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Winkal Management, LLC v. Federal Deposit Insurance Corp.

United States District Court, District of Columbia

December 13, 2017

WINKAL MANAGEMENT, LLC, Plaintiff,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant.

          MEMORANDUM OPINION [DKTS. ## 33, 34]

          RICHARD J. LEON, UNITED STATES DISTRICT JUDGE

         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 I thus deny Winkal summary judgment on the issue of damages without prejudice. With respect to the FDIC's summary judgment motion, I 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. I, § 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. Specifically, Winkal agreed to: 1) install a new roof; 2) install a new HVAC system; and 3) resurface the parking lot. Id. 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. ¶¶ 4-6.

         Second, Article VI of the Lease establishes Winkal's and WaMu's obligations with respect to "Maintenance and Repair of the Premises." Lease art. VI. 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 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. In short, Article VI of the Lease obligates WaMu, with limited exceptions, to maintain and repair the Premises.

         Third, in a section of Article VII entitled "Alterations and Improvements, " the Lease contains provisions governing any "Tenant's Work" that WaMu elected to perform. Id. art. VII, § 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 VII further specifies that WaMu "shall commence and thereafter complete with due diligence, all of Tenant's Work, " cause such work "to be done in a 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

         In 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] ¶ 3. The planned work included, among other things, the addition of new bathroom facilities, storage areas, administrative offices, and a sprinkler system; upgrades to the floors, doors, and lighting; and complete replacement of all plumbing and electrical and mechanical systems. Id. ¶ 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. ¶ 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] ¶¶ 3-4. The agreement projected that the work would cost $547, 170 in total. Id. ¶ 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. ¶¶ 6-7. A little over one month after Metro Construction began work, however, WaMu directed the company to stop all construction activities. Id.¶l. Although Metro Construction never completed the full scope of the "Tenant's Work, " the company did receive over $200, 000 from WaMu for the work it performed in August and September of 2008. Id. ¶¶ 8-9; see Lomeli Decl. Ex. B.

         WaMu's stop-work order to Metro 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 WaMu's financial dealings and contracts. See Compl. Ex. 2 [Dkt. # 1-2]. WaMu never opened for business on the Premises. Yarmy Decl. ¶ 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. Id. ¶ 10. 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. § 1821(e).

         Not surprisingly, considering that Metro Construction had already performed over $200, 000 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. ¶¶ 8-11; Decl. of David Mouck ("Mouck Decl.") [Dkt. # 34-6] Ex. A, at 7.[1] According to David Mouck, a contractor who was involved in repair work on the Premises, "[a]ll interior walls, flooring, 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. In order to make the Premises safe and ready to be occupied by another tenant, Winkal hired various contractors to repair and restore the Premises. Id. at 7-8; see also Yarmy Decl. Ex. I ("Proof of Claim"). Contractors performed that work between June and September 2009. Yarmy Decl. ¶ 11. In all, Winkal alleges that it paid $101, 046.85 to finance the required repair and restoration work. Id.

         In June 2009, Winkal entered into a lease with a company called Nails Supply House, Inc. ("Nails Supply"). Id. ¶ 12. In addition to the construction work contracted and paid for by Winkal, Nails Supply also performed work to restore and repair the Premises. Id. ¶ 13. 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 SOMF") ¶¶ 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 WaMu's original "Tenant's Work" plans. Yarmy Decl. ¶ 18.

         D. Winkal's Proof of Claim and Judicial Action

         In mid-2009, 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: 1) $50, 655.33 in "[u]npaid rental due under the lease through the date of [the] Notice of Lease Repudiation"; 2) $130, 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 ...


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