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Federal Deposit Insurance Corp. v. Grella

decided: April 5, 1977.

FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER OF FRANKLIN NATIONAL BANK, PLAINTIFF-APPELLEE,
v.
JEAN M. GRELLA, LAWRENCE LEVER, AND LEVER HOLDING CORP., DEFENDANTS, JEAN M. GRELLA, DEFENDANT-APPELLANT



Appeal from a judgment of the United States District Court for the Eastern District of New York (Judd, J.) in favor of the Federal Deposit Insurance Corporation ("FDIC") as Receiver of Franklin National Bank ("Franklin") permanently enjoining the lessor of a certain ground lease originally executed to Franklin from terminating the lease because of the act of the Comptroller of Currency in declaring Franklin insolvent and appoint FDIC as Receiver. Reversed and remanded.

Gurfein and Meskill, Circuit Judges, and Bartels, District Judge.*fn*

Author: Bartels

BARTELS, District Judge:

This is an appeal from a declaratory judgment of the United States District Court for the Eastern District of New York (Judd, J.) granting summary judgment for the Federal Deposit Insurance Corporation ("FDIC") as Receiver of the Franklin National Bank ("Franklin") permanently enjoining the appellant, Jean M. Grella ("Grella") from terminating a certain ground lease originally entered into between Grella as lessor and Franklin as lessee but assigned by Franklin to Lawrence Lever ("Lever"). We reverse and remand to the district court for further proceedings upon the jurisdictional issues of whether FDIC has standing to sue upon the facts of this case.

The facts are not in dispute. On April 4, 1961, Grella as fee owner of a plot of land in Mineola, New York, leased the premises ("ground lease") to Franklin for a term of twenty years with four, twenty-year options to renew, at an annual rental of $21,000. The exercise of two of the renewal options has extended the present term to the year 2021. The ground lease granted Franklin the right to assign or sublet the premises without Grella's consent with Franklin remaining liable for the rent and all other obligations. Paragraph 10 of the ground lease provides:

"If the Tenant * * * shall file or there shall be filed against the Tenant a petition in bankruptcy or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for the benefit of creditors or take advantage of any insolvency act, the Landlord may, if the Landlord so elects, at any time thereafter terminate this lease and the term hereof, on giving to the Tenant five days notice in writing of the Landlord's intention so to do * * *."

In 1962 Franklin subleased the premises to Lever and as a result of several subsequent transactions Lever became the assignee of Franklin's interest in the ground lease. Thereafter, Lever constructed an office building on the site, with a present value in excess of $2 million, and Franklin leased space until 1981 in the building for use as a branch banking office ("branch lease"). Since 1965 Lever has paid the rent on the ground lease, and there is no claim by Grella of default for non-payment.

On October 8, 1974, the Comptroller of the Currency of the United States declared Franklin insolvent and as required by statute appointed FDIC as its receiver pursuant to 12 U.S.C. ยงยง 191 & 1821(c). On the same date European-American Bank & Trust Co. ("EAB") entered into a Purchase and Assumption Agreement with FDIC to purchase certain of Franklin's assets and assume certain of its liabilities, see In Re Franklin Nat'l Bank, 381 F. Supp. 1390 (E.D.N.Y. 1974); and since then EAB has occupied the branch office covered by the branch lease. Accordingly, there was no interruption of banking services at Franklin's office following the declaration of insolvency by the Comptroller.

Asserting that the declaration of insolvency by the Comptroller constituted a default under paragraph 10 of the lease, Grella on February 3, 1975 notified Franklin as well as others that the ground lease would terminate on February 11, 1975. On February 21, 1975, FDIC as receiver of Franklin commenced this action against Grella seeking a declaratory judgment that the notice of termination was null and void and that the ground lease continued in full force and effect, and also an injunction preventing Grella from terminating said lease based upon the Comptroller's declaration of insolvency and the appointment of FDIC as receiver. Prior to the institution of this suit Lever brought a declaratory judgment action in New York State Supreme Court, Nassau County, against Grella to determine the validity of Grella's termination notice of the ground lease. Before the decision by the state court Judge Judd rendered his decision whereupon the state court granted judgment for Lever against Grella predicated upon the doctrine of collateral estoppel. Among other claims of error, Grella contends that FDIC lacks standing as receiver to bring this suit, and that there is no controversy between herself and FDIC, and that the case is moot.

While the matter was before the district court Grella offered to deliver to FDIC a non-disturbance agreement as regards the branch lease,*fn1 which FDIC promptly rejected. Although this fact is mentioned in the district court's opinion there was no discussion or ruling upon its effect or relevance to the issues involved. Grella maintains that this offer undercuts any interest FDIC has in bringing suit predicated upon its concern for the branch lease, and that since the ground lease is neither an asset nor a liability of FDIC, it lacks standing to sue. The district court disagreed and found that FDIC had sufficient standing or interest to bring the action, stating that:

"If the FDIC is still the Tenant under the ground lease, then it is liable, either as receiver or in its corporate capacity, as successor to Franklin for future payments under Article 15*fn2 of the ground lease in spite of Grella's termination of the lease. That fact gives FDIC an interest in the question, even if Grella has not yet filed a claim with the receiver."

Moreover, the district court also agreed with FDIC that FDIC had an interest in the ground lease in order to carry out its statutory responsibilities explaining that "FDIC has a legitimate public interest in establishing the efficacy of transactions which it affects pursuant to its statutory duty as receiver of a national bank" which duty includes the obligation of FDIC to insure continuation of bank facilities at specific locations to induce a healthy bank to buy the assets of an insolvent bank.

I

Essentially, this is a controversy between Grella and Lever involving the interpretation of a lease under the New York State real property law. Consequently, we must determine the threshold question whether the plaintiff has standing to sue. This is a concept which is "among the most amorphous in the entire domain of public law."*fn3 Standing depends upon whether the plaintiff has "'alleged such a personal stake in the outcome of the controversy' to warrant [its] invocation of federal court jurisdiction and to justify exercise of the court's remedial powers on [its] behalf." Warth v. Seldin, 422 U.S. 490, 498-99, 45 L. Ed. 2d 343, 95 S. Ct. 2197 (1975), citing Baker v. Carr, 369 U.S. 186, 204, 7 L. Ed. 2d 663, 82 S. Ct. 691 (1962). The Supreme Court in Warth further elaborated: "Essentially, the standing question in such cases is whether the constitutional or statutory provision on which the claim rests properly can be understood as granting persons in the plaintiff's position a right to judicial relief." 422 U.S. at 500. While standing does not depend on the merits of the party's contention that certain conduct is illegal, standing does require an injury to the party arising out of a violation of a constitutional or statutory provision or other legal right. Linda R.S. v. Richard D., 410 U.S. 614, 617 n.3, 35 L. Ed. 2d 536, ...


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