Skillman-Eastridge, Ltd. v. JPMorgan Chase Bank N.A.
Filing
92
Memorandum Opinion and Order denying as moot 31 Motion for Summary Judgment filed by Federal Deposit Insurance Corporation, denying as moot 25 Motion for Summary Judgment filed by Skillman-Eastridge Ltd, granting with prejudice 28 Motion to Dismiss/Lack of Jurisdiction filed by Federal Deposit Insurance Corporation, denying as moot 39 Motion for Summary Judgment filed by JPMorgan Chase Bank N.A. (Ordered by Judge Barbara M.G. Lynn on 9/29/2011) (jrb)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SKILLMAN-EASTRIDGE, LTD.,
Plaintiff,
v.
JPMORGAN CHASE BANK,
NATIONAL ASSOCIATION,
Defendant,
AND
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for
Washington Mutual Bank,
Intervenor.
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CIVIL ACTION NO. 3:09-CV-01988-M
MEMORANDUM OPINION AND ORDER
Before the Court are Plaintiff Skillman-Eastridge, Ltd.’s Motion for Summary Judgment
[Docket Entry #25], Defendant Federal Deposit Insurance Corporation’s Motion to Dismiss
[Docket Entry #28] and Motion for Summary Judgment [Docket Entry #31], and Defendant
JPMorgan Chase Bank, N.A.’s Motion for Summary Judgment [Docket Entry #39]. For the
reasons explained below and for reasons stated on the record at the July 21, 2011 hearing, the
FDIC’s Motion to Dismiss is GRANTED with prejudice. 1 The Motions for Summary
Judgment of JPMorgan Chase Bank, N.A. and the FDIC, and the Motion for Summary Judgment
of Skillman-Eastridge, Ltd. are DENIED as moot.
1
Based on the Joint Stipulation on Construction Status, Docket Entry #87, the Court finds no standing and grants the
Motion to Dismiss [Docket Entry #28], rather than reaching the Summary Judgment motions. Because the Joint
Stipulation provided new information not known at the time of the July 21, 2011 hearing, the Court is granting the
Motion to Dismiss, although based on the evidence then known to the Court, the Court stated and reflected in its
minute order, that the Motion to Dismiss would be denied.
Page 1 of 16
I.
BACKGROUND AND PROCEDURAL HISTORY
On September 19, 2007, Plaintiff Skillman-Eastridge, Ltd. (“Skillman”) entered into a
lease with Washington Mutual Bank (“WAMU” or “Failed Bank”) for property located in
Dallas, Texas on Skillman Street and Eastridge Drive (the “Lease”). 2 WAMU intended to
operate a branch bank on the property after it was constructed by WAMU’s contractors, but as of
September 25, 2008, the date WAMU became insolvent, 3 construction of the branch bank was
still underway. The parties filed a joint stipulation relating to the status of construction as of
September 25, 2008. 4
As WAMU’s receiver, all of the assets and liabilities of WAMU were transferred to the
Federal Deposit Insurance Corporation (“FDIC” or “Receiver”). On the same day, the FDIC
entered into a Purchase and Assumption Agreement (“PAA”) with JPMorgan Chase Bank, N.A.
(“JPMC” or “Assuming Bank”). Under Section 3.1 of the PAA, JPMC purchased from the FDIC
“all right, title, and interest of the Receiver in and to all of the assets (real, personal and mixed,
wherever located and however acquired) . . . of the Failed Bank whether or not reflected in the
books of the Failed Bank as of Bank Closing.” 5
Section 3.5 of the PAA creates exceptions to Section 3.1. JPMC did not purchase,
acquire or assume the assets listed in “Schedule 3.5,” unless otherwise expressly provided under
the PAA. 6 Schedule 3.5 includes “leased Bank Premises and leased Furniture and Equipment
and Fixtures and data processing equipment (including hardware and software) located on leased
2
Skillman MSJ App. 6–58.
FDIC MSJ App. 53–59.
4
Joint Stipulation on Construction Status, Docket Entry #87.
5
FDIC MTD App. Exh. A (“PAA”) § 3.1.
6
PAA § 3.5.
3
Page 2 of 16
or owned Bank Premises, if any; provided, that the Assuming Bank does obtain an option under
Section 4.6, Section 4.7, and Section 4.8. . . .” 7
Pursuant to Section 4.6, JPMC had a 90-day option to accept or decline to accept
assignment of any leases for “leased Bank Premises, if any.” 8 Article I of the PAA defines
“Bank Premises” as:
[T]he banking houses, drive-in banking facilities, and teller facilities (staffed or
automated) together with appurtenant parking, storage and service facilities and
structures connecting remote facilities to banking houses, and land on which the
foregoing are located, that are owned or leased by the Failed Bank and that are
occupied by the Failed Bank as of Bank Closing. 9 (emphasis added).
The PAA defines “Other Real Estate” as “all interests in real estate (other than Bank
Premises and Fixtures), including but not limited to mineral rights, leasehold rights,
condominium and cooperative interests, air rights and development rights that are owned by the
Failed Bank.” 10
Skillman pleads that by letter dated December 22, 2008, JPMC notified Skillman that it
would not exercise its option to assume the Lease under the PAA. 11 On April 13, 2009, the
FDIC sent Skillman a notice, stating its decision to “disaffirm” the Lease based on its conclusion
that the Lease was burdensome and that disaffirmance would promote the orderly administration
of WAMU’s affairs. 12 However, on August 4, 2009, Skillman sent a notice to JPMC, stating its
view that under the PAA, JPMC had assumed the Lease and that JPMC was in default for failure
to pay the monthly lease payments. 13
7
PAA Schedule 3.5(3) (emphasis added).
PAA § 4.6.
9
PAA Art. I, at 2. (emphasis added).
10
PAA. Art. I, at 6.
11
Orig. Pet. ¶ 14. On March 25, 2009, JPMC sent a follow-up letter, confirming it elected not to assume the Lease
and that it had vacated the Bank Premises. Skillman App. 59.
12
FDIC MSJ App. 118-119.
13
Skillman App. 60-63.
8
Page 3 of 16
On October 20, 2009, Skillman filed suit against JPMC for breach of the Lease. The
FDIC intervened, and, on February 17, 2011, it removed the case to this Court. The FDIC
moved to dismiss Skillman’s suit, and all parties moved for summary judgment. In conjunction
with their motions, the parties filed various requests for judicial notice and objections to
evidence.
II.
STANDARDS OF REVIEW
A. Rule 12(b)(1) Standard
Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a claim is properly
dismissed for lack of subject matter jurisdiction when the court lacks the statutory or
constitutional power to adjudicate the claim. 14 Exhaustion of administrative remedies, 15 where
applicable, and standing 16 are threshold issues that must be resolved before any consideration of
the merits of a case. Normally, the court determines subject matter jurisdiction from the
sufficiency of the allegations in the complaint, because they are presumed to be true. 17 If a
defendant makes a factual attack on subject matter jurisdiction by providing evidentiary
materials challenging the jurisdiction of the court, the court is free to weigh evidence from both
sides in resolving disputed factual issues. 18 The plaintiff bears the burden of proving jurisdiction
by a preponderance of the evidence. 19
14
See Home Builders Ass’n, v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998) (citation and internal quotation
marks omitted).
15
See Hedley v. United States, 594 F.2d 1043, 1044 (5th Cir. 1979) ( “Exhaustion of administrative remedies is a
general prerequisite to judicial review of any administrative action.”); McClendon v. Jackson Television, Inc., 603
F.2d 1174, 1176 (5th Cir. 1979) (“(N)o one is entitled to judicial relief for a supposed or threatened injury until the
prescribed administrative remedy has been exhausted.” (quoting McKart v. United States, 395 U.S. 185, 193, 89 S.
Ct. 1657, 23 L.E.2d 194 (1969))).
16
See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 93-102 (1998). See also Cox v. City of Dallas, Tex., 256
F.3d 281, 303 (5th Cir. 2001)
17
See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981).
18
See MDPhysicians & Assoc., Inc. v. State Bd. of Ins., 957 F.2d 178, 181 (5th Cir. 1992) (citations omitted).
19
See Paterson, 644 F.2d at 523.
Page 4 of 16
B. Summary Judgment
Summary judgment is warranted if the pleadings, discovery, disclosure materials, and
supporting affidavits show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law. 20 A genuine issue of material fact exists when
a reasonable jury could find for the non-moving party. 21 The moving party bears the initial
burden of identifying those portions of the record that demonstrate the absence of a genuine issue
of material fact. 22 Once the movant carries its initial burden, the burden shifts to the nonmovant
to show that summary judgment is inappropriate, by designating specific facts beyond the
pleadings that prove the existence of a genuine issue of material fact. 23 In determining whether
genuine issues of material fact exist, “factual controversies are construed in the light most
favorable to the nonmovant, but only if both parties have introduced evidence showing that an
actual controversy exists.” 24
III.
ANALYSIS
A. Exhaustion of Administrative Remedies
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”)
establishes procedures by which the FDIC can act as the receiver for failed banks, disposing of
their assets and stabilizing the claims process for owners of assets formerly entrusted to the
failed banks. 25 These procedures include a mandatory administrative process by which
20
Fed. R. Civ. P. 56(c).
Gates v. Tex. Dep’t of Protective & Regulatory Servs., 537 F.3d 404, 417 (5th Cir. 2008) (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
22
See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Lynch Props., Inc. v. Potomac Ins. Co., 140 F.3d 622, 625
(5th Cir. 1998) (citing Celotex, 477 U.S. at 325).
23
See Fed. R. Civ. P. 56(e)(2); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Fields
v. City of S. Houston, 922 F.2d 1183, 1187 (5th Cir. 1991).
24
Lynch Props., 140 F.3d at 625 (citation omitted).
25
See 12 U.S.C. § 1821.
21
Page 5 of 16
claimants must pursue certain claims through the FDIC, 26 including (1) “any claim or action for
payment from . . . the assets of any depository institution for which the [FDIC] has been
appointed receiver,” (2) “any action seeking a determination of rights with respect to . . . the
assets of any depository institution for which the [FDIC] has been appointed receiver,” and (3)
“any claim relating to any act or omission of such institution or the [FDIC] as receiver.” 27
FIRREA mandates that “except as otherwise provided in this subsection, no court shall have
jurisdiction over” the three types of claims enumerated above. 28
The FDIC argues that Skillman’s claims for relief fall within 12 U.S.C. § 1821(d)(13)(D)
as either: (1) an action seeking a determination of rights with respect to the assets of WAMU, for
which the FDIC has been appointed receiver; or alternatively, (2) as claims relating to an act or
omission of WAMU or the FDIC before and after preparation of the PAA. The FDIC asserts that
any such claims should be pursued through the administrative claims process established by
FIRREA, 29 and that Skillman’s failure to do so deprives this Court of subject matter jurisdiction
to hear the case. 30 The FDIC relies on cases from other circuits for the proposition that any
claim relating to an act or omission of the failed institution or the FDIC as receiver is subject to
Section 1821(d)’s exhaustion requirement, 31 that Skillman’s claim turns on an interpretation of
the PAA, which involves FDIC’s actions, and that the purpose of FIRREA is “to enable the
26
See 12 U.S.C. §§ 1821(d)(3)-(13).
12 U.S.C. § 1821(d)(13)(D).
28
Id.
29
12 U.S.C. §§ 1821(d)(3)-(13).
30
See FDIC v. McFarland, 243 F.3d 876, 887 n. 42 (5th Cir. 2001) (noting § 1821(d)(13)(D) requires claimants of
“assets in possession of the FDIC to exhaust administrative remedies prior to filing in court.” (citing Amer. First
Fed., Inc. v. Lake Forest Park, Inc., 198 F.3d 1259, 1263 (11th Cir. 1999); FDIC v. Scott, 125 F.3d 254, 258 (5th
Cir. 1997); Meliezer v. Resolution Trust Co., 952 F.2d 879, 882 (5th Cir. 1992); Nat’l Union Fire Ins. v. City Sav.,
28 F.3d 376, 393 (3d Cir. 1994); RTC v. Midwest Fed. Sav. Bank, 36 F.3d 785, 791 (9th Cir. 1993))).
31
See Village of Oakwood v. State Bank & Tr. Co., 519 F. Supp. 2d 730, 738 (N.D. Ohio 2007), aff’d, 539 F.3d 373
(6th Cir. 2008); Freeman v. FDIC, 56 F.3d 1394, 1401 (D.C. Cir. 1995); Benson v. JPMorgan Chase Bank, N.A.,
No. C-09-5272, 2010 WL 3168390 (N.D. Cal. Aug. 10, 2010); Aber-Shukofsky v. JPMorgan Chase & Co., 755 F.
Supp. 2d 441 (E.D.N.Y. 2010).
27
Page 6 of 16
[FDIC] to efficiently determine creditors’ claims and preserve assets of the failed institution
without being burdened by complex and costly litigation.” 32
However, the Court cannot conclude that Skillman’s claims involve acts or omissions of
WAMU or of the FDIC as WAMU’s receiver. Rather, they relate to JPMC’s actions after it
allegedly assumed the Lease under the PAA. The cases cited by the FDIC clearly challenge
actions of the failed bank or the FDIC, 33 and this Court is of the view that FIRREA’s
jurisdictional bar applies only to such claims, not to ones claiming an obligation allegedly
undertaken by the assuming bank. The Court is of the view that FIRREA’s administrative claims
process does not apply after the FDIC relinquishes ownership of the failed bank’s property. 34
Since Plaintiff’s claims assert that such relinquishment in favor of JPMC occurred, the Court
declines to apply FIRREA’s jurisdictional bar to this case. 35
B. Standing
Standing concerns a party’s right to bring a suit, and is quite different from a decision
about who should prevail on the merits. 36 To establish standing and show that a court has
jurisdiction under Article III to hear its claims, a plaintiff must demonstrate first that its claims
32
Nat’l Union Fire, 28 F.3d at 388.
See Village of Oakwood, 519 F. Supp. 2d at 732–35; Freeman v. FDIC, 56 F.3d 1394, 1401 (D.C. Cir. 1995);
Lloyd v. FDIC, 22 F.3d 335, 337 (1st Cir. 1994); Henderson v. Bank of New England, 986 F.2d 319, 321 (9th Cir.
1993).
34
In FDIC v. McFarland, 243 F.3d 876, 887 n. 42 (5th Cir. 2001), a lease had been assigned to an assuming bank by
the FDIC, and plaintiffs sued the assuming bank to prevent foreclosure and assert allegedly superior claims to the
proceeds of the mineral lease. The court held that FIRREA’s administrative exhaustion requirement “merely
requires claimants to assets in possession of the FDIC to exhaust administrative remedies prior to filing in court,”
and that the mandatory administrative claim procedures in FIRREA “are predicated on the FDIC’s possession of the
property in question. When the FDIC relinquishes ownership, the procedures governing its role as receiver no longer
apply to the property.” (emphasis added)
35
Accord, Excel Willowbrook, LLC, et al. v. JPMorgan Chase Bank, National Assoc., No. 4:09-cv-2988 (S.D. Tex.
July 13, 2011) (in similar case, holding plaintiff need not have exhausted FIRREA’s administrative remedies before
filing suit against JPMC).
36
Barrett Computer Servs., Inc., v. PDA, Inc., 884 F.2d 214, 218-19 (5th Cir. 1989) (citations omitted) (citing Hill v.
City of Houston, 764 F.2d 1156, 1159 (5th Cir. 1985)). See also Bochese v. Town of Ponce Inlet, 405 F.3d 964, 974
(11th Cir. 2005).
33
Page 7 of 16
amount to a “case” or “controversy.” 37 A case or controversy involves injury-in-fact, causation,
and redressability. 38 Here, the Court must determine whether Skillman suffered an injury-in-fact
that was caused by JPMC.
Skillman asserts JPMC breached the Lease. To prove that claim, Skillman must show
that (1) the Lease is valid and extant; (2) Skillman performed or tendered performance of its
duties under the Lease; (3) JPMC breached the Lease; and (4) Skillman suffered damages as a
result of the breach. 39
For a person to be liable for another’s contract, the alleged obligor must have expressly or
impliedly assumed the obligations of that contract. 40 Here, since WAMU and Skillman executed
the Lease and JPMC was not a party to it, for Skillman to have standing to sue JPMC it must
show that JPMC assumed WAMU’s obligations under the Lease. Skillman asserts that the FDIC
assumed the Lease when WAMU failed, and then, by the PAA, the FDIC assigned the Lease to
JPMC. Skillman’s standing thus depends on whether it can assert its interpretation of the PAA
as a third-party beneficiary of the PAA, or whether it can ask this Court to examine the PAA as
evidence that the FDIC assigned the Lease to JPMC, placing Skillman in privity of contract and
estate with JPMC.
1. Third Party Beneficiary
The first question presented in determining if Skillman is a third party beneficiary is what
law applies—federal common law or Texas law. The Court concludes that federal common law
37
Steel Co., 523 U.S. at 93–102.
Cox, 256 F.3d 281, 303 (citing Bennett v. Spear, 520 U.S. 154, 167 (1997)).
39
Amer. Tourmaline Fields v. Int’l Paper Co., No. Civ. A 3:96 CV 3363D, 1999 WL 637224, at *3 (N.D. Tex.
1999) (citing Wright v. Christian & Smith, 950 S.W.2d 411, 412 (Tex. App. 1997, no writ); see also Adams v. H &
M Meat Prods., Inc., 41 S.W.3d 762, 771 (Tex. App.—Corpus Christi 2001, no pet.).
40
Valley Reg’l Med. Ctr. v. Wright, 276 F. Supp. 2d 620, 633 (S.D. Tex. 2001) (citing Jones v. Cooper Indus., Inc.,
938 S.W.2d 118, 124 (Tex. App.—Houston 1996, writ denied).
38
Page 8 of 16
applies, but the result would be the same either way. 41 Federal common law prohibits any
person except a party or an intended third party beneficiary from claiming legal rights under a
contract. 42 Thus, to sue as a third party beneficiary to a contract, a person must show it was the
express or implied intent of the parties to contract for its benefit. 43 If the terms of the contract
are clear when given their ordinary meaning, those terms should be used to ascertain the intent of
the parties to the contract. 44 Third party beneficiary status is rarely granted under federal
common law, but is granted even less frequently when the contract at issue involves a
government entity, as parties who benefit from government contracts “are generally assumed to
be incidental beneficiaries, and may not enforce the contract absent a clear intent to the
contrary.” 45
Here, the PAA disclaims any intent to benefit third parties. It states that it is the
“intention of the parties hereto that this Agreement, the obligations and statements of
41
The parties dispute whether the Court should apply federal common law or Texas law to the standing dispute. The
parties to the PAA were the FDIC and JPMC. “[F]ederal common law governs the construction of government
contracts in the usual case.” Clem Perrin Marine Towing, Inc. v. Panama Canal Co., 730 F.2d 186, 189 (5th Cir.
1984) (deciding whether to apply admiralty or federal common law to dispute over contract with government entity,
holding that it did not matter because the UCC applied either way). Further, “[r]egardless of the result under state . .
. law, federal law governs cases involving the rights of the United States arising under nationwide federal
programs.” S. Tex Med. Clinics, P.S. v. Phycor, Inc., 113 F. Supp. 2d 1094, 1100 (S.D. Tex. 2000) (citing U.S. v.
Vernon Home Health, Inc., 21 F.3d 693, 695 (citing U.S. v. Kimbell Foods, 440 U.S. 715, 726, 99 S. Ct. 1448, 59 L.
Ed. 2d 711 (1979))). Other district courts addressing this issue have applied state law without undertaking a choice
of law analysis. See 290 at 71, LLC v. JPMorgan Chase Bank, N.A., No. A-09-CA-576-SS, 2009 WL 3784347, at
*4 (W.D. Tex. Nov. 9, 2009); Elba Inc. and Sierra Slover v. JPMorgan Chase Bank, No. 2:10-cv9367 DSF (OPx)
(C.D. Cal. Mar. 28, 2011); Firestone Brookshire HE, LLC v. JPMorgan Chase Bank, No. 2:10-CV-9155-VBF
(FMOx) (C.D. Cal. Mar. 18, 2011); GECCMC 2005-C1 Plummer St. Off. Ltd. P’ship v. JPMorgan Chase Bank,
N.A., No. 2:10-cv-01615-JHN-SHx (C.D. Cal. July 7, 2010); Interface Kanner, LLC, v. JPMorgan Chase Bank,
N.A., No. 2:10-cv-14068-DLG (S.D. Fla. Mar. 18, 2011).
42
See Hanak v. Talon Ins. Agency, Ltd., 470 F. Supp. 2d 695, 705 (E.D. Tex. 2006); Lichterman v. Pickwick Pines
Marina, Inc., No. 1:07CV256-SA-JAD, 2010 WL 717840 at *6 (N.D. Miss. Feb. 22, 2010).
43
Lichterman, 2010 WL 717840 at *6 (citing Montana v. United States, 124 F.3d 1269, 1273 (Fed. Cir. 1997)).
44
Id. (citing Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1549 (9th Cir. 1989)).
45
Id. (quoting Kremen v. Cohen, 337 F.3d 1024, 1029 (9th Cir. 2003)). When federal law applicable to a decision
simply consists of general principles, courts can “look to state law to shape [the] general principles.” Neal v.
Hardee’s Food Sys., Inc., 918 F.2d 34, 37 n.5 (5th Cir. 1990). Texas law prevents anyone but the parties and
intended third party beneficiaries of a contract from enforcing or interpreting the contract. See Corpus Christi Bank
& Trust v. Smith, 525 S.W.2d 501, 503 (Tex.1975); RTC v. Kemp, 951 F.2d 657 (5th Cir. 1992)(applying Texas
law); Staton Holdings, Inc. v. First Data Corp., No. Civ. A. 3:04-CV-2321P, 2006 WL 1343631, at *8 (N.D. Tex.
2006) (citing Missouri Pac. R.R. Co. v. Harbison-Fischer Mfg. Co., 26 F.3d 531, 540 (5th Cir. 1994))(applying
Texas law).
Page 9 of 16
responsibilities hereunder, and all other conditions and provisions hereof are for the sole and
exclusive benefit of the Receiver, the Corporation and the Assuming Bank and for the benefit of
no other person.” 46 Under such terms, federal common law treats Skillman as an incidental
beneficiary, with no legal rights to enforce the PAA.
Some federal district courts, using state law without undergoing an express choice of law
analysis, have examined identical language in the PAA between the FDIC and JPMC, and have
found the plaintiff-lessors not to be third party beneficiaries. In 290 at 71, Judge Sparks,
applying Texas law, found “undisputedly [that there was] no clear reference in the PAA” to
plaintiff-lessor, and that the plaintiff was thus not a third party beneficiary of the PAA. 47
Applying California law, two other district courts rejected the third party beneficiary
status claimed by the plaintiff-lessors, relying on language in the PAA disclaiming an intent to
benefit third parties. 48 A district court applying Florida law relied on the same PAA language in
rejecting a third party beneficiary claim.
The Court concludes that Skillman is not a third-party beneficiary of the PAA under
either federal law or Texas law.
2. Privity of Contract and Estate
Skillman alternatively claims that it is in privity of contract and estate with JPMC,
because JPMC assumed the Lease. It is black letter law that “[i]n order to maintain an action to
recover damages flowing from the breach of a written agreement, there must ordinarily be a
privity existing between the party damaged and the party sought to be held liable” for the
46
PAA, § 13.5.
290 at 71, 2009 WL 3784347, at *4 n.3.
48
GECCMC, at *12; Firestone, at *5-7.
47
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breach. 49 “Privity . . . means the mutual or successive relationship to the same rights of
property.” 50
Skillman alleges that the FDIC assumed WAMU’s obligations under the Lease, then
transferred and assigned the entire leasehold interest to JPMC by Section 3.1 of the PAA.
“When [an] assignor conveys its entire [leasehold] interest, without retaining any reversionary
interest, the assignee becomes a tenant in place of the original lessee and is in privity of estate
and contract with the lessor.” 51 The parties do not dispute that, by operation of law, the FDIC, as
Receiver, assumed WAMU’s entire interest in the Lease, subject to disaffirmance or conveyance.
If the FDIC then assigned its entire interest in the Lease to JPMC, Skillman would be in privity
of contract and estate with JPMC and would have standing to bring this claim. 52 Skillman
claims the PAA is evidence of such an assignment, which establishes a binding relationship
between it and JPMC.
The provisions of the PAA determine which assets the FDIC assigned outright to JPMC
and which assets JPMC had an option to assume. The PAA assigned most of WAMU’s assets
outright to JPMC but not “Bank Premises,” which JPMC had an option to assume. 53 If the
property in issue is “Bank Premises,” JPMC did not assume it. If it is not “Bank Premises,”
JPMC received the property outright via the PAA which is, in essence, an assignment from the
FDIC.
Skillman argues the Lease is unambiguously not “Bank Premises,” as the property was
not occupied by WAMU and did not contain sufficient structures under Section 4.6 of the PAA
49
Vara-Portofino Tech Ctr., LLC v. Sandvik Mining and Const. USA, LLC, No. H-09-2376, 2009 WL 4263975, at
*4 (S.D. Tex. 2009) (quoting Boy Scouts of Amer. v. Responsive Terminal Sys., Inc., 790 S.W.2d 738, 747 (Tex.
App.—Dallas, 1990, writ denied).
50
Id. (quoting Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 653 (Tex. 1996)).
51
718 Assocs., Ltd. v. Sunwest N.O.P., Inc., 1 S.W.3d 355, 361 (Tex. App.-Waco, 1999) (citing Amco Trust, Inc. v.
Naylor, 159 Tex. 146, 317 S.W.2d 47, 50 (1958)).
52
Id.
53
PAA, §§ 3.1, 4.6.
Page 11 of 16
to be considered Bank Premises. The FDIC and JPMC, in contrast, argue that land held for a
future branch bank is clearly “Bank Premises” under the PAA, or alternatively, that the relevant
PAA provisions are ambiguous and that their mutual intent establishes a meaning contrary to that
asserted by Skillman.
A number of other district courts examining identical language in a PAA between the
FDIC and JPMC have analyzed the privity issue. 54 In 290 at 71, Judge Sparks reasoned that
denying plaintiff standing because it was not a party to the PAA would be a “catch-22 that would
keep plaintiff from asserting its rights under the lease against the new lessee even if a valid
assignment of the lease did occur.” 55 Judge Sparks concluded that the PAA would be
“absolutely meaningless” if the FDIC and JPMC “could determine between themselves . . . what
property is ‘Bank Premises’ . . . notwithstanding the express definition of the PAA.” 56 Judge
Sparks found that the PAA was “unambiguous as a matter of law” and that the vacant land in
question, though leased for a future bank, was not “Bank Premises” as defined by the PAA. 57
Thus, the court held that the FDIC assigned the lease to JPMC under the PAA, and that the
plaintiff-lessor had standing to assert a breach of lease claim against JPMC. 58 Likewise, in Excel
Willowbrook, the court determined that the vacant property at issue was “Other Real Estate”
which was automatically assigned to JPMC, making the plaintiffs in privity with JPMC, with
standing to assert a breach of lease claim against it.
54
See 290 at 71, 2009 WL 3784347, at *5 (W.D. Tex. Nov. 9, 2009); Elba, No. 2:10-cv-9367 DSF (OPx) (C.D.
Cal. Mar. 28, 2011); Firestone Brookshire HE, LLC v. JPMorgan Chase Bank, No. 2:10-CV-9155-VBF (FMOx)
(C.D. Cal. Mar. 18, 2011); GECCMC 2005-C1 Plummer St. Off. Ltd. P’ship v. JPMorgan Chase Bank, N.A., No.
2:10-cv-01615-JHN-SHx (C.D. Cal. July 7, 2010); Interface Kanner, LLC, v. JPMorgan Chase Bank, N.A., No.
2:10-cv-14068-DLG (S.D. Fla. Mar. 18, 2011).
55
290 at 71, LLC, at *4; Cent. Sw. Tex. Dev., LLC v. JPMorgan Chase Bank National Association, Case No. 1:09cv-00819-SS, at 10 (W.D. Tex. Aug. 8, 2011). The position taken by JPMC and the FDIC, that determinations
denying standing be made without analyzing whether an assignment occurred, would essentially bar lessors from
suing assignees in the failed bank context. See SR Partners Hulen, LLC v. JPMorgan Chase Bank Nat’l Ass. and the
FDIC, as receiver for Washington Mutual Bank, No. 3:10-cv-00437-B, at *11-12 (N.D. Tex. July 21, 2011).
56
Id.at *7 n.5.
57
Id. at *5.
58
Id.
Page 12 of 16
Accordingly, to determine standing based on Skillman’s contention that it is in privity
with JPMC, the Court must interpret the PAA and determine whether the property at issue
constitutes Bank Premises or Other Real Estate. The PAA defines Bank Premises as:
[T]he banking houses, drive-in banking facilities, and teller facilities (staffed or
automated) together with appurtenant parking, storage and service facilities and
structures connecting remote facilities to banking houses, and land on which the
foregoing are located, that are owned or leased by the Failed Bank and that are
occupied by the Failed Bank as of Bank Closing. 59
The PAA defines “Other Real Estate” as: “all interests in real estate (other than Bank
Premises and Fixtures), including but not limited to mineral rights, leasehold rights,
condominium and cooperative interests, air rights and development rights that are owned by the
Failed Bank.” 60 The Court finds this language in the PAA not to be ambiguous and therefore, it
will not to look to parol evidence to construe its meaning.
In contrast to the facts in 290 at 71 and Excel, as of the relevant date, the property at issue
here was not a vacant lot. As stipulated by the parties, it consisted of a completed “Building
Shell”, without installed banking or computer equipment. 61 Contractors were actively working
in the interior space. 62 Although WAMU had begun to pay rent under the Lease on September
17, 2008, the parties stipulate that pursuant to the Lease, rent was to commence 140 days after
Skillman delivered the land to WAMU, regardless of the stage of construction. 63 A Certificate of
Occupancy was issued by the City of Dallas only six days after WAMU closed.
To determine if the property was “Bank Premises” under the PAA, the Court must focus
on: 1) the characteristics of the physical structure on the lot as of September 25, 2008; and 2)
whether the structure was “occupied” on that date.
59
PAA Art. I, at 2. (emphasis added).
PAA. Art. I, at 6.
61
Joint Stipulation on Construction Status, Docket Entry #87.
62
Id.
63
Id. at 2
60
Page 13 of 16
Skillman argues that to be Bank Premises, a branch bank had to be operating on the site
on September 25, 2008. 64 Skillman’s interpretation seemingly requires 100% completion of the
structure with its paint dry, a “Welcome to WAMU” sign at the front door, and tellers behind the
counter. In the Court’s view, such an interpretation conflicts with the PAA. While a vacant lot
or even a slab of concrete with one wall constructed is not a completed banking house, a
structure six days from issuance of a Certificate of Occupancy is a banking house under the
PAA. The exterior of the building was completed prior to closing, and the remaining work was
largely cosmetic in nature, including placing banking equipment inside the building, finishing
painting the interior, installing interior doors, and completing installation of flooring. 65 Based on
the parties’ stipulated descriptions of the state of completion, the Court finds the structure to be a
“banking house” under the PAA’s definition of Bank Premises.
That is not the end of the inquiry, however. Under the PAA, to constitute Bank Premises,
a banking house must be “occupied by the Failed Bank as of Bank Closing.” (emphasis added).
The PAA does not explicitly define the term “occupied.” 66 Skillman cites to decisions that have
looked at the issue of occupancy in the real estate context and found that occupancy requires a
physical presence on the property, not just possession. 67 Defendants argue that the Court should
use the plain and ordinary meaning of occupancy and cite to Black’s Law Dictionary, which
defines “occupy” as “to take or hold possession.” 68
Skillman argues that since a Certificate of Occupancy was not issued until October 1,
2008, WAMU was not legally allowed to have a physical presence on the property in order to
64
Plaintiff’s Supplemental Briefing, Docket Entry #90, at 3.
Joint Stipulation on Construction Status, Docket Entry #87.
66
The PAA has a section concerning occupancy costs that indicates that JPMC would have to pay rent, taxes, fees,
and insurance during its occupancy of leased Bank Premises. However, under the Lease between WAMU and
Skillman, rent would be paid beginning on a certain date, so payment of rent does not help resolve the issue of
occupancy under the PAA.
67
Plaintiff’s Supplemental Briefing, Docket Entry #90, at 7-9.
68
Defendants’ Supplemental Briefing, Docket Entry #89, at 5-6.
65
Page 14 of 16
conduct business and thus, the premises could not be “occupied” by WAMU. 69 Defendants
contend that WAMU’s possession of the property coupled with its rent payment is sufficient to
demonstrate occupancy, and, in addition, the issuance of the Certificate of Occupancy on
October 1 shows substantial completion on September 25, 2008.
The parties offer different interpretations concerning what possession of the property
means in determining occupancy. The FDIC and JPMC argue that the Court should find that
WAMU “occupied” the leased property when it was given possession of the property on May 1,
2008 and began construction, or in the alternative, when it began paying rent on September 17,
2008. 70 Skillman argues that mere possession of the property does not constitute occupancy and
that WAMU must have been conducting banking business on the premises to be occupying a
banking house. Neither argument completely resolves the issue of occupancy.
The term “occupied” in the definition of Bank Premises does not refer simply to the land
under the lease—it refers only to land in the context of the enumerated structures actually being
present (“land on which the foregoing are located”). 71 In the Court’s view, a proper reading of
the PAA requires WAMU not only to have taken possession of the land, but also for at least one
of the structures described in the PAA’s definition of Bank Premises to be substantially
completed when WAMU closed. If the Court were to accept the FDIC and JPMC’s argument
that mere possession of the land equals occupancy, WAMU would have “occupied” the vacant
lot in May, although it had no structure on it.
The structures on the land as of September 25, 2008 constituted a “banking house” under
the PAA. WAMU had possession and complete control over the structure which was
69
Plaintiff’s Supplemental Briefing, Docket Entry #90, at 6.
Defendants’ Supplemental Briefing, Docket Entry #89, at 6.
71
PAA Art. I, at 2.
70
Page 15 of 16
substantially completed and occupied by WAMU. The Court therefore finds it to be Bank
Premises under the PAA, and not assumed by JPMC.
IV.
CONCLUSION
Because the Lease was for Bank Premises, JPMC had the right to, and did elect not to
assume it. Therefore, Plaintiff is not in privity with JPMC, and does not have standing to enforce
the Lease against it. Therefore, Defendant’s Motion to Dismiss is GRANTED with prejudice.
Both Plaintiff’s and Defendants’ Motions for Summary Judgment are DENIED as moot.
SO ORDERED.
September 29, 2011.
_________________________________
BARBARA M. G. LYNN
UNITED STATES DISTRICT JUDGE
NORTHERN DISTRICT OF TEXAS
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