GECCMC 2005-C1 Plummer Street Office Limited Partnership v. NRFC NNN Holdings, LLC

GECCMC 2005-C1 Plummer Street Office Limited Partnership (Plummer) (plaintiff) loaned $44 million to NRFC Sub Investor IV, LLC (the borrower) to buy two commercial properties. The borrower leased these properties exclusively to Washington Mutual Savings and Loan (Washington). The loan from Plummer was a nonrecourse loan with carveout provisions for borrower misconduct, including terminating the lease without the prior consent of Plummer. NRFC NNN Holdings, LLC (Northstar) (defendant), the borrower’s affiliate, agreed to guarantee the loan’s payment if the borrower misconduct occurred. Washington’s lease stated that even if Washington breached the lease and abandoned the property, the lease would continue until the borrower terminated Washington’s right of possession. Moreover, the lease provided that no act by the borrower other than giving notice of termination to Washington would terminate Washington’s right to possession. The lease expressly noted that the lease’s terms would override any law to the contrary. When Washington went out of business, it stopped paying rent to the borrower and abandoned the property. Although the borrower did not provide notice to Washington that the borrower was terminating the lease and Washington’s right of possession, the borrower stopped making loan payments to Plummer. Plummer foreclosed on the properties and sued Northstar as the guarantor for the remaining balance of the loan. The trial court held that Northstar was liable. Northstar appealed.