Real estate company sues law firm over HHGregg property deal gone awry

A Carmel-based real estate company has filed a lawsuit against Krieg DeVault, alleging the Indianapolis-based law firm’s failure to file a property deed in 2003 in a transaction involving defunct retailer HHGregg could now cost the real estate company millions of dollars.

The real estate firm, WGT V LLC, or WGT, accuses Krieg DeVault of legal malpractice, negligent conduct and breaching its fiduciary duties.

In the suit, WGT says it was founded in 2003, partly for acquiring and leasing commercial real estate, including four appliance stores for HHGregg. The company paid Krieg DeVault to prepare its articles of organization and handle all its legal services up until 2004, the suit says.

In 2003, HHGregg acquired an outlet store at the Mall of Georgia in Buford, Georgia, in Gwinnett County that it remodeled into one of its appliance stores. The former retailer entered into a fairly common sale-leaseback transaction with WGT, in which WGT would purchase the property for $3.5 million from HHGregg and lease it back to the retailer.

The suit says Krieg DeVault, which also handled HHGregg’s real estate legal business at the time, prepared all of the documents for the sale, including resolutions by HHGregg’s board of directors approving the property sale to WGT and the lease agreement.

WGT also says it received a letter from Krieg DeVault with paperwork related to the sale that included a draft of the deed conveying the property from HHGregg to WGT.

“Because Krieg DeVault had an ongoing representation of WGT concerning real estate matters, and because WGT understood that Krieg DeVault was also representing [HHGregg], WGT relied upon the fact that Krieg DeVault would take all necessary steps to make sure the proper documents, including the Limited Warranty Deed, were recorded in Gwinnet County, Georgia,” the lawsuit says.

WGT began receiving rent payments from HHGregg for the property in November 2003 and continued to receive them until May 2017, shortly after HHGregg filed for Chapter 11 bankruptcy and opted to go out of business.

As part of the bankruptcy, Gregg rejected the lease agreement, and WGT began marketing the property for sale. It reached an agreement to sell it to Royal Capital Corp. in August 2017 for $2.9 million, the suit says.

In January 2018, WGT says it was notified that a title search discovered that HHGregg was still listed as the deed holder for the property in county records in Georgia.

“This occurred because Krieg DeVault had negligently failed to make sure that the limited warranty deed effecting the transfer of the property from Gregg to WGT had been properly recorded in November 2003,” the lawsuit says.

WGT, the debtors in the bankruptcy case and the official committee of unsecured creditors for HHGregg filed a joint motion for authority to sell the property. The bankruptcy court granted the motion, and the sale of the property closed in July 2018.

The sale proceeds of $2.9 million were sent to HHGregg’s bankruptcy bank account, to be held in escrow pending resolution of competing claims in the case, the lawsuit says.

WGT filed a complaint with the bankruptcy court in August 2018, seeking the proceeds, but the committee of unsecured creditors filed a counterclaim, asserting that the creditors should keep the money because WGT never officially owned the property.

In addition, according to the lawsuit, the counterclaim also calls for WGT to return all rent payments it receiving during the 10 years prior to the bankruptcy filing. The suit does not say how much HHGregg paid in rent over those 10 years.

WGT says it asked Krieg DeVault in February for information on why the deed was never recorded in Georgia. The suit says the law firm said in a letter that it would need authorization from HHGregg to release that information because “with respect to the acquisition in 2003 of a parcel of real estate from the Mall of Georgia, our client was [HHGregg].”

WGT said before receiving that letter, it was “never informed by Krieg DeVault that it was not providing WGT with legal representation regarding the property, nor did Krieg DeVault communicate any concerns to WGT regarding a conflict of interest related to its representation of both Gregg and WGT.”

The real estate company says it now “faces the prospect of both (a) losing its claim to the sale proceeds, and (b) paying back to the bankruptcy estate some portion of the rental payments it received both before and after the [HHGregg] bankruptcy filing.”

WGT is seeking damages from Krieg DeVault as well as interest and legal fees.

An official for Krieg DeVault did not return a phone message left Wednesday morning.

Thomas Brodnik, an attorney with McNeely Stephenson in Indianapolis who filed the lawsuit, also did not reply immediately to a message seeking more information.

 

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