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Law360 (October 27, 2020, 7:18 PM EDT) -- A group of Pittsburgh-area shopping centers on Tuesday accused lenders KeyBank NA and PNC Bank-affiliated Midland Loan Services of interfering in their relationships with retail tenants and threatening to take punitive actions against the centers even as they navigate through the COVID-19 outbreak.
In a complaint filed in Allegheny County Court of Common Pleas, five shopping centers owned by Ira J. Gumberg alleged the lenders are withholding nearly $4.5 million in funds reserved for tenant improvement costs and are threatening to sweep that money away from the borrowers despite the shopping centers being current on all obligations under the agreements governing the $138 million lending facilities.
The charges of breach of contract and tortious interference focus on the plaintiffs' dealings with tenants seeking to rent retail space in the shopping centers, the complaint said. After negotiations with bankrupt retail giant J.C. Penney over the summer, that tenant agreed to continue to lease space until mid-October to enable the plaintiffs to find a new tenant for that space, the complaint said.
These changes are being used as an excuse by the lenders to enact a punitive cash sweep from the plaintiffs that would siphon away working capital and could potentially prove fatal for the shopping centers, according to the complaint.
"Such a sweep would deprive plaintiffs of the working capital necessary to keep the shopping centers open as a going concern and would otherwise jeopardize the ability of the shopping centers to operate as a going concern," the suit said. "Defendants' threats to do so — in the midst of a global pandemic and financial crisis — create additional uncertainty to the detriment of the borrowers."
A separate dispute exists over $100,000 used for facility improvements made by tenant Treasure Hunt that the shopping centers say are being unjustly withheld by the lenders. In the suit, the plaintiffs allege a representative for KeyBank acknowledged the $100,000 obligation to the tenant for construction projects completed on the leased space, but that the lender has since reversed its stance and hasn't made any distributions as promised.
"Defendants are continuing to delay and to hold these funds without justification and without a good-faith basis with which to do so," the complaint alleges.
The $4.5 million reserve fund exists to cover these costs and is nearly fully funded in the midst of the pandemic, raising additional questions about the lenders' reluctance to make the payments, the plaintiffs argue.
The plaintiffs are seeking actual and compensatory damages for the alleged breach of the loan agreement and tortious interference with business relationships, a release of the reserve fund, and a sanction against the defendants for their alleged bad faith actions, among other requests for relief.
Representatives for the parties could not immediately be reached late Tuesday for comment.
The plaintiffs are represented by Mary-Jo Rebelo, Jason J. Cervone and Thomas M. Polh of Burns White LLC.
Counsel information for the defendants was not immediately available Tuesday.
The case is Gumberg Associates — Chapel Square et al. v. KeyBank National Association et al., case number GD-20-011077, in the Allegheny County Court of Common Pleas.
--Editing by Bruce Goldman.
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