This appeal involves the interpretation and application of the section of the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") relating to the right of a receiver or conservator of a failed financial institution to repudiate a lease, 12 U.S.C. Sec. 1821(e). The case presents the following questions: whether a conservator as well as a subsequently-appointed receiver of a failed financial institution each have an independent right to repudiate a lease under Sec. 1821(e) and whether the "reasonable period" for repudiation of a lease under the statute begins to run with the subsequent appointment. We hold that a conservator as well as a subsequently-appointed receiver has an independent right to repudiate a lease under FIRREA. In addition, we hold that the reasonable period for repudiation begins to run anew with the subsequent appointment. The lease at issue was repudiated within four months of the receiver's appointment; we hold that the lease was repudiated within a reasonable period of time.

This case also involves a dispute over the proceeds of a letter of credit which is related to the lease. Both appellees in this case, Liberty Bell Realty Associates ("Liberty Bell") and Financial Federal Savings and Loan Association of Dade County ("Financial Federal") argue that they are due the proceeds of that letter of credit. We partially resolve this issue. We hold that resolution of the claims to the proceeds is dependent upon the construction of the contracts underlying the letter of credit. However, we leave that construction for the district court to resolve on remand.

A. The Lease, the Letter of Credit, and Related Transactions

The lease at issue was part of a sale leaseback transaction in which United Trust Fund, Inc. ("UTF") bought Pioneer Federal Savings Bank's ("Old Pioneer's") corporate headquarters located in Clearwater, Florida for $14 million. Old Pioneer then agreed to lease the property back from UTF for a ten-year period. As part of the transaction, Old Pioneer applied for a standby letter of credit from Federal Home Loan Bank of Atlanta ("FHLB") to serve as security for its obligations under the lease.2

A standby letter of credit transaction is a three-party agreement involving two contracts and the standby letter of credit. Dibrell Bros. Int'l S.A. v. Banca Nazionale Del Lavoro, 38 F.3d 1571, 1578 (11th Cir.1994). The first party is the account party or customer. Here the account party was Old Pioneer. The second party is the issuing institution, usually a bank. Here that party was FHLB. The contract between the issuing party and the account party is one of the contracts involved in a letter of credit transaction. Here Old Pioneer pledged $9 million worth of performing mortgages as collateral for the letter of credit. In the event the letter of credit was drawn upon, the FHLB would be entitled to ask Old Pioneer to reimburse it. If the FHLB was then reimbursed, it would return to Old Pioneer the collateral pledged. Otherwise, the FHLB would have had a right to recover from the pledged collateral.

The third party to a letter of credit transaction is the beneficiary of the letter of credit. The contract between the account party and the beneficiary is one of the contracts involved in a letter of credit agreement. The letter of credit itself, an obligation between the issuer and the beneficiary, is the final prong of a letter of credit transaction. Id.

In this case, the originally-intended beneficiary appears to have been the lessor, UTF. However, UTF subsequently assigned its interest in the letter of credit to Financial Federal. UTF had applied for a $12 million mortgage3 from Financial Federal in order to finance the purchase of the Pioneer headquarters. UTF pledged both the property and the rents as security for the loan. As additional collateral for the loan, UTF assigned to Financial Federal the $4.5 million letter of credit. Rights to the letter of credit were assigned to Financial Federal pursuant to a July 30, 1986, agreement between Financial Federal and the United Trust Fund, i.e., the Letter of Credit Transfer Agreement. Old Pioneer named Financial Federal as the beneficiary of the letter of credit in its letter of credit application of the same date. Thus, while a letter of credit agreement usually involves three parties, two contracts and a letter of credit, this case involves four parties, three contractual relationships and a letter of credit as a result of the assignment of the letter of credit.

As beneficiary of the letter of credit, Financial Federal could draw down the funds so long as it presented to the FHLB the proper documentation. In this case, the letter itself served as sufficient documentation. The FHLB was obligated to honor the draw without determining whether Old Pioneer, the account party, had in fact defaulted on its obligations in the underlying contract.

Liberty Bell became involved in November of 1986, when UTF assigned its rights, title, and interests in the lease and the letter of credit to Liberty Bell. Liberty Bell stands in the shoes of UTF and is both lessor and owner of UTF's rights in the letter of credit. Thus, this opinion will often refer to Liberty Bell/UTF.

On February 1, 1990, the Office of Thrift Supervision ("OTS") declared Old Pioneer insolvent and appointed the RTC as its conservator. On March 8, 1990, the OTS placed Old Pioneer into receivership with the RTC as receiver, created a new entity entitled Pioneer Federal Savings Bank ("New Pioneer"), and placed New Pioneer into conservatorship, again appointing the RTC as conservator. Because RTC stands in the shoes of Old Pioneer and New Pioneer, this opinion will sometimes refer to RTC/Pioneer. Under this sort of "pass-through" receivership, substantially all of the assets and liabilities of Old Pioneer in receivership were transferred to New Pioneer and placed in the hands of the federal conservator.4 During this period, the RTC, acting as conservator, continued to meet its obligations under the lease and even made a decision not to repudiate the lease on or about September 9, 1990.

On February 28, 1991, the OTS appointed RTC as receiver of New Pioneer. Shortly thereafter the RTC as receiver entered into a purchase and assumption agreement with Great Western Bank pursuant to which Great Western agreed to purchase some of the assets of New Pioneer and to assume certain of its liabilities. That agreement gave Great Western a 90-day option to take over the lease. On or about June 19, 1991, the receiver learned that Great Western had sent a letter to RTC indicating its intent not to exercise its option on the lease. On June 21, 1991, the receiver sent a letter repudiating the lease effective July 1, 1991, citing as authority for the repudiation 12 U.S.C. Sec. 1821(e). This event triggered the litigation now before us.

Anticipating that Liberty Bell and Financial Federal would seek to draw on the letter of credit, RTC sought to enjoin Liberty Bell and Financial Federal from doing so. The lower court denied RTC's motion for preliminary injunction prior to the trial. The letter of credit was "drawn down" and the funds were deposited in an escrow account pending the district court's decision. Liberty Bell filed a counterclaim seeking a declaratory judgment that the repudiation was improper and thus constituted a breach of the lease entitling them to draw on the letter of credit and to seek damages under the lease provisions. Financial Federal, also a party to the lawsuit, filed an answer which listed its affirmative defenses claiming, among other things, that it had a right to the proceeds because the repudiation was improper.5

A trial was held. At trial, Liberty Bell and Financial Federal argued that the repudiation came well over a year after the appointment of the conservator for Old Pioneer and, thus, was untimely. RTC argued that the reasonable period for repudiation began to run anew on its February 28, 1991, appointment as receiver of New Pioneer, making the period at issue less than four months.

The court below6 rejected the RTC's argument that a receiver has a right to repudiate a lease independent of the predecessor conservator's right of repudiation. Thus, the court held that the reasonable period of time for repudiation of the instant lease commenced on or about March 9, 1990, when RTC was appointed conservator for New Pioneer. The court also held that the fifteen and a half month period between the March 9, 1990, appointment of RTC as conservator and RTC's June 21, 1991, repudiation was unreasonable. Having found the repudiation invalid, the court of course found that RTC/Pioneer had defaulted on the lease. Resolution Trust Corp. v. United Trust Fund, 775 F. Supp. 1465, 1469 (S.D.Fla.1991). In a later order, on January 19, 1993, the court awarded the letter of credit proceeds to Liberty Bell as damages for RTC's default under the lease. We address first the validity of RTC's repudiation of the lease, and then we turn to certain of the issues relating to the letter of credit.

II. THE VALIDITY OF RTC'S REPUDIATION OF THE LEASE AND ITS

Under 12 U.S.C. Sec. 1821(e)(1), the RTC has the authority to repudiate leases:

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

(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.

Section 1821(e)(2) governs the timing of repudiation:

The conservator or receiver appointed for any insured depository institution in accordance with subsection (c) of this section shall determine whether or not to exercise the rights of repudiation under this subsection within a reasonable period following such appointment.

When RTC repudiates a lease in accordance with these requirements, RTC is not liable for any damages other than contractual rent through the date of repudiation. The lessor has no claims for damages under an acceleration clause or other penalty provision under the lease. 12 U.S.C. Sec. 1821(e)(4); Resolution Trust Corp. v. Ford Motor Credit Corp., 30 F.3d 1384, 1387 (11th Cir.1994).

On appeal, RTC argues that the lower court misconstrued Sec. 1821(e) and that both the conservator and the subsequently appointed receiver had an independent right under the statute to repudiate a lease within a reasonable period of time. RTC argues that the repudiation in this case occurred within four months, i.e., the June 21, 1991, repudiation was less than four months after the March 1, 1991, appointment of Theresa Marble, New Pioneer's receiver. Liberty Bell argues that the district court's construction of Sec. 1821(e) was correct.

In Resolution Trust Corp. v. CedarMinn Bldg. Ltd. Partnership, 956 F.2d 1446 (8th Cir.) cert. denied, --- U.S. ----, 113 S. Ct. 94, 121 L. Ed. 2d 56 (1992), the Eighth Circuit held that the plain language of FIRREA grants independent rights of repudiation to RTC both in its capacity as conservator and as receiver of an institution. Therefore, even though RTC may succeed itself in the two roles, it retains the right to repudiate leases, regardless of whether it accepted the leases in its prior capacity. The CedarMinn court explained that:

Nowhere in the language of the statute is it stated or implied that the appointment of RTC as a conservator negates powers RTC would enjoy if it were later appointed a receiver of the same institution. Had Congress intended RTC's status as a conservator or a receiver to be mere artifice, it would have granted all duties, rights, and powers to the Corporation.

CedarMinn, 956 F.2d at 1450.

The Eighth Circuit also concluded that a conservator and receiver have independent reasonable periods of time in which to repudiate. Id. at 1451. The CedarMinn court found support for its interpretation in the legislative history, design and language of the statute as a whole. First, the CedarMinn court noted that the statute specifically articulates other situations in which the RTC could pursue an option only in its capacity as receiver, or only in its capacity as conservator, but not both.7 Id. at 1451-52 and n. 9 (setting forth such other situations). Second, the CedarMinn court found that the traditional rules of statutory construction indicated that the disjunctive "or" gives independent meaning to the words it separates, thus indicating independent rights of repudiation. Id. at 1452-53. Third, the Eighth Circuit noted that the legislative history of FIRREA indicates that the powers granted conservators and receivers under FIRREA were to parallel the powers granted conservators or receivers under the former law. Long established prior law granted to both conservators and receivers the independent right to repudiate contracts. Id. at 1453; see also id. at 1454-55 (against the background of prior law and practice in which a receiver often succeeded a conservator, Congress gave the right to repudiate to both conservators and receivers).

The CedarMinn court also recognized that the distinct missions of conservators and receivers necessitated that each retain an independent right to repudiate contracts. The conservator's mission is to conserve assets which often involves continuing an ongoing business. The receiver's mission is to shut a business down and sell off its assets. A receiver and conservator consider different interests when making the strategic decision whether or not to repudiate a lease. Id. at 1453-54.

We agree with and adopt the foregoing reasoning of the Eighth Circuit.8 We hold that a receiver and conservator have independent rights to repudiate. We also hold that each will ordinarily have an independent reasonable period of time to decide whether or not to repudiate a lease.9

In this case, the relevant period of time commenced with the February 28, 1991, appointment of New Pioneer's receiver. The announcement of the decision to repudiate was made less than four months later. Neither Financial Federal nor Liberty Bell argue on appeal that this three-month and three-week period was unreasonable; we conclude that such a period was reasonable in this case. See Franklin Financial v. Resolution Trust Corp., 53 F.3d 268, 272 (9th Cir.1995) (declining to find that 117-day period between appointment as receiver and announcement of repudiation was unreasonable under the circumstances); 1185 Ave. of Americas Assoc's v. Resolution Trust Corp., 22 F.3d 494, 498 (2d Cir.1994) (finding no genuine issue of material fact foreclosing summary judgment regarding whether ninety-day delay was unreasonable); Monument Square Assoc., Inc. v. Resolution Trust Corp., 792 F. Supp. 874, 878 (D.Mass.1991) (finding interim of three and a half months between appointment as receiver and disaffirmance not unreasonable and indicating that inquiry was fact specific).

Having concluded that the RTC's repudiation of the lease was valid,10 we readily conclude that there was no breach of the lease. It follows from 12 U.S.C. Sec. 1821(e)(4) that the damages for which RTC is liable for repudiating the lease are limited to the rent accruing before the effective date of repudiation. No rent accrued in this case because RTC paid rent through the date of repudiation.

Both Liberty Bell and Financial Federal argue on appeal that notwithstanding this court's determination with respect to repudiation, they have a right to the proceeds of the letter of credit. We address certain of these arguments below.

A. The Argument of Liberty Bell and Financial Federal that the Unconditional Irrevocable Letter of Credit Essentially Nullifies All Obligations Pursuant to the Underlying Contracts

Liberty Bell and Financial Federal each argue that the letter of credit was a clean, unconditional, and irrevocable letter of credit which made no reference to the lease or any default under the lease. The letter of credit simply required that the draft presented for payment "be accompanied by this letter and be noted as to its number, date, and amount on the reverse side." Thus, these parties argue, the fact that no default existed is immaterial to the determination of their rights to the proceeds of the letter of credit. We reject this argument for the following reasons. The unconditional draw has been made. Whether the draw was proper or not11 is moot at this point. Rather, the right to the proceeds of that letter, not the right to draw on the letter, is the issue now before the court.

Once the proceeds of a letter of credit have been drawn down, the underlying contracts become pertinent in determining which parties have a right to those proceeds. In other words, an irrevocable standby letter of credit does not nullify the obligations set forth in the underlying contracts. Rather the letter of credit serves, among other things, to shift the burden of litigation. A "letter of credit facilitates the underlying transaction ... by ensuring payment 'up front', thereby shifting the burden of litigation...." Insurance Co. of America v. Heritage Bank, N.A., 595 F.2d 171, 173 (3d Cir.1979). Absent the letter of credit, the burden of the litigation would have rested upon Financial Federal. To collect on its note and mortgage, it would have had to sue Liberty Bell/UTF, which in turn would implead RTC/Pioneer to enforce payment of the rent. However, the letter of credit shifts the burden of the litigation to the account party, here RTC/Pioneer. Thus, Financial Federal as beneficiary of the letter of credit holds the stake during litigation. Ground Air Transfer, Inc. v. Westates Airlines, Inc., 899 F.2d 1269, 1272 (1st Cir.1990) (Breyer, J.) (benefit of letter of credit is any "underlying contract dispute will be 'resolved while [the beneficiary of the letter of credit] is in possession of the money.' ") (citing Itek Corp. v. First Nat. Bank of Boston, 730 F.2d 19, 24 (1st Cir.1984)).12

In applying for the standby letter of credit, Old Pioneer agreed to bear the burden of litigation should a dispute regarding default arise. However, Old Pioneer did not waive any rights it had pursuant to the underlying contracts. Similarly, the letter of credit did not waive any rights UTF and Financial Federal had pursuant to the underlying contracts.13 See All Service Exportacao, Importacao Comercio, S.A. v. Banco Bamerindus Do Brazil, S.A., 921 F.2d 32, 35-36 (2d Cir.1990) (noting that injunction on a letter of credit was not the only remedy available to account party as it could proceed against beneficiary on underlying contract).14 We prefer for the court below to determine in the first instance the proper interpretation of the contractual obligations underlying the letter of credit, i.e., absent a default on the lease, which parties have valid claims to the proceeds.15

B. The Arguments of Liberty Bell/UTF and Financial Federal Pursuant to 12 U.S.C. Sec. 1821(e)(11) and (13).

Both Financial Federal and Liberty Bell argue that notwithstanding this court's determination that the repudiation was proper and valid, i.e., that no default occurred, they still have a right to the proceeds of the letter of credit under Sec. 1821(e)(11) and Sec. 1821(e)(13) which prohibit repudiation of security interests. Section 1821(e)(11) states:

No provision of this subsection shall be construed as permitting the avoidance of any legally enforceable or perfected security interest in any of the assets of any depository institution except where such an interest is taken in contemplation of the institution's insolvency or with the intent to hinder, delay, or defraud the institution or the creditors of such institution.

No provision of this subsection shall apply with respect to--

(A) any extension of credit from any Federal home loan bank or Federal Reserve bank to any insured depository institution; or

(B) any security interest in the assets of the institution securing any such extension of credit.

The appellees' argument is based on a misunderstanding of the principles involved. Sections (e)(11) and (e)(13) do not by themselves give Financial Federal or Liberty Bell an unconditional right to the proceeds of the letter of credit. This circuit's holding in Resolution Trust Corp. v. Ford Motor Credit Corp., 30 F.3d 1384 (11th Cir.1994), indicates as much:

Section 1821(e)(11) assures creditors and others with valid security interests that their valid secured claims will be recognized. But a secured creditor only has rights in the collateral equal to the amount of the creditor's claim. Once that claim is satisfied, the lien is of no further consequence.

Id. at 1387-88. Section 1821(e)(4) limits the damages under the lease to rents accrued before a valid repudiation. Id. Thus, appellees have no remaining claim pursuant to the lease. Id. The district court on remand will have to construe the underlying contractual obligations to determine whether either appellee has a claim to the proceeds of the letter of credit independent of and absent a default under the lease. See Part III.A., infra.16

The other issues raised on appeal by Liberty Bell and/or Financial Federal do not merit lengthy discussion. Both Financial Federal and Liberty Bell argue that 12 U.S.C. Sec. 1821(e) cannot be used to repudiate their rights to the letter of credit because RTC was not a party to the letter of credit as required by 12 U.S.C. Sec. 1821(e)(1)(A). Appellees' argument is meritless. As noted above, Old Pioneer was the account party to the letter of credit, and RTC stands in the shoes of Old Pioneer. Even if RTC as an account party could not repudiate the letter of credit under Sec. 1821(e), an issue we need not decide, RTC is not in any event seeking to repudiate the letter of credit. FHLB has already honored its independent obligation to Financial Federal and the proceeds of the letter of credit have been paid over pursuant thereto. To the extent that the proceeds of the letter of credit were to serve as damages under the lease, i.e., future rents, the appellees are not entitled to any of the proceeds of the letter of credit because the lease was properly repudiated and there are no remaining damages under the lease. Appellees obtain no independent benefit from Sec. 1821(e)(1)(A). The district court on remand will have to construe the underlying contracts to determine which parties have claims to the letter of credit proceeds independent of and absent a default under the lease.

Finally, Liberty Bell's constitutional challenges to RTC's repudiation are foreclosed by Resolution Trust Corp. v. Ford Motor Credit Corp., 30 F.3d 1384, 1388-89 (11th Cir.1994).

For the foregoing reasons, the judgment of the court below is reversed and the case is remanded for further proceedings not inconsistent with this opinion.

REVERSED and REMANDED.