         IN THE UNITED STATES COURT OF APPEALS
               FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                               Fifth Circuit

                                                              FILED
                                                             April 24, 2014

                                 No. 12-20367                Lyle W. Cayce
                                                                  Clerk

EXCEL WILLOWBROOK, L.L.C.; SOUTHSIDE/3500, LTD.; ORTB WAYSIDE,
LTD.; MR/VM PARTNERS, LTD.; FL WESTHEIMER WILCHREST, LTD.;
LSDSS REALTY GROUP, L.L.C.; EXCEL LITTLE YORK, LTD.; 3300 SAGE,
LTD.,

          Plaintiffs - Appellees

v.

JP MORGAN CHASE BANK, NATIONAL ASSOCIATION.,

          Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

         Intervenor - Appellant



              Appeal from the United States District Court
                   for the Southern District of Texas


                     Consolidated with No. 12-20375

MR/VM PARTNERS, LTD.,

          Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A.,
                                 No. 12-20367


          Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

          Intervenor - Appellant



              Appeal from the United States District Court
                   for the Southern District of Texas


                     Consolidated with No. 12-20376

SOUTHSIDE/3500, LTD.,

          Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A.,

         Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

          Intervenor - Appellant



              Appeal from the United States District Court
                   for the Southern District of Texas


                     Consolidated with No. 12-20377

ORTB WAYSIDE, LTD.,



                                      2
                                No. 12-20367

         Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A.,

         Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

         Intervenor - Appellant



             Appeal from the United States District Court
                  for the Southern District of Texas


                    Consolidated with No. 12-20378

EXCEL LITTLE YORK, LTD.,

         Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A.,

         Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

         Intervenor - Appellant


             Appeal from the United States District Court
                  for the Southern District of Texas




                                     3
                                 No. 12-20367

                     Consolidated with No. 12-20381

3300 SAGE, LTD.,

          Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A.,

          Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

          Intervenor - Appellant



              Appeal from the United States District Court
                   for the Southern District of Texas


                     Consolidated with No. 12-20382

FL WESTHEIMER WILCHREST, LTD.; LSDSS REALTY GROUP, L.L.C.,

          Plaintiffs - Appellees

v.

JPMORGAN CHASE BANK, N.A.,

          Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

          Intervenor - Appellant




                                      4
                                   No. 12-20367


                Appeal from the United States District Court
                     for the Southern District of Texas


                       Consolidated with No. 12-10784

WEICHSEL FARM LIMITED PARTNERSHIP,

            Plaintiff - Appellee

v.

JP MORGAN CHASE BANK, N.A., Successor-in-Interest to Washington Mutual
Bank,

            Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for
Washington Mutual Bank,

            Intervenor - Appellant



                Appeal from the United States District Court
                     for the Northern District of Texas



Before HIGGINBOTHAM, CLEMENT, and PRADO, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
      Treating Appellants’ Petition for Rehearing En Banc as a Petition for
Panel Rehearing, the Petition for Panel Rehearing is DENIED, but we amend
the prior opinion, 740 F.3d 972 (5th Cir. 2014). As amended, the opinion is as
follows:
      Washington Mutual Bank failed in 2008. Acting as receiver, the FDIC
conveyed substantially all of WaMu’s assets and liabilities to JPMorgan Chase,

                                        5
                                      No. 12-20367

including certain long-term real-estate leases. At issue in this case is whether
the owners of the leased tracts can enforce the leases against Chase by virtue of
the FDIC’s conveyance. The district court awarded summary judgment to the
landlords. We affirm.
                                             I.
       The facts of this case are straightforward and undisputed. In early 2008,
Washington Mutual Bank (“WaMu”) entered into lease agreements (“the
Leases”) with several landlords (“the Landlords”) for certain undeveloped tracts
of land, which WaMu planned to use for future branch offices. However, WaMu
failed on September 25, 2008, before it could complete any banking facilities on
the tracts. Pursuant to its authority under the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (“FIRREA”), the FDIC stepped into
WaMu’s shoes and assumed all of its assets and liabilities, including the Leases.
The FDIC then solicited bids from private financial institutions for the purchase
and assumption of those assets and liabilities, ultimately accepting a $1.8 billion
bid by JP Morgan Chase Bank, N.A. (“Chase”).
       After accepting Chase’s bid, the FDIC and Chase executed the Purchase
and Assumption Agreement (the “P&A Agreement” or “Agreement”). As relevant
here, the Agreement split WaMu’s real-estate assets into “Bank Premises” and
“Other Real Estate,” giving Chase a 90-day option to either accept or reject
assets that qualified as Bank Premises but assigning all Other Real Estate to
Chase outright. The Agreement defined Bank Premises to include all banking
facilities that WaMu owned or leased and actually occupied as of September 25,
2008, the date on which WaMu closed its doors.1 The Agreement defined Other


       1
          The Agreement defined Bank Premises as “the banking houses, drive-in banking
facilities, and teller facilities (staffed or automated) together with appurtenant parking,
storage and service facilities and structures connecting remote facilities to banking houses,
and land on which the foregoing are located, that are owned or leased by [WaMu] and that are
occupied by [WaMu] as of Bank Closing.”

                                             6
                                     No. 12-20367

Real Estate to include “all interests in real estate” that did not qualify as
Banking Premises, including all “leasehold rights.”2 It is undisputed that WaMu
had not yet completed or occupied banking facilities on any of the tracts subject
to the Leases as of September 25, 2008. Hence, under the plain language of the
Agreement, the Leases qualified as Other Real Estate assigned outright to
Chase. Notably, Chase not only accepted the Leases but “expressly assume[d]”
and “agree[d] to pay, perform and discharge” all of WaMu’s liabilities —
liabilities that included WaMu’s obligations under the Leases.
       Even though the Agreement thus appeared to give Chase no option to
reject the Leases or WaMu’s obligations thereunder, the FDIC has maintained
at all times that “both the FDIC and Chase . . . understood that all of the Leases
are Bank Premises leases and that Chase therefore had a 90-day option to accept
assignment of each Lease.”          Consistent with this “understanding,” Chase
rejected the Leases within 90 days. The FDIC accepted Chase’s purported
exercise of its option and therefore continued to retain the Leases in its capacity
as WaMu’s receiver. Thereafter, the FDIC determined that compliance with the
Leases would be burdensome to the WaMu receivership and, pursuant to its
statutory authority under FIRREA, elected to repudiate the Leases.
       The Landlords brought eight separate cases against Chase, alleging breach
of the Leases. Seven of the cases were either filed in or removed to the Southern
District of Texas, where they were eventually consolidated. The eighth case was
filed in the Northern District of Texas. The FDIC intervened on behalf of Chase
in all eight cases and moved for summary judgment. It contended that the
Landlords lacked “standing” to interpret or enforce the P&A Agreement, as they



       2
       The Agreement defined Other Real Estate as “all interests in real estate (other than
Bank Premises and Fixtures), including but not limited to mineral rights, leasehold rights,
condominium and cooperative interests, air rights and development rights that are owned by
[WaMu].”

                                            7
                                  No. 12-20367

were neither parties nor intended beneficiaries to the Agreement. Hence, the
FDIC reasoned, they lacked a legal basis to assert the Leases against Chase.
      The Landlords cross-moved for summary judgment, rejoining that they
were quintessential creditor beneficiaries to the P&A Agreement and thus had
a contractual right to enforce Chase’s promise to assume WaMu’s obligations
under the Leases. In the alternative, the Landlords urged that the P&A
Agreement unambiguously assigned the Leases to Chase, that the Agreement
thus brought Chase into “privity of estate” with the Landlords, and that under
elementary principles of Texas landlord-tenant law, the Landlords therefore had
a right to hold Chase liable for breach of the Leases even if the Landlords lacked
contractual authority to enforce the P&A Agreement.
      The district courts granted partial summary judgment to the Landlords
in all eight cases, reserving only the question of damages. The parties then
stipulated to damages, and the district courts entered final judgments. Although
the Southern District agreed with the FDIC that the Landlords were not third-
party beneficiaries to the P&A Agreement, both district courts concluded that
the Agreement unambiguously assigned the Leases to Chase without giving
Chase any option to repudiate, thereby bringing Chase into privity of estate with
the Landlords and giving the Landlords a right to hold Chase liable for breach
of the Leases.    The FDIC appeals on behalf of Chase in its capacity as
intervenor. All eight cases are consolidated on appeal.
                                       II.
      The threshold issue on appeal is whether the Landlords qualify as
intended beneficiaries to the P&A Agreement, in which case they have a
contractual right to enforce Chase’s promise to assume WaMu’s obligations
under the Leases. As the FDIC observes, the Eleventh Circuit and the Ninth
Circuit have both recently addressed this question, declining to afford similarly
situated landlords third-party beneficiary status under the same P&A

                                        8
                                         No. 12-20367

Agreement at issue in this case.3 Our sister circuits reasoned that there is a
presumption against third-party beneficiary status under government contracts
— a presumption that, while it does not require the party seeking enforcement
to be “specifically or individually identified in the contract” to be overcome, does
require proof that it “fall[s] within a class clearly intended to benefit” from the
assignment.4 As the FDIC’s assignment to Chase included a no-beneficiaries
clause, the courts reasoned, the landlords could not possibly overcome this
presumption.5 We are not so sure.
       The interpretation and effect of the P&A Agreement is governed by the
federal common law of contracts,6 which draws on the “the core principles of the
common law of contracts that are in force in most states.”7 One of those
principles is that a promisor who agrees to satisfy an obligation that the
promisee owes to a third party thereby confers enforcement rights to the third
party, who qualifies as a creditor beneficiary to the contract.8 In the landlord-


       3
     See Interface Kanner, LLC v. JPMorgan Chase Bank, 704 F.3d 927 (11th Cir. 2013);
GECCMC v. JPMorgan Chase Bank, 671 F.3d 1027 (9th Cir. 2012).
       4
           GECCMC, 671 F.3d at 1033; Interface Kanner, 704 F.3d at 933.
       5
           GECCMC, 671 F.3d at 1034; Interface Kanner, 704 F.3d at 933.
       6
         It is well-established that government contracts are governed by federal common law.
E.g., Clem Perrin Marine Towing, Inc. v. Panama Canal Co., 730 F.2d 186, 189 (5th Cir. 1984).
In any event, the P&A Agreement contains a choice-of-law provision selecting federal law. We
give effect to choice-of-law provisions unless a party can show that the clause is “unreasonable
under the circumstances.” Ginter ex. rel. Ballard v. Bletcher, Prendergast & Laporte, 536 F.2d
439, 449 (5th Cir. 2008).
       7
         Smith v. United States, 328 F.3d 760, 767 (5th Cir. 2003) (quoting United States v.
Nat’l Steel Corp., 75 F.3d 1146, 1150 (7th Cir.1996)).
       8
         See, e.g., Restatement (First) of Contracts § 136 (1932) (“[A] promise to discharge the
promisee’s duty creates a duty of the promisor to the creditor beneficiary to perform the
promise.”); id. § 133(1)(b) (“[A] person is . . . a creditor beneficiary if . . . performance of the
promise will satisfy an actual or supposed or asserted duty of the promisee to the
beneficiary.”). Similarly, under the Restatement (Second) of Contracts “a beneficiary of a
promise is an intended beneficiary if recognition of a right to performance in the beneficiary

                                                 9
                                        No. 12-20367

tenant context, it is thus well established that a landlord is a creditor beneficiary
to an assignment of a lease by the original tenant to a subsequent tenant — at
least if the subsequent tenant expressly agrees to perform the original tenant’s
obligations under the lease.9           Here, Chase not only accepted the FDIC’s
assignment of WaMu’s interest in the Leases but “expressly assume[d]” and
“agree[d] to pay, perform, and discharge” all of WaMu’s liabilities — liabilities
that include WaMu’s obligations under the Leases. Hence, the Landlords appear
to be quintessential creditor beneficiaries to the P&A Agreement.
       True, the P&A Agreement contains a clause disclaiming any intention to
create third-party beneficiaries. However, as the Landlords observe, the no-
beneficiaries clause is qualified by the modifying phrase “except as otherwise
specifically provided in this Agreement.” And under settled rules of contract
construction, Chase’s unqualified promise to “expressly assume[] . . . and agree[]
to pay, perform, and discharge” all of WaMu’s obligations, under the Leases and



is appropriate to effectuate the intention of the parties and . . .the performance of the promise
will satisfy an obligation of the promisee to pay money to the beneficiary[.]” Restatement
(Second) of Contracts § 302(1)(a); see also id. at § 302 cmt. b (“The type of beneficiary covered
by Subsection (1)(a) is often referred to as a ‘creditor beneficiary.’ In such cases the promisee
is surety for the promisor, the promise is an asset of the promisee, and a direct action by
beneficiary against promisor is normally appropriate to carry out the intention of promisor and
promisee, even though no intention is manifested to give the beneficiary the benefit of the
promised performance.”).
       9
         See, e.g., 49 Am. Jur. 2d Landlord and Tenant § 962 (2013) (“An express agreement
by the assignee of a lease with the assignor to assume the obligations of the lease is
enforceable by the landlord as a third-party beneficiary, regardless of whether the landlord
is a party to the assumption agreement. . . . However, clearly, not every reference to or
mention of the covenants of a lease in an agreement between the lessor and an assignee
amounts to an assumption of the covenants by the assignee.”); Restatement (Second) of
Property, Land. & Ten. § 16.1, rptr. n. 4 (1977) (“The transferee of an interest in the leased
property, by virtue of the assignment, incurs liability on the burdens of the lease only to the
extent such liability is based on privity of estate. . . . If, however, the transferee promises to
perform the contractual obligations of the lease, his liability on the promises of the lease is
then predicated on a privity of contract in addition to its basis in privity of estate.”); 2-17
Powell on Real Property § 17.04 (same); Schoshinski, American Law of Landlord and Tenant
§ 8.12 (1980) (same).

                                               10
                                        No. 12-20367

otherwise, is arguably tantamount to “specifically” designating the Landlords as
creditor beneficiaries. Though Chase and the FDIC now urge that they always
understood the Agreement to give Chase an option to reject the Leases, they
have made no effort to reform the Agreement to reflect their late-arriving and
atextual “understanding.”10
       The Ninth Circuit expressed concern that granting the landlords third-
party beneficiary status to enforce the P&A Agreement would “open[] the door
to suits from any number of third parties who might claim a benefit from the
Agreement’s terms.”11         But this fear is exaggerated.          The FDIC made an
affirmative decision to assign the Leases to Chase. Chase not only accepted the
assignment but expressly covenanted to “pay, perform, and discharge” all of
WaMu’s liabilities — including WaMu’s obligations under the Leases. Had the
FDIC not assigned the Leases to Chase, or assigned its interest in the Leases
without having Chase expressly assume WaMu’s liabilities, the Landlords would
not qualify as creditor beneficiaries.12 In our view, affording the Landlords
enforcement rights on the narrow facts of this case would not open the
floodgates, as the class of persons entitled to third-party beneficiary status
would remain exceedingly narrow and subject to the FDIC’s control.
       Were we writing on a blank slate, we would conclude that the Landlords
are creditor beneficiaries to the P&A Agreement and therefore have a


       10
         See Restatement (First) of Contracts § 136 (1932) (“Though the right of the creditor
beneficiary arises immediately on the formation of the contract, his right, unlike that of a
donee beneficiary, is not immediately indefeasible. . . . [U]ntil the creditor brings suit, or
otherwise materially changes his position in reliance on the promise, he may lose his right or
have it qualified by a new agreement between the promisor and the promisee.”); see also
Restatement (Second) of Contracts § 311 cmt. f (“in the absence of such an agreement [between
promisor and promisee not to vary a duty to a beneficiary without his consent] the parties
retain control over the contractual relation they created”).
       11
            GECCMC, 671 F.3d at 1035.
       12
            See supra note 9 and accompanying text.

                                             11
                                  No. 12-20367

contractual right to enforce Chase’s promise to assume the Leases. However, we
cannot ignore that two of our sister circuits have reached a contrary conclusion
on virtually identical facts. In the interest of maintaining uniformity in the
construction and enforcement of federal contracts — an area where uniformity
is critical — we reluctantly hold that on the narrow facts of this case, the
Landlords do not qualify as third-party beneficiaries.


                                      III.
      The next question is whether the district courts erred in concluding that
the Landlords have a right to enforce the Leases against Chase by virtue of their
“privity of estate” with Chase. The Landlords contend that the P&A Agreement
accomplished a complete, present conveyance of the Leases that, under
longstanding principles of real-property law, creates privity of estate with Chase
and gives the Landlords the legal right to enforce the Leases against Chase —
even in the absence of contractual privity. The FDIC rejoins that the Landlords’
power to assert the Leases against Chase, if any, must derive from a contractual
right to enforce the P&A Agreement, and that privity of estate does not furnish
an independent, non-contractual, state-law basis for holding Chase liable.
Because the Landlords are neither parties nor third-party beneficiaries to the
Agreement, the FDIC reasons, they lack “standing” to interpret the P&A
Agreement and conclude that it accomplishes a complete assignment. The
FDIC’s circular reasoning ignores eight centuries of legal history.
      To be sure, in medieval England, a landlord had no right to enforce the
covenants in a lease against an assignee of the original tenant: courts reasoned
that while the original tenant remained contractually liable for his obligations
under the lease (e.g., rent), there was no enforceable contract running between




                                       12
                                         No. 12-20367

the landlord and the assignee.13 However, as noted in the original Restatement
of Property, “the inconveniences resulting from such a rule [were] manifest,”
preventing both the landlord and the ultimate tenant from relying on covenants
in the original lease.14 Hence, English courts developed the concept of “real
covenants,”15 a concept that has carried over into American law and the laws of
Texas. Real covenants are covenants that “run with the land” and can be
enforced by the landlord against an assignee tenant by virtue of their “privity of
estate” — notwithstanding the absence of contractual privity.16 However, the
content of the conveyance by the original tenant to the subsequent tenant
remains critical, as the subsequent tenant only comes into “privity of estate”
with the landlord if the landlord can prove that the original tenant assigned
away his entire interest in the lease (as opposed to a lesser-included portion, i.e.,
a “sublease”).17 The FDIC’s position, under which the landlord lacks “standing”

       13
            See 2-17 Powell on Real Property § 17.04[2][b] (2013).
       14
            Restatement (First) of Property, Part III, Introductory Note (1944).
       15
            2-17 Powell on Real Property § 17.04[3] (2013).
       16
          Id.; see also, e.g., Friedman on Leases § 7:5.1[C][1][a] (5th ed. 2008) (“By receiving the
assignment . . . the assignee acquires an interest in the premises that brings him into privity
of estate with the owner and makes him liable to the owner for the payment of rent and on
those covenants that run with the land.”); Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc.,
938 S.W.2d 102, 114 (Tex. App. —Houston [14th Dist.] 1996, no writ) (“Liability to the original
lessor for the payment of rent or the performance of other lease covenants may arise from
either privity of contract or privity of estate. . . . The assignee becomes the tenant in place of
the original lessee and is in privity of estate with the lessor. Accordingly, an assignee is liable
for the rent and for the performance of the covenants that run with the land.”); Fabrique, Inc.
v. Corman, 796 S.W.2d 790, 793 (Tex. App.—San Antonio 1990, no writ) (same); Moore v.
Kirgan, 250 S.W.2d 759, 764 (Tex. Civ. App.—El Paso 1952, no writ) (same); Cauble v. Hansen,
224 S.W. 922, 923 (Tex. Civ. App.—El Paso 1920, no writ) (same).
       17
         2-17 Powell on Real Property § 17.04[2][a], [b] (2013); see also, e.g., Twelve Oaks, 938
S.W.2d at 113 (“When a lessee departs with his entire interest in all or part of the property
in question, without retaining any reversionary interest, an assignment is created. On the
other hand, if the lessee retains any reversionary interest, no matter how small it may be, a
sublease is created.”); Moore, 250 S.W.2d at 764 (same); Davis v. Vidal, 151 S.W. 290, 293
(Tex. 1912) (same).

                                                13
                                         No. 12-20367

to prove the content and effect of the conveyance between the tenants because
he is not a party to the conveyance, would defeat the concept of real covenants,
returning our law to that of twelfth-century England.
       Accepting that the Landlords have “standing” to prove the content of the
P&A Agreement, the next question is whether the Agreement, properly
construed, is a complete “assignment” sufficient to create privity of estate under
Texas law. The answer to this question is clearly yes. It is undisputed that the
Agreement assigned all of WaMu’s “Other Real Estate” to Chase outright, and
that the FDIC did not retain any interest in such real estate.                        It is also
undisputed that the Leases unambiguously fall within the definition of Other
Real Estate set forth in the Agreement. While the FDIC claims that it and
Chase intended for the Leases to qualify as “Bank Premises,” and that Chase
therefore had an option to reject them, it offers this Court no reason to depart
from the parol evidence rule, which rests on recognition that the best evidence
of the parties’ intent at the time of execution is the language of the contract
itself. Whether the parol evidence rule applies is a question of federal common
law, which is informed “by the core principles of the common law of contracts
that are in force in most states.”18 Accordingly, we see no reason to depart from
the general principle of the common law of contracts that a non-party in privity
to an agreement may assert the parol evidence rule.19 Because the plain


       18
            Smith, 328 F.3d at 767.
       19
          See, 11 Williston on Contracts § 33:11 (4th ed. 2013) (“[I]t is generally agreed that the
parol evidence rule will apply when the third party attempts to assert rights or claims based
on the instrument.”); Arthur Corbin, The Parol Evidence Rule, 53 Yale L.J. 603, 661-62 (1944)
(“The question has been raised whether ‘the parol evidence rule' is applicable in favor of or
against a third party who has not been a party to the written integration. The answer is
definitely in the affirmative if the rule is correctly stated and understood.”).
        Not surprisingly, Texas law parallels this majority rule. See Zapata Cnty. Appraisal
Dist. v. Coastal Oil & Gas Corp., 90 S.W.3d 847, 852 (Tex. App.—San Antonio 2002, no pet.)
(“The parol evidence rule . . . extends only to parties to the written instrument, those in privity
with such a party or one who claims a right or benefit under the contract; the rule is

                                               14
                                       No. 12-20367

language of the Agreement indicates that the FDIC assigned away its entire
interest in the Leases and that Chase had no option to reject them, the
Landlords have established privity of estate with Chase.20
       Admittedly, some non-Texas cases suggest that privity of estate cannot
come into existence unless the assignee tenant actually takes possession of the
underlying property, and that privity terminates as soon as the assignee tenant
gives up possession.21 Here, it is not clear from the record whether Chase ever
took possession of the leased properties.22 However, aside from the fact that the
FDIC (or rather, Chase) has forfeited any argument about possession by failing
to raise it below or in its briefs on appeal, the better view is that “[t]he
acceptance of a bona fide assignment creates a privity of estate between the
lessor and the assignee, and it is not material that the acceptance be followed by


inapplicable to situations where one of the litigants is a stranger to the agreement.” (emphasis
added) (internal quotation marks omitted) (citations omitted)). Because Texas law parallels
the federal common law, we believe whatever error the district court made in applying Texas
law is harmless.
       20
          To be more precise, the Landlords have established “vertical privity,” i.e., privity
between WaMu/FDIC (the assignor tenant) and Chase (the assignee tenant). Traditionally,
courts also required “horizontal privity” in order enforce real covenants against a successor
in interest. Horizontal privity refers to the relationship between the original covenanting
parties (here, the Landlords and WaMu), and requires the covenant to be created in
conjunction with a conveyance of an estate in land (e.g., a leasehold). Horizontal privity
clearly exists in this case, as the covenants that the Landlords seek to enforce are included in
the original leases between the Landlords and WaMu. Horizontal privity only becomes a
problem when the original covenanting parties reach their agreement independent of any land
conveyance (e.g., two neighbors covenant to drain their respective tracts to avoid creating
nesting areas for mosquitos). Although Texas appears to retain the horizontal privity
requirement, see Clear Lake Apts, Inc. v. Clear Lake Utilities Co., 537 S.W.2d 48, 51 (Tex. Civ.
App.—Houston [14th Dist.] 1976, writ granted), commentators agree that it should be
abolished, and modern courts rarely mention it. 2-17 Powell on Real Property § 17.04[3][c][iii]
(2013).
       21
         See, e.g., Gateway I Group, Inc. v. Park Ave. Physicians, PC, 62 A.D.3d 141, 148 (N.Y.
Ct. App. 2009); FDIC v. Mars, 821 P.2d 826, 829 (Colo. Ct. App. 1991).
       22
         The FDIC’s brief suggests that possession initially remained with the FDIC, and that
after the FDIC repudiated the leases, possession returned to the Landlords.

                                              15
                                          No. 12-20367

the assignee entering into possession of the premises.”23 And while privity of
estate terminates upon expiration of the lease term or reassignment by the
assignee tenant to another,24 the Leases in this case do not expire for many years
and there is no evidence that Chase has assigned them to any third parties.
       However, the Landlords are not necessarily entitled to enforce all of the
terms of the Leases against Chase merely because they have established privity
of estate; rather, such privity only gives them the right to enforce “covenants
that run with the land,” i.e., “real covenants.”25 A covenant “runs with the land”
if it “touches and concerns” the land.26 While the scope of the “touches and
concerns” test has always been somewhat elusive, courts generally agree that
the appropriate inquiry is whether the covenant is of a type personal to the
original parties to the lease (e.g., the original tenant is a skilled carpenter who


       23
           49 Am. Jur. 2d Landlord and Tenant § 968 (collecting cases); see also, e.g., Friedman
on Leases § 7:5.1[C][1][a] (5th ed. 2008) (“Acceptance of the assignment creates the privity of
estate and its consequent liability. . . . It is not necessary for the assignee to take possession.
It is sufficient that he have the right to possession . . . . An assignee may relieve himself of this
liability at any time by in turn assigning to another . . . . But an actual assignment is
apparently necessary, rather than abandonment alone.”); Restatement (Second) of Property,
Land. & Ten. § 16.1, rtpr. n. 6 (1977) (same); Williams v. Safe Deposit & Trust Co., 175 A. 331,
333 (Md. 1934) (“Neither does the liability of the assignee on the covenant depend, according
to the weight of authority, upon his actual entry or taking possession. It is sufficient if the
right of possession exist.”).
       24
            2-17 Powell on Real Property § 17.04[2][b] (2013).
       25
           Id. at § 17.04[3]; Restatement (Second) of Property, Land. & Ten. § 16.1 (1977); see
also, e.g., Twelve Oaks, 938 S.W.2d at 114.
       26
          2-12 Powell on Real Property § 17.04[3] (2013); Restatement (Second) of Property,
Land. & Ten. § 16.1 (1977); see also, e.g., Baywood Estates Property Owners Ass’n, Inc. v.
Caolo, 392 S.W.3d 776, 782 (Tex. App.—Tyler 2012, no pet.). While Texas cases have held that
the party to be burdened must also have actual or constructive notice of the covenant for it to
“run with the land,” see Baywood Estates, 392 S.W.3d at 782, these cases confuse real
covenants with equitable servitudes. Real covenants require privity of estate and run with the
land regardless of notice. 2-12 Powell on Real Property § 60.04[4] (2013). Equitable servitudes
run against a successor in interest even where there is no privity of estate, if the successor has
actual or constructive notice. Id. In essence, then, “the privity requirement for real covenants
is replaced by the notice requirement for equitable restrictions.” Id.

                                                16
                                         No. 12-20367

promises to build a custom shed), or of a type that tenants and landlords would
typically expect to apply to all successors in interest (e.g., rent).27 Here, the
landlords seek to recover damages arising only out of Chase’s breach of the
covenants to pay rent and taxes, both of which are standard in commercial leases
and therefore, “run with the land.”28 Moreover, the district courts have entered
judgments based on the parties’ stipulations of facts, in which the parties agreed
as to the proper measure of damages arising out of the breach of the leases.
Accordingly, we affirm the judgments of the district courts.
       We are well aware of the Eleventh Circuit’s recent decision in Interface
Kanner, LLC v. JPMorgan Chase Bank,29 which held that a landlord lacked
“standing” to assert a privity-of-estate-based theory of lease liability on facts
virtually identical to this case.30           But our interest in uniformity, though
powerful, does not require us to adopt legal conclusions we believe to be in error.


       27
            2-12 Powell on Real Property § 17.04[3] (2013) (“[T]he basic idea [is] that lease
covenants will not run to successors of the tenant unless the contracting parties intend them
to. . . . [M]odern cases seek to determine whether the original parties intended the covenant
to be personal to the promisor and promisee, or whether the covenant was instead intended
to regulate the relations of any parties who might be acting as landlord and tenant of the
affected premises. Except when the covenant is found to have a personal character, both
benefit and burden will run to the successors of the original landlord and tenant.”).
       28
          See, e.g., 2-17 Powell on Real Property § 17.04[3][b] (2013) (“Courts have held that the
burden of covenants runs to assignees of the tenant where the covenants address the payment
of rent [and] the payment of assessments or taxes.”); Restatement (Second) of Property, Land.
& Ten. § 16.1, rptr. n. 3 (1977) (“Promises in a lease involving the promise to pay money are
also subject to meeting the ‘touch and concern’ requirement as applied by the courts. . . .
Liability of a transferee on a promise to pay rent and taxes is well settled. . . . In the area of
promises to pay for insurance, what little authority exists as to a “bare” promise to insure
holds that such a promise is personal and does not run with the land.”).
       29
            704 F.3d 927 (11th Cir. 2013).
       30
        See id. at 933; see also Hillside Metro Associates, LLC v. JPMorgan Chase Bank, N.A.,
No. 12-3302-CV, 2014 WL 401303, at *5 (2d Cir. Feb. 4, 2014) (“we hold that Hillside lacks
prudential standing to litigate whether WaMu’s liabilities were assigned to Chase under the
PAA because it was neither a contracting party nor a third-party beneficiary under the
Agreement”).

                                               17
                                       No. 12-20367

The Kanner court devoted the vast majority of its opinion to explaining why the
landlord was not an intended beneficiary to the P&A Agreement and thus lacked
“standing” to interpret or enforce it.31 While not fully persuaded, we can abide
by this conclusion, the critical point for present purposes is that the Kanner
court also concluded, in a two-sentence paragraph at the end of its opinion, that
the landlord could not enforce his lease against Chase by virtue of his privity of
estate with Chase.32 The court reasoned that the landlord’s privity-based theory
of liability “is dependent on [the landlord’s] ability to enforce its interpretation
of the P&A Agreement, which, as discussed above, [the landlord] lacks standing
to do.”33         This tautology traces the FDIC’s reasoning here and fails to
accommodate the concept of privity of estate and real covenants. English courts
developed privity of estate to allow a landlord to enforce real covenants against
an assignee tenant even in the absence of contractual privity. And a landlord
always needs to prove the content of the conveyance between the original tenant
and the subsequent tenant in order to establish privity of estate with the latter,
as privity comes into existence only where the original tenant assigns away her
entire interest in the lease. If we were to hold that a landlord lacks “standing,”
ab initio, to prove the content and effect of an assignment between tenants, we
would make enforcement of real covenants impracticable.34
       In our view, the Kanner decision was — like the Ninth Circuit’s decision
in GECCMC and the Second Circuit’s decision in Hillside Metro — driven by a


       31
            See id. at 931–33.
       32
            See id. at 933.
       33
            Id.
       34
          And the continued vitality of prudential “standing” is now uncertain in the wake of
the Supreme Court’s recent decision in Lexmark International, Inc. v. Static Control
Components, Inc., 134 S. Ct. 1377 (2014). See id. at 1388 (“[A] court . . . cannot limit a cause
of action . . . merely because ‘prudence’ dictates.”).

                                              18
                                       No. 12-20367

fear that holding Chase to the terms of leases it assumed under the P&A
Agreement would somehow interfere with the FDIC’s ability to administer failed
banks.35 With all respect, we do not share this concern. We do not doubt that
the FDIC requires sweeping authority to manage a failed bank’s affairs —
authority that includes the power to repudiate leases if the FDIC determines
that they would be burdensome and that repudiation would promote the orderly
administration of the conservatorship.36 Here, however, the FDIC chose not to
exercise that authority, instead assigning the Leases outright to Chase in the
P&A Agreement.           And, as aforementioned, Chase not only agreed to the
assignment, but expressly assumed all of WaMu’s liabilities. The FDIC can
avoid its present plight in future cases by drafting contractual provisions for the
right it seeks to claim.37


                                             IV.
       We AFFIRM the judgments of the district courts.




       35
            See GECCMC, 671 F.3d at 1035–36; cf. Interface Kanner, 704 F.3d at 933.
       36
         See 12 U.S.C. § 1821(e)(1). When the FDIC repudiates a lease, FIRREA limits the
landlord’s damages to unpaid rent that accrues before repudiation. See id. § 1821(e)(4)(B).
       37
          Notably, the FDIC acknowledged in a prior case before this Court that it has since
revised its P&A Agreements to clarify that an acquiring bank’s option to reject real estate
leases extends to all leases. See Rec. Doc. No. 29 at 5–6 (reproducing colloquy between Hon.
Edith Jones and counsel for the FDIC at oral argument).

                                             19
                                   No. 12-20367

EDITH BROWN CLEMENT, Circuit Judge, concurring in the judgment.
      This result has more to do with the arguments that the FDIC did not raise
than the innate correctness of the Landlords’ position.
      The FDIC argues that the Landlords lack standing because they cannot,
as a non-third-party beneficiary to the contract, show that the properties were
transferred to Chase. The Landlords have no such issue. To demonstrate
standing, the Landlords need to show (1) “an injury in fact—an invasion of a
legally protected interest which is (a) concrete and particularized, and (b) actual
or imminent, not conjectural or hypothetical,” (2) “a causal connection between
the injury and the conduct complained of,” and (3) that it is “likely, as opposed
to merely speculative, that the injury will be redressed by a favorable decision.”
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations
and quotation marks omitted). The Landlords make that showing. They claim
to have (1) suffered an injury (loss of rents), that was (2) causally connected to
Chase’s conduct (not paying rents that were due), and (3) could be redressed by
an award of unpaid rents. Moreover, the Landlords’ interest in rent payments
from assignees is legally protected by Texas law. See, e.g., Amco Trust, Inc. v.
Naylor, 317 S.W.2d 47, 50 (Tex. 1958) (“Liability to the original lessor for the
payment of rent . . . may arise from . . . privity of estate. . . . One
who . . . acquires the entire leasehold estate becomes the tenant in place of the
lessee and is in privity of estate with the lessor. An assignee is accordingly liable
for the rent reserved in the lease.”).
      The FDIC’s counterargument that non-third-party beneficiaries cannot
interpret and enforce a contract against the understanding of the contracting
parties improperly tries to stretch a question of contract law into a dubious
principle of constitutional law.     Non-third-party beneficiaries to contracts
usually cannot show that they have suffered an injury to a legally protected
interest because contract law does not recognize and compensate non-third-party

                                         20
                                        No. 12-20367

beneficiaries for the injuries that they often suffer when a contracting party fails
to comply with a contract. But when jurisdiction is otherwise proper, there is no
inherent bar prohibiting a stranger to a contract from asking the court to
interpret a contract that has bearing on its case.1 Texas law vests the Landlords
with the legitimate protected interest needed to assert their claim for unpaid
rent in federal court. This is enough to create standing.
       Rather than having an inherent standing problem, the Landlords should
have difficulty demonstrating that the Purchase and Assumption Agreement
actually transferred the leases outright to Chase. The Landlords’ position is
almost certainly inconsistent with the actual intent of the contracting parties;
they provide no persuasive reason why Chase would want its option to refuse
certain properties to extend only to constructed and operating bank branches,
and not also to properties for future bank premises. The vacant lots are of little
value to Chase if not used as bank premises.                  And the parties’ course of
performance—which “is often the strongest evidence” of a contract’s
meaning2—also supports that conclusion. From the beginning, both parties’
behavior has reflected a belief that the contract grants Chase the option to
refuse the leases, regardless of whether a branch had yet been constructed.
       Accordingly, though the district courts had the power to consider the cases,
Chase should have been able to prevent the Landlords from proving that the


       1
         See, e.g., J.R. Fulton v. L&N Consultants, Inc., 715 F.2d 1413, 1418-21 (10th Cir.
1982); United States v. Ivey, 414 F.2d 199, 203 (5th Cir. 1969); Clark v. United States, 341 F.2d
691, 693-95 (9th Cir. 1965); Great Am. Ins. Co., N.Y. v. Gulf Marine Drilling No. 1, 302 F.2d
332, 334-35 (5th Cir. 1962); Pugh v. Comm’r, 49 F.2d 76, 79 (5th Cir. 1931); cf. Lemke v. Sears,
Roebuck & Co., 853 F.2d 253, 254-55 & n.4 (4th Cir. 1988) (remanding case for reconsideration
of a non-party’s claims that they were released from liability by a prior contract even though
the court “strongly question[ed] whether the language of the . . . release evidenced a clear
intent to benefit” the non-party).
       2
           Restatement (Second) of Contracts § 202 cmt. g (1981).

                                               21
                                    No. 12-20367

leases were transferred.         Given the record evidence substantiating the
contracting parties’ intent, the FDIC and Chase likely had colorable arguments
(and supporting evidence) regarding the proper interpretation of the Purchase
and Assumption Agreement. Even if they thought that those arguments were
hopeless given the plain text of the contract, Chase and the FDIC could have
pursued a contract reformation, see, e.g., Restatement (Second) of Contracts § 155
(1981), or simply amended the Purchase and Assumption Agreement.
      All of those strategies would have been preferable to attacking courts’
ability to hear cases brought by landlords against assignees—a question on
which the FDIC is on the wrong side of (1) hundreds of years of legal history, (2)
previous legal positions adopted by the federal government when it itself is a
landlord, see, e.g., Alaska Statebank, 111 IBLA 300, 308-09 (IBLA 1989), and (3)
circuit precedent rejecting attempts by contracting parties to have contracts
interpreted “according to the[ir] wishes . . . rather than [the meaning]
attributable to it by law” when the parties neither claim mistake nor omission
in drafting the contract, nor seek reformation. Great Am. Ins. Co., 302 F.2d at
334-35. The FDIC would have been better served by arguing that this contract
did not transfer these leases.
      But Chase should not expect to win on arguments that it does not pursue.
The district courts—based upon the arguments raised and the evidence before
them—properly entered judgments for the Landlords. The plain text of the
contract indicates the leases at issue were transferred outright and the covenant
to pay rent runs with the land. On appeal, the only real error that the FDIC
successfully highlights is the district courts’ choice to apply Texas law to
interpret the Purchase and Assumption Agreement. Though Texas state law
provides the Landlords’ cause of action, federal common law should have been



                                         22
                                        No. 12-20367

used to interpret the Purchase and Assumption Agreement.3 However, the FDIC
does not point out any consequence from the district courts’ error, and concedes
that “the outcome is likely the same” under either body of law. In light of the
FDIC’s concessions and the plain text of the Purchase and Assumption
Agreement, it appears that any error was harmless, and that the district courts’
judgments should be affirmed.




       3
         “[F]ederal common law governs the construction of government contracts in the usual
case,” Clem Perrin Marine Towing, Inc. v. Pan. Canal Co., 730 F.2d 186, 189 (5th Cir. 1984),
and even if this is not “the usual case,” as Clause 13.4 of the Agreement specifies that it should
be interpreted according to federal law (or Washington law if there is an “absence of
controlling federal law”), Texas choice-of-law principles would still require the application of
federal common law (or Washington law). See, e.g., Smith v. EMC Corp., 393 F.3d 590, 597
(5th Cir. 2004).

                                               23
