By Matthew Santoni

Law360 (April 13, 2021, 6:18 PM EDT) -- A group of companies that operate shopping centers around Pittsburgh and Ohio asked a Pennsylvania state court Tuesday to divide its lawsuit against its lenders and loan servicers so they can determine faster how much the banks must provide for the retailers' day-to-day operations.

The shopping centers owned by developer Ira J. Gumberg told the Allegheny County Court of Common Pleas that they wanted a separate trial over how much the banks must release for the companies' operating expenses and whether the lenders must approve their 2021 operating budget, as the shopping centers claimed they were struggling to stay afloat amid the COVID-19 pandemic with their lenders seizing all but a small portion of their tenants' rents to pay off $138 million in loans.

"The courts are not well-equipped to handle cases of death by 1,000 cuts, where the parties will argue over whether the plaintiff sustained cut number 396… or how many cuts it will take to prove fatal," said David Strassburger of Strassburger McKenna Gutnick & Gefsky, representing the Gumberg companies. "We can't survive without cash forever, and delay works to their advantage … Keybank is accelerating that death by not turning over our operating expenses."

The Gumberg companies wanted the court Tuesday to use its powers under the Pennsylvania Rules of Civil Procedure to split the claims for operating expenses from their broader lawsuit over whether lenders and loan servicers — including KeyBank NA, Wells Fargo, Deutsche Bank and PNC Bank-affiliated Midland Loan Services — had breached their contract by instituting a "cash sweep," where the banks claim all of the shopping centers' rent proceeds and apply them directly to the companies' debts.

According to the Gumberg companies' complaint, the lenders and servicers had claimed the bankruptcy-related closure of J.C. Penney at a Gumberg mall in Defiance, Ohio, had endangered the companies' ability to repay their loans, triggering the cash sweep despite the mall securing a replacement tenant who would pay more in rent. Instead of Gumberg getting to do what it wanted with what was left of its tenants' rents after its monthly debt payments, taxes and fees, all but a part of its "budgeted operating expenses" went directly toward paying off the loans since Dec. 1, the suit said.

Strassburger said in Tuesday's video arguments that the yearly operating budget the banks used when releasing funds didn't account for month-to-month fluctuations in the shopping centers' expenses, leading to shortfalls that were jeopardizing their ability to stay in business. The banks also had failed to approve the Gumberg companies' 2021 budget, on the grounds that they would not approve requested expense increases related to the pandemic, he said.

"All they've said is, 'you didn't need it before and we're not giving it to you now,'" Strassburger said. "We need this relief to avoid calamity."

Strassburger said a more sinister motive may be at play: pushing the Gumberg companies into default on their debts so that the shopping centers used as collateral in the loans can be seized.

But Llynn K. White of Polsinelli PC, representing all but one of the banks, denied any ulterior motive beyond the contracts, and said splitting up the case would only result in relitigating the same contracts twice or more. The Gumberg companies' complaint consisted of a claim for breach of contract and another for tortious interference with the companies' relationships with its tenants. Ordering a separate trial would only break out a few elements of the breach of contract claim that relied on the same contracts, she said.

"They involve the same documents, the same witnesses, the same testimony and the same issues," White said. "There's no way you're not going to get into all these issues that are pending before this court … Proceeding with separate trials is only going to lead to us rehashing these issues over and over again."

White also argued that the banks' preliminary objections to the Gumberg companies' second amended complaint were still awaiting arguments in May, and discovery was still ongoing, so the time was not yet ripe for a trial.

Strassburger responded that the preliminary objections, even if granted in their entirety, would not release all the defendants or dismiss the entire case, so the court could move forward with the short-term question of the operating expenses.

Allegheny County Court of Common Pleas Judge Christine Ward said she would take Tuesday's arguments under advisement.

The Gumberg companies are represented by David A. Strassburger, Gretchen E. Moore and Christopher J. Azzara of Strassburger McKenna Gutnick & Gefsky.

Keybank, Wells Fargo, Deutsche Bank Trust Co. Americas and Gumberg B-Note Holder LLC are represented by Jayme L. Butcher and Richard M. Weibley of Blank Rome LLP and Llynn K. White and Brett D. Anders of Polsinelli PC. Midland is represented by Butcher and Weibley, as well as John E. Lucian and Jose F. Bibiloni, of Blank Rome.

The case is Gumberg Associates Chapel Square et al. v. Keybank NA et al., case number GD-20-011077, in the Court of Common Pleas of Allegheny County, Pennsylvania.

--Editing by Ellen Johnson.

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