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BKWSPOKANE LLC v. Federal Deposit Insurance Corp.

United States District Court, E.D. Washington

April 2, 2014

BKWSPOKANE LLC, a Washington limited liability company, Plaintiff,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for Bank of Whitman, Defendant

For BKWSPOKANE LLC, a Washington limited liability company, Plaintiff: Robert A Dunn, LEAD ATTORNEY, Richard T Wetmore, Dunn Black & Roberts PS, Spokane, WA.

For Federal Deposit Insurance Corporation, as Receiver for Bank of Whitman, Defendant: Jeremy E Roller, John H Jamnback, Julia Donna Woog, LEAD ATTORNEYS, Lyle A Tenpenny, Yarmuth Wilsdon Calfo PLLC, Seattle, WA; Robert Huddleston Carpenter, Federal Deposit Insurance Corporation, Dallas, TX.

OPINION

Page 1332

THOMAS O. RICE, United States District Judge.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

BEFORE THE COURT is Plaintiff's Motion for Summary Judgment (ECF No. 63) and Defendant's Motion for Summary Judgment (ECF No 67). This matter was heard with oral argument on February 27, 2014. Robert A. Dunn and Richard T. Wetmore appeared on behalf of the Plaintiff. John H. Jamnback, Robert H. Carpenter, and Lyle A. Tenpenny appeared on behalf of Defendant. The Court has reviewed the briefing and the record and files herein, and is fully informed.

BACKGROUND

This case involves a commercial building lease repudiated by the Federal Deposit Insurance Corporation after the original leaseholder, a bank, went into receivership. Plaintiff and Defendant here cross move

Page 1333

for summary judgment on the sole remaining claim for breach of contract.

FACTS

Before its closure on August 5, 2011, Bank of Whitman (" BOW" ) was conducting business in several Eastern Washington locations, including the building at the center of the instant dispute, 618 West Riverside Avenue in Spokane (" the Building" ). Plaintiff BKWSPOKANE (" BKW" ), a Washington limited liability company, asserts that BOW had purchased the original lot for $3,877,566, which included a dilapidated structure. ECF No. 84 at 3, Pl.'s 2d Supp. SOF. That building was subsequently partially razed and a new building was constructed. Id. In June 2007, BKW purchased the entire building from BOW and entered into a long-term triple net lease back agreement with BOW.

The Master Commercial Lease Agreement is dated June 22, 2007, and provides in part:

1. PREMISES: Lessor does hereby lease to Lessee and Lessee leases from Lessor, those certain premises commonly known as 618 West Riverside Avenue, Spokane, WA.... This lease shall be a master lease and shall incorporate all portions of said premises, including those areas leased to others. Lessor has, or will immediately upon the commencement date hereof, assign all of Lessor's right, title and interest in all existing leases relating to the premises to the Lessee for so long as tenant is not in default hereunder.
2. TERM: The term of this lease shall be for 25 years commencing the 22nd day of June, 2007 and shall terminate on the 30th day of June, 2032 (" Primary Term" ).
...
3. RENT: Lessee's basic renal obligation shall consist of the Monthly Rent described below. Additionally, Lessee's rental obligation shall include all costs to be paid by Lessee under this lease in connection with Lessee's occupancy of the premises (such as taxes and assessments, insurance premiums, and maintenance expenses) and all costs incurred by Lessor to cure any default by Lessee.
Lessee covenants and agrees to pay Lessor Monthly Rent in the amount of Eighty Seven Thousand Three Hundred and Seventy Five Dollars ($87,375.00) in advance, on the first day of each month to the third (3rd) anniversary date of the Primary Term.....

ECF No. 68-4, Exhibit 4, Master Commercial Lease Agreement. The first page of the lease indicates that the lease is " by and between BKWSPOKANE, LLC, a Wyoming limited liability company...and Bank of Whitman...." Id. On the signature page, the Lessor is noted as BKW SPOKANE, LLC, and the Master Lease is signed by Robert Samuel, President of Samuel Management, Inc., managing member of BKWSPOKANE, LLC. Id.

The certificate of formation for BKWSPOKANE, LLC, bearing a date of June 20, 2007, was filed with Washington's Secretary of State on June 25, 2007, and became effective that day. ECF No. 68-5, Exhibit 5, at 164-65. Contemporaneous with the formal recognition of BKWSPOKANE, LLC, the BOW caused a statutory warranty deed to be recorded on June 25, 2007, which transferred the real property at issue to BKWSPOKANE, LLC, a Washington limited liability company. Thus, BOW became the master tenant of the entire building. From June 2007 to its closure in August 2011, BOW occupied the first floor for its banking operations, and

Page 1334

five sub-tenants (and a licensee) occupied the other two floors.

On August 5, 2011, the Washington State Department of Financial Institutions closed the Bank of Whitman (" BOW" ) and appointed Defendant Federal Deposit Insurance Corporation (" FDIC" ) as receiver. When a state agency declares a bank insolvent and appoints the FDIC as receiver, the FDIC may, among other things, choose to liquidate the bank or sell the bank to another bank. Federal Deposit Ins. Corp. v. Bank of Boulder, 911 F.2d 1466, 1469 (10th Cir. 1990). Here, the FDIC chose the latter option, entering into an agreement with Columbia State Bank (" CSB" ) under which CSB agreed to acquire certain BOW assets and assume BOW obligations. This is called a purchase and assumption transaction.[1] Under the Purchase and Assumption Agreement (" PAA" ) between the FDIC and CSB, CSB agreed to acquire certain portions of BOW and was granted an option period of 90 days to determine if it would also assume or reject certain contract and lease obligations, including the Master Lease with over 20-years remaining on that obligation. BKWSPOKANE, LLC is not a party to the PAA. The PAA provides in part:

The Receiver hereby grants to the Assuming Institution an exclusive option for the period of ninety (90) days commencing the day after the Bank Closing Date to cause the receiver to assign to the Assuming Institution any or all leases for leased Bank Premises, if any, which have been continuously occupied by the Assuming Institution from the Bank Closing Date to the date it elects to accept an assignment of the leases with respect thereto to the extent such leases can be assigned; provided that the exercise of this option with respect to any lease must be as to all premises or other property subject to the lease. The Assuming Institution shall give notice to the Receiver within the option period of its election to accept or not to accept an assignment of any or all leases (or enter into new leases in lieu thereof). The Assuming Institution agrees to assume all leases assigned (or enter into new leases in lieu thereof) pursuant to this Section 4.6. If the Assuming Institution gives notice of its election not to accept an assignment of a lease for one or more of the leased Bank Premises within seven (7) days of the Bank Closing Date, then, notwithstanding any other provision of this Agreement to the contrary, the Assuming Institution shall not be liable for any of the costs or fees associated with Fair Market Value appraisals for the Fixtures, Furniture and Equipment located on such leased Bank Premises.

ECF No. 64-2 at 19, Exhibit B, Purchase and Assumption Agreement, Section 4.6(b). The PAA further provides:

If the Assuming Institution elects not to accept an assignment of the lease or sublease any Bank Premises, the notice of such election in accordance with Section 4.6(b) shall specify the date upon which the Assuming Institution's occupancy of such leased Bank Premises shall terminate, which date shall not be later than ninety (90) ...

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