First Bank National Ass'n v. Federal Deposit Insurance Corp.

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
3-22-1996
First Bank Natl v. FDIC
Precedential or Non-Precedential:
Docket 95-1519
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 95-1519
FIRST BANK NATIONAL ASSOCIATION, as Trustee;
ALJAF ASSOCIATES LIMITED PARTNERSHIP;
v.
FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver for Meritor Savings Bank;
First Bank National Association
as Trustee ("First Bank"),
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 94-2197)
Argued February 1, 1996
BEFORE: GREENBERG, NYGAARD, and LAY,* Circuit Judges
(Filed: March 22, 1996)
Arthur E. Newbold (argued)
Joseph Patrick Archie
Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
James O. Huber
David Lucey
Foley & Lardner
777 East Wisconsin Ave.
Milwaukee, WI 53202
1
* Honorable Donald P. Lay, Senior Judge of the United States
Court of Appeals for the Eighth Circuit, sitting by
designation.
Attorneys for Appellant
Miles H. Shore
Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelphia, PA 19102
Ann S. DuRoss
Richard J. Osterman, Jr.
Jerome A. Madden (argued)
Federal Deposit Insurance
Corporation
550 17th St., N.W.
Washington, D.C. 20429
Attorneys for Appellee
OPINION OF THE COURT
GREENBERG, Circuit Judge.
This appeal requires us to decide a narrow issue: under
what circumstances, if any, is the FDIC required to pay the cost
of lease-mandated structural repairs and modifications to a
building when it acts as a receiver for a failed lessee-thrift
and disaffirms its lease under FIRREA? To decide this issue, we
must construe 12 U.S.C. § 1821(e)(4), the provision of FIRREA
that sets forth the FDIC's obligations when it disaffirms leases.
Because we believe that the FDIC's liability for "unpaid rent"
under FIRREA includes the costs of the structural repairs
mandated by the lease, if any, we will reverse the district
court's order rejecting the claim for these repairs. We also
2
will reverse the district court's order rejecting the lessor's
claim for the costs of making modifications to the building to
comply with the ADA (Americans with Disabilities Act), because
the district court incorrectly applied the "readily achievable"
standard to determine whether the liabilities had accrued. We
will remand the case to the district court to determine whether
the obligation of repairing the building and complying with the
ADA had matured by the date the thrift went into receivership.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Plaintiff, First Bank National Association, Trustee,
("First Bank"), brought this action for breach of contract
against the defendant, the Federal Deposit Insurance Corporation
("FDIC") pursuant to the Federal Deposit Insurance Act, 12 U.S.C.
§ 1811 et seq., as amended by the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"). First Bank
alleged that the FDIC, as receiver for Meritor Savings Bank
("Meritor"), formerly known as the Philadelphia Savings Fund
Society, was liable for sums due under a sublease of the historic
PSFS building Meritor occupied at 12 South 12th Street,
Philadelphia, Pennsylvania.0
Meritor, the owner of the PSFS building, entered into a
complex series of lease and sublease agreements with First Bank
and other entities during the 1980s. First Bank Nat'l Ass'n v.
0
The building, designed by George Howe and William Lescaze and
constructed in 1933, is considered one of the first examples in
the United States of the International Style of architecture. See
Vincent Scully, American Architecture and Urbanism 154 (1988).
3
FDIC, 885 F. Supp. 117, 118 (E.D. Pa. 1995). As a result, First
Bank became Meritor's landlord under a sublease for the space
Meritor occupied in the building, with Meritor apparently
retaining only nominal title to the building. App. 63. Meritor's
sublease ran until December 31, 2006, but included three options
to renew for ten-year terms until December 31, 2036. First Bank,
885 F. Supp. at 119.
Paragraph 4(a) of the sublease between First Bank and
Meritor required Meritor initially to "pay to [First Bank] in
lawful money of the United States as fixed rent for the Premises"
$1,806,000 per quarter. App. 83, 137. While the sublease
provided for subsequent changes in the rent, the $1,806,000
figure controlled when the FDIC became the receiver. Paragraph
6(a)(i) committed Meritor to pay "all taxes, assessments,
governmental or quasi-governmental levies, fees, water and sewer
rents and charges, and all other governmental charges general and
special, ordinary and extraordinary, foreseen and unforeseen"
imposed during the term of the sublease. App. 87.
Pursuant to paragraph 6(b) of the sublease, Meritor
also was obligated to:
comply with and cause the Premises to comply
with (i) all laws, ordinances and
regulations, and other governmental rules,
orders and determinations now or hereafter
enacted, made or issued, whether or not
presently contemplated . . .
App. 89.
The sublease expansively required that Meritor:
maintain all parts of the Premises in good
repair and condition, except for ordinary
4
wear and tear and except as expressly
provided in paragraph 11(b),0 and . . . take
all action and . . . make all structural and
non-structural, foreseen and unforeseen and
ordinary and extraordinary changes and
repairs which may be required to keep all
parts of the Premises in good repair and
condition, ordinary wear and tear excepted.
Lessor shall not be required to maintain,
repair or rebuild all or any part of the
premises.
App. 92. Overall, it is clear that the sublease put the risks
and burdens of maintaining the building on Meritor.
The Secretary of Banking of the Commonwealth of
Pennsylvania declared Meritor to be in unsafe and unsound
condition on December 11, 1992, and, pursuant to FIRREA, the FDIC
was appointed its receiver on the same day. The FDIC disaffirmed
the sublease for the PSFS building pursuant to 12 U.S.C.
§1821(e)(1), on March 31, 1993, and the disaffirmance was
effective that day.0
0
The provisions of paragraph 11(b) are not applicable here.
0
12 U.S.C. § 1821(e)(1) provides:
(e) Provisions relating to contracts entered into
before appointment of conservator or receiver
(1) Authority to repudiate contracts
In addition to any other rights a conservator or
receiver may have, the conservator or receiver for
any insured depository institution may disaffirm
or repudiate any contract or lease-
(A) to which such institution is a party;
(B) the performance of which the conservator
or receiver, in the conservator's or
receiver's discretion, determines to be
burdensome; and
5
Pursuant to 12 U.S.C. § 1821(e)(4)(B), upon the
disaffirmance First Bank, as lessor, was entitled to "any unpaid
rent, subject to all appropriate offsets and defenses, due as of
the date of the appointment. . . ." In addition, First Bank was
"entitled to contractual rent" from the FDIC "accruing before . .
. the disaffirmance [of the lease] . . . becomes effective."
Following the disaffirmance, First Bank filed an administrative
claim with the FDIC, and, after its rejection, filed this timely
action on April 7, 1994, as permitted by 12 U.S.C. § 1821(d)(6).
At the trial, First Bank claimed the FDIC was liable
under section 1821(e)(4)(B) for:
(1) $1,404,666.67 in unpaid 'fixed quarterly rent' for
the period October 1, 1992 through December 11, 1992;
(2) $224,119.68 in property taxes for the period
January 1, 1993 through March 31, 1993;
(3) $285,000 for modification of the building to comply
with the Americans with Disabilities Act ('ADA');
(4) $980,000 for rehabilitation of the north facade of
the PSFS building;
(5) $50,000 for repair of the plumbing;
(6) $12,000 for repair of the electrical systems;
(7) $355,000 for renovation and repair of the heating,
ventilating and air conditioning ('HVAC') system; and
(8) prejudgment interest on all of the above amounts.
(C) the disaffirmance or repudiation of which
the conservator or receiver determines, in
the conservator's or receiver's discretion,
will promote the orderly administration of
the institution's affairs.
6
First Bank, 885 F. Supp. at 119-20. In its opinion and judgment
of April 20, 1995, the district court found that the above claims
were valid except for the expenses for the modifications of the
building to comply with the ADA, the cost of the structural
repairs of the north facade of the building, and prejudgment
interest other than that due on the rent. First Bank appeals
from the denial of the costs of structural repairs to the north
facade of the building and the costs of modifying the building to
comply with the ADA. The district court had jurisdiction under
12 U.S.C. § 1819(b)(2) and 12 U.S.C. § 1821(d)(6), and we have
jurisdiction under 28 U.S.C. § 1291.
II. DISCUSSION
To decide whether the district court correctly
rejected First Bank's claims for the cost of structural repairs
and modifications required by the lease, we must construe 12
U.S.C. § 1821(e)(4), the provision of FIRREA that specifies the
FDIC's obligations when it disaffirms leases.
12 U.S.C. § 1821(e)(4) reads in whole:
(4) Leases under which the institution is the
lessee
(A) In general
If the conservator or receiver
disaffirms or repudiates a lease under
which the insured depository institution
was the lessee, the conservator or
receiver shall not be liable for any
damages (other than damages determined
pursuant to subparagraph (B)) for the
disaffirmance or repudiation of such
lease.
(B) Payments of rent
7
Notwithstanding subparagraph (A), the
lessor under a lease to which such
subparagraph applies shall-
(i) be entitled to the
contractual rent accruing before
the later of the date-
(I) the notice of
disaffirmance or repudiation
is mailed;
(II) the disaffirmance or
repudiation becomes effective,
unless the lessor is in default or
breach of the terms of the lease;
(ii) have no claim for damages
under any acceleration clause or
other penalty provision in the
lease; and
(iii) have a claim for any
unpaid rent, subject to all
appropriate offsets and defenses,
due as of the date of the
appointment which shall be paid in
accordance with this subsection and
subsection (i) of this section.0
0
This provision, like much of FIRREA, was modeled after
the Bankruptcy Code, in this instance, 11 U.S.C. § 502(b)(6), the
provision dealing with a trustee's obligations if it terminates a
lease.
11 U.S.C. § 502(b) provides in relevant part:
(b) Except as provided in subsections
(e)(2), (f), (g), (h) and (i) of this
section, if such objection to a claim is
made, the court after notice and a hearing,
shall determine the amount of such claim in
lawful currency of the United States as of
the date of the filing of the petition, and
shall allow such claim in such amount, except
to the extent that-
. . . .
(6) if such claim is the claim of a lessor
for damages resulting from the termination of
a lease of real property, such claim exceeds-
8
First Bank argues that 12 U.S.C. § 1821(e)(4) limits
claims only to the extent of "any damages . . . for the
disaffirmance or repudiation of such lease." It thus does not
read the words "other than damages determined pursuant to
subparagraph (B)" as relating to any obligation other than those
flowing from the disaffirmance. Since the damages for the costs
to repair the facade and to comply with the ADA did not result
from the disaffirmance, First Bank argues that subsection (e)(4)
does not limit its claims. See Pioneer Bank and Trust Co. v.
RTC, 793 F. Supp. 828 (N.D. Ill. 1992).
While we acknowledge that First Bank's reading of
section 1821(e)(4) is not unreasonable, we nevertheless disagree
with it. Subsection (4)(B)(iii) states that when the receiver
disaffirms a lease, the lessor shall "have a claim for any unpaid
rent . . . due as of the date of the appointment." Such unpaid
rent is not a claim that stems from the disaffirmance or
repudiation of the lease. Consequently, if subsection (4)(A)
(A) the rent reserved by such lease,
without acceleration, for the greater of one
year, or 15 percent, not to exceed three
years, of the remaining term of such lease,
following the earlier of-
(i) the date of the filing of the
petition; and
(ii) the date on which such lessor
repossessed, or the lessee surrendered,
the leased property; plus
(B) any unpaid rent due under such
lease, without acceleration, on the earlier
of such dates[.]
9
excluded only claims arising from the disaffirmance of the lease,
subsection (4)(B)(iii) would be superfluous, as the lessor would
have a claim for unpaid rent as of the date of the appointment of
the receiver without regard for the disaffirmance.
It is a black letter rule of statutory interpretation
that, if possible, a court should construe a statute to avoid
rendering any element of it superfluous. See United Steelworkers
of Am. v. North Star Steel Co., 5 F.3d 39, 42 (3d Cir. 1993),
cert. denied, 114 S. Ct. 1060 (1994). Consequently, we construe
subsection (4)(B) to govern the receiver's overall liability for
damages when it repudiates a lease. Cf. RTC v. Ford Motor Credit
Corp., 30 F.3d 1384, 1387 (11th Cir. 1994) (rejecting argument
that section 1821(e)(4) serves only to limit the RTC's liability
for interests that accrue wholly after the receivership and
permits recovery against property in which the lessor has a
perfected security interest); In re McSheridan 184 B.R. 91, 100-
02 (Bankr. 9th Cir. 1995) (analogous portion of bankruptcy code
encompasses all claims for breach of lease; specifically
rejecting argument that appellant's claims for prepetition breach
of covenants not "termination" damages and therefore not governed
by provision). By rejecting First Bank's narrow reading of 12
U.S.C. § 1821(e)(4), we are consistent with the approach of the
district court.
The district court, however, construed subsection
(e)(4) to limit claims to "contractual rent," under section
1821(e)(4)(B)(i). It reasoned that "contractual rent" excluded
claims for capital improvements because "such improvements by
10
their nature generally have a value to the lessor far beyond the
value to the lessee." 885 F. Supp. at 120. This construction
makes a distinction between obligations that benefit a lessor
over the long term and more conventional contractual obligations.
See Oldden v. Tonto Realty Corp., 143 F.2d 916, 920 (2d Cir.
1944) (observing that "landlord not in the same position as other
general creditors" because "he has been compensated up until the
date of the bankruptcy petition [and] he regains his original
assets upon bankruptcy").
While as a policy matter the district court's
distinction was reasonable, we reject its conclusion that First
Bank's recovery is limited to "contractual rent" because we
believe that the language of FIRREA simply will not accommodate
the court's reading. Section 1821(e)(4)(B) states in relevant
part:
Notwithstanding subparagraph (A), the lessor
under a lease to which such subparagraph
applies shall-
(i) be entitled to the contractual rent
accruing before the later of the date-
(I) the notice of disaffirmance or
repudiation is mailed; or
(II) the disaffirmance or
repudiation becomes effective,
. . . .
(iii) have a claim for any unpaid rent,
subject to all appropriate offsets and
defenses, due as of the date of the
appointment which shall be paid in
accordance with this subsection and
subsection (i) of this section.
Id. Thus, section 1821(e)(4)(B) provides that a claimant has the
right to "unpaid rent" due at the date of appointment of the
11
receiver, and "contractual rent" accruing before the latter of
the date that the notice of disaffirmance or repudiation is
mailed or the date it becomes effective.0
"Rent," paid or unpaid, clearly encompasses contractual
rent. Yet "contractual rent" must include a different category
of claims than "rent" generally. If it did not, there would have
been no reason for Congress to distinguish between "unpaid" and
"contractual" rent in section 1821(e)(4)(B) or, at least,
Congress would have required the FDIC to pay "unpaid contractual
rent" rather then "unpaid rent" due as of the date of the
appointment of the receiver. Furthermore, it was logical for
Congress to limit liability under the lease once a receiver was
appointed. We therefore construe section 1821(e)(4)(B) to
distinguish between claims that accrue by the date of the
receivership and claims that accrue between the date of
receivership and the disaffirmance of the lease. See In re
Vause, 886 F.2d 794, 801 (6th Cir. 1989) (construing Bankruptcy
Act to "provide the lessor with his actual damages for past rent,
but placing a limit on his damages for speculative future rent
payments in long-term leases").
We therefore must decide if "unpaid rent" encompasses
claims for obligations other than the quarterly monetary rent
imposed on Meritor by December 11, 1992, the date that the FDIC
was appointed its receiver. We then must decide whether any
0
This shadows the scheme limiting claims in the Bankruptcy Code
in 11 U.S.C. § 502(b)(6). See n.4 supra.
12
claims that accrued between the date of receivership and the date
that the FDIC disaffirmed the lease, March 31, 1993, constitute
"contractual rent."
Black's Law Dictionary (6th ed. 1990) defines rent as
"consideration paid for use or occupation of property." Meritor's
obligation to maintain the premises in good repair was an element
of the consideration it paid for use of the property. Presumably,
in lieu of a higher quarterly rent payment, the sublease
obligated it to:
maintain all parts of the Premises in good
repair and condition except for ordinary wear
and tear and . . .[to] take all action and .
. . make all structural and non-structural,
foreseen and unforeseen and ordinary and
extraordinary changes and repairs which may
be required to keep all parts of the Premises
in good repair and condition . . . .
App. 92. Furthermore, the sublease required Meritor to cause the
premises to comply with all applicable governmental laws,
ordinances, regulations and rules, even if adopted after the
execution of the sublease. Consequently, Meritor had an
obligation to keep the premises in good condition and repair, and
an obligation to ensure that the premises were maintained
lawfully, even if satisfaction of these duties required it to
make substantial renovations to the property. We find that these
obligations constitute "unpaid rent" for the purposes of 12
U.S.C. § 1821(e)(4)(B)'s specification of the receiver's
liability.0
0
We do not decide whether an obligation under a lease provision
ever could be so extreme as not to constitute "unpaid rent" under
12 U.S.C. § 1821(b)(4)(B)(iii). The obligations involved here
13
We construe "contractual rent" more narrowly than
"unpaid rent," however, to effect the purpose of the statute in
giving the receiver an opportunity to survey the thrift's
situation without being immediately required to decide whether to
assume large obligations. Here we find support in bankruptcy
jurisprudence. In 1185 Avenue of the Americas Assocs. v. RTC, 22
F.3d 494, 497 (2d Cir. 1994), the court noted that "chapter 3 of
the Bankruptcy Code provides a helpful analogy" to the authority
to repudiate contracts under FIRREA. We nevertheless note that
the purposes of the Bankruptcy Code are not identical to those of
FIRREA and that "equitable principles developed in the
reorganization context cannot simply be grafted onto the national
banking statutes." Corbin v. Federal Reserve Bank, 629 F.2d 233,
236 (2d Cir. 1980), cert. denied, 450 U.S. 970, 101 S. Ct. 1492
(1981).
In this case, however, the analogy is apt; FIRREA and
the Bankruptcy Code both seek to balance the legitimate claims of
the lessor with those of the debtor and other claimants. The
interests of the lessor were explained well in Oldden v. Tonto
Realty Corp., 143 F.2d at 920, where the court explained the
history of the bankruptcy provision which limited a landlord's
claims for future rent:
But allowance in full of such claims did not
seem the appropriate answer, since other
general creditors would suffer
proportionately, and the claims themselves
would often be disproportionate in amount to
any actual damage suffered, particularly in
are not so stringent, particularly when compared to the quarterly
rent of $1,806,000.
14
the event of a subsequent rise in rental
values. In truth, the landlord is not in the
same position as other general creditors, and
there is no very compelling reason why he
should be treated on a par with them. For,
after all, he has been compensated up until
the date of the bankruptcy petition, he
regains his original assets upon bankruptcy,
and the unexpired term in no way really
benefits the assets of the bankrupt's estate.
Id. at 919-20 (footnote omitted). We find reliance on Oldden
particularly appropriate as the legislative history of the
present Bankruptcy Code shows that Congress approved that case.
See H.R. Rep. No. 595, 95th Cong., 1st Sess. 353-54 (1977), Pub.
L. No. 598, 1978 U.S.C.C.A.N. (92 Stat.) 6309-10.
In construing 11 U.S.C. § 502(b), the section of the
Bankruptcy Code which limits lessor's post-bankruptcy claims, the
bankruptcy courts generally have defined rent to be an obligation
which is at least "fixed, regular, periodic." In re Conston
Corp., 130 B.R. 449, 455 (Bankr. E.D. Pa. 1991) (holding that
claims constitute "rent" only if "the lease expressly so provides
and the charges in question are properly classifiable as rent
because they are regular, fixed, periodic charges . . ."); In re
Gantos, Inc., 181 B.R. 903, 907 (Bankr. W.D. Mich. 1995)
(rejecting claim of construction allowance as "rent" because
cases hold that payment must be "regular, fixed and periodically
payable in the same manner as pure rent"); In re McSheridan, 184
B.R. at 100 ("[C]harge must be properly classifiable as rent
because it is a fixed, regular, or periodic charge."); In re
Farley, Inc., 146 B.R. 739, 746 (Bankr. N.D. Ill. 1992) ("[Rent]
includes any payments that relate directly to or increase the
15
value or worth of the property, and are fixed, regular
payments.").
We find this formulation a useful and appropriate
requirement to give meaning to Congress's restriction of a
lessor's recovery for post-receivership claims to "contractual
rent." We conclude, therefore, that "contractual rent" refers
only to those sums that are fixed, regular, periodic charges.0
In this case, the costs of structural repairs to the
facade were not fixed, regular, and periodic. Consequently, the
FDIC is not subject to any liability for the cost of repairs that
accrued after the institution of the receivership because those
costs were not contractual rent. The district court, however,
found that "Meritor was required under its lease with First Bank
0
We note that the Bankruptcy Appellate Panel of the Ninth Circuit
faced a problem of construing the analogous Bankruptcy Code
provision, "rent reserved by such lease," in a similar fact
situation of a long-term lease that placed the costs of
maintaining the building on the lessee/debtor in In re
McSheridan, 184 B.R. 91. In that situation the court held that
the following three-part test must be met for a claim to
constitute "rent reserved";
(1) The charge must: (a) be designated as
'rent' or 'additional rent' in the lease; or
(b) be provided as the tenant's/lessee's
obligation in the lease;
(2) The charge must be related to the value
of the property or the lease thereon; and
(3) The charge must be properly classifiable
as rent because it is a fixed, regular or
periodic charge.
We reserve the question as to whether for a charge to be
"contractual rent" it must meet requirements other than being
"fixed, regular, periodic" because we have no need to consider
that point in this case.
16
to [install flashing under the windows and insert vertical joints
in the facade to allow for brick movement]" at a cost of
$980,000. 885 F. Supp. at 121. This finding seemingly would
make the FDIC liable for the structural repairs to the north
facade under its obligation for unpaid rent.
The district court, however, made this finding in
determining the contractual rent due to First Bank rather than
determining the unpaid rent due. As a result, it made its
calculations as of the date the FDIC disaffirmed the lease, March
31, 1993, rather than the date Meritor went into receivership,
December 11, 1992. Consequently, we must remand for the district
court to find what amount, if any, of "unpaid rent" obligations
had accrued by the date of the receivership, December 11, 1992.
In addition, we note that the FDIC argues that
renovations less extensive than the full $980,000 reconstruction
of the facade would have satisfied Meritor's obligations under
the sublease. Since the district court's finding that the full
reconstruction was required by the sublease was made in the
context of denying the claim altogether, the court should
consider whether lesser expenditures would have fulfilled
Meritor's obligations. We will require this reconsideration
because the court did not address this possibility in its
opinion.
First Bank also argues that the district court erred
when it rejected First Bank's claim for compensation to make
modifications of the building's bathrooms and elevators to comply
17
with the Americans with Disabilities Act pursuant to paragraph
6(b) of the sublease, which required Meritor to:
comply with and cause the Premises to comply
with (i) all laws, ordinances and
regulations, and other governmental rules,
orders and determinations now or hereafter
enacted, made or issued, whether or not
presently contemplated.
App. 89.
This obligation, like the obligation to make structural
repairs to the north facade, is clearly part of the consideration
that First Bank received for the lease and consequently qualifies
as rent for the purposes of 12 U.S.C. § 1821(e)(4)(B)(iii). But
since this obligation is not "regular, fixed and periodic," it,
too, does not qualify as "contractual rent" under subsection
(e)(4)(B)(i). Therefore, for First Bank to recover for the costs
of the modifications, Meritor's obligation to make the
modifications must have accrued by December 11, 1992, the date
the receivership was instituted.
The section of the ADA implicated here provides that:
No individual shall be discriminated against
on the basis of disability in the full and
equal enjoyment of the goods, services,
facilities, privileges, advantages, or
accommodations of any place of public
accommodation by any person who owns, leases
(or leases to), or operates a place of public
accommodation.
42 U.S.C. § 12182(a). Subsection (b)(2)(A) of section 12182
describes actions and inactions that constitute discrimination
under the statute and it states:
(2) Specific Prohibitions
(A) Discrimination
18
For purposes of subsection (a) of this
section, discrimination includes-
. . .
(iv) a failure to remove architectural
barriers, and communication barriers
that are structural in nature, in
existing facilities . . . where such
removal is readily achievable.0
0
"Readily achievable" is a term of art. It is defined by 42
U.S.C. § 12181(9) which states:
The term 'readily achievable' means easily
accomplishable and able to be carried out
without much difficulty or expense. In
determining whether an action is readily
achievable, factors to be considered include-
(A) the nature and cost of the action
needed under this chapter;
(B) the overall financial resources of
the facility or facilities involved in
the action; the number of persons
employed at such facility; the effect on
expenses and resources, or the impact
otherwise of such action upon the
operation of the facility;
(C) the overall financial resources of
the covered entity; the overall size of
the business of a covered entity with
respect to the number of its employees;
the number, type and location of its
facilities; and
(D) the type of operation or operations
of the covered entity, including the
composition, structure, and functions of
the workforce of such entity; the
geographic separateness, administrative
or fiscal relationship of the facility
or facilities in question to the covered
entity.
19
The district court found that:
While the ADA requires removal of
architectural and communication barriers in
existing public accommodations such as the
PSFS building where such removal is 'readily
achievable,' it does not require this process
to be completed by any particular date. . . .
Although one might well be able to argue that
at some point a delay would constitute non-
compliance with the ADA and consequently a
violation of the sublease, that point had not
been reached by March 31, 1993.
885 F. Supp. at 122. The district court thus seemed to find that
in order to constitute non-compliance under the ADA, a particular
unmade modification: (1) must be "readily achievable" and (2)
that an unspecified period, essentially a grace period, must have
elapsed after the ADA's effective date even though the
modifications were "readily achievable" earlier.
To the extent that the court's holding suggests that a
grace period exists, we disagree because we find no provision for
a grace period in the ADA. We want to make clear, however, that
in rejecting the "grace period" construction, we are not implying
that the passage of time is irrelevant in determining liability
under the ADA. We are simply rejecting the district court's
suggestion that liability depends on a temporal element that is
independent of the "readily achievable" standard.
In considering what is "readily achievable" with
respect to removal of architectural barriers, we first observe
that the "readily achievable" standard necessarily includes a
temporal element. The ADA defines "readily achievable" as
"easily accomplishable and able to be carried out without much
20
difficulty or expense." Yet what is easy to accomplish in one
year may not be easily accomplishable in one day so a
determination of what is "readily achievable" depends upon the
passage of time. Furthermore, the ADA does not indicate
expressly whether the temporal element in "readily achievable"
should be measured from the date of the ADA's enactment, July 26,
1990, or the general effective date for the public accommodations
title, January 26, 1992. We observe, however, that cognizant of
the burdens of the ADA's requirements, Congress granted small
businesses more time than larger organizations before they could
be liable for violations of the ADA.0 Thus, it might be
0
Section 310 of Title III of the Americans with Disabilities Act,
Pub. L. 101-336, 104 Stat. 353, provided that:
(a) General rule - Except as provided in
subsections (b) and (c), this title [enacting
this subchapter] shall become effective 18
months after the date of the enactment of
this Act [July 26, 1990].
(b) Civil actions. - Except for any civil
action brought for a violation of section 303
[section 12183 of this title, governing
requirements for new construction], no civil
action shall be brought for any act or
omission described in section 302 [section
12182 of this title] which occurs-
(1) during the first 6 months after the
effective date, against businesses that
employ 25 or fewer employees and have
gross receipts of $1,000,000 or less;
and
(2) during the first year after the
effective date, against businesses that
employ 10 or fewer employees and have
gross receipts of $500,000.
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reasonable to conclude that the temporal element in a
determination of whether the removal of a barrier is "readily
achievable" should be measured from the ADA's enactment.
Indeed, it could be held as a matter of statutory
construction that the ADA required that "readily achievable"
modifications to existing facilities be made by its effective
date so that the period between the enactment and the effective
date fixed the temporal element of the "readily achievable"
provision. See Pinnock v. International House of Pancakes
Franchisee, 844 F. Supp. 574, 584 (S.D. Cal. 1993) ("ADA provided
an 18 month notice period in which businesses could comply with
the Act's requirements . . . . [and] [s]mall businesses were
given an even lengthier notice period."). See also Karen E.
Field, Note, The Americans With Disabilities Act "Readily
Achievable" Requirement For Barrier Removal: A Proposal For The
Allocation of Responsibility Between Landlord And Tenant, 15
Cardozo L. Rev. 569, 570 (1993). Of course, the district court
in effect rejected this construction of the ADA by holding that,
at least in this case, the ADA did not require "readily
achievable" modifications to be made by March 31, 1993. Yet,
if the determination of whether a modification is "readily
achievable" includes a temporal element measured from the date of
the ADA's enactment, and concluding on its effective date, then
the public accommodations section of the ADA was in a practical
sense effective upon its enactment, rather than its stated
effective date, because it required entities to comply with its
22
requirements no later than at the expiration of the 18-month
period between its enactment and its effective date.
At this time we will not decide the point from which
compliance with the "readily achievable" standard should be
measured. As we have indicated we have concluded that,
regardless of that point, the district court did not apply the
proper criteria to determine whether Meritor was in compliance
with the ADA at the time of the initiation of its receivership.
Thus, we will remand the case to it for further proceedings.
On the remand, the court first should determine whether
the ADA should be construed to require that modifications, if
"readily achievable," must be made by the effective date of the
public accommodations title of the ADA to the facility involved.0
If it so concludes then First Bank will be able to recover for
the reasonable costs of the modifications to existing facilities
in this case if they were "readily achievable" because the
effective date of the ADA was prior to December 11, 1992. If the
court concludes as a matter of statutory construction that the
ADA did not require otherwise "readily achievable" modifications
to be made by its effective date, it should determine: (1)
whether the temporal elements of "readily achievable" should be
0
In its brief, First Bank indicates that even "assuming that the
PSFS Building was a 'commercial facility' and not a place of
public accommodation, the latest effective date for the ADA would
be July 26, 1992, about nine months before the FDIC's
disaffirmance of the Lease." Br. at 22 n.3. The FDIC seems to
argue that if the building is a commercial facility, the ADA may
not apply to it as it is not newly constructed. Br. at 23 n.10.
These points may be raised on remand.
23
measured from the ADA's enactment or its effective date, and; (2)
whether the modifications in this case were "readily achievable"
as a matter of fact by December 11, 1992. To the extent, if any,
that the modifications should have been made by that date, First
Bank will be able to recover their reasonable cost.
III. CONCLUSION
In view of our conclusions, we will reverse the April
20, 1995 judgment of the district court both as to the denial of
First Bank's claim for the cost of structural repairs to the
north facade of the building and as to the district court's
denial of First Bank's claim for ADA-mandated renovations. We
will remand the matter to the district court for further
proceedings consistent with this opinion with respect to the
claim for structural repairs to the north facade and the ADA-
mandated renovations.
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