Lender wins round in Citicorp Plaza dispute.

Pension fund wants to foreclose, keep Bullock's open

Big New York pension fund Teachers Insurance & Annuity Association of America can claim two substantial legal victories in its effort to foreclose on downtown L.A.'s Citicorp Plaza mixed-used center and prevent the operators of the Bullock's department store there from closing shop.

Last week, Los Angeles Superior Court Diane Wayne approved the appointment of Transwestern Property Co.'s Clay Dunning as receiver to handle the finances of Citicorp Center's first phase, which includes the 41-story Citicorp Center office highrise at 725 S. Figueroa St. and the struggling Bullock's- and Robinsons-May-anchored Seventh Market Place retail center.

Two weeks earlier, U.S. District Court Judge Lourdes Baird tentatively ruled that Teachers' claims against Federated Department Stores Inc. and its Bullock's-related subsidiaries should be heard in Superior Court - not in federal Bankruptcy Court as Federated's attorneys had argued.

The next critical legal ruling may come this week, as Judge Wayne is scheduled to preside over a hearing on the preliminary injunction Teachers has sought to force Federated and subsidiaries to keep the Bullock's store open.

Dispute over agreement

Last month, the pension giant filed suit in Superior Court against phase-one owner PPLA Plaza Limited Partnership - affiliated with mega-institution Prudential Insurance Co. of America - as well as Federated and subsidiaries involved in operating the Bullock's chain.

Teachers holds a $170 million mortgage secured by Citicorp Plaza's first phase. Its attorneys argue in court pleadings that an agreement between PPLA and the Bullock's operators allowing the store's closure before the original lease agreement's expiration date in the year 2001 is invalid because Teachers never consented to it.

In 1993, after the Bullock's operation's then-parent R.H. Macy & Co, had sought Chapter 11 bankruptcy protection, PPLA and Macy/Bullock's signed that so-called "term sheet agreement."

That agreement subsidizes the Bullock's Seventh Market Place store to the tune of $2 million annually through next month, and allows for the store's closure during a three-year period ending next month.

Teachers' local attorneys with Mayer Brown & Platt also claim the agreement constitutes a technical default of the Teachers mortgage, giving Teachers the right to foreclose and take over the collateral - phase one of Citicorp Center.

Perhaps more significantly, Teachers' attorneys argue, if the Bullock's is allowed to close under the term sheet agreement, May Department Store Co. will exercise its right to close the Robinsons-May at Seventh Market Place as well.

If that happens, "the value of the property will be permanently and materially impaired" and other tenants will likewise leave, according to Teachers' original Superior Court complaint.

Hearing slated

Federated's local attorneys with Jones Day Reavis & Pogue immediately "removed" Teachers' claims against Cincinnati-based Federated and its subsidiaries, asking Judge Baird to transfer jurisdiction over those claims to bankruptcy court in Manhattan. That court has jurisdiction over the Chapter 11 case of R.H. Macy, whose assets were assumed by Federated through Macy's reorganization plan.

But Judge Baird "remanded" the entire matter back to Judge Wayne's court, where a hearing on the preliminary injunction is scheduled for March 18.

Then last week, PPLA and Teachers reached a "stipulated" agreement by which PPLA consented to Judge Wayne's appointment of Dunning as receiver for Citicorp Plaza phase one.

PPLA's attorneys with Sheppard Mullin Richter & Hampton also filed a "cross-complaint" seeking to prevent Federated from closing the Bullock's, along with pleadings supporting Teachers' preliminary injunction against the Bullock's operators.

Meanwhile, Federated/Bullock's attorneys filed a demurrer - which seeks to dismiss claims - and related memorandum arguing that Teachers is not a party to the original lease agreements between PPLA and the Bullock's operators, or to the subsequent bankruptcy-related term sheet agreement, also between PPLA and the Bullock's operators.

The latter agreement expressly allows for termination of the original Bullock's lease, and Teachers' arguments that the mortgage lender has consentual rights are "groundless" with respect to Bullock's, the memorandum states.