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John C. Longmire (admitted pro hac vice) Christopher A. Jones (VSB # 40064) Jeffrey B. Korn (admitted pro hac vice) David W. Gaffey (VSB # 85088) Agustina G. Berro (admitted pro hac vice) WHITEFORD, TAYLOR & PRESTON L.L.P. Brittany M. Wagonheim (admitted pro hac vice) Two James Center WILLKIE FARR & GALLAGHER LLP 1021 E. Cary Street, Suite 1700 787 Seventh Avenue Richmond, VA 23219 New York, NY 10019 Telephone: (804) 977-3300 Telephone: (212) 728-8000 Email: [email protected] Email: [email protected] [email protected] [email protected]@willkie.com [email protected] [email protected]

Counsel to Hudson’s Bay Company ULC, HBC US Holdings Inc., HBC US Propco Holdings LLC, and HBS Global Properties LLC HBS Landlords

IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION

) In re: ) Chapter 11 ) LE TOTE, INC., et al.,1 ) Case No. 20-33332-KLP ) Debtors. ) (Joint Administration Requested) )

MEMORANDUM OF HUDSON’S BAY COMPANY ULC, HBC US HOLDINGS INC., HBC US PROPCO HOLDINGS LLC, HBS GLOBAL PROPERTIES LLC, AND CERTAIN LANDLORDS OF LORD & TAYLOR LLC, IN OPPOSITION TO WILMINGTON TRUST’S MOTION FOR AN ORDER AUTHORIZING BANKRUPTCY RULE 2004 EXAMINATIONS OF ENTITIES AND PRODUCTION OF DOCUMENTS

Hudson’s Bay Company ULC, HBC US Holdings Inc., and HBC US Propco Holdings

LLC (collectively, “HBC”), HBS Global Properties LLC (“HBS”), and the wholly-owned

subsidiaries of HBS that are the landlords for 28 of the 38 Lord & Taylor stores, including 24

1 The Debtors in these Chapter 11 Cases and the last four digits of their taxpayer identification numbers are as follows: Le Tote, Inc. (3722), French Tote LLC (7492), Le Tote, LLC (7857), Lord & Taylor LLC (4961), and LT Card Company LLC (2954). The location of the Debtors’ service address is: 250 Vesey Street, 22nd Floor, New York, NY 10281. Case 20-33332-KLP Doc 490 Filed 10/29/20 Entered 10/29/20 19:12:39 Desc Main Document Page 2 of 41

landlords (the “HBS Landlords”)2 that lease locations governed by a commercial mortgage-

backed securities (“CMBS”) loan under which Wilmington Trust, National Association, acts as

trustee (the “Trust”), respectfully submit this memorandum in opposition to Wilmington Trust’s

Motion for an Order Authorizing Bankruptcy Rule 2004 Examinations of Entities and Production

of Documents [Docket No. 438] (the “Rule 2004 Motion”).

PRELIMINARY STATEMENT

1. In what has now become a tired routine, the Trust has once again departed from its

legal entitlements by asserting rights it does not possess, assuming a positive outcome in a

pending matter that may be decided against it, and hiding the ball on related litigation it is

undertaking in other courts. First, the Trust asserted or implied (falsely) in numerous pleadings

that it had acceded to the rights of the HBS Landlords under their lease with the Debtors, and

therefore had standing to demand the direct payment of rent from the Debtors. When those

assertions were rebuffed, the Trust agreed to a stipulation whereby its standing to assert those

rights would be briefed, argued and adjudicated by this Court before the Trust could take further

action to enforce those (nonexistent) rights in this Court. Then, when those proceedings did not

appear to be going in the Trust’s favor, it attempted disingenuously to recast the dispute as relating

to generic party-in-interest standing under section 1109(b) of the Bankruptcy Code, so that it

could continue to assert the HBS Landlords’ rights under a different guise. Then, after its standing

motion had been briefed and argued (but not yet decided by this Court), the Trust filed a “Revised

Proposed Order,” which was unprompted and had not been shared with opposing counsel, and

2 Specifically, the 24 HBS Landlords are LT Eastchester LLC, LT Ridgewood LLC, LT Stamford LLC, LT Westfield LLC, LT Garden City LLC, LT Bridgewater LLC, LT King of Prussia LLC, LT Fair Oaks LLC, LT Freehold Raceway LLC, LT Rockaway Town LLC, LT Willowbrook LLC, LT Woodfield LLC, LT Twelve Oaks LLC, LT Columbia LLC, LT Walden Galleria LLC, LT Quakerbridge Leasehold LLC, LT Garden State Leasehold LLC, LT Walt Whitman Leasehold LLC, LT Burlington Leasehold LLC, LT Livingston Leasehold LLC, LT Braintree Leasehold LLC, LT Natick Leasehold LLC, LT Bay Shore Leasehold LLC, and LT Northbrook Leasehold LLC.

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which purported to defer a ruling on the pending motion while apparently granting relief the Trust

had not previously requested, and serving as the basis for some purported entitlement to Rule

2004 discovery. The Debtors, appropriately, filed a pleading in opposition to this unorthodox and

questionable filing.

2. Although, to date, the Court has not ruled on the Trust’s motion for standing to

assert the rights of the HBS Landlords, or the Trust’s misdirected request for a “deferral” so that

it could seek Rule 2004 relief, the Trust has once again violated the spirit of the parties’ agreement

by acting as though it has and may pursue the very rights that are in dispute. By doing so, the

Trust is implicitly challenging this Court’s authority to decide the standing issue that is currently

pending before the Court.

3. In addition, throughout this process, the Trust has not disclosed to this Court the

other litigation avenues it is pursuing with respect to this same subject matter. For example, the

Trust failed to mention in its earlier filings that it had already sued HBC regarding various related

issues, and that that case had been dismissed. And now it asserts a right to discovery of matters

that are the subject of litigation it has commenced in New York and other state courts since filing

its standing motion, while inexplicably claiming that the matters at issue in those cases are “not

at issue or before the Court.”

4. Now the Trust seeks a Court-authorized Rule 2004 fishing expedition without

articulating any facts that support a cause of action, or its standing in these bankruptcy

proceedings to assert one. That is because its stated bases for seeking a Rule 2004 examination—

i.e., that it needs to investigate any agreements between HBC and Lord & Taylor to forbear from

paying rent for physical locations—is irrelevant to any potential claims for at least two reasons.

First, the Trust has a pending motion before this Court—which HBC and the Debtors have spent

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significant time and resources litigating—to resolve whether the Trust or HBS has the contractual

right to compel rent payments from Lord & Taylor. If the Trust does not have the rights that it

claims, then there is simply no basis for it to pry further into negotiations and agreements between

Lord & Taylor and the HBS Landlords. Put simply, the Trust is the HBS Landlords’ lender.

Whether or not the HBS Landlords are in compliance with their loan agreement with the Trust is

a separate matter being addressed in other courts (courts which, by the way, are the appropriate

fora for any discovery by the Trust into the HBS Landlords’ dealings with their Debtor tenants).

Unless and until this Court determines that the Trust has standing to assert rights under the master

lease between the HBS Landlords and the Debtors, it is premature if not improper for the Trust

to seek discovery into the landlord-tenant relationship between those parties. Second, both HBC

and the Debtors have publicly disclosed that HBS offered to forbear from collecting rent from

Lord & Taylor during the pendency of these proceedings. The Trust offers no explanation as to

why it needs more information about that offer, or how the details surrounding that offer are

relevant to any potential claims.

5. The Trust strains to justify its Rule 2004 Motion because its actual reasons for

seeking voluminous discovery from thirty-three entities, including HBC, HBS, the HBS

Landlords, and the Debtors, are plainly improper. In particular, the Trust appears to be seeking a

litigation advantage over HBC, HBS, and the HBS Landlords in state court proceedings

concerning the HBS Landlords’ obligations to the Trust. Instead of seeking discovery through

those state court proceedings, the Trust is improperly attempting to obtain the same discovery

through the Rule 2004 process. In addition, the Trust appears to be using Rule 2004 to annoy,

harass, and oppress HBC, HBS, the HBS Landlords and the Debtors into burdensome and

expensive litigation, and duplicative court proceedings. The Trust’s conduct is therefore both

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contrary to the purpose of Rule 2004 and unduly burdening the targets of the examination, the

Debtors, and this Court, with wasteful proceedings that undermine the efficient administration of

the Debtors’ estate. The Trust’s latest litigation tactics should be rejected.

BACKGROUND

6. The Trust objected to several early motions in this case to assert rights it claimed

to have under the master lease among Lord & Taylor LLC (“Lord & Taylor”), as tenant, and the

HBS Landlords, governing 24 Lord & Taylor physical store locations (the “Master Lease”),

beginning with oral objections on the record at the First Day Hearing to Debtor’s Motion Seeking

Entry of Interim and Final Orders (I) Authorizing Use of Cash Collateral and Affording Adequate

Protection; (II) Modifying the Automatic Stay; (III) Scheduling a Final Hearing; and (IV)

Granting Related Relief [Docket No. 28], dated August 2, 2020.

7. The Trust soon thereafter began to assert its (nonexistent) rights in written

objections to other motions, including the Debtors’ Motion for Entry of Order (I) Establishing

Bidding Procedures, (II) Scheduling Bid Deadlines and Auctions, (III) Approving Form and

Manner of Notice Thereof, (IV) Approving Sale of Debtors’ Assets Free and Clear, and (V)

Granting Related Relief [Docket No. 156], dated August 20, 2020, and the Debtor’s Motion for

Entry of Order (I) Authorizing and Approving Procedures to Reject or Assume Executory

Contracts and Unexpired Leases, and (II) Granting Related Relief [Docket No. 125], dated August

12, 2020. To resolve the Trust’s procedural objections and avoid unduly interfering with the

Court’s efficient administration of these proceedings, Debtors and the Trust agreed that the Trust

would reserve its rights with respect to its dispute with HBC, HBS, and the HBS Landlords in

connection with the Master Lease, and would file a separate motion in connection with any such

rights that it would seek to assert in these cases. (Dkt. 210 at ¶¶ 1-3, 12-15.)

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8. On September 4, 2020, the Trust filed its Motion for an Order (I) Establishing

Standing to Compel Payment of Rent and to Assert Related Rights Under and With Respect to

Master Lease; And (II) Granting Related Relief [Docket No. 299] (the “Standing Motion”). The

Standing Motion asserts that the Trust has the right to compel payment of rent by Lord & Taylor

pursuant to the Master Lease and a related Subordination and Non-Disturbance Agreement (the

“SNDA”). The Standing Motion also explicitly asserts that the Trust has various other rights under

the Master Lease and the New York Uniform Commercial Code (the “UCC”). The Standing

Motion will determine whether Lord & Taylor, a debtor in these bankruptcy proceedings, is

currently obligated to pay rent to the HBS Landlords or, instead, to the Trust, which is the HBS

Landlords’ lender.

9. To provide clarity to the Debtors and to facilitate an efficient resolution of the

Standing Motion without further disrupting the bankruptcy proceedings or unnecessarily

burdening the Debtors’ estate, HBC, the Debtors, and the Trust expressly agreed “to a schedule

to address certain disputes relating to which entity or entities have standing to enforce certain

non-residential real property leases and related rights and remedies . . . .” (Dkt. 301 at 2.) The

Trust also agreed that it would file a motion to resolve its claim “that it has standing to seek

payment of rent and standing to enforce related rights and remedies pursuant to section 365 of the

Bankruptcy Code.” (Id. at 2-3.) On September 9, this Court so ordered the Stipulation and Agreed

Scheduling Order [Dkt. 301] reflecting that agreement. (Id. at 3.) Pursuant to the scheduling

order on the Standing Motion, HBC, the Debtors, and the Trust fully briefed the Standing Motion

and submitted the issues raised therein to the Court for a decision. On October 1, the Court heard

oral argument and took the Standing Motion under advisement.

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10. On October 6, however, the Trust reneged on its agreement with HBC and the

Debtors (and simply ignored this Court’s scheduling order) by submitting a Revised Proposed

Order [Dkt. 417] that fundamentally recharacterized the Standing Motion as a broader motion for

standing “under Bankruptcy Code section 1109(a) to appear and be heard in the Cases with

respect to matters therein that affect its pecuniary interests with respect to the Master Lease . . .

.” (Dkt. 417 at ¶ 1.) At the same time, the Trust asked that the Court defer ruling on its actual

request—i.e., for standing to compel the payment of rent from Lord & Taylor—while it conducts

discovery into “any forbearance, deferral, or other arrangements with respect to the payment of

Rent under the Master Lease . . . .” (Id. at ¶ 3.)

11. On October 10, despite the Debtors’ immediate objection to its Revised Proposed

Order, the Trust submitted its Rule 2004 Motion. In other words, the Trust once again acted like

the Court had already granted its pending request. The Rule 2004 Motion seeks information from

thirty-three entities, including HBC, HBS, the HBS Landlords, and the Debtors, on seven broad

topics including, for example, all documents and communications concerning any “actual,

possible, or offered . . . modification, change, supplement, alteration, or amendment” of either the

Master Lease or of the performance of Section 6.01 (Rent Payment Period) of the APA (defined

below), as well as any “payment of money” in connection with either the Master Lease or Section

6.01 of the APA, which is all information that could be sought through separate state court

litigation that the Trust is separately pursuing against HBC. (Rule 2004 Mot. at 11-13.) The Rule

2004 Motion requested that the Court authorize the Trust to take both document discovery and

witness depositions. (Id. at 4-5.)

12. At the same time, the Trust has continued to initiate and pursue litigation against

HBC and certain HBS Landlords on matters related to the Master Lease in state court proceedings,

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including in New York Supreme Court and in various other state courts around the country.

Rather than await discovery in those other proceedings or for this Court to resolve its Standing

Motion, the Trust appears to be attempting to leverage improperly the Rule 2004 examination

process to extract information that will benefit it in its broader litigation campaign against, and

otherwise pressure and coerce, HBC, HBS, and the HBS Landlords.

ARGUMENT

13. Rule 2004 of the Federal Rules of Bankruptcy Procedure permits the Court to order

an examination that relates “to the acts, conduct or property or to the liabilities and financial

condition of the debtor, or to any matter which may affect the administration of the debtor’s estate,

or to the debtor’s right to a discharge.” Fed. R. Bankr. P. 2004(a)-(b). Before ordering a Rule

2004 examination, the Court must “balance the compelling interests of the parties, weighing the

relevance of and necessity of the information sought by the examination.” See In re Coffee

Cupboard, Inc., 128 B.R. 509, 514 (Bankr. E.D.N.Y. 1991) (internal citations omitted). It is not

enough for the requesting party to show that the discovery sought is relevant to the bankruptcy

proceedings. Id. The requesting party must demonstrate “good cause” for requiring production.

“The burden of showing good cause is an affirmative one in that it is not satisfied merely by a

showing that justice would not be impeded by production of the documents.” Id.

14. If the requesting party shows “good cause” for a Rule 2004 examination, the court

must also weigh whether the relevance of the requested discovery is outweighed by the potential

burden on the entity to be examined. See In re Express One Int’l, Inc., 217 B.R. 215, 217 (Bankr.

E.D. Tex. 1998) (“[I]f the cost and disruption to the examinee attendant to a requested

examination far outweighs the benefits to the examiner, the request should be denied.”). Requests

to examine third parties under Rule 2004 are considered especially burdensome because they risk

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intruding into the third party’s confidential and proprietary business affairs, including affairs

which are irrelevant to the bankruptcy proceedings or to the administration of the debtor’s estate.

See, e.g., In re Cont’l Forge Co., 73 B.R. 1005, 1006 (Bankr. W.D. Pa. 1987) (“Rule 2004 is not

intended to be used as a vehicle for gathering confidential information for which no reasonable

need is shown.”).

A. THE TRUST HAS NOT SHOWN “GOOD CAUSE” FOR A RULE 2004 EXAMINATION OF HBC, HBS, THE HBS LANDLORDS, OR THE DEBTORS.

15. The Trust’s motion for a Rule 2004 examination falls far short of establishing good

cause for discovery. A party seeking a Rule 2004 examination typically establishes good cause

in one of two ways. First, the requesting party may show good cause by establishing that the

examination “is necessary to establish the claim of the party seeking the examination[.]” In re

Metiom, Inc., 318 B.R. 263, 268 (S.D.N.Y. 2004) (internal citations omitted). Second, the

requesting party may establish that “denial of such request would cause the examiner undue

hardship or injustice.” Id. The Trust has done neither.

16. The Trust’s requested examination is not necessary to establish (and is completely

irrelevant to) any potential claims that it may assert in these proceedings, particularly if the

Standing Motion is denied. In fact, the entire purpose of the parties’ stipulation was to address

then the threshold issue of the Trust’s standing to assert rights under the Master Lease before the

Trust was empowered to continue filing scattershot pleadings premised (as is the instant motion)

on the existence those contested rights. Nevertheless, without having established standing, the

Trust now seeks discovery concerning any agreements between Debtors, on the one hand, and

HBC, HBS, or the HBS Landlords, on the other, to forbear with respect to, not enforce, or defer

the payment of Rent under the Master Lease and the Asset Purchase Agreement (the “APA”).

(Rule 2004 Mot. ¶¶ 1 & 7.) As this Court is aware, the Standing Motion raises purely legal issues

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concerning the Trust’s contractual rights under the Master Lease and the SNDA. Those legal

issues are fully briefed and the parties are awaiting a decision from this Court. If, as HBC, HBS,

and the HBS Landlords have argued, the Trust has no right to compel rent payments from Lord

& Taylor under the Master Lease, then negotiations between the Debtor tenant and its landlords

are completely irrelevant to any potential claim in these cases.

17. But even if the Court does ultimately conclude that the Trust has standing to compel

rent payments from Lord & Taylor, the Trust already has all of the relevant information sought

by its Rule 2004 examination. Both HBS and the Debtors have publicly disclosed that the HBS

Landlords offered to forbear from collecting rent from Lord & Taylor under the Master Lease. In

fact, HBS disclosed publicly before the Trust filed its Standing Motion that it “has informed the

Debtors that it would be willing to enter into an agreement with Debtors under which HBS would

forbear from collecting rents under the Leases during Lord & Taylor’s liquidation sales.” (Dkt.

195 at 6.) Both HBS and the Debtors again discussed that offer to forbear in their respective

September 18 responses to the Standing Motion. (Dkt. 353 at ¶1 (noting that HBS “has offered

to forbear from enforcing Lord & Taylor’s rent obligations during these proceedings to facilitate

the efficient disposition of this bankruptcy”); Dkt. 358 at ¶5 (“HBS has offered the Debtors a

forbearance on any rent owed under the Master Lease”).) The Trust’s insistence on discovery

concerning the existence of that offer, which has no bearing on whether the Trust can compel rent

payments from Lord & Taylor, is therefore irrelevant regardless of the outcome of the Standing

Motion.

18. The Trust’s conclusory assertion that its Rule 2004 motion is necessary to root out

general collusion between the HBS Landlords and Lord & Taylor is frivolous. No basis exists,

or is offered, for this fishing expedition, nor is the basis for any such allegation of “collusion”

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explained. The Trust claims that it “is concerned here about the same possibility of collusion

between landlord and tenant that Circuit Judge Richard Posner noted in CWCapital Asset Mgmt.

LLC v. Chicago Props., LLC, 610 F.3d 497, 503 (7th Cir. 2010) . . . with respect to lease

modifications that adversely impact the value of that lease when it is a lender’s collateral.” (Rule

2004 Mot. at ¶ 2.) In CWCapital, Judge Posner observed that a “critical provision” of the relevant

Subordination, Non-Disturbance and Attornment Agreement—which stated, essentially, that “the

lender isn’t bound by any rent that the tenant may have paid in advance, nor by any modification

of the lease made without the lender’s consent that reduces the term of the lease or the tenant’s

monetary obligations under it”—protected the lender from collusion between landlord and tenant.

CWCapital v. Chicago, 610 F.3d at 503. Section 5 of the SNDA contains that exact protection

against collusion that Judge Posner referred to as a “critical provision” in CWCapital. Notably,

Judge Posner did not find any collusion between landlords and tenants in CWCapital, and held

that the plaintiff mortgage servicer was not entitled to settlement proceeds for unpaid rent that the

landlord mortgagor received from the underlying tenant. See Id. at 504.

19. The Trust has also failed to show that producing the requested information is

necessary to prevent “undue hardship or injustice” to the Trust. In fact, the limited relevance (if

any) of the information sought by the Rule 2004 examination is far outweighed by the exceptional

burden that the Trust seeks to impose on HBC, HBS, and the HBS Landlords. The Trust’s Motion

calls for an examination of thirty-three entities, including HBC, HBS, and all of the HBS

Landlords, on seven broad topics. (Rule 2004 Mot. ¶¶ 6-7.) As a result, HBC, HBS, and the HBS

Landlords would be forced to expend immense resources on producing documents and preparing

witnesses for depositions, simply to produce information that the Trust already has and that is not

necessary to prove any claim in these cases. That is plainly improper and is independent grounds

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for denying the Trust’s motion. See In re Bibhu LLC, No. 17-10042, 2019 WL 171550, at *2

(Bankr. S.D.N.Y. Jan. 10, 2019) (“[T]he examination should not be so broad as to be more

disruptive and costly to the [producing party] than beneficial to the [requesting party].”). The

Trust has therefore failed to show good cause for a Rule 2004 examination and its request should

be denied.

B. THE TRUST IS SEEKING A RULE 2004 EXAMINATION FOR PLAINLY IMPROPER PURPOSES.

20. The Trust strains to show good cause for a Rule 2004 examination because its actual

purposes for seeking discovery are improper. Specifically, the Trust appears to be attempting to

obtain discovery to benefit it in other, pending litigation, and to do an end-run around the various

discovery rules governing that other litigation. Moreover, the Trust appears to be using its

proposed Rule 2004 examination as its latest tactic in a campaign to annoy, harass, and oppress

HBC, HBS, the HBS Landlords, and the Debtors, thereby distracting all parties and the Court

from the efficient administration of the Debtors’ estates and the amicable resolution of all disputes

related to the payment of rent for Lord & Taylor physical locations.

21. The Trust’s litigation offensive against HBC began with a motion seeking an

emergency preliminary injunction against, and expedited discovery from, HBC concerning

HBC’s recent corporate restructuring and the Trust’s purported rights under the Loan Agreement

in the U.S. District Court for the Southern District of New York. (See Complaint at 32-33,

Wilmington Trust, N.A. v. Hudson’s Bay Company, et al. (S.D.N.Y. May 18, 2020) (No. 20-CV-

3830).) The Trust also sought to freeze all of HBC’s assets as part of that application. (Id.) On

May 27, 2020, less than two weeks later, Judge Gregory Woods denied the Trust’s requests for

injunctive relief and expedited discovery, observing that the Trust had not established a likelihood

of success on the merits or irreparable harm, and instead appeared to be “using . . . litigation to

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obtain information which it did not contract to obtain from” HBC. (May 27, 2020 Hr’g Tr. 45:19-

23.) The Trust dismissed that case voluntarily two months later for lack of diversity jurisdiction,

but its offensive against HBC continued.

22. On September 18, while the Standing Motion was pending, the Trust filed a new

complaint against HBC in New York Supreme Court, in which the Trust alleges, among other

things, that HBC, HBS, and the HBS Landlords have breached certain Master Lease Guarantees

by failing to pay rent for Lord & Taylor physical locations since April 2020 (the “NY State

Action”). (Complaint at ¶¶ 19-21, Wilmington Trust, N.A. v. HBC L.P. and Hudson’s Bay

Company ULC (N.Y. Sup. Ct. Sept. 18, 2020) (No. 654565/2020) (attached hereto as Exhibit A).)

That complaint also includes detailed allegations concerning Lord & Taylor’s financial

performance and rent payments to the HBS Landlords and notes, for example, that “repayment of

the Loan was dependent on Lord & Taylor and Saks continuing to meet their long-term rent

obligations.” (Ex. A at ¶ 8.) The Trust simultaneously began filing actions and notices of default

against the HBS Landlords in state courts around the country (the “Additional Actions”). (E.g.,

Dkt. 469.)

23. The NY State Action and the Additional Actions clearly relate to the topics of the

proposed Rule 2004 Examination. Rather than obtain discovery in those proceedings pursuant to

the various state rules governing discovery, the Trust appears to be attempting an end-run around

those discovery rules by asking the Bankruptcy Court to bless an inquiry into all matters related

to the payment of rent by the Debtors, HBC, and HBS Landlords. The Trust’s abuse of Rule 2004

in this matter is impermissible and an independent basis for rejecting the Trust’s motion. See In

re Enron Corp., 281 B.R. 836, 842 (Bankr. S.D.N.Y. 2002) (rejecting Rule 2004 examination that

would benefit examiner in separate securities fraud action); see also Snyder v. Soc’y Bank, 181

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B.R. 40, 42 (S.D. Tex. 1994), aff'd sub nom. In re Snyder, 52 F.3d 1067 (5th Cir. 1995) (“The use

of Rule 2004 to further [the examiner’s] case in state court constitutes an abuse of Rule 2004.”);

In re Cambridge Analytica LLC, 600 B.R. 750, 752 (Bankr. S.D.N.Y. 2019) (“Courts have

exhibited . . . concerns when confronted with the propriety of Rule 2004 examinations where the

party requesting the Rule 2004 examination is to benefit in pending litigation outside of the

Bankruptcy Court.”). If the Trust requires discovery to support its claims against HBC or the

HBS Landlords in pending proceedings outside of the Bankruptcy Court, it must seek that

discovery through the state court proceedings, subject to their respective discovery rules.

24. The Trust’s flagrant disregard for its prior agreements with HBC, the HBS

Landlords, and the Debtors, as well as this Court’s September 9 order, further indicate that the

Trust’s purpose is simply to annoy and harass HBC, HBS, the HBS Landlords, and the Debtors

to the detriment of the Debtors’ estates. As explained above, HBC, HBS, the HBS Landlords,

Debtors, and the Trust agreed on September 9 to brief the legal issues raised by the Standing

Motion and await this Court’s order on whether the HBS Landlords or the Trust has standing to

compel the collection of rent—or to forbear from collecting rent—from Lord & Taylor under the

Master Lease. (Dkt. 301.) The Court so ordered that agreement, as set forth in the Stipulation

and Agreed Scheduling Order, dated September 9, 2020. (Id.) But shortly after all parties

expended significant resources briefing and arguing those legal issues before this Court, the Trust

did an about-face. On October 6, the Trust entered a misleadingly captioned “Revised Proposed

Order” on its Standing Motion that fundamentally re-characterized the relief it sought with its

Standing Motion, insisted that the Court defer its ruling “on the Trust’s right to compel of [sic]

payment of Rent to the Lockbox,” and unilaterally declared that the Trust would seek additional

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discovery concerning “any forbearance, deferral, or other arrangements with respect to the

payment of Rent under the Master Lease . . . .” (Dkt. 417 at ¶ 3.)

25. When the Trust filed its proposed Rule 2004 examination several days later, it offered no

explanation as to how its proposed discovery supported potential claims, nor why it should be

entitled to any discovery before the Court rules on its Standing Motion. That is because the

Trust’s motion was not submitted for a legitimate purpose, but to harass, intimidate, and oppress

HBC, HBS, the HBS Landlords, and the Debtors, and to coerce them into expensive litigation or

duplicative court proceedings. HBC, HBS, and the HBS Landlords respectfully request that the

Court reject such litigation tactics and deny the Trust’s Rule 2004 Motion. See, e.g., In re

Strecker, 251 B.R. 878, 883 (Bankr. D. Colo. 2000) (rejecting Rule 2004 examination intended

“to harass, intimidate, and/or coerce debtors into (a) summarily seeking unwise or forced

settlements, (b) incurring unnecessary and burdensome attorney's fees and other costs, or (c)

paying off [the examiner] to avoid a trial, or complete denial of a discharge”).

CONCLUSION

For the reasons stated above, HBC, HBS, and the HBS Landlords respectfully submit that

the Court should deny the Trust’s Rule 2004 Motion.

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Dated: October 29, 2020 Respectfully submitted,

/s/ Christopher A. Jones Christopher A. Jones (VSB # 40064) David W. Gaffey (VSB # 85088) WHITEFORD, TAYLOR & PRESTON L.L.P. Two James Center 1021 E. Cary Street, Suite 1700 Richmond, VA 23219 Telephone: (804) 977-3300 Email: [email protected] [email protected]

and

John C. Longmire (admitted pro hac vice) Jeffrey B. Korn (admitted pro hac vice) Agustina G. Berro (admitted pro hac vice) Brittany M. Wagonheim (admitted pro hac vice) WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue New York, NY 10019 Telephone: (212) 728-8000 Email: [email protected] [email protected] [email protected] [email protected]

16 Case 20-33332-KLP Doc 490 Filed 10/29/20 Entered 10/29/20 19:12:39 Desc Main Document Page 17 of 41

CERTIFICATE OF SERVICE

I hereby certify that on this October 29, 2020, a copy of the foregoing pleading was filed

and served via the Court’s Electronic Case Filing System on all parties receiving such

notification and on all parties on the attached Service List by email.

/s/ Christopher A. Jones Counsel

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2002 List - Email Service only October 1, 2020 NAME ATTENTION EMAIL B.H. MULTI COM CORP. D/B/A EFFY, B.H. MULTI COLOR CORP. D/B/A C/O KLESTADT WINTERS JURELLER [email protected] EFFY, RICHLINE GROUP, INC., AND LEVIAN CORP SOUTHARD & STEVENS, LLP [email protected] [email protected] B.H. MULTI COM CORP. D/B/A EFFY, B.H. MULTI COLOR CORP. D/B/A [email protected] EFFY, RICHLINE GROUP, INC., AND LEVIAN CORP C/O STINSON LLP [email protected] BETSY & ADAM SALES INC C/O PICK & ZABICKI LLP [email protected] BLONDIE NITES LTD C/O PICK & ZABICKI LLP [email protected] [email protected] BP PRUCENTER ACQUISITION LLC C/O GOULSTON & STORRS PC [email protected] C/O TROUTMAN PEPPER BP PRUCENTER ACQUISITION LLC HAMILTON SANDERS LLP [email protected] BROOKFIELD PROPERTIES RETAIL, INC., AS AGENT ATTN: KRISTEN N. PATE [email protected] CAPITAL ONE, N.A. C/O HUNTON ANDREWS KURTH LLP [email protected] CAPITAL ONE, N.A. C/O HUNTON ANDREWS KURTH LLP [email protected] [email protected] CARLYLE GLOBAL CREDIT INVESTMENT MANAGEMENT LLC C/O CHOATE, HALL & STEWART LLP [email protected] [email protected] CARLYLE GLOBAL CREDIT INVESTMENT MANAGEMENT LLC C/O MCGUIREWOODS LLP [email protected] CIGNA HEALTH AND LIFE INSURANCE COMPANY AND CIGNA C/O CONNOLLY GALLAGHER LLP DENTAL HEALTH [email protected] CIGNA HEALTH AND LIFE INSURANCE COMPANY AND CIGNA C/O TROUTMAN PEPPER DENTAL HEALTH HAMILTON SANDERS LLP [email protected] HANESBRANDS INC. C/O WALDREP LLP [email protected] HILCO MERCHANT RESOURCES, LLC AND GORDON BROTHERS C/O ECKERT SEAMANS [email protected] RETAIL PARTNERS, LLC CHERIN & MELLOTT, LLC [email protected] HILCO MERCHANT RESOURCES, LLC AND GORDON BROTHERS [email protected] RETAIL PARTNERS, LLC C/O PAUL HASTINGS LLP [email protected] MAZZA FAMILY FRIENDSHIP HEIGHTS LLC C/O HOLLAND & KNIGHT LLP [email protected] MISSOURI DEPARTMENT OF REVENUE C/O BANKRUPTCY UNIT [email protected] OFFICE OF UNEMPLOYMENT COMPENSATION TAX SERVICES DEPARTMENT OF LABOR AND INDUSTRY, (UCTS) COMMONWEALTH OF PENNSYLVANIA [email protected] OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF LE TOTE, INC., ET AL. C/O COOLEY LLP [email protected] [email protected] [email protected] OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF LE TOTE, [email protected] INC., ET AL. C/O COOLEY LLP [email protected] ROTH BROS., INC. C/O SODEXO, INC. [email protected] SIMON PROPERTY GROUP, INC. ATTN: RONALD M TUCKER [email protected] STATE OF MICHIGAN, DEPARTMENT OF TREASURY ATTN: KATHERINE KAKISH [email protected] THE TAUBMAN LANDLORDS ATTN: ANDREW S. CONWAY [email protected] C/O TROUTMAN PEPPER THE TAUBMAN LANDLORDS HAMILTON SANDERS LLP [email protected] [email protected] WELLS FARGO BANK, NATIONAL ASSOCIATION, IN ITS CAPACITIES [email protected] AS ADMINISTRATIVE AGENT, L/C ISSUER AND SWING LINE LENDER C/O OTTERBOURG PC [email protected] [email protected] [email protected] WELLS FARGO BANK, NATIONAL ASSOCIATION, IN ITS CAPACITIES [email protected] AS ADMINISTRATIVE AGENT, L/C ISSUER AND SWING LINE LENDER C/O WILLIAMS MULLEN [email protected] WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE IN TRUST FOR HOLDERS OF HUDSON’S BAY SIMON JV TRUST 2015- HBS, COMMERCIAL PASS-THROUGH CERTIFICATES, SERIES 2015- HBS, ACTING BY AND THROUGH SITUS HOLDINGS, LLC, AS ITS SPECIAL SERVICER C/O ZEMANIAN LAW GROUP [email protected] WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE IN TRUST FOR HOLDERS OF HUDSON’S BAY SIMON JV TRUST 2015- HBS, COMMERCIAL MORTGAGE PASSTHROUGH CERTIFICATES, SERIES 2015-HBS, ACTING BY AND THROUGH SITUS HOLDINGS, C/O JEFFER MANGELS [email protected] LLC, ITS SPECIAL SERVICER BUTLER & MITCHELL LLP [email protected] [email protected] XCEL BRANDS C/O LAZARUS & LAZARUS, P.C. [email protected] XSCAPE EVENINGS LTD C/O PICK & ZABICKI LLP [email protected] FILED: NEW YORK COUNTY CLERK 09/18/2020 08:08 PM INDEX NO. 654565/2020 NYSCEF DOC.Case NO. 20-33332-KLP 2 Doc 490 Filed 10/29/20 Entered 10/29/20 19:12:39RECEIVED DescNYSCEF: Main 09/18/2020 Document Page 19 of 41

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK Exhibit A

WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE IN TRUST FOR Index No. ______THE BENEFIT OF THE HOLDERS OF HUDSON’S BAY SIMON JV TRUST 2015-HBS, COMMERCIAL MORTGAGE PASS- THROUGH CERTIFICATES, SERIES 2015-HBS, BY SITUS HOLDINGS, LLC, IN ITS CAPACITY AS SPECIAL SERVICER, COMPLAINT Plaintiff,

-against-

HBC L.P. AND HUDSON’S BAY COMPANY ULC,

Defendants.

Wilmington Trust, National Association, as Trustee (the “Trustee”) in Trust for

the benefit of the Holders (the “Certificateholders”) of Hudson’s Bay Simon JV Trust 2015-HBS

(the “Trust”), Commercial Mortgage Pass-Through Certificates, Series 2015-HBS, by Situs

Holdings, LLC, in its capacity as Special Servicer (“Situs” or the “Servicer”); the Trust as

successor to JPMorgan Chase Bank, National Association, Column Financial Inc., and Bank of

America, N.A. (“Lender,” and together with Situs in its capacity as such and Trustee,

collectively, “Plaintiff”), acting by and through its undersigned attorneys, and by way of

Complaint against HBC L.P. (“HBC Bermuda”) and Hudson’s Bay Company ULC (“HBC

ULC,” and together with HBC Bermuda, collectively, “Defendants”), alleges as follows:

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NATURE OF THE ACTION

1. Plaintiff brings this action to enforce Defendants’ absolute, unconditional, and

irrevocable written guarantees of rent payments owed under two unitary, master leases that

Defendants’ predecessor, Hudson’s Bay Company (“HBC”), gave in order to induce Lender to

make an $846.2 million loan (the “Loan”) that is now in default. As detailed herein, and as

recently reaffirmed under oath by Defendants, Defendants have fully assumed – and are fully

liable for – HBC’s obligations under the guarantees.

2. In 2015, when the Loan was made, HBC was a publicly traded, multi-billion

dollar, Canada-based department store retailer that owned, among other things, American

department store operators Lord & Taylor LLC (“Lord & Taylor”) and Saks & Company LLC

(“Saks”). The Lord & Taylor department store chain consisted of 38 stores and Saks operated 45

Saks Fifth Avenue department stores.

3. Although HBC generated substantial revenue in 2015, its department stores – like

other traditional “brick-and-mortar” businesses – were facing fierce competition from online

shopping and ecommerce. Over time, traditional retail was losing market share, revenue, and

profit to online retail. Lord & Taylor in particular was experiencing falling revenues and

declining profitability for at least three years before issuance of the Loan.1

4. As a result, HBC expressly agreed to a series of protections designed to backstop

the Loan and provide absolute protection to Lender in the event of default. Chief among these

protections were guarantees that would ensure that loan payments would be paid – even if the

1 Lord & Taylor, which has recently filed for bankruptcy, is not a party to this action.

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department stores faltered or ultimately failed. These guarantees were particularly important,

given the negative Lord & Taylor trends.

5. The structure of the Loan and the guarantees were straightforward: HBC

contributed the real estate occupied by 34 stores – 24 (of the 38) Lord & Taylor stores, and ten

(of the 45) stores operated by Saks. Each store was conveyed to a new entity ultimately owned

or controlled by HBC, and each of the new entities gave the Lender a mortgage against the

property and became a borrower on the loan (a “Borrower”). Each Borrower was jointly and

severally responsible for repayment of the Loan.

6. Simultaneously, each Borrower also entered into one of two unitary, 20-year

master operating lease agreements with either Lord & Taylor or Saks. The master lease required

the tenant to pay rent due to Borrowers (now “Borrower Landlords”) into a lockbox controlled

by the Lender, who among other things would apply the cash flow from the rents to pay the debt

service on the Loan.

7. Although each store’s rent was broken down in the master lease, the lease was

unified and required the total rent for all stores to be paid by either Lord & Taylor or Saks. As a

result, the rent obligation under each master lease was effectively backed by the full department

store chain, as opposed to being dependent on any individual Lord & Taylor or Saks location.

Furthermore, the size of the Loan relative to the rent payments under the master leases ensured

that the rent would more than cover the debt service, and indeed ultimately could pay off the

Loan in full, in the event of a default.

8. Because the Borrowers’ only cash flows derived from their roles as landlords,

repayment of the Loan was dependent on Lord & Taylor and Saks continuing to meet their long-

term rent obligations. Given the competitive headwinds – both foreseen and unforeseen – facing

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brick-and-mortar department stores, this structure would not provide sufficient Lender protection

without a guarantee from a parent entity with sufficient creditworthiness to stand behind each

department store chain’s rent obligations. This was particularly true with respect to Lord &

Taylor, whose 24 stores in the three fiscal years leading up to issuance of the Loan, on

information and belief, already had seen aggregate sales and “4-wall EBITDAR” – i.e., in-store

(within the 4 walls of the store) profitability – suffer material, year-over-year declines.

9. The Loan thus provided for unique (in a capital markets securitized mortgage

loan) Lender-protective covenants to address Lord & Taylor’s relative credit weakness,

including, for example, by requiring that the rent paid by Saks stores could never comprise less

than 25% of the rent pool, and providing that if the ratio of EBITDAR-to-rent under the master

leases fell below 1.50x, all excess cash from rents paid into the lockbox would be “trapped” and

held as additional collateral that could be applied by Lender against the debt.

10. To provide the necessary additional security for the Loan beyond the department

store chains, and thus address the possibility that the already faltering Lord & Taylor and/or

Saks, for whatever reason, might not pay rent, HBC agreed to provide absolute, unconditional,

and irrevocable guarantees of rent to the Borrower Landlords. These guarantees placed the full

financial strength of the ultimate parent company behind the rent payment obligation.2

11. The Borrower Landlords then presently and absolutely assigned the Master Lease

Guarantees to Lender as part of the collateral for the Loan.

2 The two master lease guarantees are: (A) the Guarantee dated as of July 22, 2015 (attached hereto as Exhibit 1), by HBC in favor of the Lord & Taylor Borrower Landlords (the “L&T Master Lease Guarantee”; and (B) the Guarantee dated as of July 22, 2015 (attached hereto as Exhibit 2) by HBC in favor of the Saks Borrower Landlords (the “Saks Master Lease Guarantee” and, together with the L&T Master Lease Guarantee, the “Master Lease Guarantees”).

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12. Supporting the Loan through payments of rent backed by the assets of the entire,

international HBC enterprise, as opposed to 34 U.S. department stores, was critical. As touted to

Certificateholders at the time of issuance of the Loan, “HBC is one of the fastest growing

department store retailers in the world, based on its successful formula of driving the

performance of high quality stores and their all-channel offerings, unlocking the value of real

estate holdings and growing through acquisitions. HBC’s portfolio today includes eight brands,

in formats ranging from luxury to better department stores to off prices, with more than 460

stores and 65,000 employees around the world.” And, HBC expressly agreed to waive any

defense to its guarantees of rent payments based on a change in either its own or the tenants’

financial condition.

13. Without the absolute and irrevocable Master Lease Guarantees, the Loan would

not have been made. The structural and collateral term sheet, as well as the offering circular on

which the Loan was sold to Certificateholders, highlighted both the strength of HBC, and that it

“guaranteed to the … Borrowers full and punctual ... payment of all monetary obligations

payable” under the master leases by Lord & Taylor and Saks.

14. To further cement the critical credit support of the Master Lease Guarantees, Lord

& Taylor and Saks were prohibited from assigning any or all of their obligations as tenants under

the master leases unless, among other things: (i) HBC ratified its Master Lease Guarantees; or

(ii) the assigning tenant provided a “Replacement Guarantor” with a net worth of at least

$2,500,000,000.00 and liquidity of at least 200% of the fixed annual rent under the master lease.

15. For more than four years, Lord & Taylor and Saks paid the monthly rent due to

the Borrower Landlords under the unitary master leases. The rents were paid into the lockbox

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controlled by the Lender, and the Lender administered the lockbox to service the debt in

accordance with the terms of the Loan.

16. Between the origination of the Loan in 2015 through the holiday season in 2019,

the growing risk to traditional brick-and-mortar department stores was exacerbated, as online

retailers trended up, while Lord & Taylor in particular continued its downward slide. From the

start of fiscal year 2015, through the last reported trailing twelve months as of November 2,

2019, the 24 Lord & Taylor stores’ total sales and 4-wall EBITDAR plummeted. Those results

contributed over the same time frame to a devastating decline in annual sales across the entire

Lord & Taylor department store chain. These not unanticipated events further validated the

necessity of the Master Lease Guarantees.

17. In March 2020, HBC reorganized from a publicly-held company into a privately-

owned company. Defendant HBC ULC became the successor to HBC, and Defendant HBC

Bermuda additionally assumed HBC’s Master Lease Guarantees.3 As a result, both HBC ULC

and HBC Bermuda are jointly and severally liable for HBC’s obligations under the Master Lease

Guarantees, and are fully responsible for the full and punctual payment of all rents under the

master leases.

18. Following the take-private action, Lord & Taylor and Saks both stopped making

rent payments. Rent due on April 1, 2020 was never paid, and no rent payments have been made

since, notwithstanding that as of on or about July 20, 2020, all 34 stores were open. Without

rent, no funds have been paid into the lockbox, and accordingly no debt service payments have

been made under the Loan. The Loan has been in default since April 2020.

3 A copy of HBC Bermuda’s Assumption Agreement is attached hereto as Exhibit 3.

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19. On April 24, 2020, Lender demanded that the Borrower Landlords, pursuant to

the terms of the Master Lease Guarantees, demand the full and immediate payment to the

lockbox of all rents due, payable, and as yet unpaid. However, the Borrower Landlords are

ultimately controlled by Defendant HBC Bermuda, and thus are in a conflict-induced state of

deliberate inaction. Simply, Defendants have no incentive to cause their affiliates to enforce

against them the rent obligations they guaranteed.

20. Defendants have thus failed and refused to honor their obligations to guarantee

the full and prompt payment when due of all rent due under the master leases. This action is

brought to enforce Defendants’ absolute and unconditional Master Lease Guarantees in

accordance with their terms.

21. Defendants are in breach of the Master Lease Guarantees and should be ordered

to immediately pay into the lockbox all rent due and owing, and to pay all other expenses under

the applicable master leases, including pre-judgment interest at the higher of the New York

statutory rate of 9% or the Default Interest Rate under the master lease. Defendants also should

be ordered to make all payments due under the Master Lease Guarantees on a timely basis going

forward.

PARTIES

A. Plaintiff

22. Wilmington Trust, National Association (the “Trustee”) is a national bank with its

principal place of business located in Wilmington, Delaware.

23. Hudson’s Bay Simon JV Trust 2015-HBS, Commercial Mortgage Pass-Through

Certificates, Series 2015-HBS, is a commercial mortgage-backed securities trust.

24. Situs Holdings, LLC is a Delaware limited liability company with its principal

place of business located in San Francisco, California. Situs is the Special Servicer and is

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authorized to take certain actions, including initiate this litigation, in its representative capacity

on behalf of the Trust pursuant to Section 3.1 of the Trust and Servicing Agreement (as amended

to date, the “TSA”) dated as of November 1, 2015 for the Hudson’s Bay Simon JV Trust 2015-

HBS Commercial Mortgage Pass-Through Certificates, Series 2015-HBS.

B. Defendants

25. Defendant HBC ULC is a corporation organized under the laws of Canada with,

upon information and belief, its principal place of business located in Ontario, Canada.

26. Defendant HBC Bermuda is a limited partnership organized under the laws of

Bermuda with, upon information and belief, its principal place of business located in Ontario,

Canada.

JURISDICTION AND VENUE

27. This Court has jurisdiction over this proceeding pursuant to CPLR §§ 301 and

302.

28. This Court has personal jurisdiction over HBC ULC by virtue of inter alia the

irrevocable submission to New York jurisdiction provision in Section 4.1 of the Master Lease

Guarantees, which provides in pertinent part: “[e]ach Party hereto irrevocably submits to the

exclusive jurisdiction of the state and federal courts of . . . New York . . . [and e]ach Party . . .

acknowledges that it and the other parties hereto have been induced to enter into this [Master

Lease Guarantee] Agreement, as applicable, by, among other things, the . . . certifications in this

Section 4.1.” HBC ULC is a successor to HBC and, therefore, is bound by Section 4.1 of the

Master Lease Guarantees.

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29. This Court has personal jurisdiction over HBC Bermuda because it entered into an

Assumption Agreement in which it assumed the Master Lease Guarantees and submitted to the

exclusive jurisdiction of New York over this matter.

30. Plaintiff designates New York County as the place of venue. Venue is properly

based in this Court under CPLR § 501 due to Defendants’ succeeding to, or assumption of,

HBC’s written consent to venue in New York County and waiver of any defense thereto.

FACTUAL ALLEGATIONS

I. In the Face of Fierce Competition from Online Retailers, Traditional Brick-and- Mortar Department Stores Present Substantial Credit Risk

31. As of mid-2015, HBC, a multi-billion-dollar, then-publicly traded Canadian

corporation, was one of the major Canadian and United States department store operators,

owning, among other things, (i) the American department stores Saks Fifth Avenue and Lord &

Taylor, and (ii) the real estate and brick-and-mortar stores used in those operations.

32. For many decades, Lord & Taylor and Saks have been dominant players in the

American department store industry. However, online “cyber” shopping has caused substantial

disruption in traditional department store operations.

33. Indeed, by 2015, traditional brick-and-mortar retail, and in particular department

stores such as Lord & Taylor, were already facing a significant competitive threat from online

retailers and were losing market share, revenue and profits to these competitors. In the three

fiscal years leading up to the issuance of the Loan, on information and belief, aggregate sales in

the 24 Lord & Taylor stores operated under the master lease had already fallen substantially, in a

continuing, year-over-year negative trend. The profitability of the in-store operations of those

stores, measured as “4-wall EBITDAR” (earnings before interest, taxes, depreciation,

amortization and rent), also was declining materially over the same time period.

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34. The threat of ecommerce, combined with their vulnerability to discretionary retail

spending – as revealed particularly in the underperformance of Lord & Taylor – made these

department stores too high a credit risk without further credit support; i.e., the absolute,

irrevocable and unconditional Master Lease Guarantees at issue.

II. HBC Induces $846 Million Loan by Offering Unconditional Guarantee and Other Lender Protections

A. The Loan Structure

35. In July 2015, in connection with the structuring of the $846 million Loan, the

properties at which 34 Lord & Taylor and Saks stores operated were mortgaged in a sale-

leaseback transaction. All of HBC’s Lord & Taylor and Saks stores in each respective

department store chain would effectively ensure repayment of the loan, backstopped by

unconditional guarantees provided by HBC itself.

36. HBC, through its wholly owned subsidiaries and its 62%-owned, joint venture

subsidiary HBS Global Properties LLC (“HBS”), implemented sale-leaseback and financing

transactions in a substantially simultaneous set of coordinated transactions that closed on July 22,

2015. HBC, through its subsidiaries, contributed the real estate occupied by 34 of its stores to

HBS. Each property was conveyed to a newly formed entity, which became a landlord who then

leased the property to the large department store operating companies Lord & Taylor or Saks.

37. Specifically, 34 special purpose Delaware limited liability companies (the

Borrower Landlords) were created to own the fee or ground leasehold of each of 34 Lord &

Taylor and Saks Fifth Avenue stores (the “Leased Stores”). HBC passed, through its controlled

subsidiaries, each property on which one of the 34 stores was operated, to a corresponding single

Borrower Landlord. The Borrower Landlords then became borrowers on the Loan.

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38. As one form of security for the Loan, each Borrower Landlord gave Lender a

mortgage or deed of trust (collectively, the “Mortgages”) secured by the underlying properties.

The Borrower Landlords also collectively agreed to repay the Loan.

39. The Loan was originated by JPMorgan Chase Bank, National Association, Bank

of America, N.A. and Column Financial, Inc. Pursuant to a mortgage loan purchase agreement,

the Loan was then deposited into, transferred, conveyed, and assigned to Lender as of November

1, 2015.

B. The Master Leases

40. Simultaneously with becoming borrowers under the Loan, the 34 Borrower

Landlords also became landlords under one of the two unitary, 20-year master leases (the

“Master Leases”) with either Lord & Taylor or Saks as tenant and operator of the Leased Stores.

Although the rent was allocated on a store-by-store basis in the Master Leases, each department

store chain operator was responsible for all of the rent due. Accordingly, the Lord & Taylor and

Saks operating entity tenants agreed to pay the full, aggregate monthly rent (the “Rent”) to

Borrower Landlords, along with ground rent (if applicable), real estate taxes, and other costs

associated with the use and occupancy of the property. This structure meant that payment of Rent

was not dependent on the operation of any one store location, and thus diminished the risk

profile of the Loan.

41. To further mitigate the credit exposure to the weaker Lord & Taylor department

store chain, the Loan also included a bespoke provision that ensured that the Borrower Landlords

could not take any action that would cause the Rents from the Saks Master Lease to comprise

less than 25% of the total operating rents under both Master Leases that provided the cash flow

to Borrower Landlords to pay the debt service on the Loan.

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42. The monthly Rent due under the Master Leases was approximately $8.3 million

per month as of April 2020, which amount was subject to escalators over time. The Rent was

deposited into a lockbox controlled by the Lender and the Lender applied the funds to pay the

debt service on the Loan.

43. The Rent was more than sufficient for the Borrower Landlords to make the

monthly, interest-only debt service payments on the Loan. Furthermore, in the event of default,

or in the event that the ratio of EBITDAR-to-rent fell below 1.50x, the lockbox would be subject

to a “cash trap” – meaning the Lender not only would be entitled to apply that portion of monthly

Rent necessary to pay the debt service, but could retain the entire Rent payment as additional

collateral to be applied against the Loan.

44. This made the payment of Rent essential to the repayment of the Loan.

45. However, given the headwinds facing brick-and-mortar department stores, relying

entirely on the Lord & Taylor or even the Saks department store chain to pay the Rent due under

the Master Leases still would not provide sufficient credit support for the Loan. Accordingly,

the Loan was structured to provide an absolute, unconditional, and irrevocable guaranty of each

Master Lease obligation from the ultimate parent company, HBC.

C. The Absolute, Unconditional and Irrevocable Master Lease Guarantees

46. To provide sufficient credit support for the Loan and thereby diminish the ever-

increasing risk associated with lending to traditional brick-and-mortar department stores, and in

particular the already declining Lord & Taylor, HBC agreed to provide critically important credit

protection in the form of a written, absolute, unconditional and irrevocable guarantee of the

tenants’ obligations to pay Rent.

47. Specifically, HBC entered into the Master Lease Guarantees, under which it

absolutely, unconditionally and irrevocably guaranteed the payment of Rent and performance of

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the tenants’ other obligations under the Master Leases. While the unitary Master Leases

extended the obligation to pay Rent beyond any individual store to each full Saks or Lord &

Taylor department store chain, the Master Lease Guarantees extended the Rent obligation

beyond the U.S. department store chains to the international, then-publicly-traded, multi-billion-

dollar parent company, HBC.

48. As described to Certificateholders in 2015 in the Structural and Collateral Term

Sheet for the Loan: “HBC owns a portfolio of department store retailers, including Hudson’s

Bay, Lord & Taylor, Saks, Saks OFF 5th, Home Outfitters, SportArena and Galeria Kaufhof, the

largest department store in Germany. Hudson’s Bay is Canada’s largest national branded

department store with 90 full-line locations, two outlet stores and thebay.com. Saks Fifth

Avenue, one of the world’s pre-eminent luxury specialty retailers, comprises 38 U.S. stores, five

international licensed stores and saks.com. HBC also owns Saks OFF 5th, which offers value-

oriented merchandise through 90 U.S. stores and saksoff5th.com, Home Outfitters, which is

Canada’s largest kitchen, bed and bath specialty superstore with 63 locations and Zellers, which

operates two clearance centers.”

49. The Master Lease Guarantees stood the entire HBC enterprise behind the Rents

under the Master Leases, thus ensuring that the cash paid into the lockbox that would service the

Loan was guaranteed to flow, even in the event that any of the Leased Stores, or either of the

Saks or Lord & Taylor department store chains, would not or could not – for any reason – pay

the Rent.

50. Specifically, Section 2.1 of the Master Lease Guarantees provides in pertinent

part:

Guarantor hereby absolutely, unconditionally and irrevocably guarantees to Beneficiary [the Borrower Landlords] the full and prompt payment

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when due of, and the full and complete performance of, any and all of the Guaranteed Obligations. Upon any of the Guaranteed Obligations becoming due and payable or when any of the obligations are required to be performed, as applicable, Beneficiary shall be entitled to prompt payment by Guarantor of, and shall be permitted to demand that Guarantor perform or cause the performance of, any or all of the Guaranteed Obligations. All sums payable by Guarantor hereunder shall be paid by wire transfer of immediately available funds to the account designated by Beneficiary. ... Guarantor assumes responsibility for being and remaining informed of the financial condition of Tenant and of all other circumstances bearing upon the risk of nonpayment or nonperformance by Tenant of the Guaranteed Obligations, and Guarantor agrees that Beneficiary shall not have a duty or other obligation to advise Guarantor of information known to it regarding such condition or any such circumstance or any other information relating to or regarding Tenant or any of the transactions contemplated by the Lease.

51. “Guaranteed Obligations” are defined in the Master Lease Guarantees, in relevant

part, as:

[T]he obligations of Tenant to, (A) pursuant to the terms and conditions of the Lease: (i) pay all Rent payable by Tenant under the Lease, (ii) pay all Impositions payable by Tenant under the Lease, (iii) pay all other sums or charges payable by Tenant under the Lease or in connection with the performance by Tenant of any of the covenants, terms, conditions or agreements contained in the Lease, whether due by acceleration or otherwise, including reasonable costs and expenses of collection and (iv) perform and observe each and every covenant, term, condition and agreement of Tenant under the Lease….

52. Section 2.2 of the Master Lease Guarantees further provides that HBC’s absolute,

unconditional, and irrevocable guarantee of Rent payments are not subject to a defense that

either HBC’s or the tenants’ financial condition have deteriorated:

This Guaranty constitutes a guarantee of payment and performance when due and not of collection, and Guarantor specifically agrees that it shall not be necessary or required that Beneficiary exercise any right, assert any claim or demand or enforce any right or remedy whatsoever against Tenant either before or as a condition to the enforcement of the Guaranteed Obligations against Guarantor, and Beneficiary shall not be required to join Tenant in connection with any claim or demand (including any litigation, arbitration, action or other proceeding) made by Beneficiary against Guarantor in respect of any of the Guaranteed Obligations; provided, that Guarantor shall have the benefit of and the right to assert

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any defenses against the claims of Beneficiary that are available to Tenant, and that would have also been available to Guarantor if Guarantor had been in the same contractual position as Tenant under the Lease other than (a) defenses expressly waived in this Guaranty …. Guarantor hereby waives presentation to, demand for payment and performance from and protest to Tenant or any other Person in respect of the Guaranteed Obligations, and also waives notice of protest for nonpayment or nonperformance. In addition, Guarantor hereby waives any defense based on, and Guarantor expressly agrees that its obligations hereunder shall not be affected by, (a) lack of authority of Tenant to enter into the Lease or perform its obligations thereunder, (b) any insolvency, bankruptcy, reorganization, assignment for the benefit of creditors, liquidation, dissolution, or similar proceedings with respect to Tenant, (c) change of name, purpose, structure, organizational documents or ownership of Tenant, (d) any change in the financial condition of Guarantor or Tenant, (e) any rescission, extension, waiver, compromise amendment or modification of any of the terms of the Lease, (f) the failure of Beneficiary to assert any claim or demand or to enforce or exercise any right or remedy against Tenant under the provisions of the Lease or otherwise, (g) the release, exchange, waiver or foreclosure of any security for, or any other rights of Beneficiary in respect of, any of the Guaranteed Obligations, or any release by Beneficiary of Tenant in respect of any obligations relating to or in respect of the Guaranteed Obligations, or (h) any other circumstance, event or condition that, but for the provisions hereof, would constitute a legal or equitable discharge of the obligations of Guarantor hereunder (other than fraud or willful breach by the Beneficiary or any of its Affiliates, defenses to the payment of the Guaranteed Obligations that are available to Tenant under the Lease or breach by the Beneficiary of this Agreement). . . .

(Emphasis added).

53. Having a company with the financial wherewithal of HBC to backstop the

tenants’ Rent obligations insured that the Lender would have full recourse for Rent – not just to

the department store chain operating companies (Lord & Taylor and Saks) but to the ultimate

parent itself – and thus substantially reduced the risk that would eventuate if the stores were

forced to close, lost sales to ecommerce competitors, or suffered from their sensitivity to

economic dislocations. In this way, the Master Lease Guarantees secured the payment of the

cash flows that serve as the source of the Loan repayment.

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54. The Master Lease Guarantees were a fundamental part of an overall structure

designed to reduce credit risk. The Master Lease Guarantees and other loan documents contain

additional protections that underline the importance of the guarantees through the life of the

Loan. By way of example, the obligations of the guarantor under the Master Lease Guarantees

cannot be assigned without Lender’s consent, and the guarantor is subject to a number of

additional transaction restrictions. Moreover, the guarantor’s absolute liability for Rent is only

avoided in the limited circumstance in which a “Replacement Guarantor” is permitted, which

Replacement Guarantor, among other things, has a “Minimum Net Worth” of two billion five

hundred million dollars ($2,500,000,000) and “Minimum Liquidity” of two hundred percent

(200%) of the then-current aggregate Rent under the applicable Master Lease.

55. Moreover, the more than $2 billion aggregate Rents and twenty-year term of the

unitary Master Leases provided sufficient credit support to allow for a refinancing of the Loan in

advance of scheduled component maturity dates, as well as an assurance of cash flows to the

lockbox that would pay off the ten-year, $846 million Loan in full over time in the event of a

Loan default. Thus, while a separate and distinct obligation from Borrowers’ obligations under

the Loan, HBC’s absolute and unconditional obligation under the Master Lease Guarantees was a

critical part of the Loan structure.

D. The Borrower Landlords Immediately Assign Both Rents and HBC’s Master Lease Guarantees to Lender

56. In order to provide the contemplated debt security, the Borrower Landlords

immediately assigned both the Rent and the Master Lease Guarantees to Lender. Specifically,

the Borrower Landlords presently assigned their interests in the Master Leases, the Rent, and the

Master Lease Guarantees to Lender. The Borrower Landlords also granted to Lender a security

interest in substantially all of the Borrower Landlords’ real and personal property, including their

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contract rights and general intangibles. And, the Borrower Landlords expressly authorized

Lender during the continuance of an Event of Default (as here) to take any and all actions to

enforce the Rent obligations, including the Master Lease Guarantees.

57. Specifically, each of the Mortgages contained the following key terms:

(a) § 1.1(h): irrevocably assigning to Lender: “[a]ll leases (including, without limitation, [the Master Leases]) . . . and every . . . other agreement relating to such leases . . . or other agreements entered into in connection with such leases . . . and every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto . . . and all right, title and interest of [Borrower Landlord] . . . to secure the performance by the lessees of their obligations thereunder . . . .”;

(b) § 1.1(n): irrevocably assigning to Lender: “[a]ll agreements (including, without limitation, that certain Guarantee, dated as of the date hereof, given by Hudson’s Bay Company, a Canadian corporation, as guarantor, in favor of [Borrower Landlord] and certain other entities named therein [i.e., the Master Lease Guarantees])”;

(c) § 1.2: absolutely and unconditionally assigning to Lender: “all of [Borrower Landlord’s] right, title and interest in and to all current and future Leases [as defined, including the Master Lease Guarantees] and Rents; it being intended by [Borrower Landlord] that this assignment constitutes a present, absolute assignment and not an assignment for additional security only.

(d) § 7.1: providing that upon the occurrence and during the continuance of any Event of Default, “[Borrower Landlord] agrees that Lender may take such action, without notice or demand . . . including, but not limited to, the following actions . . .: (e) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained . . . in the . . . Loan Documents [including all “documents evidencing or securing the Debt”]; . . . [and] (h) . . . (iv) exercise all rights and powers of [Borrower Landlord] with respect to the Property . . . including, without limitation, the right to . . . demand, sue for, collect and receive all Rents of the Property . . . .”

(Emphasis added). Defendants expressly acknowledged and agreed to the assignment of the

Master Lease Guarantees to Lender.

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III. Defendants HBC ULC and HBC Bermuda Affirm Their Liability Under the Master Lease Guarantees

58. Given their critical importance, the Master Lease Guarantees (and other loan

documents) contain numerous provisions that either prohibit, or require Lender notice and/or

authorization for, certain transfers and assignments by HBC.

59. Beginning in 2019, HBC planned and set in motion a series of transactions that

took-private its ownership, converted its corporate structure, and transferred its assets to newly

formed HBC Bermuda in what Defendants have referred to as “certain internal restructuring

transactions” (the “Restructuring Transfers”).

60. HBC did not provide Lender with the requisite notice of the Restructuring

Transfers and did not seek or obtain Lender’s consent, resulting in numerous violations of the

Lender protection provisions of the Loan Documents.4

61. Following Plaintiff’s discovery of the Restructuring Transfers, Defendants: (i)

affirmed that HBC ULC was the successor to HBC and, therefore, the continuing guarantor

under the Master Lease Guarantees; and (ii) provided an “Assumption Agreement,” effective as

of March 4, 2020, whereby HBC Bermuda also assumed the guarantor obligations under the

Master Lease Guarantees.

62. A declaration provided by Defendants under penalty of perjury in the Federal

Action averred that Defendant HBC ULC “remains a guarantor under the [Master] Lease

Guaranties [and] [i]n addition, HBC Bermuda, the parent of all of the entities comprising the

4 Plaintiff previously filed a separate, and substantively distinct declaratory judgment action against Defendants with respect to the improper Restructuring Transfers in the United States District Court for the Southern District of New York, captioned Wilmington Trust, National Association v. Hudson’s Bay Company, et al., Case No. 1:20-cv-03830-GHW (the “Federal Action”). The Federal Action has been voluntarily dismissed without prejudice in light of a late-evidenced lack of diversity jurisdiction.

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HBC Group, has assumed the [Master] Lease Guaranty obligations as an additional guarantor

thereunder.” The declaration further affirmed that HBC Bermuda owns through its direct and

indirect subsidiaries all of Hudson’s Bay Company Group’s assets and operations in Canada and

the United States, and, as of May 23, 2020, had assets totaling $7.4 billion.

63. Under the clear and unambiguous terms of the Master Lease Guarantees and the

Assumption Agreement, and as admitted by Defendants in the Federal Action, Defendants are

jointly and severally responsible for HBC’s obligations under the Master Lease Guarantees,

including but not limited to the absolute and unconditional present obligation to pay accrued and

unpaid Rent.

IV. Defendants Breach the Master Lease Guarantees

64. By late 2019, the effects of the continuing decline in brick-and-mortar department

stores was apparent. This was particularly true with respect to Lord & Taylor, which, as noted

above, had been on an unabated downward trajectory since at least 2012.

65. Furthermore, from the start of fiscal year 2015 through the last reported trailing

twelve months as of November 2, 2019, the 24 Lord & Taylor Leased Stores’ total sales fell

substantially, and their in-store profitability – which is tied to a cash trap trigger that allows

Lender to retain all Rents paid into the lockbox, beyond the amount required to service the debt –

plunged. While the entire Lord & Taylor operating chain was obligated for the Rent under the

Lord & Taylor Master Lease, the department store chain was faring no better, as over the same

period of time its aggregate annual sales had nosedived.

66. On April 1, 2020, the Borrower Landlords advised Plaintiff that their tenants had

failed, among other things, to pay the Rent due under the Master Leases. Of course, such a

scenario is exactly the reason to have an enterprise-wide, multi-billion-dollar parent company,

unconditional guaranty. However, rather than enforce their rent guaranty like any other landlord

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in a non-conflicted situation, the Borrower Landlords instead advised Plaintiff that they would

not make the April 1, 2020 debt service payment on the Loan. Neither that Loan payment nor

any subsequent such payments have been made.

67. Accordingly, by letter dated April 24, 2020 to Borrower Landlords, Plaintiff,

among other things: (1) declared that an Event of Default had occurred under the Loan

Agreement; (2) revoked the license granted to Borrower Landlords under the Mortgages to

collect the Rents under the Master Lease; and (3) demanded that Borrower Landlords send a

written demand pursuant to the terms of the Master Lease Guarantees for immediate payment of

all amounts due and owing under the Master Lease, including payment of all Rent into the

lockbox.

68. Since April 1, 2020, no Rent due under the Master Leases to the Borrower

Landlords has been paid by the tenants, or by Defendants in their capacity as guarantors of the

Master Leases. And, it is clear that Borrower Landlords, who are indirectly controlled by

Defendants, will take no direct action to enforce Defendants’ obligations under the Master Lease

Guarantees.

69. As a result, Lender brings this action, including as assignee of Borrower

Landlords’ Master Lease Guarantees and all rights thereunder, and as expressly authorized agent

during the continuing Event of Default to exercise all rights and powers of Borrower Landlords

to sue for, collect and receive all Rents, to require Defendants to honor their unconditional

guaranty obligations to promptly make all payments due and owing under the Master Leases,

including the payment of all Rents to the lockbox.

70. As of the date of this filing, the amount of monthly installments of Fixed Annual

Rent (as defined in the Master Leases) due and unpaid is $49,926,460.

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71. Plaintiff estimates that: (i) the monthly Rent due and payable under the Master

Lease each month is currently at least $8,431,290, with additional monthly amounts due of at

least $2,478,980; and (ii) current annual estimated Rent is in the amount of at least

$101,175,476. Rents due under the Master Leases are subject to escalators over time. There are

approximately 15 years remaining on the Master Lease terms.

FIRST CAUSE OF ACTION (Breach of Master Loan Guarantees) 72. Plaintiff repeats and realleges the forgoing allegations as though fully set forth

herein.

73. The Master Leases, Master Lease Guarantees, and Mortgages are valid and

enforceable agreements.

74. HBC was the original guarantor under the Master Lease Guarantees, which

guaranteed the underlying tenants’ payment of rent, ground rent, taxes, and other payments.

75. Defendant HBC ULC is the successor entity to HBC and is a current obligor

under the Master Lease Guarantees.

76. Pursuant to its Assumption Agreement, HBC Bermuda has assumed all

obligations under the Master Lease Guarantees, alongside HBC ULC.

77. As a result, Defendants are jointly and severally obligated to fulfill the terms of

the Master Lease Guarantees.

78. Since April 1, 2020, no payments of Rent due to Borrower Landlords under the

Master Leases have been paid by the tenants, or by Defendants as guarantors of the Master

Leases, into the lockbox as required by the Master Leases.

79. As of the date of this filing, the amount of monthly installments of Fixed Annual

Rent (as defined in the Master Leases) due and unpaid is $49,926,460.

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80. Plaintiff estimates that the monthly Rent due and payable under the Master Lease

each month is currently at least $8,431,290 (subject to future escalators), with additional monthly

amounts due of at least $2,478,980.

81. Plaintiff estimates that the total Fixed Annual Rent and Additional Rent (as

defined in the Master Leases) that is and will be due from April 1, 2020 through the end of the

Master Lease term is approximately $1.8 billion.

82. Defendants have breached the Master Lease Guarantees by failing to pay all

amounts due and owing under the Master Leases.

83. Plaintiff has suffered damages and continues to suffer damage as a result of

Defendants’ breaches.

RELIEF REQUESTED

WHEREFORE, Plaintiff prays for the following relief against Defendants:

A. Judgment that $49,926,460 in Rent immediately be paid into the lockbox;

B. Judgment that Defendants pay any and all amounts additionally due and owing under the Master Leases as guaranteed under the Master Lease Guarantees as of the date of this filing, plus all amounts due and owing under the Master Leases as guaranteed under the Master Lease Guarantees as of the date of judgment, plus pre-judgment interest at the greater of the Default Interest Rate under the Master Leases or the New York statutory rate of 9% per annum, plus post-judgment interest at the New York

statutory rate of 9% per annum until paid;

C. An order directing that Defendants pay each month the Rent payments to the Lockbox, and make any and all additional payments including, without limitation, ground rent, taxes, and other payments due under the Master Leases as they become due;

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D. An award of the costs and expenses incurred in this litigation, including attorneys’ fees; and

E. Any such other and further relief as the Court may deem just and proper.

Dated: September 18, 2020

ROLNICK KRAMER SADIGHI LLP

By: /s/ Lawrence M. Rolnick Lawrence M. Rolnick Sheila A. Sadighi (pro hac vice forthcoming) Michael J. Hampson 1251 Avenue of the Americas New York, NY 10020 Tel. (212) 597-2800 [email protected] [email protected] [email protected]

Counsel for Plaintiff

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