Opinion ID: 6933480
Heading Depth: 2
Heading Rank: 1

Heading: Construction of phrase “contract or lease.”

Text: In Diamond, we framed as a central issue whether the tenancies in question had the nature of a “contract or lease,” and were therefore subject to the RTC’s repudiation power. We stated that, “[f]or these purposes, the definition of the phrase ‘contract or lease’ is a matter of federal law.” 18 F.3d at 118. Nothing in O’Melveny (or in the many cases cited by New York and the tenants in their latest briefing) militates against that approach. 2 New York and the tenants point to the O’Melveny principle that we may not “adopt a court-made rule to supplement federal statutory regulation that is comprehensive and detailed; matters left unaddressed in such a scheme are presumably left subject to the disposition provided by state law.” O’Melveny, — U.S. at -, 114 S.Ct. at 2054. According to New York, this means that words and terms that are not expressly defined in FIRREA must be construed according to New York law. We disagree. Our reading of the eases cited by the Court following this quotation demonstrates to us that the Court had in mind court-created remedies and causes of action, not definitions of terms used in a federal statute. Thus, in Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981), the Court held that there is no implied right of contribution in either Title VII of the 1964 Civil Rights Act or in the Equal Pay Act: “The presumption that a remedy was deliberately omitted from a statute is strongest when Congress has enacted a comprehensive legislative scheme_ The judiciary may not, in the face of such comprehensive legislative schemes, fashion new remedies that might upset carefully considered legislative programs.” 451 U.S. at 97, 101 S.Ct. at 1583-84. However, the meaning of words in a federal statute is a different matter: “In almost any statutory scheme, there may be a need for judicial interpretation of ambiguous or incomplete provisions. But the authority to construe a statute is fundamentally different from the authority to fashion a new rule or to provide a new remedy which Congress has decided not to adopt.” Id. In the other case cited in O’Melveny, City of Milwaukee v. Illinois and Michigan, 451 U.S. 304, 101 S.Ct. 1784, 68 L.Ed.2d 114 (1981), the Court held that a comprehensive legislative scheme enacted by Congress displaces previously created federal common-law rights of action. See id. at 319, 101 S.Ct. at 1793 (“The establishment of such a self-consciously comprehensive program by Congress, which certainly did not exist when [the Court created a common-law right of action], strongly suggests that there is no room for courts to attempt to improve on that program with federal common law.”) This is an entirely uncontroversial proposition and does not affect in the least our reading of FIR-REA. Our decision in Diamond does not (and did not purport to) write federal common law; we did not create a new remedy, cause of action, or rule of decision. We construed the language of a federal statute that by its own terms created a rule of decision; and that enterprise is, and always has been, a matter of federal law. See Molzof v. United States, 502 U.S. 301, 305-07, 112 S.Ct. 711, 715, 116 L.Ed.2d 731 (1992) (“the meaning of the term “punitive damages” as used in [28 U.S.C.] § 2674, a federal statute, is by definition a federal question”); Federal Deposit Ins. Corp. v. Philadelphia Gear Corp., 476 U.S. 426, 431, 106 S.Ct. 1931, 1934-35, 90 L.Ed.2d 428 (1986) (federal law governs meaning of “deposit” in federal statute); Reconstruction Finance Corp. v. Beaver County, 328 U.S. 204, 208, 66 S.Ct. 992, 995, 90 L.Ed. 1172 (1946) (“Pennsylvania’s definition of ‘real property’ cannot govern if it conflicts with the scope of that term as used in the federal statute. What meaning Congress intended is a federal question which we must determine.”); Schacht v. Brown, 711 F.2d 1343, 1347 (7th Cir.1983) (“the cause of action [at issue] arises under ... a federal statute; we therefore write on a clean slate and may bring to bear federal policies in deciding the ... question.”) (quoted in O’Melveny, — U.S. at -, 114 S.Ct. at 2053). Our project in Diamond was to construe the term “contract or lease” in order to decide whether the tenancies at issue fall within the scope of the federal statute. We therefore asked “whether the tenancies in question are contractual in nature or whether the various rent regulations transformed these tenancies into some non-contractual, non-leasehold property interest such that they are outside the scope of the statute.” 18 F.3d at 118. To answer that question, we looked to generally applicable, long-standing principles of law. See, e.g., id. (“[a] tenancy is an interest in the exercise of dominion over property for a fixed or computable duration ... initiated by a voluntary contractual arrangement between the landlord and tenant. ...”) (citing Restatement (Second) of Property § 1.4 (1977); N.Y.Gen.Oblig.Láw § 5-703 (McKinney 1989)). Our holding— that rent-regulated tenancies are subject to disaffirmation or repudiation by the RTC— was based on the conclusion that these tenancies “are contract-based leaseholds”, 18 F.3d at 121, and we therefore rejected New York’s argument that the tenancies were purely creatures of statute outside the reach of § 1821(e). It is a “settled principle of statutory construction that, absent contrary indications, Congress intends to adopt the common law definition of statutory terms.” United States v. Shabani, — U.S. -, -, 115 S.Ct. 382, 384, 130 L.Ed.2d 225 (1994) (citing Molzof, 502 U.S. at 305-07, 112 S.Ct. at 715). In Molzof, the inquiry was “the meaning of the term ‘punitive damages’ as used in the [Federal Tort Claims Act].” 502 U.S. at 305, 112 S.Ct. at 715. Although the ultimate issue was the recoverability of certain damages under Wisconsin law, the Court never referred to the law of Wisconsin in defining the term. Rather, it stated that ‘“[p]unitive damages’ is a legal term of art that has a widely accepted common-law meaning; _ a long pedigree in the law.” Id. 306, 112 S.Ct. at 715. The Court looked to generic principles and sources of common law, including definitions contained in editions of law dictionaries current when the statute was adopted. See id. (citing to Black’s Law Dictionary 501 (3d ed. 1933); The Cyclopedic Law Dictionary 292 (3d ed. 1940)). In so doing, the Court was simply adhering to “[a] cardinal rule of statutory construction”: ‘[W]here Congress borrows terms of art in which are accumulated the legal tradition and meaning of centuries of practice, it presumably knows and adopts the cluster of ideas that were attached to each borrowed word in the body of learning from which it was taken and the meaning its use will convey to the judicial mind unless otherwise instructed. In such case, absence of contrary direction may be taken as satisfaction with widely accepted definitions, not as a departure from them.’ Molzof, 502 U.S. at 307, 112 S.Ct. at 716 (quoting Morissette v. United States, 342 U.S. 246, 263, 72 S.Ct. 240, 250, 96 L.Ed. 288 (1952)). These principles underlie our analysis in Diamond. FIRREA grants the RTC power to disaffirm or repudiate any “contract or lease” that it has found to be burdensome. A contract is “[a] promissory agreement between two or more persons that creates, modifies, or destroys a legal relation.” Black’s Law Dictionary 394 (4th ed. 1951). A lease is a species of contract — an “agreement which gives rise to [the] relationship of landlord and tenant.” Id. at 1035. The lease is a “[conveyance, grant or devise of realty for [a] designated period with reversion to [the] grantor.” Id. (citing Becker v. Manufactur ers Trust Co., 262 A.D. 525, 30 N.Y.S.2d 542, 544 (1941)). The “tenant” is “one who has the temporary use and occupation of real property owned by another person, (called the ‘landlord,’) the duration and terms of his tenancy being usually fixed by an instrument called a ‘lease.’” Id. at 1635. We read New York’s submissions to make two arguments in various ways: (1) that rent regulated tenancy in New York is a creature of statute, and fully non-contractual in nature; 3 and (2) that, in any event, nothing in FIRREA allows the RTC to abridge the tenants’ statutory right to avoid eviction so long as the state-prescribed rent is paid. O’Melveny does not make more tenable the argument that these tenancies are statutory and not contractual. First, as discussed above, Congress is presumed to have intended the common-law meaning of terms it uses without express definition. A “lease” is a contract conveying a temporary interest in real property, with reversion to the grant- or. A contract that is subject to statutory regulation is a contract still. When parties enter into a contract, they are presumed to accept all the rights and obligations imposed on their relationship by state (or federal) law. Norfolk & Western R. Co. v. American Train Dispatchers Ass’n, 499 U.S. 117, 129-31, 111 S.Ct. 1156, 1164, 113 L.Ed.2d 95 (1991); 2 Tudor City Place Associates v. 2 Tudor City Tenants Corp., 924 F.2d 1247, 1254 (2d Cir.), cert. denied, 502 U.S. 822, 112 S.Ct. 83, 116 L.Ed.2d 56 (1991). With respect to residential tenancies, state law may introduce terms or provisions directly into the contract. See Diamond, 18 F.3d at 118 (discussing examples of terms imposed on residential leases, as well as certain terms rendered unenforceable by state law). The tenancies in this case are no different. In each instance, the landlord-tenant relationship was created by a lease, as was the temporary interest in the property. New York’s regulations expressly provide that “[t]he provisions of any lease or other rental agreement shall remain in force pursuant to the terms thereof, except insofar as those provisions are inconsistent with the Rent Law or these regulations.” N.Y.Comp.Codes R. & Regs. tit. 9, § 2200.13; see also id. at § 2520.12 (same). Thus many of the original lease terms are unaffected by New York’s rent regulations. Although the landlord-tenant relationship has been made subject to a variety of laws, including the obligations imposed by New York’s rent regulations, the tenancy itself — the interest in the property— was created by the lease. Congress could not have intended that the RTC would have the power only to disaffirm or repudiate a piece of paper, or certain sections of that document. Rather, Congress must have intended that the repudiation reach the relationships and interests that the document creates. Section 1821(e) therefore confers the power to repudiate or disaffirm the grant or conveyance of the property interest, i.e., the temporary estate in property held by the tenant. Once this “determination” of the temporary estate has occurred, possession reverts to the holder of the fee simple — the owner, who in this case is the RTC. See Baker v. Latham Sparrowbush Assoc., 808 F.Supp. 992, 1008-09 (S.D.N.Y.1992) (under N.Y. law, possession reverts to owner upon termination of tenancy); see also N.Y. Estates, Powers and Trusts Law § 6-4.4 (McKinney 1992) (“A reversion is the future estate ... left in the creator ... upon the simultaneous creation of one or more lesser estates-”). In short, we reaffirm our original conclusion: the rent regulations at issue here “merely involve[ ] restrictions imposed on existing tenancies.... ” Seawall Associates v. City of New York, 74 N.Y.2d 92, 544 N.Y.S.2d 542, 548, 542 N.E.2d 1059, 1064, cert. denied, 493 U.S. 976, 110 S.Ct. 500, 107 L.Ed.2d 503 (1989). Therefore, the tenancies are fully subject to the RTC’s repudiation power.