Fifth Circuit Affirms Standing for MCS Client Despite Lack of Third Party Beneficiary Status

By Steve Thomas

The Fifth Circuit recently held that an MCS client had standing to enforce certain provisions of a Purchase & Assumption Agreement (“P&A Agreement”) to which it was neither a party nor a third-party beneficiary, and affirmed a substantial judgment in favor of MCS’s client.  In its ruling issued January 10, 2014, the Fifth Circuit broke ranks with two other circuit courts that had held that similarly situated landlords did not have standing.  MCS Shareholders Jeff Seckel and Chuck McGuire successfully tried the case before the Northern District of Texas and argued the appeal before the Fifth Circuit.

Prior to its failure in 2008, Washington Mutual Bank (“WaMu”) entered into a number of lease agreements (the “Leases”) with landlords for the intended development of branch locations, including a Lease with MCS client Weichsel Farm Limited Partnership (“Weichsel”).  After WaMu failed, the FDIC stepped into its shoes and then entered into the P&A Agreement to convey substantially all of WaMu’s assets to JP Morgan Chase Bank, N.A. (“Chase”), including the Leases relating to proposed branches.  The P&A Agreement gave Chase a 90-day right of rejection as to “Bank Premises,” but conveyed “Other Real Estate” outright with all liabilities.  At the time WaMu failed, it had yet to develop the Weichsel lease property.  Since the property did not have a banking structure, Weichsel believed it clearly fell within the definition of “Other Real Estate” under the P&A Agreement.

Chase, nonetheless, took the position that the Leases were “Bank Premises” and purported to reject them.  When Weichsel and other landlords sued, the FDIC and Chase took the position that the landlords were not third party beneficiaries of the P&A Agreement, so they had no standing to interpret or enforce that agreement, and therefore they could not challenge the rejection of the Leases by Chase.  The Northern District of Texas ruled that, despite Weichsel lacking third party beneficiary status, a privity of estate existed under property law concepts and Weichsel could enforce the Lease since the Lease obligations “ran with the land” even without regard to traditional contract notions.  The Fifth Circuit affirmed and expressly rejected the decisions of the other circuits that have ruled on the same issue to the contrary.

MCS congratulates Jeff Seckel and Weichsel on achieving this great result.  For more information, contact Jeff Seckel at jseckel@mcslaw.com.