In re Tara Retail Group, LLC, 607 B.R. 839 (Bankr. Dist. W. Va. 2019)
In September 2013, Tara Retail Group, LLC (“Debtor”) purchased a multi-tenant commercial property known as The Crossings Mall. In conjunction with the purchase of this property, the Debtor entered into a Loan Agreement with UBS Real Estate Securities, Inc. The Debtor secured its repayment by executing a Deed of Trust and an Assignment of Leases and Rents (the “Deed of Trust”). UBS Real Estate Securities, Inc. later assigned the Loan Agreement and associated documents to the Defendants who also serviced the loan and administered the capital expenditures account. The Deed of Trust and associated loan documents assigned the rights and interest in the subject leases and granted the Defendants the right to receive and collect all rents; however, the Deed of Trust expressly limited the assumption of duties. The relevant provision of the Deed of Trust stated: “Assignment shall not be construed to bind [the Defendants] to performance of any of the covenants, conditions or provision contained in any Lease or Lease Guaranty or otherwise impose any obligation upon [the Defendants].”
In June 2016, significant rainfall and flooding washed away the only bridge that provided the public access to The Crossings Mall. The tenants of The Crossings Mall brought cause of action against the Defendants for losses they sustained from the washed-out bridge. The Tenants allege that the Defendants assumed liability for the maintenance of the common areas, including the bridge, through the absolute and unconditional assignment of leases and rents. The Defendants filed a motion to dismiss for failure to state cause of action.
The United States Bankruptcy Court for the Northern District of West Virginia granted Defendants’ motion to dismiss. The court concluded that the Deed of Trust, as additional security for loan, did not cause Defendants to assume liability for maintaining the mall and that receiving rental payments from tenants did not remove the limitation on assumption of duties. The court also ruled that even if Defendants had assumed a contractual obligation to Tenants, the allegations in the complaint did not state plausible claim for breach of contract and merely asserted conclusory allegations.
Contributed by Jeff Dutson of King & Spaulding LLP
