U.S. Bank, Nat'l Ass'n v. Tara Retail Grp., LLC (In re Tara Retail Grp., LLC)
| Decision Date | 10 August 2021 |
| Docket Number | Adversary Proceeding No. 1:18-ap-00010,Case No. 1:17-bk-00057 |
| Citation | 634 B.R. 509 |
| Parties | IN RE: TARA RETAIL GROUP, LLC, Debtor. U.S. Bank, National Association, as Trustee for the Benefit of the Holders of COMM 2013-CCRE 12 Mortgage Trust Commercial Mortgage Pass-Through Certificates, Plaintiff, v. Tara Retail Group, LLC, Defendant, Cross-Plaintiff and Third-Party Plaintiff, v. COMM 2013 CCRE12 Crossings Mall Road, LLC and Wells Fargo Bank, N.A., Third-Party Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of West Virginia |
Robert Bastress, III, DiTrapano Barrett & DiPiero, Phillip Rodney Jackson, I, Law Office of P. Rodney Jackson, Sean P. McGinley, Charleston, WV, for Defendant, Cross-Plaintiff and Third-Party Plaintiff Tara Retail Group, LLC.
Paul Chronis, Duane Morris LLP, Elinor H. Murarova, Duane Morris, Chicago, IL, Meagen Eileen Leary, Duane Morris LLP, San Francisco, CA, Allison M. Midei, Duane Morris, LLP, Baltimore, MD, Timothy P. Palmer, Christopher Schueller, Buchanan Ingersoll & Rooney PC, Pittsburgh, PA, for Third-Party Defendants/Plaintiff.
Thomas H. Ewing, Steven L. Thomas, Kay Casto & Chaney PLLC, Charleston, WV, for Counter-Claimant/Defendant Tara Retail Group, LLC.
W. Bradley Sorrells, W. B. Sorrells, L.C., Charleston, WV, for Defendant Tara Retail Group, LLC.
This matter comes before the Court on the motion of U.S. Bank, N.A., as Trustee for the benefit of the holders of COMM 2013-CCRE12 Commercial Mortgage Pass-Through Certificates ("U.S. Bank"), Wells Fargo Bank, N.A. ("Wells Fargo"), and COMM 2013 CCRE12 Crossings Mall Road, LLC ("COMM 2013") (collectively, "the Bank"), for summary judgment in their favor on Counterclaim and Third-Party Plaintiff Tara Retail Group, LLC's ("Tara") Third-Party Complaint and Second Amended Counterclaim pursuant to Rule 56 of the Federal Rules of Civil Procedure.1 Tara contends that the Bank breached a fiduciary duty owed to it by withholding funds for the requested repair of a culvert bridge. The Bank maintains that a fiduciary relationship between a creditor and debtor is not generally recognized in West Virginia, and that one did not exist here. The parties briefed the motion and counsel gave oral arguments on June 23, 2021. At the conclusion of the hearing, the Court requested additional briefing on several issues and took the matter under advisement.2 The parties filed supplemental briefs3 and the matter is now ripe for resolution.4 For the reasons set forth below, the Court will grant the Bank's motion for summary judgment and dismiss the remaining Counts III and VI.
Tara is a Georgia limited liability company. AP ECF 72-2, p. 6. Its two members are William and Rebecca Abruzzino. Id. Tara owns the Crossings Mall in Elkview, West Virginia, a multitenant commercial property spanning about 200,000 square feet. AP ECF 117, p.2. There is only one public access point—a culvert bridge over Little Sandy Creek—to the Crossings Mall. Id. This litigation arises out of the destruction of that bridge due to a catastrophic flood.
The lending relationship between the parties began in September 2013, when non-party UBS Real Estate Securities, Inc. ("UBS") lent Tara $13,650,000.00. AP ECF 117, p.2. The Bank describes the loan as a commercial mortgage-backed security ("CMBS") loan, a specialized type of loan secured by commercial property, contributed to a securitization (i.e., a trust), and serviced by various entities. This was Mr. Abruzzino's third CMBS loan. AP ECF 220, Ex. O, pp. 55-56. In connection with the loan, Tara executed several documents in UBS's favor: (i) a $13,650,000.00 Promissory Note; (ii) a Loan Agreement; (iii) an Assignment of Leases and Rents ("ALR"); (iv) a Cash Management Agreement; and (v) a Deed of Trust and Security Agreement pledging the Crossings Mall as collateral (collectively, the "Loan Documents"). UBS eventually assigned the loan to U.S. Bank, who ultimately assigned the loan to COMM 2013, the current holder. AP ECF 117, pp. 2-3. Wells Fargo is the master servicer on the loan and administers various escrow accounts. Id. at 3.
Pursuant to the Loan Documents, the Crossings Mall tenants made payments directly to Wells Fargo, who then segregated those funds into various escrow accounts. Id. One of these was the Capital Expenditure Account, which received monthly deposits of $3,493.62. AP ECF 72-1, Loan Agreement, Section 6.4.1. The Loan Agreement earmarked these funds for capital expenditures in the approved annual budget or for capital expenditures expressly approved by the lender, the approval for which "shall not be unreasonably withheld or delayed." Id. Section 6.4.2 of the Loan Agreement provided a set of conditions Tara needed to satisfy for a disbursement of the capital expenditure funds, including the lack of an event of default that remains outstanding and submitting a certificate signed by an officer confirming that all expenditures requested to be funded have been completed. Id. at Section 6.4.2.
This controversy centers around a disbursement request that was not fulfilled. In January 2016, Tara's property manager emailed Wells Fargo to request $24,000.00 to replace the culvert and repair a dirt cliff behind a tenant's store. AP ECF 72-3, p. 1. The email warned that "[i]f these issues are not resolved immediately the only entrance to the center could collapse." Id. Though Tara requested a disbursement from Wells Fargo, the Loan Agreement required Tara to provide an Officer's Certificate that the work had been completed before the Bank was obligated to release Capital Expenditure Funds. AP ECF 72-1, Loan Agreement, Section 6.4.2. Tara did not furnish an Officer's Certificate and admitted that it completed no repairs before requesting disbursement of the Capital Expenditure Funds. AP ECF 117, p. 7. Ultimately, Wells Fargo did not disburse the requested funds.
In June 2016, a catastrophic "one-in-a-thousand year" flood swept through West Virginia and destroyed the bridge, rendering the Crossings Mall inaccessible to the public for over a year. AP ECF 117, p. 3; See also https://www.usatoday.com/story/news/2016/06/24/2-dead-floodssweep-west-virginia/86329316/ (last accessed July 29, 2021). Tara failed to make required loan payments after the flood. AP ECF 72-2, p. 8.
On September 28, 2016, U.S. Bank filed a complaint against Tara in the United States District Court for the Southern District of West Virginia alleging breach of contract under the Loan Agreement. AP ECF 1. In response, Tara filed its defenses, answers, and counterclaim, as amended. AP ECF 14, 28. After the Bank filed a foreclosure notice, Tara filed Chapter 11 bankruptcy with this Court on January 24, 2017. Tara then moved to refer the counterclaim from the district court to the bankruptcy court of the Southern District of West Virginia, as Tara listed the counterclaim as an asset of the estate on Tara's Schedule A/B. AP ECF 55. On March 12, 2018, the district court referred the counterclaim to the Bankruptcy Court for the Northern District of West Virginia. AP ECF 66. On July 20, 2018, Tara filed its Third-Party Complaint and Second Amended Counterclaim, asserting the following claims against the Bank: (I) Breach of Contract, (II) Breach of Duty of Good Faith and Fair Dealing, (III) Breach of Fiduciary Duty, (IV) Tortious Interference with Business Relationships, (V) Punitive Damages, (VI) Action for Accounting, and (VII) Declaratory Judgment. AP ECF 72. The Bank then moved to dismiss the counterclaim. AP ECF 86. By Memorandum Opinion and Order of this Court, all claims against the Bank except for two were dismissed: Count III (breach of fiduciary duty) and Count VI (action for accounting).5 AP ECF 117, 118. These two counterclaims remain before the Court. The Bank has moved for summary judgment and asks the Court to enter judgment in its favor on Counts III and VI in the Third-Party Complaint and Second Amended Counterclaim. The Bank asserts (1) that Tara's breach of fiduciary duty claim is barred by a contractual liability limitation, (2) that Tara cannot prove the essential elements of its breach of fiduciary claim as it cannot prove that the parties had a special relationship or that the alleged breach of any fiduciary duty caused Tara any harm, and (3) that Tara cannot prove the essential elements of its claim for an accounting as Tara cannot prove that the parties have a special relationship or that the Bank has not accounted for amounts due and owing under the loan at issue.
Normally, the recitation of the Court's jurisdiction in such matters is straightforward. Such is not the case here. Even though this matter is pending in the United States Bankruptcy Court for the Northern District of West Virginia, Tara initially moved to refer its counterclaim against the Bank to the United States Bankruptcy Court for the Southern District of West Virginia. The Bank opposed that referral, and the United States District Court for the Southern District of West Virginia ultimately entered an Order referring this case to this Court in the Northern District, the Court where Tara's main bankruptcy case is pending. There were no conditions or qualifications to that referral order.
In its supplemental briefing Order, this Court asked the parties to brief three additional issues:
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