Opinion ID: 694663
Heading Depth: 2
Heading Rank: 2

Heading: Timeliness of the RTC's Repudiation

Text: 17 The RTC has authority to repudiate burdensome contracts under section 212(e) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which provides: 18 (1) Authority to repudiate contracts 19 In addition to any other rights a conservator or receiver may have, the conservator or receiver for any insured depository institution may disaffirm or repudiate any contract or lease-- 20 (A) to which such institution is a party; 21 (B) the performance of which the conservator or receiver, in the conservator's or receiver's discretion, determines to be burdensome; and 22 (C) the disaffirmance or repudiation of which the conservator or receiver determines, in the conservator's or receiver's discretion, will promote the orderly administration of the institution's affairs. 23 (2) Timing of repudiation 24 The conservator or receiver appointed for any insured depository institution ... shall determine whether or not to exercise the rights of repudiation under this subsection within a reasonable period following such appointment. 25 12 U.S.C. Sec. 1821(e). 26 In 1185 Avenue of Americas Assocs. v. Resolution Trust Corp., 22 F.3d 494, 498 (2nd Cir.1994), the Second Circuit concluded that a notification of the RTC's decision to repudiate ninety days after the RTC's appointment as receiver, but almost fourteen months after its appointment as conservator, fell within a reasonable period for purposes of Sec. 1821(e)(2). 1185 Avenue followed the Eighth Circuit's holding in Resolution Trust Corp. v. CedarMinn Bldg. Ltd. Partnership, 956 F.2d 1446, 1450-55 (8th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 94, 121 L.Ed.2d 56 (1992), that section 1821(e) gives the conservator and receiver independent rights of repudiation and separate reasonable periods to make the decision. 1185 Avenue, 22 F.3d at 496. We also agree that the statute provides for separate rights of repudiation for the conservator and the receiver. 27 FFA maintains in this appeal that the Property was critical to both the RTC and B of A because it provided access to Franklin's main store of information concerning the assets and liabilities of the institution. 3 FFA argues that they deserve to be compensated in an amount greater than the standard rent because access to the property was absolutely critical to B of A. FFA believes that the RTC, in deferring the decision of whether or not to repudiate the Lease to B of A, the RTC failed to evaluate the burdensomeness of the Lease within an early, reasonable period fair to FFA. The RTC argues that both the caselaw and the legislative history relating to Sec. 1821(e) allowed the repudiation of the lease within a reasonable period without incurring millions of dollars of damages. On summary judgment, the court agreed in part with FFA and concluded that the RTC's repudiation of the Lease was not made within a reasonable period and awarded $6 million damages to FFA. 28 Congress did not define what constitutes a reasonable period of time. Instead, Congress granted broad discretion to both the conservator and receiver. For example, the conservator or receiver ... may disaffirm or repudiate any ... lease.... 18 U.S.C. Sec. 1821(e)(1). And the conservator or receiver ... shall determine whether or not to exercise the rights of repudiation ... within a reasonable period following such appointment. 18 U.S.C. Sec. 1821(e)(2) (emphasis added). 29 Legislative history reveals that bankruptcy law was intended to be a model for FIRREA's receivership/conservatorship scheme. See Resolution Trust Corp. v. Diamond, 18 F.3d 111, 122 (2nd Cir.) (12 U.S.C. Sec. 1821(e) was 'closely modeled on parallel provisions of section 365 of the Bankruptcy Code.' ) (quoting S.Rep. No. 101-19, 101st Cong., 1st Sess., at 314), vacated and remanded on other grounds sub nom., Solomon v. Resolution Trust Corp., --- U.S. ----, 115 S.Ct. 43, 130 L.Ed.2d 5 (1994). See also, 1185 Avenue, 22 F.3d at 497 (we note that Chapter 3 of the Bankruptcy Code provides a helpful analogy to a FIRREA receiver or conservator's authority to repudiate contracts). For at least one hundred years, bankruptcy trustees, as receivers have been able to repudiate contracts or leases. See Sunflower Oil Co. v. Wilson, 142 U.S. 313, 322, 12 S.Ct. 235, 237, 35 L.Ed. 1025 (1892). 30 In bankruptcy, the reasonable period is equitable in nature. See In re GHR Energy Corp., 41 B.R. 668, 673 (Bankr.D.Mass.1984) (court imposes reasonable period based on its inherent powers of equity). We balance Congress's intention that the RTC conduct its operations so as to maximize recovery on assets it acquires ... and minimize losses incurred in resolving cases against the reasonable interests and expectations of the landlord. See Diamond, 18 F.3d at 112 (quoting S.Rep. No. 101-19, 101st Cong., 1st Sess. at 352 (1989)). The CedarMinn court pointed out, Congress specifically directed the RTC to look closely at sale-leaseback transactions such as those at issue here. CedarMinn, 956 F.2d at 1455. 31 In detailing the repudiation power Title II provides for repudiation of real property leases. The disaffirmance of burdensome leases should take into account the total circumstances of the lease, including whether, in the case of a sale and lease back, the lease was executed as part of an arm's length transaction. 32 CedarMinn, 956 F.2d at 1455 (quoting H.R. Conf. Rep. No. 101-209, 101st Cong. 1st Sess. 399 (1989)). While we find no impropriety in the transaction between Franklin and the Madison Group for the lease back and sale, the Congressional mandate is informative because it indicates the high degree of scrutiny required by the RTC in evaluating burdensome leases. 33 The magistrate judge's ruling was without the benefit of 1185 Avenue. We find 1185 Avenue helpful and well reasoned. In that case, ninety days passed between the time of RTC's appointment as receiver until its final decision to repudiate was announced. During the delay the acquiring institution had the option to assume certain leases within ninety days. The court there found that [i]t was not unreasonable for the RTC to have waited until the end of that period to notify leasing and contracting parties of the decision to repudiate. 1185 Avenue, 22 F.3d at 498. Likewise in this case, the RTC was appointed as receiver on September 9, 1990. Fifty-nine days later, on November 7, 1990, the RTC announced its intention to repudiate the Lease if B of A did not exercise its option to assume the Lease. Fifty-nine days was not an unreasonable delay for the RTC to determine that the Lease was burdensome to the RTC. On December 20, 1990, B of A stated it would not exercise its option to assume the Lease. By January 4, 1991, 117 days after its appointment as receiver, the RTC repudiated the Lease. We do not find a 117 day delay from appointment as receiver to announcement of repudiation to be an unreasonable period under the circumstances. The delay is not substantially greater than the ninety day delay in 1185 Avenue. As we have noted, the RTC's announcement of its intention to repudiate should B of A not desire assuming the Lease, came just 59 days after its appointment as receiver. Nothing prevented FFA from negotiating independently with B of A at this time, or any time earlier. We find in this case that the RTC's obligation in resolving the financial affairs of failed financial institutions outweighs the expectations of the landlord, FFA. We conclude that the RTC repudiated the Lease within a reasonable period within the meaning of FIRREA and therefore we reverse. 4