BKWSPOKANE LLC v. Federal Deposit Insurance
12 F. Supp. 3d 1331
E.D. Wash.2014Background
- BKWSpokane, LLC (BKW) purchased 618 W. Riverside in June 2007 and entered a 25-year master sale‑and‑leaseback with Bank of Whitman (BOW); BKW operated as the lessor and BOW as master tenant with subtenants.
- BOW was closed on August 5, 2011; FDIC became receiver and entered a Purchase & Assumption Agreement (PAA) with Columbia State Bank (CSB), giving CSB a period to assume or reject BOW’s leases.
- CSB notified the FDIC in November 2011 it would reject the master lease and sought an extension to remain on the premises through June 30, 2012 while negotiating with BKW; negotiations continued into December/January but failed.
- On February 27, 2012, the FDIC sent BKW a repudiation letter disaffirming the lease effective June 30, 2012, invoking its powers under FIRREA (12 U.S.C. § 1821(e)).
- BKW sued for breach of contract; cross‑motions for summary judgment focused on (1) whether BKW was a party to the lease and (2) whether the FDIC’s repudiation was timely under FIRREA’s “reasonable period” requirement.
- The Court found BKW was a party to the lease (scrivener’s error as to state of formation immaterial) but held the FDIC repudiated within a reasonable period; FDIC’s motion granted and BKW’s denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was BKW a party to the Master Lease? | The Wyoming LLC reference was a scrivener’s error; parties intended and effectuated the transaction with Washington BKW on June 25, 2007. | The lease was signed June 22, 2007 by a non‑existent Wyoming LLC, so BKW was not a contracting party. | Held: BKW was a party; statutory after‑acquired interest and evidence of closing/performances cure the error. |
| Was the FDIC’s repudiation timely under FIRREA’s “reasonable period”? | FDIC’s repudiation was untimely and thus FIRREA damage limits do not apply; state law damages should govern. | FIRREA delegates broad discretion; FDIC exercised reasonable judgment given the PAA, negotiations, and required institutional approvals. | Held: Repudiation was timely (not unreasonable); FIRREA limits apply. |
| Did FDIC act in bad faith or prejudice BKW by delay? | FDIC delayed, failed to communicate, and manufactured reasons for repudiation. | FDIC showed legitimate reasons: complexity, need for higher authority and documentation; BKW suffered no FDIC‑attributable prejudice and actually received rent. | Held: No evidence of FDIC bad faith or prejudice attributable to delay. |
| What damages remedy applies? | State law damages (because repudiation allegedly untimely). | FIRREA’s limited damages provisions govern where repudiation is timely. | Held: FIRREA governs; lessor limited to contractual rent through effective date and other FIRREA remedies, not full state‑law damages. |
Key Cases Cited
- Federal Deposit Ins. Corp. v. Bank of Boulder, 911 F.2d 1466 (10th Cir. 1990) (examines P&A transactions and receiver powers)
- Resolution Trust Corp. v. CedarMinn Bldg. Ltd. P’ship, 956 F.2d 1446 (8th Cir. 1992) (courts review reasonableness of repudiation period under FIRREA)
- Franklin Financial v. Resolution Trust Corp., 53 F.3d 268 (9th Cir. 1995) (balances receiver’s duties and landlord expectations; affirms broad discretion for timing)
- Deutsche Bank Nat'l Trust Co. v. F.D.I.C., 744 F.3d 1124 (9th Cir. 2014) (statutory interpretation of receiver powers and judicial review principles)
- 1185 Avenue of Americas Assocs. v. Resolution Trust Corp., 22 F.3d 494 (2d Cir. 1994) (considered a 90‑day repudiation period and used as guidance for reasonableness)