Green Tree Servicing, LLC v. DBSI Landmark Towers, LLC

Summarized by Kevin Baum , Windels Marx Lane & Mittendorf, LLP
14 years 6 months ago

Citation:

No. 10-2757 (8th Cir. Aug. 30, 2011)

Tag(s):

Ruling:

Affirming the District Court’s grant of summary judgment, the Eighth Circuit held that Green Tree Servicing, LLC (“Green Tree”) could vacate an office building it subleased (the “Building”) from DBSI Landmark Towers Leaseco, LLC (“DBSI Leaseco”) after (1) DBSI Leaseco rejected the sublease (the “Sublease”) in its previous bankruptcy case and (2) both DBSI Leaseco and Green Tree agreed to treat the Sublease as terminated. Specifically, the Eighth Circuit found that a clause in the Sublease, required Green Tree to attorn (i.e., agree to be the tenant of the new landlord) to the Building’s owners (the “Owners”) under certain circumstances, had not been triggered. Initially, the Eighth Circuit addressed Green Tree’s argument that under section 365(h), it could treat the Sublease as terminated. First, although the court agreed that Green Tree was no longer required to perform its obligations to DBSI Leaseco under the Sublease, the court found that state contract law controlled, not section 365(h). Specifically, the court opined that under state law, neither party was required to perform its contractual obligations to the other because Green Tree and DBSI Leaseco mutually rescinded the Sublease. Second, the Eighth Circuit found that under the Sublease, Green Tree also undertook obligations to the Owners, and that the Owners had privity of contract to enforce any applicable provision. Moreover, the Eighth Circuit found that because section 365(h) does not extinguish any third party’s rights or obligations under a lease, the Owners could enforce any rights they had under the Sublease. Ultimately, however, the Eighth Circuit found that Sublease did not require Green Tree to attorn to the Owners because (1) none of the events that would trigger attornment under the Sublease had occurred and could not occur after DBSI Leaseco voluntarily extinguished its rights under the Sublease, and (2) the Owners could not enforce a term in its master lease (the “Master Lease”) with DBSI Leaseco, which required all subleases to contain provision triggering attornment to the Owners on any termination of a sublease, since Green Tree was not a party to that agreement. Accordingly, the Eight Circuit found that Green Tree no longer had any obligations under the Sublease, and therefore, could vacate the Building.

Procedural context:

In its bankruptcy case, DBSI Leaseco moved (1) to reject both the Master Lease and Sublease, and (2) to treat the Sublease as terminated. Green Tree responded that it intended to treat the Sublease as terminated pursuant section 365(h), which the Owners objected to, claiming that the Sublease required Green Tree to attorn to the Owners. Ultimately, the Bankruptcy Court ordered the both the Master Lease and Sublease rejected. Subsequently, Green Tree sought a declaratory judgment in Minnesota State Court that it could treat the Sublease as terminated and vacate the Building. The Owners removed the case to the District Court and cross-claimed for a declaratory judgment affirming the Sublease. The District Court granted summary judgment in favor of Green Tree. The Owners appealed.

Facts:

DBSI Landmark Towers, LLC (“DBSI Landmark”) purchased the Building as part of a tenant in common syndication plan (the “Syndication Plan”). DBSI Landmark then leased the Building to its affiliate DBSI Leaseco that in turn subleased the Building to Green Tree. Next, DBSI Landmark sold fractional interests in the Building to the each of the twenty-eight individual owners. After the syndication, DBSI Leaseco acted as landlord and was paid a management fee for collecting rent and paying operating expenses. Under the Master Lease, DBSI Leasco could sublease the Building, but the Master Lease also required any sublease to include a clause requiring the subtenant to attorn to the Owners if the sublease was terminated for any reason. The Sublease, however, only required Green Tree to attorn to the Owners when the Owners “terminates the Master Lease” or “otherwise succeeds to the interest of [DBSI Leaseco] under the foregoing Lease.” Some time after completing the Syndication Plan, DBSI Leaseco voluntarily filed for bankruptcy protection.

Judge(s):

Shepherd, Smith, and Arnold

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