The Fourth Circuit’s unpublished decision in Rock Spring Plaza II, LLC v. Investors Warranty of America, LLC is ostensibly a Maryland commercial lease case. But consumer bankruptcy lawyers will recognize a familiar pattern: a financially troubled enterprise attempting to isolate liabilities in a newly created entity, preserve the profitable assets, and leave creditors holding an empty bag.

The court affirmed a jury verdict finding that Investors Warranty of America (“IWA”) improperly assigned a 99-year ground lease to a newly formed LLC, Rock Springs Drive (“RSD”), as part of a plan designed to escape future lease obligations while shielding itself from liability. The jury found the assignment invalid, determined that RSD was merely IWA’s alter ego, and concluded that the transaction constituted a fraudulent conveyance under Maryland law.

What Happened?

IWA acquired a leasehold interest in a Bethesda office property after foreclosing on the original tenant's leasehold. Unfortunately for IWA, the lease was a financial disaster. Rent exceeded market rates and increased annually, while Bethesda office rents were trending downward. Internal communications described the lease as “worthless” and openly discussed finding an “exit strategy” to get it “off the books.”

The solution developed by consultants and counsel was elegant in its simplicity:

1. Create a new single-purpose LLC (RSD).

2. Assign the lease to RSD.

3. Capitalize RSD with only enough money to survive a few years.

4. Prevent meaningful communications with the landlord.

5. Wait until Maryland’s fraudulent conveyance limitations period expired.

6. Dissolve RSD and hand the keys back to the landlord.

The Fourth Circuit noted evidence that the structure was deliberately designed to run out the statute of limitations before the landlord discovered the true nature of the arrangement. RSD was prohibited from contacting the landlord without approval, was entirely dependent upon IWA for funding, and could be dissolved at IWA’s whim.

The jury was not impressed.

Nor was the Fourth Circuit.

Why the Assignment Failed

The Estoppel Agreement allowed IWA to assign the lease to a "third party" that assumed all lease obligations. The court held that RSD was neither.

First, RSD was not truly a "third party." IWA owned 98% of it, controlled its operations, controlled its finances, could dissolve it at any time, and retained veto power over major decisions. The court concluded that dealing with RSD was effectively dealing with IWA itself.

Second, RSD could not possibly "assume" all obligations under a lease running through 2089 because its governing documents required dissolution years before then. A company guaranteed to disappear could not meaningfully assume obligations extending decades into the future.

The assignment therefore violated the parties' agreements.

Fraudulent Conveyance and Alter Ego Findings

The court had little difficulty affirming the fraudulent conveyance verdict.

Maryland's fraudulent conveyance statute broadly applies to assignments of property interests and obligations made with intent to hinder, delay, or defraud creditors. The landlord qualified as a creditor because it possessed contractual rights to future rent payments.

The evidence supporting fraudulent intent included:

• Internal emails discussing an "exit strategy."

• Discussions about how to "walk away" from future obligations.

• Creation of RSD only days before the assignment.

• Capitalization sufficient for only a limited period.

• Restrictions on communications with the landlord.

• A dissolution structure timed suspiciously close to limitations periods.

The alter ego finding was equally straightforward. RSD had no meaningful independence. It existed largely as a shell through which IWA hoped to shed liability while retaining control. Under Maryland law, that was enough for veil piercing.

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Commentary

For bankruptcy lawyers, this case feels remarkably familiar.

The opinion reads like a judicial autopsy of a liability-management transaction. The facts differ, but the strategy echoes two trends we have been watching for years.

The Texas Two-Step

The most obvious comparison is the so-called "Texas Two-Step," where companies divide assets and liabilities between entities, placing tort liabilities into one company while preserving valuable assets elsewhere. Courts and creditors have increasingly scrutinized those transactions as efforts to manipulate corporate separateness while avoiding responsibility.

The Fourth Circuit never mentions the Texas Two-Step, but the underlying concern is identical: can a company use entity structuring to keep the benefits while shedding the burdens?

The answer here was no.

North Carolina Receiverships

The case also resembles some of the more aggressive uses of the North Carolina Receivership Act.

Receiverships can be valuable tools when used legitimately to preserve assets and maximize value. But they also can be used strategically to place distressed assets into a controlled structure that limits creditor remedies, delays collection efforts, and creates procedural obstacles for creditors attempting to reach the real decision-makers.

As in Rock Spring Plaza, the practical question is often not whether a separate legal entity technically exists. The real question is whether the new structure has any genuine economic independence or whether it is simply a liability sponge created to absorb losses before being discarded.

The Fourth Circuit looked beyond the paperwork and focused on economic reality.

That approach should sound familiar to bankruptcy practitioners, who routinely encounter shell entities, insider transfers, nominee arrangements, and other efforts to separate assets from liabilities without separating control.

The "ASS"-ignment and the Maryland Twerk

The opinion repeatedly refers to the lease assignment.

But perhaps "assignment" is too charitable a description.

What occurred here was not a conventional transfer to an independent third party willing and able to perform the lease. Instead, the evidence suggested a transfer to a captive entity that was expected to fail after serving its purpose.

The Texas Two-Step already has a catchy label.

Perhaps Maryland deserves one too.

If the Texas Two-Step is a corporate sidestep around liability, this transaction might fairly be called the "Maryland Twerk"—an attempted maneuver in which a company tries to shake loose unwanted obligations by transferring them to a controlled shell entity while hoping creditors are distracted long enough for the music to stop.

The Fourth Circuit's response was essentially:

Nice dance move. You're still on the hook.

And that may be the broader significance of this case. Whether the structure is called a divisional merger, a receivership strategy, a special-purpose entity, or an "ASS"-ignment, courts remain willing to look beyond formalities when the evidence shows that the transaction's real purpose was to hinder, delay, or escape creditors.

For bankruptcy lawyers, that is a lesson worth remembering. Fraudulent transfer law, alter ego doctrine, and equitable remedies continue to exist precisely because courts understand that sophisticated liability-avoidance schemes often look perfectly legitimate on paper.

Until someone reads the emails.

To read a copy of the transcript, please see: