Winkal Management, LLC v. Federal Deposit Insurance Corporation

UNITED sTATEs DIsTRICT CoURT
FoR THE DIsTRICT oF CoLUMBIA F I |_ E D

DEC 1 3 2017

C|erk U.S. District&Bankru t
l c
Guurts for the District of Colui)nbila

WINKAL MANAGEMENT, LLC,
Plaintiff,
Civil Case No. 10-83 (RJL)

V.

FEDERAL DEPOSIT INSURANCE
CORPORATION,

Defendant.
MEMORAZ;)UOPINION

(December l § , 2017) [Dkts. ## 33, 34]

Winkal Management, LLC (“plaintiff’ or “Winkal”) brings this action against the
Federal Deposit Insurance Corporation (“defendant” or “FDIC”) in its capacity as the
Receiver for now-defunct Washington Mutual Bank (“WaMu”). Winkal seeks
compensation under 12 U,S.C. § 1821 for damages it allegedly suffered when the FDIC
repudiated a lease agreement between Winkal and WaMu and turned the leased property
(“Premises”) back over to Winkal in a state of disrepair. See First Am. Compl. [Dkt. # 15].

Currently before the Court are the parties’ cross-motions for summary judgment.
See Dkts. ## 33, 34. Upon consideration of the parties’ submissions and the entire record,
Winkal’s Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART
without prejudice, and the FDIC’s Motion for Summary Judgment is GRANTED IN PART
and DENIED IN PART. In particular, I conclude that Winkal is entitled to summary
judgment on its “unpaid rent” claim for the expenses associated with repairing the

Premises. The particular amount of damages owed to Winkal, however, remains an open

question, and l thus deny Winkal summary judgment on the issue of damages without
prejudice With respect to the FDIC’s summary judgment motion, l conclude that the FDIC
has shown, under 12 U.S.C. § 1821, that it is entitled to prevail on Winkal’s claims for
“Landlord’s Work” expenses and the costs to complete WaMu’s “Tenant’s Work.”

BACKGROUND

A. The Winkal-WaMu Lease

On December 17, 2007, Winkal entered into a ten-year lease agreement (the
“Lease”) with WaMu for commercial retail space at a property located in San Gabriel,
California. See Decl. of Richard Yarmy (“Yarmy Decl.”) [Dkt. # 34-3] Ex. A (“Lease”).
The Lease contemplated that WaMu would lease the Premises from Winkal for the
purposes of operating a bank branch. Lease art. l, § 3. The Lease set forth the mutual
rights and obligations of Winkal and WaMu, as well as provisions governing the rent due
to Winkal from WaMu. Three portions of the Lease are particularly relevant here.

First, in Article XXV of the Lease, Winkal agreed to perform certain “Landlord’s
Work” prior to turning over the property to WaMu. Speciflcally, Winkal agreed to:
l) install a new roof; 2) install a new HVAC system; and 3) resurface the parking lot. Icz’.
art. XXV. Winkal completed its Landlord’s Work at a cost of $130,633 and granted WaMu
possession of the Premises in May 2008. Yarmy Decl. W 4-6.

Second, Article Vl ofthe Lease establishes Winkal’s and WaMu’s obligations with
respect to “Maintenance and Repair of the Premises.” Lease art. Vl. The provision
specifies that “[a]s additional rent and at the sole cost and expense of Tenant, Tenant shall
at all times keep all parts of the Premises . . . in suitable condition for Tenant’s conduct of

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business and in good order, good condition and good repair.” Id. The provision further
vests WaMu with the responsibility to “permit no injury to the Premises” and, “at its own
cost and expense, replace as necessary all systems, appurtenances, equipment and
components on the Premises which may be broken or damaged.” Id. Finally, the provision
states that at the “expiration or earlier termination of the Term, Tenant shall surrender the
Premises . . . in as good condition as the same is on the Commencement Date” with
“reasonable wear and tear excepted.” Id. ln short, Article Vl of the Lease obligates WaMu,
with limited exceptions, to maintain and repair the Premises.

Third, in a section of Article Vll entitled “Alterations and lmprovements,” the Lease
contains provisions governing any “Tenant’s Work” that WaMu elected to perform. Ia’.
art. Vll, § 2. The provisions specify that WaMu, as tenant, “shall bear the expense of all
permits, alterations and improvements which are necessary in order to make the Premises
suitable for Tenant’s occupancy and use before and during the Term.” Id. Article Vll
further specifies that WaMu “shall commence and thereafter complete with due diligence,
all of Tenant’s Work,” cause such work “to be done ina good and workmanlike manner,”
and “obtain and furnish Landlord at Tenant’s expense all certificates and approvals with
respect to Tenant’s Work.” Id.

B. WaMu’s Commencement of “Tenant’s Work” and Subsequent Receivership

ln anticipation of its occupancy, WaMu contracted with an architectural firm to
develop plans for WaMu’s “Tenant’s Work” on the Premises. See Decl. of Donald J.
Rethman (“Rethman Decl.”) [Dkt. # 34-4] jj 3. The planned work included, among other

things, the addition of new bathroom facilities, storage areas, administrative offices, and a

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sprinkler system; upgrades to the floors, doors, and lighting; and complete replacement of
all plumbing and electrical and mechanical systems. Id. jj 5. Pursuant to the “Tenant’s
Work” provision of the Lease, Winkal approved WaMu’s proposals for the work on the
Premises. See Yarmy Decl. jj 8.

Following approval of the “Tenant’s Work” plans, WaMu contracted with Metro
Construction Company to complete the planned construction activities See Decl. of
George Lomeli (“Lomeli Decl.”) [Dkt. # 34-5] jjjj 3-4. The agreement projected that the
work would cost $547,170 in total. Id. jj 5. Metro Construction commenced construction
on the Premises toward the end of August 2008 and immediately began demolition work
to prepare the Premises for the planned additions and renovations. Id. jjjj 6-7. A little over
one month after Metro Construction began work, however, WaMu directed the company
to stop all construction activities Ia’. jj 7. Although Metro Construction never completed
the full scope ofthe “Tenant’s Work,” the company did receive over $2()0,00() from WaMu
for the work it performed in August and September of 2()()8. Id. jjjj 8-9; see Lomeli Decl.
Ex. B.

WaMu’s stop-work order to l\/letro Construction was not a coincidence: The now-
defunct bank was in the process of entering into receivership. On September 25, 2008, the
FDIC was appointed WaMu’s Receiver and assumed responsibility for Wal\/lu’s financial
dealings and contracts See Compl. Ex. 2 [Dkt. # l-2]. WaMu never opened for business

on the Premises. Yarmy Decl. jj 9.

C. The FDIC’s Surrender of the Premises and Repudiation of the Lease

In late January 2009, the FDIC, acting in its capacity as Receiver for WaMu,
surrendered the Premises to Winkal. ld. jj l(). A few months later, the FDIC exercised its
statutory authority to repudiate the Winkal-WaMu Lease. Yarmy Decl. Ex. H; see 12
U.S.C. § 182l(e).

Not surprisingly, considering that l\/Ietro Construction had already performed over
$2()0,00() worth of demolition and preparation work on the Premises, the evidence
demonstrates that the Premises was in a state of disrepair when surrendered Yarmy Decl.
jjjj 8-l l; Decl. of David Mouck (“l\/louck Decl.”) [Dkt. # 34-6] Ex. A, at 7.l According to
David Mouck, a contractor who was involved in repair work on the Premises, “[a]ll interior
walls, tlooring, ceilings, thermal insulation, plumbing, electrical, and HVAC ducting had
been removed” from the Premises and the concrete floor had been partially excavated.
Mouck Decl. Ex. A, at 7. ln order to make the Premises safe and ready to be occupied by
another tenant, Winkal hired various contractors to repair and restore the Premises. Ia’. at
7-8; see also Yarmy Decl. Ex. l (“Proof of Claim”). Contractors performed that work
between June and September 2009. Yarmy Decl. jj ll. ln all, Winkal alleges that it paid

$101,046.85 to finance the required repair and restoration work. Ia’.

' The FDlC unconvincineg disputes that the Premises was in a state of disrepair when turned over
to Winkal, going so far as to argue that the Premises was in better condition than when Wal\/lu took
possession because "a significant amount of Tenant Work had taken place.” Opp’n of FDIC 10 Pl.’s Mol.
Summ. J. (“FDIC Opp’n”) [Dkt. # 36] 20; see also r'd. al 20-21. That FDlC argument ignores that the key
ponion ofthe completed Tenant’s Work was demolition work ~ a Fa.ct entirely consistent with the evidence
that Winkal inherited a Premises in a “state of destruction.” Pl.’s Reply l l; see also, e.g., App. to FDIC
Opp’n [Dkt. # 36~3] 22 (Habben’s Home Inspections Report) (“l\/Iuch work will be needed to return this
propelty to rentab|e condition, most notably is the electrical service and plumbing, along with slab

repairs.”).

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ln June 2009, Winkal entered into a lease with a company called Nails Supply
House, lnc. (“Nails Supply”). Id. jj l2. ln addition to the construction work contracted and
paid for by Winkal, Nails Supply also performed work to restore and repair the Premises.
Id. jj l3. According to Winkal, that work, which included ceiling and door installation,
painting, and fire sprinkler installation, cost $86,352.95 in total. See Winkal Statement of
Material Facts (“Winkal SGMF”) jjjj 37-39. Together, the completed repair work restored
the Premises to “a baseline level”; it did not produce the upgraded Premises contemplated
by the scope of Wal\/lu’s original “Tenant’s Work” plans. Yarmy Decl. jj 18.

D. Winkal’s Proof of Claim and Judicial Action

ln mid-2()()9, as it was performing work to restore the Premises, Winkal filed a Proof
of Claim with the FDIC. See Proof of Claim. The Proof of Claim sought a total of
$427,499.33 from the FDIC, which comprised: l) $50,655.33 in “[u]npaid rental due under
the lease through the date of [the] Notice ofLease Repudiation”; 2) $l3(),633 in “[a]ctual
direct compensatory damages in the form of out-of-pocket costs incurred by Winkal” to
“prepare space for tenant occupancy” - that is, the amount Winkal spent to perform its
“Landlord’s Work”; and 3) $246,211 in “[a]ctual direct compensatory damages caused by
the Tenant as a result of its partial demolition of the leasehold property which the Landlord
is now required to correct and/or restore.” Proof of Claim Ex. A.

ln November 2009, the FDIC issued its decision on Winkal’s Proof of Claim. The
FDlC accepted and paid Winkal’s claim for $55,655.33 in “unpaid rental,” but denied
Winkal’s “Landlord’s Work” claim and its claim for expenses required to “correct and/or

restore” damage caused by Wal\/lu’s demolition of the Premises. See Yarmy Decl. Ex. J;

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Pl.’s Mot. Summ. J. Ex. 5 [Dkt. # 34-7]. As a basis for its denial, the FDIC explained that
Winkal’s claimed expenses were either associated with work Winkal was required to
perform under the Lease, or represented categories of damages that are not recoverable
under the relevant statutory provisions. See Pl.’s Mot. Summ. J. Ex. 5, Answers of FDIC
to Winkal’s lnterrogs. l-4.

On January 15, 2010, Winkal sued in this Court to challenge the FDIC’s denial of
its claims. See generally Compl. [Dkt. # l]. In its First Amended Complaint, Winkal
asserts three claims#one for breach of contract, one for unjust enrichment, and one for
promissory estoppel-each seeking damages in excess of $375,0()0. See First Am. Compl.
jjjj 26-45. Following a lengthy stay of this case pending resolution of a related action in
California, the parties completed discovery and filed the cross-motions for summary
judgment currently pending before this Court.

STANDARD OF REVIEW

A. FIRREA

The Financial lnstitutions Reform, Recovery, and Enforcement Act of 1989
(“FIRREA”) sets forth the FDIC’s powers and duties when acting as receiver of a failed
financial institution. See Pub. L. No. 101-73, 103 Stat. 183. As relevant here, FIRREA
authorizes the FDIC to “disaffirm or repudiate any contract or lease” to which a failed
institution in receivership is a party if the FDIC determines, in its discretion, that
performing the obligations of the lease would be “burdensome” and that repudiating the

lease would “promote the orderly administration of the institution’s affairs.” 12 U.S.C.
§ 182l(e)(l); see Qi v. FDIC, 755 F. Supp. 2d 195, 200-01 (D.D.C. 2010).

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Winkal does not challenge the FDIC’s authority to repudiate the Winkal-WaMu
Lease. This case instead concerns the extent of the FDIC’s liability for its repudiation.
Under FIRREA, courts determine a party’s available damages not by applying “ordinary
contract principles,” but instead by looking to FIRREA’s detailed regime governing the
FDIC’s repudiation liability. MCI Commc ’ns Servs., Inc. v. FDIC, 808 F. Supp. 2d 24, 28
(D.D.C. 2()l l).

The legal questions in this case center around two subsections of FIRIUEA. The first
is FIRREA’s “general” damages provision, located in § l82l(e)(3). As relevant here, that
provision states: “Except as otherwise provided in subparagraph (C) and paragraphs (4),
(5), and (6), the liability of the conservator or receiver for the disaffirmance or repudiation
of any contract” shall be “limited to actual direct compensatory damages.” l2 U.S.C.
§ 182l(e)(3)(A).

Subsection (e)(3) thus points to a second relevant provision, subsection (e)(4).
Subsection (e)(4) concerns the FDIC’s liability for disaffirming or repudiating “a lease
under which the insured depository institution was the lessee.” Id. § l82l(e)(4)(A). lt
provides that the FDIC “shall not be liable for any damages (other than damages
determined pursuant to subparagraph (B)) for the disaffirmance or repudiation of such
lease.” Ia’. Subparagraph (B), in turn, establishes the types of payments to which a “lessor”
is entitled from the FDIC. Specifically, subparagraph (b) states that a lessor shall: l) “be
entitled to the contractual rent accruing before the later of the date” of the mailing of the
notice of repudiation or effective date of the repudiation; 2) “have no claim for damages

under any acceleration clause or other penalty provision in the lease”; and 3) have a “claim

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for any unpaid rent, subject to all appropriate offsets and defenses, due as of the date of the
appointment” ofthe receiver. Id. § 1821(e)(4)(B); see First chk Nat'l Ass ’n v. FDIC, 79
F.3d 362, 367 (3d Cir. 1996) (subsection (e)(4)(B) governs receiver’s “overall liability for
damages when it repudiates a lease”).

A party seeking damages for the repudiation of a contract must first file a Proof of
Claim with the FDIC requesting the relevant damages Only after doing so may a party
seek judicial review. See Westberg v. FDIC, 741 F.3d 1301, 1303 (D.C. Cir. 2014)
(sections 1821(d)(6) and (13)(D) of FIRREA “set[] forth a standard exhaustion requirement
that routes claims through an administrative review process, and withholds judicial review
unless and until claims are so routed”) (internal quotation marks and alteration omitted).
FlRREA’s exhaustion requirement is a jurisdictional one that courts “cannot excuse.” Id.
Assuming the jurisdictional prerequisites are met, courts review FIRREA damages claims
de novo. See Of/`Zce & Prof’l Emps. Inl’l Um'on, Local 2 v. FDIC, 962 F.2d 63, 65 (D.C.

Cir. 1992).

B. Summary Judgment
Summary judgment is proper when the pleadings and evidentiary record show that
there is “no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter oflaw.” Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). A fact is “material” if it “may affect the outcome of the litigation.” Montgomery
v. Risen, 875 F.3d 709, 713 (D.C. Cir. 2017) (internal quotation marks omitted). A dispute
is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the

nonmoving party.” Anderson v. Lz'berly Lobby, Inc., 477 U.S. 242, 248 (1986).
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When evaluating cross-motions for summary judgment, the reviewing court
examines each motion “separately on its own merits to determine whether any of the parties
deserves judgment as a matter oflaw.” Lee Mem ’l Health Sys. v. Burwell, 206 F. Supp. 3d
307, 322 (D.D.C. 2016) (internal quotation marks and brackets omitted). The moving party
bears the initial burden of identifying the evidence that demonstrates an absence of any
genuine issues of material fact. See Celotex Corp., 477 U.S. at 323. Once the moving
party has made that showing, the burden shifts to the nonmoving party to identify and
“properly support” the “specific facts” showing that there is a genuine issue for trial. Id.
at 324 (internal quotation marks omitted); Anderson, 477 U.S. at 256. The court must
accept as true the evidence of, and draw “all justifiable inferences” in favor of, the party
opposing summary judgment. Id. at 255. If the party opposing summary judgment fails to
proffer relevant evidence on a material issue, the moving party may succeed on summary
judgment by citing that “failure ofproof.” Celotex Corp., 477 U.S. at 323.

ANALYSIS

Citing FlRREA’s repudiation-liability provisions, Winkal contends that it is entitled
to three categories of payments from the FDIC. First, Winkal argues that it is entitled to
recover its expenditures for performing the “Landlord’s Work” under FlRREA’s “actual
direct compensatory damages” provision. 12 U.S.C. § 1821(e)(3)(A)(i). Second, Winkal
seeks to recover the cost of restoring and repairing the Premises under FIRREA’s “unpaid
rent” provision. Id. § 1821(e)(4)(B)(iii). Finally, Winkal claims that it is entitled to recover

the cost ofcompleting WaMu’s unfinished “Tenant’s Work” under either the “actual direct

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compensatory damages” provision or the “unpaid rent” provision. Ia’. § 1821(e)(3)(A)(i),

(e)(4)(B)(iii). 1 now discuss each ofthose arguments

A. Winkal’s Claim for Performing “Landlord’s Work”

Winkal first argues that it is entitled to recover $130,633 in “reliance damages,”
which represents the amount Winkal spent to perform its “Landlord’s Work” in preparation
for turning the Premises over to Wal\/lu. Winkal argues that such reliance damages are
recoverable under FIRREA’s general damages provision, which allows recovery of “actual
direct compensatory damages.” Mem. P. & A. Supp. Pl.’s l\/Iot. Summ. J. (“Winkal
l\/lem.”) 12 (quoting 12 U.S.C. § 1821(e)(3)(A)(i)). Winkal’s argument would be tenable
were this Court applying ordinary contract principles Unfortunately for Winkal, however,
FlRREA’s damages regime cabins the damages Winkal may recover and ultimately
forecloses its “Landlord’s Work” argument. How so‘?

Winkal correctly notes that FlRREA’s general damages provision extends the
repudiation liability of a receiver to “actual direct compensatory damages,” 12 U.S.C.
§ 1821(e)(3)(A)(i), a term that our Circuit has read to include “reliance” damages, see
Nashville Loa’ging C0. v. Resolutl`on Trust Corp., 59 F.3d 236, 246 (D.C. Cir. 1995). But
Winkal ignores that the general damages provision also makes clear that its allowance for
actual direct compensatory damages applies “[e]xcept as otherwise provided” in
“paragraph[] (4),” among other provisions 12 U.S.C. § 1821(e)(3)(A). As discussed,
paragraph (4) is the paragraph governing the FDIC’s repudiation of leases with failed

institutions as lessees Critically, paragraph (4) specifies that a receiver “shall not be liable

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for any damages (other than damages determined pursuant to subparagraph (B)) for the
disaffirmance or repudiation of such lease.” Ia’. § 1821(e)(4)(A) (emphasis added).
“‘Any,’ after all, means any.” Fora’ v. Mabus, 629 F.3d 198, 206 (D.C. Cir. 2010)
(citing Um`tea’ States v. Gonzales, 520 U.S. 1, 5 (1997)). When it comes to lease agreements
of the type at issue here, therefore, FIRREA’s text limits the repudiation-liability of the
FDIC to Only those damages covered by subsection (e)(4)(B). See FDIC v. Mahoney, 141
F.3d 913, 915 (9th Cir. 1998) (“Congress has chosen to treat every lease under the
provisions of 12 U.S.C. § 1821(e)(4).`”); Fl`rst Bank Nat’l Ass’n, 79 F.3d at 367 (“[W]e
construe subsection (e)(4)(B) to govern the receiver’s overall liability for damages when it
repudiates a lease.”); Um`sys Finance Corp. v. Resolutl`on Trust Corp., 979 F.2d 609, 610-
1 1 (7th Cir. 1992) (subsection (e)(4)(A) is “explicit in cutting offthe lessor’s right to obtain
damages for the receiver’s repudiation or disaffirmance of a lease” except for specified
claims); Qz', 755 F. Supp. 2d at 202 n.6 (lt is “clear that § 1821(e)(4) alone applies” to
plaintiff"s claims based on repudiation of lease.). Although the damages covered by
subsection (e)(4)(B) include claims for “contractual rent” and “unpaid rent,” they do not
include claims for other kinds of “actual direct compensatory damages”_including the
reliance damages Winkal now seeks 12 U.S.C. § 182l(e)(4)(B)(i)-(iii). Winkal’s
“Landlord’s Work” claim for $130,633 therefore fails as a matter of law and the FDIC is

entitled to summary judgment.2

2 Our Circuit has not addressed the interplay between 12 U.S.C. § 1821(e)(3)(A) and (e)(4). See
Ql`, 755 F. Supp. 2d at 202 n.7. Winkal’s primary counterargument is that (e)(4)(A) narrowly limits
recovery of only those damages directly resulting |`rom a repudiation (t`or example, a termination penalty),
leaving (e)(3)(A)’s allowance for a broader range of compensatory damages largely intaet. See Winkal
Mem. 1 1-12 (citing Pr'wreer Bank& Trus! Cr). v. Re.s'o.-%'utfun Tr:.:s.f Cory)., 793 F. Supp. 828 {N.D. I|l. 1992)).

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B. Winkal’s Claim for Repairing and Restoring Premises

Winkal next claims that it is entitled to recover expenses associated with repairing
the damage done to the Premises by WaMu and restoring the Premises to allow for
occupancy by a new tenant. Winkal argues that such recovery is appropriate under the
“unpaid rent” provision of FIRREA because the Lease bound WaMu to maintain the
Premises as “additional rent” for WaMu’s occupancy. Lease art. VI. Under that theory,
Winkal seeks: 1) its out-of-pocket expenses to repair the Premises, which total
$101,046.85; and 2) the $86,352.95 expended by Nails Supply to complete the necessary
repairs See Pl.’s Reply 14. For the reasons discussed below, 1 conclude that Winkal is
entitled to summary judgment on the FDIC’s liability under the “unpaid rent” provision,
but 1 deny without prejudice summary judgment on the issue of Winkal’s damages

1. liability

As discussed, pursuant to FlRREA’s lease repudiation provisions, a lessor such as
Winkal has a “claim for any unpaid rent” owed by the institution-lessee “as of the date of

the appointment” of a receiver. 12 U.S.C. § 1821(e)(4)(B)(iii). ln contrast to subsection

To begin, Winkal’s contention is undermined by the fact that (e)(3)(A)’s general damages provision
authorizes damages “t`or the disaffirmance or repudiation of`any contract"_the same phrase that, according
to Winka|, cabins the scope ol"(e)(4) to only those damages flowing directly from a repudiation. Winkal
has provided no convincing reason to “abandon jthej usual presumption that identical words used in
different parts of the same statute early the same meaning.” Henson v. Santana’er Consmn.er USA !rrc., 137
S. Ct. 1718, 1723 (2017) (internal quotation marks omitted), l thus decline Winkal’s invitation to read the
same phrase more broadly in (e)(3)(A) than in (e)(4)(A).

ln addition, as the Third Circuit has persuasively explained, Winkal’s reading of (e)(4)(A) renders
subsection (e)(4)(B)(iii) superfluous: lf subsection (e)(4)(A) only precludes recovery ol` damages flowing
directly from a repudiation, then the (e)(4)(l3)(iii) “unpaid rent” exception would be unnecessary because
“[s]uch unpaid rent is not a claim that stems from the disaffirmance or repudiation ofthe lease." Fr'rs! Bank
Nar'! A.s's ’n, 79 F.3d at 367. That provides an additional reason to reject Winkal’s proposed reading of
(e)(3)(/-\) and (e)(4)(A). C_'f.` Advoca!e Hea]lh Care Ne!irork v. Slap/eton, 137 S. Ct. 1652, 1659 {2017)
(“Our practice, however, is to give effect, if possible, to every clause and word ofa statute.”).

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(e)(4)(B)(i)’s allowance for “contractual rent,” which covers “only fixed, regular, periodic
payments,” courts have interpreted “unpaid rent” to encompass “claims for obligations
other than the periodic monetary rent imposed by a lease.” Qt`, 755 F. Supp. 2d at 201
(internal quotation marks and brackets omitted) (quoting First Bank Nat’l Ass ’n, 79 F.3d
at 368). When determining whether a lessee’s obligation falls within the scope of the
“unpaid rent” provision, courts look to the lease to determine whether the obligation was
“a duty assumed by the lessee as consideration for the occupation of the leased premises.”
ld. at 202. Applying that test, the “several courts that have delved into the issue have found
that repair and maintenance costs qualify as ‘unpaid rent’ in circumstances where a tenant
has assumed the duty to maintain or repair all of the leased premises, or at least the portion
of the leased premises at issue.” Id. at 205 (_collecting cases); see Ft`rst Bank Nat’l Ass ’n,
79 F.3d at 368 (contractual obligation to “keep the premises in good condition and repair”
and “ensure that the premises were maintained lawfully” constituted “unpaid rent” for
purposes ofFlRREA). Applying the same reasoning here, the Court easily concludes that
Winkal is entitled to recover the money necessary to repair and restore the Premises.
Central to the analysis is Article VI of the Lease, which sets forth the parties’ duties
for “maintenance and repair ofthe premises.” Lease art. Vl (capitalization altered). Article
Vl specifies that “[a]s additional rent and at the sole cost and expense” of WaMu, WaMu
“shall at all times keep all parts of the Premises . . . in good order, good condition and good
repair.” Id. (emphasis added). lt similarly states that WaMu “shall permit no injury to the
Premises,” and “shall, at its own cost and expense, replace as necessary all systems,

appurtenances, equipment and components on the Premises which may be broken or

14

damaged.” Id. Finally, Article Vl provides that upon “expiration or earlier termination of
the Term,” WaMu “shall surrender the Premises . . . in as good condition as the same is on
the Commencement Date,” reasonable wear and tear excepted. Id.

Pursuant to Article Vl of the Lease, then, it was WaMu who took on the “duty” to
maintain and keep the Premises in good order and to return the Premises to Winkal in “as
good condition” as when the Lease commenced. Qz`, 755 F. Supp. 2d at 202. WaMu did
so not in a spontaneous act of corporate altruism, but “[a]s additional rent” pursuant to the
plain terms of the Lease. Lease art. Vl. By terminating the Lease and turning over the
property in a state of disrepair, the FDlC, standing in the shoes of WaMu, breached that
contractual “duty” and failed to provide part of the consideration WaMu promised “for the
occupation of the leased premises.” Qi, 755 F. Supp. 2d at 202. Therefore, under
FlRREA’s “unpaid rent” provision, Winkal is entitled to recover the amounts necessary to
repair and restore the Premises.3

The FDIC’s primary counterargument is that it owes no “unpaid rent’7 to Winkal
because WaMu’s obligation to surrender the Premises in as good condition as received was
not “due,” and thus had not accrued, at the time of the receivership. See, e.g., FDIC Opp’n
6-8. That argument makes little sense when it comes to ongoing contractual obligations,
such as the obligation to maintain a leased property. The FDIC asserts that ongoing

contractual obligations accrue only at the end of the original contract term. Yet in the

3 Contrary to the FDIC’s argument, the fact that Nails Supply agreed to perform some of the
necessary repair work does not excuse the FDIC froln its statutory duty to pay any “unpaid rent” owed to
Winkal at the time of the appointment lndeed, as Winkal points out, the value of the work performed by
Nails Supply “is a means by which to calculate” the amount of WaMu’s “unpaid rent” obligation. Pl.’s

Opp’n to Def.’s l\/lot. Summ. J. [Dkt. # 37] ll n.8.
15

context of a repudiation, the appointment of a receiver necessarily occurs prior to the end
of the original contract term. Thus, under the FDIC’s “accrual” theory, it would be virtually
impossible for a property-lessor such as Winkal to recover “unpaid rent” following a FDIC
repudiation, even when a lessee-institution with a contractual obligation to maintain the
leased property leaves the property in a state of disrepair. Our Circuit has previously
rejected similar FDlC arguments See O]j‘ice & Prof’l E)nps. Int’l Unz`On, Local 2 v. FDIC,
27 F.3d 598, 601 (D.C. Cir. 1994) (fact that employees were not entitled to severance pay
until termination, which followed receivership and union contract repudiation, did not
mean that employees’ contractual rights to severance pay had failed to accrue as of
receivership). l do the same here.

2. Damages

The fact that the FDIC is liable under the “unpaid rent” provision does not answer
just how much money Winkal may recover. As discussed, the FDIC’s “unpaid rent”
liability stems from WaMu’s contractual obligations to “keep all parts of the Premises . . .
in good order, good condition and good repair” and to “surrender the Premises . . . in as
good condition as the same is on the Commencement Date.” Lease art. Vl. As such, the
amount of` “unpaid rent” due is the value of the work: 1) that is necessary to return the
Premises to “as good condition as” it was on the Commencement Date and 2) that is
chargeable to WaMu as “additional rent” under Article Vl of the Lease, rather than carved
out and made chargeable to Winkal under other provisions of the Lease. From those two
limitations, it follows that Winkal is not entitled to recover the value of construction work

for which it, and not Wal\/Iu, was responsible Nor is Winkal entitled to recover the cost

16

of construction activities beyond the scope of work necessary to repair (rather than
upgrade) the Premises.

Under those principles, the question of Winkal’s asserted damages remains open.
To begin, on Winkal’s own admission, “the parties dispute a $47,507 charge from the Gill
Company for reestablishing electrical service to the building and related electrical work,”
and Winkal thus has not pursued summary judgment on that set of expenses Pl.’s
Statement of Genuine lssues Opp’n to FDIC’s SOl\/IF 7 n.3 [Dkt. # 37-1]. ln addition, and
unsurprisingly given that the FDIC’s liability was not settled at the time Winkal filed its
motion for summary judgment, neither Winkal nor the FDlC has briefed the question of
damages in a way that reflects the proper scope of the FDIC’s “unpaid rent” liability. 1n
general, Winkal has not adequately explained why certain expenses are properly
categorized as necessary repairs under Article Vl of the Lease-and thus encompassed by
the “unpaid rent” provision#rather than upgrades contemplated by WaMu’s abandoned
“Tenant’s Work” plans Winkal has not clarified, for example, why it should be entitled
to recover expenses associated with installing a “fire suppression system” when there was
no such system on the Premises when WaMu took possession. See Rethman Decl. jj 5.
The same goes for the expenses associated with bringing the building into ADA
compliance Id.

ln short, 1 am not presently convinced, given the current record and briefing, that
there remain no genuine issues of material fact with respect to Winkal’s damages After
considering this Court’s liability holding and, in particular, the issues just discussed,

Winkal may file a renewed summary judgment motion addressing damages The parties

17

may also, of course, seek to resolve the outstanding issue of damages without need for
additional intervention by this Court. For now, 1 will deny summary judgment to Winkal

on the question of damages without prejudice

C. Winkal’s Claim for Completing “Tenant’s Work”

The final category of damages Winkal seeks is $153,078.33 for hiring a contractor
to complete Wal\/Iu’s abandoned “Tenant’s Work.” Pl.’s Mem. 15. According to Winkal,
that work would have resulted in a “completely upgraded Premises, including all ADA
access requirements a remodeled exterior, and all new interior improvements as required
for a typical bank building.” Winkal SOMF jj 43. Winkal argues that its “Tenant’s Work”
claim represents “additional ‘unpaid rent”’ under 12 U.S.C. § 1821(e)(4)(B)(iii).4

Winkal’s “Tenant’s Work” claim falters from the start. That is because the claim
was not among the categories of claims presented to the FDIC in Winkal’s Proof of Claim.
Winkal concedes that FIRREA “requires a claimant to file an administrative claim with the
FDIC before it seeks damages in district court.” Pl.’s Mem. 7 (citing 12 U.S.C. § 1821(d)).
Winkal argues that it satisfied that requirement with respect to its “Tenant’s Work” claim
by filing a Proof of Claim that sought “[a]ctual direct compensatory damages caused by
the Tenant as a result of its partial demolition of the leasehold property which the Landlord

is now required to correct and/or restore.” Proof of Claim Ex. A. 1 disagree

4 Winkal also hints that its “Tenant’s Work” claim falls within subsection (e)(3)’s allowance for
“actual direct compensatory damages.” That claim fails for the same reasons explained in the discussion

of Winkal’s “Landlord’s Work” claim.
18

Winkal’s Proof of Claim sought reimbursement for the work performed to “correct
and/or restore” the Premises “as a result of" Wal\/[u’s “partial demolition of the leasehold
property.” Id. But the money spent to correct WaMu’s demolition damage and restore
the demolished property is the subject of Winkal’s “unpaid rent” claim for expenses
associated with repairing the Premises. Nowhere in the Proof of Claim did Winkal put the
FDIC on notice of` its intent to seek damages associated with completing the additional
“Tenant’s Work”_work Winkal concedes would go above and beyond the construction
work necessary to “correct and/or restore” the Premises following Wal\/Iu’s demolition.

Therefore, this is not a situation in which Winkal is seeking an additional “dollar
amount” for “the same” claim originally filed with the FDlC. Interlease Corp. v. FDIC,
837 F. Supp. 1, 3 (D.D.C. 1993), lt is one in which Winkal is asking this Court to award
damages arising from an entirely new claim not presented to the FDlC. Such efforts are
barred by FlRREA’s administrative exhaustion requirement See Westl)erg, 741 F.3d at
1303; cf Autu)nnwood Assocs. v. Resolution Trust Corp., No. Civ. A. 94-5961, 1995 WL
458876, at ”‘3 (E.D. Pa. Aug. 2, 1995) (dismissing claims for failure to meet exhaustion
requirement when amounts sought represented “new categories of damages” as compared
to those contained in administrative claim). Accordingly, l deny summary judgment to

Winkal on its “Tenant’s Work” claim and grant summary judgment to the FDIC.5

5 Becausc Winkal’s failure to exhaust is dispositive 1 do not address the validity of Winkal’s
“Tenant’s Work” claim beyond briefly noting my skepticisln. At bottom, Winkal’s claim seeks to avoid its
loss of“the benefit ofits bargain to receive 5547, l 70 ofwork to be completed on its Premises"` and “greater
rental [rates] for the Premises than it was later able to receive.” Pl.’s l\/lem. 15 n.6 (emphasis omitted);
l\/louck Decl. Ex. A, at 6. Our Circuit and others, however, have noted that FIRREA bars recovery ofthose
kinds of expectation damages See Of/ice & Prof’l Elnps. Int'l Unl'on, Local 2, 27 F.3d at 604; Alltel Info.
Servs., Inc., 194 F.3d at 1040-41.

19

To be sure, Winkal is not receiving the same relief to which it would be entitled
were this a traditional contract case But this half-a-loaf result is dictated by FlRREA’s
limitations on the FDIC’s repudiation liability_limitations that, according to our Circuit,
help advance Congress’s “interest of maximizing the number of creditors who can recover
some portion of what they are owed” by failed institutions such as WaMu. Nashville
Lodging Co., 59 F.3d at 241. To the extent that Congress’s legislative scheme is leading
to unfair or counterintuitive results, it is up to that body, not this Court, to modify it.6

CONCLUSION

For the foregoing reasons, the Court GRANTS lN PART and DENIES lN PART
without prejudice Winkal’s Motion for Summary Judgment and GRANTS lN PART and
DENIES lN PART the FDIC’s Motion for Summary Judgment. An Order consistent with

this decision accompanies this l\/lemorandum Opinion.

dam

RICI§ARD J