFFIRM the judgments of the district courts.

3 5 See 12 U

. S. C. § 1821( e) ( 1)

. When the FD IC rep ud iates a leas e, FIRREA lim its the land lord ’s d am ages to unp aid rent that accrues bef ore rep ud iation. See i d. § 1821( e) ( 4) ( B)

.

3 6 N otably, the FD IC ack now led ged in a p rior cas e bef ore this Court that it has since revis ed its P& A Agreem e n t s t o c l a rif y that an acquiring bank ’s op tion to reject real es tate leas es extend s to a l l leas es
. S ee Rec. D oc. N o. 29 at 5–6 ( rep rod ucing colloquy betw een H on. Ed ith Jones and couns el f or the FD IC at oral argum ent)

.



### 19 Case: 12-20367 Document: 00512496731 Page: 19 Date Filed: 01/10/2014

### No. 12-20367

EDITH BROWN CLEMENT, Circuit Judge, concurring in the judgment. This result has m ore t o do with the arguments t hat the FDIC d id not raise than the innate correctness of the Landlords’ position. The FDIC a rgues that the Landlords lack standing because they cannot, as a non-third-party beneficiary to the contract, show that the properties were transferred t o C hase. The Landlords have no such issue. T o d e m o n s t rate standing, the Landlords need to show (1) “an injury in f a c t

— a n i n v a sion of a legally protected i nterest which is (a) c o ncrete and particularized, and (b) actual

or imminent, n ot conjectural or hypothetical,” ( 2) “a causal connection between the injury and the conduct complained of,” and (3) that it is “likely, as opposed
to m e r ely speculative, that the injury will be redressed by a favorable decision.” Lujan v. Defenders of Wildlife , 504 U.S. 555, 560-61 (1992 ) ( i n t e r n al citations and quotation marks omitted). The Landlords make t hat showing. They claim to have (1) suffered an injury (loss of rents), that was (2) causally connected to Chase’s conduct ( not p aying r ents that were due), and (3) could be redressed by

an award of unpaid rents. M oreover, the Landlords’ interest in rent payments from assignees is legally protected by Texas law. S e e , e .g. , A mco Trust, Inc. v. Naylor , 317 S.W.2d 47, 5 0 (Tex. 1958) ( “Liability to the or i g i n a l l e s s or for the
p a y m e n t of r ent

. . . may arise f rom
. . . privity of estate.

. . . O n e who

. . . acquires the entire leasehold estate becomes the tenant i n place of the lessee and is in p rivity of estate with the lessor. An a ssignee is accordingly liable for the rent reserved in the lease.”) The FDIC’s c o u n terargument that non-third-party beneficiaries cannot interpret and enforce a contract against the understanding of the contracting parties improperly tries t o stretch a question of contract law i nto a dubious principle o f c onstitutional law. Non-third-party beneficiaries to c ontracts usually cannot show that they have suffered an injury t o a legally protected i n t e r e s t b e c a u s e c o n t r a c t l a w d o e s n o t recognize and c o mpensate non-third-par t y
20 Case: 12-20367 Document: 00512496731 Page: 20 Date Filed: 01/10/2014

### No. 12-20367

beneficiaries for t he injuries that they often suffer when a contracting party f ails
to comply with a contract. But when j urisdiction is otherwise proper, there is no inherent bar prohibiting a stranger to a contract from asking the court to interpret a contract that has bearing on i ts case. 1 

### Texas law vests the Landlords

w ith the legitimate protected interest n eeded to assert their claim for u n p a i d rent in federal court. This is enough to create standing. Rather than having an inherent standing problem, the L andlords should have difficulty de m o n strating that the Purchase and Assumption Agreement actually transferred the leases outright t o Chase. The Landlords’ position is almost c ertainly inconsistent w i th the actual intent of t he contracting parties; they provide no p ersuasive reason why Chase would want its option to refuse certain properties to extend only to constructed and operating bank b ranches, and not also to properties for future bank premises. The vacant lots are of little value to Chase if not used a s bank p remises. And t he parties’ course of performance—whic h “is often the strongest evidence” o f a contract’s meaning 2 

### —also supports that conclusion. F r om the beginning, b oth parties’ behavior has re f

l e cted a belief that the contract g rants Chase the option to refuse the leases, regardless of whether a branch had yet been constructed. Accordingly, though th e d i s t r i c t c o u r t s had the power t o consider t he cases, Chase s h ould have been able to prevent the Landlords from proving that the leases were t r ansferred. Given t he record e vidence substantiating the

1 See, e. g. , J. R. F

ul ton v
. L&N Consul ta nts, I nc. , 715 F. 2d 1413, 1418- 21 ( 10th C i r. 1982 ) ; U ni ted Sta t es v
. Iv ey , 414 F. 2d 199, 203 ( 5th Cir. 1969) ; Cl a rk v
. U ni ted Sta t es , 341 F

. 2d 691, 693- 95 ( 9th Cir. 1965) ; G rea t A m
. Ins. Co. , N

. Y. v. G ul

f M a ri ne D ri l li ng N

o. 1 , 302 F

. 2d 332, 334- 35 (5th Cir. 1962) ; Pugh v
. Com m ’r , 49 F .2d 76, 79 ( 5th Cir. 1931) ; cf

. Lem ke v
. Sea rs, Roebuck & Co. , 853 F

. 2d 253, 254- 55 & n. 4 ( 4th Cir. 1988) ( rem and ing cas e for recons id eration of a non- p arty’s claim s that they w ere releas ed f rom liability by a p rior contract even though the court “s trongly ques tion[ ed ] w het h er the language of the

. . . releas e evid enced a clear intent to benef

it” the non- p arty)

.

2 Resta tem ent (

S econd ) of Contra cts § 202 cm t. g ( 1981)

.



### 21 Case: 12-20367 Document: 00512496731 Page: 21 Date Filed: 01/10/2014

### No. 12-20367

contracting parties’ intent, t he FDIC and Chase likely h ad colorable arguments (and supporting evidence) regarding the proper interpretation of the Purchase and Assumption Agreement. Even if they thought that those arguments were hopele s s g i v e n the plain text of the contract, Chase a nd the FDIC c ould have pursued a contract reformation, see, e.g. , Restatem e n t ( S e cond ) of Contracts § 155 (1981), or simply amended the Purchase and Assumption Agreement. All o f those strategies would have b een p referable to attacking courts’ ability t o hear cases brought by landlords a gainst assignees—a question on which the FDIC is on the wrong side o f (1) h undreds of years of legal history, (2) previous legal positions ad o p t e d b y the federal government when it itself is a landlord, see, e.g. , Alaska Statebank , 1 11 IBLA 300, 308-09 (IBLA 1989), and (3) circuit precedent r ejecting attempts by contracting p a rties to have c o ntracts interpreted “according to the[ir] wishes

. . . rath e r t h an [the meaning] attributable to it by law” w hen the parties neither claim mistake nor omission in drafting the contract, nor seek reformation. Great Am. Ins. Co. , 302 F.2d at 334-35. T he FDIC would h ave been better served by arguing that this contract did not transfer t hese leases. But Chase should not expect to win o n arguments that it does not pursue. The district courts—based upon the arguments raised and the evidence before them—properly entered j udgments for the Landlo r ds. The p lain text of the
contract indicates t he leases at issue were transferred outright and the c ovenant to pay rent runs with the land. On appeal, t he only real e rror t hat the FDIC successfully highlights is the district co u rts’ choice to apply Texas law to interpret the Purchase a n d A s sumption Agreement. Though Texas state law provides the Landlords’ cause of action, federal common law should have been used to interpr e t t h e P u r c h a s e a n d Assumption Agreement. 3 

### However, t he FDIC

3 [ F] ed eral com m on law governs the cons truction of governm ent contracts in the us ual
cas e, ” Cl em Perri n M

a ri ne Tow i ng, Inc. v. Pa n. Ca na l Co. , 730 F. 2d 186, 189 (5th Cir. 1984) ,



### 22 Case: 12-20367 Document: 00512496731 Page: 22 Date Filed: 01/10/2014

### No. 12-20367

does n ot point o ut a ny consequence from t he d i strict c ourts’ error, and concedes
t h a t “ t h e o utcome is l ikely the same” under either body of law. In light of t h e FDIC’s conces s ions and t he plain t ext o f the Purchase and A s sumption Agreement, it appears that a ny error was harmless, and that the district courts’ judgments should be affirmed.

and even if this is not “the us ual cas e, ” as Claus e 13. 4 of the Agreem ent s pecif ies that it s hould be interp reted accord ing to f ed eral law ( or Was hington law if there is an “ab s e nce of controlling f

ed eral law ”) , Texas choice- of

- law p rincip les w ould s till require the ap p lication of f ed eral com m on law (or Was hington law )

. See, e. g. , Sm i th v
. EM C Corp

. , 393 F. 3d 590, 597 ( 5th Cir. 2004)

. 

### 23 Case: 12-20367 Document: 00512496731 Page: 23 Date Filed: 01/10/2014