In re: RGN-Group Holdings, LLC et al.
Filing
36
OPINION. Signed by Judge Richard G. Andrews on 9/28/2022. Associated Cases: 1:21-cv-01430-RGA, 1:21-cv-01476-RGA(nms)
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 1 of 28 PageID #: 7848
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INRE:
Chapter 11
RGN-GROUP HOLDINGS, LLC, et al.,
Case No. 20-11961-BLS
(Jointly Administered)
Reorganized Debtors.
RGN-GROUP HOLDINGS, LLC, et al,
Appellants and Cross-Appellees,
Civ. No. 21-1430-RGA
Civ. No. 21-1476-RGA
V.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA,
Appellee and Cross-Appellant.
OPINION
Eric W. Pinker (argued), Greg Brassfield, Bennett Hampilos, Lynn Pinker Hurst & Schwegmann,
LLP, Dallas, TX; Ricardo Palacio, Ashby & Geddes, P.A., Wilmington, DE, attorneys for
appellants and cross-appellees the Reorganized Debtors.
Charles S. Kelley (argued), Michael P. Lennon, Jr., Susan L. Alkadri, Mayer Brown, Houston,
TX; David W. Carickhoff, Bryan J. Hall, Archer & Greiner, P.C., Wilmington, DE, attorneys for
appellee and cross-appellant Teachers Insurance and Annuity Association of America.
September
2f, 2022
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 2 of 28 PageID #: 7849
~T1~
TATES DISTRICT JUDGE:
This matter arises from the chapter 11 cases ofRGN-Group Holdings, LLC and certain
affiliates ("Debtors"). At issue in this appeal is a commercial lease agreement (A1391-A1454) 1
(as amended, the "Lease") between Teachers Insurance and Annuity Association of America
("TIAA" or "Landlord"), as landlord, and Reorganized Debtor H Work, LLC ("H-Work"), as
tenant. In 2014, H-Work assigned the lease to RGN-Dallas IX, LLC ("RGN" or "Tenant"), a
special purpose entity and affiliate ofH-Work. Following the assignment, RGN entered into two
lease amendments with TIAA. Thereafter, RGN breached the Lease. TIAA terminated the Lease
and filed a proof of claim for damages against the Debtors in the amount of $5,770,809.97, which
was capped at $5,589,547.48 pursuant to 11 U.S.C. § 502(b)(6). 2 The Debtors objected to TIAA's
proof of claim on the basis that Debtor H-Work was not a party to either of the two lease
amendments, having unilaterally assigned the Lease to non-debtor affiliate RGN.
Following trial, the Bankruptcy Court issued an order (Bankr. DJ. 1868; A0999-A1011)
(the "Order") and accompanying decision, In re RGN-Group Holdings, LLC, 2021 WL 4203336
(Bankr. D. Del. Sept. 15, 2021) (the "Opinion") which sustained, in part, and overruled, in part,
the Debtors' objection to TIAA's claim, and allowed TIAA's claim in the reduced amount of
$3,380,155.37. Before the Court is the Debtors' Appeal from the Order (Civ. No. 21-1430-RGA,
D.I. 1) along with TIAA's Cross-Appeal (Civ. No. 21-1746-RGA, D.I. 1). For the reasons set
1
The appendix to Debtors' opening brief in support of the Appeal (Civ. No. 21-1430-RGA, D.I.
25-27) is cited herein as "A_," and the appendix to TIAA's answering brief (id., D.I. 30), is cited
herein as "TA_." To avoid confusion, the appendix to TIAA's opening brief in support of its
Cross-Appeal (Civ. No. 21-1476-RGA, D.I. 18-20) is cited herein as "TIAA "
2
Section 502(b)(6) of the Bankruptcy Code imposes certain limitations on the allowed amount of
a landlord's claim for breach of a nonresidential real property lease in bankruptcy. See 11 U.S.C.
§ 502(b)(6). The section 502(b)(6) cap is not relevant here because the amounts sought by TIAA
in its claim (including the amounts sought in TIAA's Cross-Appeal) are within the cap, and
Debtors do not contend otherwise.
2
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 3 of 28 PageID #: 7850
forth herein, the Order is affirmed.
I.
BACKGROUND
A.
The Lease
The Lease at issue is dated October 12, 1987, and was amended nine times. Metropolitan
Life Insurance Company ("MetLife") is the predecessor in interest to TIAA. "ESP - Executive
Services Plus of Texas, Inc." ("ESP") is the predecessor in interest to H-Work. MetLife and ESP
entered into the original Lease for a building known as Three Lincoln Centre, which is one of
three office towers in the five-building Lincoln Centre complex. (See Al555 § A).
The parties contemplated "Lease Term" extensions from the outset. Section 3(a) of the
Lease ("Lease Term") provides:
This Lease shall continue in force during a period beginning on the Commencement Date
and continuing until the expiration of the Lease Term, unless this Lease is sooner
terminated or extended to a later date under any other term or provision hereof.
(A1398 § 3(a)). The Commencement Date was the earlier of the date the Tenant actually occupied
the Premises or December 1, 1987. (A1395 § l(d)).
The Lease sets forth the Landlord's contractual remedies in the event Landlord terminates
the Lease for an Event of Default. Section 25(d) provides:
In the event that Landlord elects to terminate this Lease, then, notwithstanding such
termination, Tenant shall be liable for and shall pay to Landlord the sum of all Rents and·
other indebtedness accrued to the date of such termination, plus, as damages, an amount
equal to the total of (i) the cost of recovering the Premises, (ii) the cost of removing and
storing Tenant's and other occupant's property located therein, (iii) the costs ofreletting the
Premises (including, without limitation, brokerage commissions), (iv) the cost of
decorations, repairs, changes, alterations, and additions to the Premises whether
accomplished in one or more steps or phases, (v) the cost of collecting such amounts from
Tenant hereunder, and (vi) any other sums of money or damages that may be owed to
Landlord as the result of default by Tenant or the exercise of Landlord's rights at law or in.
equity.
(A1418 § 25(d)).
The original parties amended the Lease four times. (See Al555 § A). HQ Global
3
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 4 of 28 PageID #: 7851
Workspaces LLC ("HQ"), which became H-Work, succeeded to the interest of ESP under the
Lease, and HQ and MetLife executed a Fifth Amendment to the Lease. (See id. §§ B, C; see also
A0678-A0682 ("Stipulated Facts") at A0679 19). Pursuant to the Fifth Amendment, HQ
relocated to approximately 17,485 square feet of Rentable Area (the "Current Premises") located
on the 12th Floor of the Three Lincoln Centre Building. (See Al555 § C).
Thereafter, TIAA purchased Lincoln Centre and succeeded to the interest of MetLife. (See
id.§ D). TIAA and HQ executed a Sixth Amendment to the Lease in 2007 (see Al523-A1527),
followed by a Seventh Amendment (see A1538-A1550) on October 26, 2012. The Seventh
Amendment provided for a Lease Term that was set to expire on July 31, 2019. (Al53912).
B.
The Assignment
Effective as of June 30, 2014, while the Seventh Amendment was in effect, H-Work
unilaterally assigned the Lease to special purpose entity RGN, and RGN assumed the
corresponding obligations and liabilities under the Lease. (Al591-A1594; A0680112). The
notice of assignment was presented to TIAA by H-Work as having already occurred (See A1590A1591). It is undisputed that H-Work did not seek or obtain a release from its contractual privity
in connection with the assignment. It is further undisputed that, at the time of the assignment, and
at all relevant times thereafter, H-Work and RGN were affiliates under common control. (See
TA075-TA076; A0928-A0981 ("8/13/21 Tr.") at A0944:8-20)). Michael J. Osburn, H-Work's
witness at trial, had executed the assignment in 2014 on behalf of both H-Work, as assignor, and
its affiliate, RGN, as assignee, in his capacity as the "Authorized Person," an official role he
maintains to date for both these entities, as well many other entities under parent company Regus.
(See A1591-A1592; see also 8/13/21 Tr. at A0941 :1-A0942:7). The assignment effectuated a
Regus policy that each commercial lease be held by a single special purpose entity or special
purpose vehicle. (8/13/21 Tr. at A0940:7-20; A0944:25-A0945:5).
4
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 5 of 28 PageID #: 7852
C.
The Eighth Amendment
On July 26, 2019, TIM and RGN executed an Eighth Amendment to the Lease, which
extended the term of the Lease until July 31, 2020. (Al 551-Al 552). Again, Mr. Osburn in his
capacity as Authorized Person executed this Eighth Amendment for Tenant. (A1554). The Eighth
Amendment to the Lease was a bridge pending conclusion of negotiations for and completion of a
move to a larger, upgraded space in One Lincoln Centre, within the same office complex
("Relocation Premises"). (8/13/21 Tr. at A0948:25-A0949:l). All parties acknowledged they
understood that RGN would remain in its Current Premises in Three Lincoln Centre until its
relocation to One Lincoln Centre took place, whenever that occurred. (A0683-A0927 ("8/12/21
Tr.") at A0753:15-23; 8/13/21 Tr. at A0946:17-22; A0957:4-11).
D.
The Ninth Amendment
On December 19, 2019, five months after executing the Eighth Amendment and more than
six months before the extended Lease term was set to expire, TIM and RGN amended the Lease
for a ninth time (see A1555-Al590) ("Ninth Amendment"). As expected, this Ninth Amendment
to the Lease provided for an extension of the Lease Term, and, after a build out period, a move to
a larger, upgraded space in One Lincoln Centre. (Id.) The Ninth Amendment was also executed
by Mr. Osburn. The Ninth Amendment extended the Lease Term per section 2: "The Lease Term ·
is extended to expire on the last day of the one hundred fifty-sixth (156th) full calendar month
following the Relocation Date." (Al556 § 2 (Lease Term)). Upon occurrence of the Relocation
Date, as defined, RGN would relocate within the complex from the Current Premises in Three
Lincoln Centre to the larger, updated Relocation Premises in One Lincoln Centre and pay higher
rent over the remaining 156-month term of the Lease. (Al555 § H; A1556-A1558 §§ 3-4;
Stipulated Facts at A0680). Prior to the Relocation Date, RGN would continue to occupy and pay
the existing monthly rent for the current space in Three Lincoln Centre. (A1556-A1558).
5
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 6 of 28 PageID #: 7853
Upon execution of that Ninth Amendment, TIAA paid all brokerage commissions totaling
$2,006,910.17. (A0875:1 l-A0876:11). TIAA moved two tenants out of the Relocation
Premises-Allstate and Entos Design, Inc. ("Entos")-to other space in the Lincoln Centre
campus, which required building out new comparable spaces for those tenants at a combined cost
of $1,688,009.79, and a third tenant that had to move from the Relocation Premises chose to
terminate its lease. (A0760:6-15; A0871 :16-22; A0872:3-9). Finally, TIAA renovated the One
Lincoln Centre lobby with Class A finishes, including demolishing and rebuilding public
restrooms in a different lobby location, at a cost of $2,056,169.57. (A1624-A1625). Not later
than October 7, 2020, Landlord delivered the Relocation Premises to Tenant. (TA052-TA054).
E.
The Breach and Termination
On April 21, 2020, TIAA's property manager, Cushman & Wakefield ("CW"), sent an
email notifying RGN that the second and third floors of the Relocation Premises were vacant and
ready for RGN to commence its build-out of the space. RGN took no actions to complete its
build-out of the space and move in. RGN was notified in August 2020 that the first floor was
available, and that RGN could take possession of that space. Again, RGN made no attempt to
move into the space. It is undisputed that RGN was under no obligation to move into any portion
of the Relocation Premises until the Relocation Date-the full space was made available to RGN
on or about October 7, 2020, making the Relocation Date February 19, 2021 under the terms of
the Ninth Amendment. (A1556-A1557 § 3(c)). It is also undisputed that the Relocation Date, as
defined in the Ninth Amendment to the Lease, never occurred.
In both August and September 2020, RGN failed to timely pay the base rent then due
under the Lease. (Stipulated Facts A0681
,r 19).
Though not required, on September 10, 2020,
TIAA inquired with RGN as to the unpaid August and September rent and other operating
expenses, and RGN subsequently paid its August and September 2020 rent. (Id.) It is undisputed
6
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 7 of 28 PageID #: 7854
that in October 2020, RGN breached the Lease again by failing to timely pay its base rent on the
10th day of the month and before expiration of the five (5) calendar day grace period allowed by
the Lease. (Id.
,r 20).
RGN' s failure to pay its base rent was an Event of Default under the Lease.
(A1417 § 25(a)). As a result of this breach, TIAA exercised its right to terminate the Lease on
October 16, 2020 (the "Termination Date"). (Id).
On November 2, 2020, TIAA filed a Petition for Eviction in the case captioned Teachers
Insurance and Annuity Association ofAmerica v. RGN-Dallas IX, LLC, Case No. JE-20-01431-A.
The Justice of the Peace Court issued an eviction order on November 16, 2020. (Al612). Debtors
assert that, on May 6, 2021, RGN filed suit against TIAA asserting claims for declaratory relief,
breach of contract, wrongful termination of the Lease, and wrongful eviction pursuant to Section
93.002 of the Texas Property Code, seeking recovery from RGN and its guarantor. (D.I. 24 at 16).
F.
The Proof of Claim and Order
_TIAA filed a proof of claim in the chapter 11 cases, which was later amended (A0669A0677), and Debtors objected (A0232-A0485), seeking disallowance ofTIAA's claim in its
entirety. Debtors contended that any privity of contract between H-Work and TIAA terminated
upon execution of the Eighth Amendment to the Lease and therefore H-Work cannot be liable as a
matter of law for damages arising from any breach of the Lease after the expiration of the Seventh
Amendment. Debtors asserted that H-Work never agreed to be responsible for any of the
obligations under the Eighth or Ninth Amendments, which were negotiated and entered into
between TIAA and RGN. Alternatively, Debtors asserted that RGN never breached the Ninth
Amendment because TIAA terminated the Lease months before the Relocation Date that would
have triggered RGN' s performance obligations thereunder. TIAA countered that, under black
letter law in Texas, a tenant remains obligated to the landlord under a commercial lease,
notwithstanding assignment, in the absence of the landlord granting a release to the tenant. Here,
7
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 8 of 28 PageID #: 7855
the assignment of the Lease from H-Work to RGN occurred without TIM's consent, and TIM
never released H-Work from any of its obligations under the Lease. TIM argued therefore that _
privity of contract between it and H-Work was unaffected by the assignment and persisted through
the Eighth and Ninth Amendments to the Lease.
The Bankruptcy Court determined that H-Work remained in contractual privity
notwithstanding the assignment, and that the Lease was breached by RGN. In re RGN-Group
Holdings, 2021 WL 4203336 at *5-6. The Bankruptcy Court allowed the majority of the damages·
sought in TIM's claim, including unpaid rent in the amount of $19,720.44 (id. at *7), partial
brokerage commissions in the amount of $1,672,425.14 (id.), and tenant relocation expenses in the
amount of $1,688,009.79 (id. at *8).
The Appeal is fully briefed (Civ. No. 21-1430-RGA, D.I. 24, 29, 32), and the CrossAppeal is fully briefed as well. (Civ. No. 21-1476, D.I. 17, 21, 23).
II.
JURISDICTION
Appeals from the Bankruptcy Court to this Court are governed by 28 U.S.C. § 158.
District courts have jurisdiction to hear appeals "from final judgments, orders, and decrees." 28
U.S.C. § 158(a)(l). Disallowance of a proof of claim (or portion thereof) is a final order as it
resolves the dispute between the claimant and the debtor. In re Future Energy Holdings, 2016
WL 4925052, at *2 (D. Del. Sept. 14, 2016); In re Residential Capital LLC, 563 B.R. 477,485
(S.D.N.Y. 2016).
III.
STANDARD OF REVIEW
In conducting its review of the issues on appeal, this Court reviews the Bankruptcy Court's
findings of fact for clear error and exercises plenary review over questions of law. See American
Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). "A
finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on
8
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 9 of 28 PageID #: 7856
the entire evidence is left with the definite and firm conviction that a mistake has been
committed." United States v. US. Gypsum Co., 333 U.S. 364, 395 (1948). The Court must "break
down mixed questions of law and fact, applying the appropriate standard to each
component." Meridian Bank v. A/ten, 958 F.2d 1226, 1229 (3d Cir. 1992).
IV.
ANALYSIS
A.
H-Work Remains Jointly and Severally Liable for Obligations Under the
Lease Pursuant to Well-Settled Texas Law
1.
H-Work Remained in Contractual Privity Following the Assignment
Section 16(c) of the Lease provides: "No assignment or subletting, whether or not with
Landlord's consent, shall ever relieve Tenant of any liability hereunder." (A1409 § 16(c)). Under
Texas law, "a party cannot escape its obligations under a contract merely by assigning the contract_
to a third party. Thus, as a general rule, a party who assigns its contractual rights and duties to a
third party remains liable unless expressly or impliedly released by the other party to the contract."
Seagull Energy E&P, Inc. v. Eland Energy, 207 S.W.3d 342, 346-47 (Tex. 2006) (internal
citations omitted). Here, the Lease expressly preserves the assignor's liability, and TIAA never
released H-Work.
2.
H-Work's Liability Is Not Limited to the Obligations Existing as of the
Seventh Amendment
Debtors argue that that the Bankruptcy Court erred in finding that H-Work remained in
contractual privity following the assignment and the Eighth Amendment in 2019. Debtors assert,
"Texas law dictates that an assignor is not liable for new obligations an assignee unilaterally
assumes after the contract's assignment." (Civ. No. 21-1430-RGA, D.I. 32 at 1). According to
Debtors, "The assignor's continuing obligations are limited to those the assignor agreed to be
bound by-not new obligations later assumed by a different entity." (Id.) Debtors purport to cite
the "only authorities that delineate the extent of an assignor's liability following assignment under
9
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 10 of 28 PageID #: 7857
Texas law"---cases which, according to Debtors, "establish that at the time of assignment, there
are certain defined rights and obligations," and an assignor's continuing liability is limited "to
only those specific obligations it assumed." (Id. at 3). According to TIAA, the cases cited by
Debtors do not support their argument, and accepting Debtors' argument would mean that an
assignor could never remain responsible for a lease if any change is implemented to the lease. I
agree with TIAA. 3
Debtors' argument rests on selectively quoted dicta from a handful of Texas cases-
NextEra, Potts, 718 Associates, and State Fiduciary Mortgage-cases that do not in any way
address the central issue of this appeal: whether an assignor of rights under a lease remains liable
under a subsequently amended lease where the assignee has exercised rights that increase the
assignor's liability.
For example, Debtors quote the NextEra case,4 in which the court stated:
Generally, the assignor of a contract remains liable for the obligations he originally
assumed, even after the contract is assigned. In contrast, the assignee of a contract is not
responsible for the assignor's obligations unless he expressly or impliedly assumes them.
NextEra Retail ofTex., LP v. Inv'rs Warranty ofAm., Inc., 418 S.W.3d 222, 226-27 (Tex. App.Houston [1st Dist.] 2013, pet. denied) (emphasis supplied by Debtors) (citation omitted). Debtors
emphasize the language "originally assumed." This language, however, is dicta. The case
concerned the liability of an assignee, not an assignor. Which obligations were "originally
assumed" was not at issue in the case and had no bearing on the court's ultimate holding.
Moreover, no subsequent case cites NextEra for the proposition that the assignor's liability is
limited to the obligations "originally assumed." Rather, NextEra is cited for the proposition that
3
According to counsel at oral argument, not only is there no Texas case dealing with a factual
scenario at all analogous to the facts here, there is no case from any other jurisdiction with an
analogous factual scenario.
4
At oral argument, when I asked Debtors for their best case, counsel cited NextEra.
10
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 11 of 28 PageID #: 7858
an assignee does not take on liability for obligations under a contract unless expressly or impliedly
assumed.
Next, Debtors quote the Jones case, which involved a claim for a breach of a patent rights
agreement. The court noted, "Generally, the assignor of a contract remains liable for performance
of the obligations which he assumed therein, even after it is assigned." Jones v. Cooper Indus.,
Inc., 938 S.W.2d 118, 124 (Tex. App.-Houston [14th Dist.] 1996, writ denied) (citing Potts v.
Burkett, 278 S.W. 471,473 (Tex. App.-Eastland 1926, no writ)). The remainder of the
paragraph from which the quote is taken states:
The assignee of a contract is not bound to perform the assignor's obligations under the
contract unless they are expressly or impliedly assumed by the assignee. To determine
[assignee] Cooper's liability, we must examine whether Cooper expressly or impliedly
assumed the royalty obligation under the [agreement].
Id. (citations omitted). Like NextEra, the issue was what obligations the assignee assumed-not
whether the assignor remained liable under an agreement where an assignee exercised rights under
the Lease which increased the assignor's liability. Id. at 124.
Similarly, Debtors quote 718 Associates, 5 in which the court stated:
When the assignor conveys its entire interest, without retaining any reversionary interest,
the assignee becomes a tenant in place of the original lessee and is in privity of estate and
contract with the lessor. The assignment destroys the privity of estate between the lessor
and the original lessee.· However, the original lessee's liability on the original contract
remains unless expressly released by the lessor. The form of the instrument is not
controlling. An instrument may purport to be an "assignment," but will be construed as a
sublease if the assignor retains any reversionary interest.
718 Associates, Ltd. v. Sunwest NOP., Inc., I S.W.3d 355,361 (Tex. App.-Waco 1999, pet.
denied) (citations omitted). This quote, addressing an assignor's liability on the "original
5
At oral argument, when I asked TIAA for its best case, counsel cited 718 Associates, relying
upon a different passage, where the Court stated, "[T]he effect of an assignment can be limited
only by exceptions, reservations, conditions, or restrictions contained therein." 1 S.W.3d at 365.
This quotation concerns the rights of an assignee and does not help.
11
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 12 of 28 PageID #: 7859
contract," is not clarified or explained by the court and had nothing to do with the holding of the
case. In 718 Associates, a landlord challenged an assignee's right to exercise a 35-year lease
extension. Id. The issue before the court in 718 Associates was whether the assignee (after
several assignments) was an assignee, or merely a sublessee. The focus of the court's analysis was
whether the subsequent assignment of a lease was a "true assignment" of the lease-conveying the
entire "term" of the lease without retaining any reversionary interest-or whether it was merely a
sublease. Id. at 360-62. Again, the original tenant/assignor's liability was not at issue.
In sum, I agree with TIAA that the language relied upon by Debtors in these cases is, at
best, used loosely by those courts and, in any event, is dicta that does not lead me to a conclusion
different than that reached by the Bankruptcy Court.
Debtors further rely on State Fiduciary Mortgage, in which the court stated, "An assignee
obtains only the right, title, and interest of his assignor at the time of his assignment, and no more.
Accordingly, an assignee may recover only those damages potentially available to his assignor."
State Fid Mortg. Co. v. Varner, 740 S.W.2d 477,480 (Tex. App.-Houston [1 st Dist.] 1987, writ
denied) (citations omitted). Debtors present an analogy based on the emphasized language: "Just
as the assignee can.hot receive more rights than the assignor possessed, the assignor's continuing
liability is limited similarly to only those specific obligations it assumed." (Civ. No. 21-1430RGA, D.I. 24 at 20). I disagree that this "basic concept remains true in the context of the Lease."
(Id. at 17). Here, the pre-existing rights in the Lease existed at the time of assignment, and were
thus transferred at assignment. RGN had the right to extend the Lease Term, and an inherent right
to amend the Lease. Not only is it standard in the industry, but based on the history of the Lease,
it was common for Lease Amendments to extend the Lease Term-as occurred in the First,
Second, Fourth, Fifth, Sixth, Seventh, Eighth, and Ninth Amendments. (See A1456 § 4; A1472 §
3; A1496 § 4; A1505 § 3; A1524 § 3; A1539 § 2; Al552 § 2; A1556 § 2). Nor was it uncommon
\
12
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 13 of 28 PageID #: 7860
to change the amount of leased space-as occurred in the Second, Fifth, and Ninth Amendments.
(See A1471, A1472 § 4; A1505 § C; Al555, Recital H). Similarly, the Seventh Amendment
granted RGN a right of first notice to additional space. · (Al 540 § 9). Amendments to the Lease
also relocated the leased premises-as seen in the Fifth and Ninth Amendments. (A1505 § C;
Al506 § 4; A1555-56, Recital Hand§ 3).
Debtors further cite the basic principle of contract law that there must be a meeting of the
minds to form a contract, arguing that H-Work and TIAA never had a "meeting of the minds" on
any contract following expiration of the Seventh Amendment. (Civ. No. 21-1430-RGA, D.I. 24 at
21). But Debtors cite no Texas law in support of their proposition that a new meeting of the minds
is required in order for an assignor to remain liable under privity of contract.
In sum, Debtors' argument that a lease assignor can only be liable for the particular
obligations in existence as of the assignment does not find support in any lease assignment cases
upon which they rely, and I find no error in the Bankruptcy Court's conclusion.
3.
The Bankruptcy Court Did Not Conflate H-Work's Argument with the
Material Change Doctrine
Debtors briefly argue that the Bankruptcy Court erroneously "conflated" H-Work's
"assumption of obligations" argument with the "material change doctrine." (See Civ. No. 211430-RGA, D.I. 24 at 22-24). The material change doctrine is a common law doctrine that
insulates an assignor from liability when the assignee and its contractual counterpart (i.e., the
landlord) materially change the lease's terms.
The Bankruptcy Court explained that, "The Debtors place significant weight on the
holding in NextEra, which they suggest limit an assignor's liability to those 'obligations he
originally assumed"'; that Debtors further posited that, since H-Work did not sign anything
beyond the Seventh Amendment, H-Work's obligations under the Lease expired in 2019 when the
13
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 14 of 28 PageID #: 7861
five-year term of the Seventh Amendment concluded; and that, "In effect, the Debtors assert that
the material change doctrine should operate to permit the Court to infer or impose a release for HWork where none was formally provided by the landlord." In re RGN-Group Holdings, 2021 WL
4203336 at *5-6. Debtors argue that the Bankruptcy Court misunderstood their argument and
erroneously applied the material change doctrine, which has not been adopted by Texas courts.
(Civ. No. 21-1430-RGA, D.I. 24 at 22-23). "Debtors' argument, which is based in Texas law, is a
simpler one: ifH-Work never assumed the obligations in the Eighth and Ninth Amendments, HWork cannot be liable for an assignee's breach of those obligations." (Id. at 23).
The Bankruptcy Court's decision as to H-Work's liability rested on its conclusion that HWork "[r]emain[ed] in Contractual Privity with TIAA" when it assigned the Lease to RGN
without a release from TIAA. In re RGN-Group Holdings, 2021 WL 4203336 at *5-6. As
previously discussed, I reject H-Work's challenge to that conclusion. The parties agree that the
material change doctrine is not recognized under Texas law. 6 (Civ. No. 21-1430-RGA, D.I. 24 at
21-24 & n.10; id., D.I. 29 at 27). Therefore, neither the Eighth nor the Ninth Amendments to the
Lease implicate this doctrine. I find no error in the Bankruptcy Court's brief discussion of the
material change doctrine, in which the Bankruptcy Court expressly stated that the doctrine "does
not appear to have been adopted by Texas courts." Id. at *6.
Finally, H-Work argues that the Bankruptcy Court erroneously disregarded corporate
formalities because the Opinion notes that H-Work and RGN remained under common corporate
6 Debtors'
argument could be rephrased as, "Texas does not need the material change doctrine
because it has the immaterial change doctrine. Any change to the contract (no matter how
immaterial) is not the result of a meeting of the minds and therefore breaks contractual privity,
thereby relieving the assignor of any further possible liability." The only reason for the existence
of the material change doctrine is to prevent injustice to the assignor. But there would never be a
need for such a doctrine if any minor change was sufficient to let the assignor "off the hook" for
the amended contract.
14
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 15 of 28 PageID #: 7862
control. (Civ. No. 21-1430-RGA, D.I. 24 at 24). None of the Bankruptcy Court's determinations
are based on these entities' common corporate control. The factual history set forth in the Opinion
simply notes that:
The Lease prohibited assignment generally, subject to certain defined exceptions that
permitted, among other things, "an assignment of tenant's interest in the Lease to any
entity controlled by, controlling or under common control with Tenant[.] Because H-Work
and RGNO remained under common corporate control, the Assignment was permitted
under the Lease.
In re RGN-Group Holdings, 2021 WL 4203336 at *3 (footnotes omitted). Thus, while the Lease
permitted the assignment at issue, "as [H-Work and RGN] are affiliates under common corporate
control," the Bankruptcy Court explained that TIAA never released H-Work from its
obligations-"not a surprising result," the Bankruptcy Court observed, given that "H-Work
assigned the Lease to a special purpose entity within its corporate family that had neither assets
nor operations." Id. at *5. These observations merely followed the Bankruptcy Court's
determination that, under Texas law, H-Work's obligations survived the assignment because
"TIAA never released H-Work from its obligations"-not because H-Work and RGN shared
common corporate control. Id. at *5 & n.37 (noting, "Under Texas law, an assignor's obligation
will survive assignment unless the contract provides otherwise, or the assignor obtains a release
from the counterparty"). The Opinion also mentions common corporate control in its brief
discussion of the material change doctrine, simply noting that, while there may be circumstances
where application of the material change doctrine would make sense, this is not such a situation:
H-Work assigned the Lease to RGNO, an assetless special purpose entity created only to
hold the Lease. The same individual was and continues to be the authorized person for
both RGNO and H-Work. There is neither surprise nor unfairness to H-Work to hold it to
the terms of a Lease from which it has not been released.
15
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 16 of 28 PageID #: 7863
Id at *6. The Bankruptcy Court's point was that, even if the material change doctrine could be
applied here, the rationale for that doctrine-the inequities in permitting un-bargained for
obligations-did not exist to justify the doctrine's application here.
I find no support for Debtors' contention that any portion of the Bankruptcy Court's
decision erroneously disregarded corporate formalities.
B.
RGN Breached the Lease
On appeal, Debtors do no dispute that "the Ninth Amendment was enforceable and
binding," only that Tenant's financial obligations never commenced. (Civ. No. 21-1430-RGA,
D.I. 24 at 25). As TIAA correctly points out, H-Work's argument is inconsistent with the Lease's
plain language, as appears in Sections 20 and 21 of the Ninth Amendment. (A1568 § 20
("Binding Effect"); A1568 § 21 ("Ratification")). Section 2 of the Ninth Amendment
immediately extended the Lease Term through the last day of the 156th full calendar month
following the Relocation Date. (A1556 § 2). The Lease Term had commenced on December 1,
1987 (Al395 § l(d)), and ran continuously thereafter. There was never a break or expiration of
the Lease Term, as it was continuously extended prior to expiration. Upon occurrence of the
Relocation Date, as defined, Tenant would relocate within the complex to the Relocation Premises
and pay higher rent over the remaining 156-month term of the Lease. (A1555 § H; A1556-Al558
at§§ 3-4; see also Stipulated Facts at A0680
,r 14).
Until the Relocation Date, Tenant would
continue to occupy and pay the existing monthly rent for the current space in Three Lincoln
Centre. (Al556-Al558). In fact, the Ninth Amendment added a deadline by which the Relocation
Premises had to be tendered by the Landlord, or else H-Work could terminate the Lease. (A1557
§ 3(d)).
16
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 17 of 28 PageID #: 7864
Section 3(a) of the Ninth Amendment to the Lease is clear that the Lease remained in
effect as to the Current Premises until the Relocation Date, at which point the leased property
under the Lease converted to the Relocation Premises:
Effective as of the Relocation Date, Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the Relocation Premises on the terms and conditions of the Lease as
herein modified. Accordingly, on the Relocation Date, (i) subject to Section 3(b) hereof,
the Lease shall terminate as to the Current Premises, (ii) the Relocation Premises shall be
the 'Premises', and (iii) the 5400 Building shall be the "Building".
(A1556 § 3(a)). There was a tenancy in the Current Premises pursuant to the Ninth Amendment to
the Lease. The Lease Term was continuous, and never lapsed. Because the Lease remained in full
force and effect as to the Current Premises up until the Relocation Date, so too did RGN' s
obligations to continue making rent payments under the Lease.
The fact that Landlord terminated the Lease before the "Relocation Date" is of no moment,
as the damages sought relate to a binding Lease agreement (as modified by that Ninth
Amendment). That the "Relocation Date" never occurred under the Lease means that the Tenant's
new rent obligations and certain construction obligations were not triggered. It does not negate
RGN' s other obligations under the Lease, like the timely payment of rent and RGN' s liability in
the event of a default.
Finally, I reject H-Work's argument that there was a holdover tenancy within the meaning
of Section 27 of the Lease. By its terms, Section 27 only applies "In the event of holding over by
Tenant after expiration or other termination of this Lease or in the event Tenant continues to
occupy the Premises after the termination of Tenant's right of possession pursuant to paragraph
25(b) hereof ... " (A1422 § 27). Here, there was never an instance when no Lease existed.
Section 3(b) of the Ninth Amendment further enforces that RGN was not a holdover tenant.
Pursuant to Section 3(b), RGN becomes a holdover tenant subject to Section 27 of the Lease only
if it fails to vacate the Current Premises within 30 days of the Relocation Date:
17
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 18 of 28 PageID #: 7865
Tenant shall, at its expense, vacate and deliver to Landlord the Current Premises in a
"broom-clean" condition and otherwise in its current "AS-IS" condition, within thirty (30)
days after the Relocation Date; .... If Tenant fails to so vacate the Current Premises, then
(i) Tenant shall be a holdover tenant with respect thereto pursuant to Section 27 of the
Lease (and shall pay to Landlord the holdover Rent with respect to the Current Premises as
set forth in such Section 27) and (ii) Tenant shall pay to Landlord Rent with respect to the
Relocation Premises in accordance with this Amendment.
(A1556 § 3(b)). Because RGN never performed its tenant build-out in the new space, the
Relocation Date had not occurred prior to RGN's breach, and there could be no holdover tenancy
subject to Section 27 of the Lease.
C.
The Bankruptcy Court Did Not Err in its Allowance of Damages
Each party contends that the Bankruptcy Court erred in its calculation of damages for the
breach of the Lease. Debtors' main argument is that the Bankruptcy Court erred in awarding
TIAA damages incurred in reliance on the Ninth Amendment, rather than limiting TIAA's
recovery to holdover rent under Section 27 of the Lease. 7 (Civ. No. 21-1430-RGA, D.I. 24 at 2629). I agree with the Bankruptcy Court that RGN was not merely a holdover tenant, and that HWork is liable under the Ninth Amendment. Having so concluded, the Bankruptcy Court broke
down TIAA's $5.77 million claim into four separate categories of asserted damages: (1) unpaid
rent in the amount of $19,720.44; (2) brokerage commissions in the amount of $2,006,910.17; (3)
tenant relocation expenses in the amount of $1,688,009.79; and (4) lobby renovation expenses in
the amount of$2,056,169.57. In re RGN-Group Holdings, 2021 WL 4203336 at *7.
1.
7
Unpaid Rent
Debtors stressed this contention at oral argument. Debtors argued that the Bankruptcy Court
found a breach of the Eighth Amendment but awarded damages as if the Ninth Amendment had
been breached. The Bankruptcy Court found a breach of the Ninth Amendment, finding that
amendment to be effective upon signing on December 19, 2019. In re RGN-Group Holdings,
2021 WL 4203336 at *6.
18
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 19 of 28 PageID #: 7866
With respect to TIAA' s claim for unpaid rent, the Bankruptcy Court held that the record
s~pported allowance of unpaid rent, after deduction for application of the security deposit, in the
amount of $19,720.44. The allowance ofthis portion ofTIAA's claim is not challenged.
2.
Brokerage Commissions
With respect to TIAA's claim for RGN's brokerage commissions, the Bankruptcy Court
held that while it was undisputed that TIAA paid brokerage commissions to its own broker and to
RGN's broker in connection with negotiation and completion of the Ninth Amendment, it was
established at trial that "TIAA paid one of the brokers' invoices in full, even though the
engagement letter with [the broker] clearly provides that it was entitled to half of its fee when the
Ninth Amendment was executed, and the balance only after RGN[] occupied the new space." Id
at *7. The latter condition never occurred, so the Bankruptcy Court disallowed that portion of
TIAA's claim for damages. Id
The Ninth Amendment obligates TIAA to pay commissions to both RGN's broker (CBRE)
and TIAA's broker (CW). Specifically, Section 16(c) of the Ninth Amendment reads in full: "Any
brokerage commissions payable to Brokers are payable by Landlord pursuant to the terms of
separate agreements between Landlord and Brokers." (See Al568 at§ 16(c)). The relevant
agreement here is the Master Exclusive Leasing Brokerage Agreement dated November 1, 2010
(TAI 135-TAI 169) ("Brokerage Agreement"), which provides:
(vi)
Lease commissions are due and payable as follows:
(a)
New Leases: Fifty percent (50%) upon lease execution and fifty percent
(50%) upon occupancy or lease commencement, whichever occurs earlier.
(b)
Renewals: Fifty percent (50%) upon lease execution and fifty percent
(50%) upon commencement of the renewal term.
(TAl 167, Schedule H, General Terms,§ (vi)). In its cross-appeal, TIAA argues that the
Bankruptcy Court erred in reaching its legal conclusion that the second half of the CW
19
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 20 of 28 PageID #: 7867
commission was not due until RGN occupied the Relocation Premises and that the Bankruptcy
Court improperly disallowed $334,485.03 ofTIAA's claim for brokerage commissions. (See Civ.
No. 21-1476, D.I. 17 at 16-20). According to TIAA, the Bankruptcy Court misinterpreted the
amounts payable to CW under the Brokerage Agreement in relation to the execution of the Ninth
Amendment to the Lease in two ways: (1) the Bankruptcy Court incorrectly construed the Ninth
Amendment to the Lease as a "new lease" under the Brokerage Agreement, and (2) even if the
Ninth Amendment were treated as a "new lease," the full CW commission still became due upon
its execution. (Civ. No. 21-1476-RGA, D.I. 17 at 16-20).
It does appear that the Bankruptcy Court construed the Ninth Amendment as a new lease,
as opposed to a renewal.
In its Opinion, the Bankruptcy Court stated that CW "was entitled to
half of its fee when the Ninth Amendment was executed, and the balance only after RGN[]
occupied the new space." In re RGN-Group Holdings, 2021 WL 4203336 at *7. This language is
only applicable to new leases, not renewals. (See TAl 167 § (vi)(a)).
TIAA argues that the Ninth Amendment was not a new lease, but rather, a renewal of the
Lease term, and therefore TIAA was obligated to CW commissions under section (vi)(b).
(TAI 167, Schedule H, General Terms,§ (vi)(b)). TIAA further argues that because RGN
continued to occupy the Premises, the renewal term commenced immediately upon the signing of
the Ninth Amendment. And because the lease execution and the commencement of the renewal
term were simultaneous, TIAA argues, it properly paid CW 100% of the brokerage commission,
and its claim should have been allowed in full. Conversely, Debtors argue that, to the extent the
Court considers the Ninth Amendment to be a lease renewal, the "renewal term" would not have
commenced until the Relocation Date, and thus the second half of CW commission did not
become payable under the Brokerage Agreement.
20
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 21 of 28 PageID #: 7868
I agree with TIM that the Ninth Amendment is a lease renewal; it further extends the term
of the amended Lease. (TAl 192, ,r 2 ("The Lease Term is extended to expire on the last day of
the one hundred and fifty-sixth (156th) full calendar month following the Relocation Date ... ").
Thus, TIM was obligated to CW commissions under section (vi)(b). (TAl 167, Schedule H,
General Terms,§ (vi)(b)). But I agree with Debtors that the "renewal term" under the Ninth
Amendment would have commenced on the Relocation Date. While I reject Debtors' argument
that the Ninth Amendment was never effective, and I affirm that the Ninth Amendment was an
enforceable, binding agreement on both sides from its execution, the plain language of the Ninth
Amendment concerns the Relocation Premises-and the "renewal term," as it concerned the
Relocation Premises, would not "commence" until the Relocation Date. (T Al 192, ,r 2). As the
Relocation Date never occurred, CW was not entitled to the second half of the commission.
Although the Bankruptcy Court applied the "new lease" criteria of section (vi)(a) Brokerage
Agreement-as opposed to the "renewal" criteria of section (vi)(b)-in determining the timing of
the brokerage commission obligations, the Bankruptcy Court still reached the correct result.
Disallowance ofTIM's claim for the second half of CW's brokerage commission in the amount
of $334,485.03 may be affirmed because this issue was raised in the Bankruptcy Court, and
affirmance is warranted on any basis that finds support in the record. In re LMI Legacy Holdings,
Inc. 625 B.R. 268, 289-90 (D. Del. 2020) (citing Geness v. Cox, 902 F.3d 344,356 (3d Cir.
2018)).
3.
Tenant Relocation Expenses
The Ninth Amendment contemplated that RGN would move into space that was currently
being occupied by other tenants of TIM. TIM's claim asserted out-of-pocket tenant relocation
expenses in the amount of $1,688,009.79, and TIM presented evidence at trial that it moved two
tenants to different space, and that a third tenant chose not to move within Lincoln Centre and
21
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 22 of 28 PageID #: 7869
terminated its lease. The Debtors argued to the Bankruptcy Court that TIAA should not recover
the $1,541,044.25 in relocation expenses incurred in relocating one of those tenants-Entosbecause TIAA had contractually obligated itself to move Entos prior to executing the Ninth
Amendment with RGN. Under Texas law, Debtors argued, "The ultimate goal in measuring
damages for a breach-of-contract claim is to provide just compensation for any loss or damage
actually sustained as a result of the breach." Sharifi v. Steen Auto., LLC, 370 S.W.3d 126, 148
(Tex. App.-Dallas 2012, no pet.). IfTIAA was already committed to move Entos, Debtors
argued, then such damages were not incurred as a result of the breach of the Ninth Amendment but
on account of a separate contractual obligation with Entos. The Bankruptcy Court rejected this
argument and allowed the full amount of the tenant relocation expenses including those
attributable to relocating Entos. In re RGN-Group Holdings, 2021 WL 4203336 at *7-8 (footnotes
omitted).
Debtors argue that the Bankruptcy Court erred in awarding that portion of the tenant
relocation expenses attributable to moving Entos. According to Debtors, the causation element of
TIAA's claim is absent because (1) TIAA voluntarily assumed the Entos relocation obligation
three days before undertaking the obligations in the Ninth Amendment and (2) TIAA alone made
the decision to terminate the Lease before the Ninth Amendment went into effect. (See Civ. No.
21-1430-RGA, D.I. 24 at 29-32; D.I. 32 at 13-14). TIAA counters that substantial evidence
supports the Bankruptcy Court's findings, which are not clearly erroneous, and that the Debtors'
causation argument lacks merit. (Id., D.I. 29 at 35-39).
a.
The Decision Is Based on Well-Supported Factual Findings that
Are Not Clearly Erroneous
The Bankruptcy Court found as a matter of fact "that the Entos relocation was a critical
element to delivering the space covered by the Ninth Amendment." In re RGN-Group Holdings,
22
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 23 of 28 PageID #: 7870
2021 WL 4203336 at *7. Relying on the testimony of both TIAA's witness, Mr. Barker, and
Debtors' witness Mr. Osburn, the Bankruptcy Court observed that "[b]oth sides understood that
the Ninth Amendment required TIAA to enter into arrangements with multiple other parties to
make the space available, and those arrangements had to be staged around execution of the Ninth
Amendment." Id. It further found that the record "supports TIAA's assertion that the Entos
relocation agreement was signed in furtherance of the commitments TIAA was making to RGNO
under the Ninth Amendment." Id.
A finding of fact is clearly erroneous only when it is "completely devoid of minimum
evidentiary support displaying some hue of credibility or bears no rational relationship to the
supportive evidentiary data" VICI Racing, LLC v. T-Mobile USA, Inc., 763 F.3d 273, 283 (3d
Ci,J:. 2014) (quotations omitted). To the extent a lower court's conclusions rest on credibility
determinations, the appellate court's "review is particularly deferential." Id. (quoting Travelers
Cas. & Sur. Co. v. Ins. Co. ofN Am., 609 F.3d 143, 156-57 (3d Cir. 2010)). "The Bankruptcy
Court is best positioned to assess the facts, particularly those related to credibility and purpose."
In re Myers, 491 F.3d 120, 126 (3d Cir. 2007). I review the record to determine whether the
Bankruptcy Court's findings were clearly erroneous, i.e., whether I am "left with a definite and
firm conviction that a mistake has been committed." VICI Racing, 763 F.3d at 298
(quoting Speyer, Inc. v. Humble Oil and Refining Co., 403 F.2d 766, 770 (3d Cir. 1968)).
Substantial evidence supports the Bankruptcy Court's findings with respect to the
relocation of Entos. TIAA could not deliver the Relocation Premises without moving Entos (and
two other tenants) out of their pre-existing leased space. (8/12/21 Tr. at A0760:6-15). Entos had
no desire to move out of its pre-existing space. (A0793 :20-A0794:5). TIAA had no financial
incentive to move a happy tenant and incur over $100 per square foot in tenant improvements for a
lease with five years remaining on its term but for the obligation to deliver the Relocation
23
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 24 of 28 PageID #: 7871
Premises. (Id. at A0794:6-18). Because TIAA would be required to deliver the Relocation
Premises, TIAA convinced Entos to move, and took the financial hit to build out the replacement
leased space comparably to that which Entos-a design firm-was leaving behind.
I further agree that the fact that TIAA executed the agreement with Entos three days before
the Ninth Amendment is of no moment. The Bankruptcy Court found that this timing was merely
incidental to the larger commercial arrangement. (See 8/12/21 Tr. at A0793:20-A0794:5). "The
fact that the relocation agreement with Entos was signed shortly before the Ninth Amendment is
simply an unremarkable feature of a complicated commercial arrangement that TIAA and RGN[]
fully understood would require the involvement or cooperation of multiple third parties." In re
RGN-Group Holdings, 2021 WL 4203336 at *8. This finding is supported by the record. (See
TA054-TA065 (emails between RGN's representative and TIAA's broker regarding Entos
relocation as early as February 2020); id. at TA077-TA080). I find no basis to disturb the
Bankruptcy Court's decision.
b.
Debtors' Causation Arguments Lack Merit
Debtors argue that the causation element ofTIAA's claim is absent because TIAA
voluntarily assumed the Entos relocation obligation three days before undertaking the obligations
in.the Ninth Amendment. This argument was rejected by the Bankruptcy Court based on the well
supported factual findings discussed supra. Debtors further argue that causation is lacking
because TIAA alone made the decision to terminate the Lease before the Ninth Amendment went
into effect. This argument also fails. The costs to relocate Entos are recoverable under Section
25(d) of the Lease. TIAA had a contractual right to recover those costs in the event of a
termination for default. (Al418 § 25(d)). As such, these costs are not an improper benefit from
premature termination. Moreover, out-of-pocket costs incurred in reliance on a promise to
perform a contract are a recognized form of damages. See AKIB Constr. Inc. v. Shipwash, 582
24
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 25 of 28 PageID #: 7872
S.W.3d 791, 808 (Tex. App.-Houston [1st Dist.] 2019, no pet.) (noting one "measure of damages
for breach of contract is the reliance measure, which seeks to put the injured party in as good an
ec~onomic position as it would have occupied had the contract not been made"). It is no answer for
Debtors to argue that RGN was willing and able to perform. RGN breached, and TIAA had a
legal right to termination.
In sum, I find no error in the Bankruptcy Court's allowance of the tenant relocation
expenses.
4.
Lobby Renovation Expenses
TIAA' s claim sought allowance of its expenses incurred on account of renovations to the
lobby of One I:,incoln Center in the amount of $2,056,169.57. TIAA asserted that the renovations,
which included moving restroom facilities :from one side of the building to the other, were done in
connection with the Ninth Amendment and for the benefit ofRGN. Debtors argued that the lobby
renovations were undertaken by TIAA as part of its overall renovation project, separate :from any
obligations or commitments embodied in the Ninth Amendment.
The sole provision of the Ninth Amendment that TIAA relies upon to support its claim to
recover the lobby renovation costs is undetailed and somewhat vague. Schedule Two of the Ninth
Amendment's Work Letter states, "Landlord will update the 5400 Building lobby with new Class
A finishes to be completed by the Relocation Date." (See TA1218, at Ex. B, Sched. 2). No other
prpvision in the Ninth Amendment, or elsewhere, provides any further guidance or details
concerning TIAA's build-out obligations.
The Bankruptcy Court held that the Debtors submitted ample evidence at trial to
demonstrate that the lobby was renovated not as part of the Ninth Amendment but rather in
connection with TIAA's plan for the comprehensive updating of the entirety of Lincoln Centre. In
re RON-Group Holdings, 2021 WL 4203336 at *8. "TIAA completed the work and enjoys the
25
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 26 of 28 PageID #: 7873
benefits of improved lobby facilities in its building." Id. Accordingly, the Bankruptcy Court
d~nied that portion ofTIAA's claim for damages covering costs it incurred in renovating the
lopby. Id.
In its cross-appeal, TIAA argues that the Bankruptcy Court erred as a matter of law in
denying TIAA's claim for its lobby renovation expenses. (See Civ. No. 21-1476, D.I. 17 at 2025). TIAA argues that the unambiguous terms of the Ninth Amendment provided that TIAA "will
update the 5400 Building lobby with new Class A finishes," and that TIAA would not have
incurred the lobby renovation costs but for the requirement in the Ninth Amendment. (Civ. No.
21-1476-RGA, D.I. 23 at 16-17). Debtors argue that the Bankruptcy Court did not clearly err by
failing to adopt TIAA's argument that, if not for the Ninth Amendment, TIAA would have left this
building in an outdated 1980's condition while the other, attached portions of the Lincoln Centre
complex were all updated with modem Class A finishes. Although TIAA claims it would not
have renovated this building had RGN not entered into the Ninth Amendment, Debtors argue that
TIAA's witnesses provided testimony supporting the Bankruptcy Court's finding that TIAA
completed the lobby and restroom renovations as part of its plan for the comprehensive updating
of:the entirety of Lincoln Centre -not pursuant to any purported obligation articulated by the
Ninth Amendment.
I agree that the record supports the finding that TIAA completed the lobby and restroom
renovations as part of its comprehensive plan for updating all of Lincoln Centre. Both sides
presented testimony that TIAA is in the midst of a comprehensive $43 million renovation and
updating of the entirety of Lincoln Centre, which includes three office towers, a hotel, retail space
and parking, and that the renovation "is intended to refresh commercial space originally built in
1981 and to ensure that it remains a Class A property." (See 8/12/21 Tr. at TA0595:15-TA0596:7
(testifying that TIAA commenced its Master Plan to update and modernize the common areas
26
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 27 of 28 PageID #: 7874
(including the lobbies, conference rooms, and food and coffee shops) of Buildings Two and Three
once Atmos Energy signed its lease in those buildings); id at TIAA0594:19-TIAA0595:8
(testifying that Buildings One, Two, and Three (and the hotel) are connected by adjoining
hallway); id at TIAA0597:23-TIAA0598:4, TIAA0655:9-18 (testifying that, consistent with
TIAA's long-term view, the renovations done to One Lincoln Centre are aesthetically consistent
with the renovations that were being done in the other two buildings). The record further supports
the Bankruptcy Court's finding that the lobby renovation was completed exclusively by TIAA in a
manner to ensure that the lobby was consistent with and matched the scheme of the overall
renovation of Lincoln Centre. (See TIAA0652:17-23 (testifying that the $2.1 million TIAA spent
to update the lobby in One Lincoln Centre was part of the "master plan" for comprehensive
renovation). Moreover, as the Bankruptcy Court observed, the record is devoid of any evidence
that RGN would participate in any respect in the design or renovation of the lobby. (See 8/12/21
Tl'.. at TIAA0599:14-19) (TIAA did not give RGN any right to design the lobby or approve (or
ve.to) any renovation); id. at TIAA0656:5-10 (no part of the master plan or any renovations in One
Lincoln Centre were implemented solely for RGN's benefit).
The Bankruptcy Court's determination is based on well-supported findings of fact, and
TIAA has failed to carry its burden of demonstrating any its findings are clearly erroneous.
5.
Restroom Relocation Expenses
TIAA argues, if it is not entitled to its lobby renovation costs, the Bankruptcy Court should
have allowed that portion ofTIAA's claim for damages covering the lobby's restroom relocation.
(See Civ. No. 21-1476, D.I. 17 at 26-27; D.I. 23 at 20-21).
The record supports the Bankruptcy Court's denial of the lobby renovations as a whole.
The evidence clearly demonstrates TIAA updated its restrooms for the same reason it updated the
lobby-the restrooms were dated and needed to be modernized to match the updated aesthetic
27
Case 1:21-cv-01430-RGA Document 36 Filed 09/28/22 Page 28 of 28 PageID #: 7875
design of the lobby and other common areas renovated under TIAA's overall plan. (See 8/12/21
Tr. at TIAA0519:17-19 (Mr. Barker testifying that TIAA "modernize[d] the common areas of the
lobbies and restrooms to bring [them] up to more of the elevated standards ... ")). Mr. Barker
testified that TIAA modernized the restrooms both aesthetically and functionally, which included
the installation of new, touchless faucets and other amenities that an updated high-rise building
would require. (Id. at TIAA0552:22-TA0553:2; see also TIAA0656:5-10 (no renovations in One
Lincoln Centre were implemented solely for RGN's benefit)). The record supports a finding that
that TIAA' s purported damages are not the result of a mere relocation of the restrooms, but rather,
as part ofTIAA's overall plan to update and modernize the lobby, and as such, that disallowance
of the restroom relocation expenses was appropriate.
V.
CONCLUSION
I find no error in the Bankruptcy Court's determinations that H-Work remained in
contractual privity and that the Lease was breached. I further find no error in the Bankruptcy
Court's determination that TIAA's claim should be allowed in the reduced amount of
$3,380,155.37. I will therefore affirm the Order.
A separate order will be entered.
28
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?