## Facts

- O.P.M. Leasing Services, Inc. (OPM) leased computer equipment to the State of West Virginia under 22 equipment schedules governed by New York law.
- OPM pledged and assigned West Virginia’s rental payment obligations to LaSalle National Bank (LaSalle) as collateral for OPM’s debt; West Virginia executed consent agreements recognizing the assignment.
- The lease documents included a “hell-or-high-water” provision requiring West Virginia to pay rent to an assignee unconditionally, and a term stating assignees were not required to perform OPM’s obligations.
- OPM was obligated to pay or reimburse West Virginia for monthly equipment maintenance charges.
- West Virginia alleged OPM failed to pay or reimburse required maintenance charges and, in response, stopped paying rent to LaSalle.
- After OPM filed Chapter 11 and a reorganization trustee was appointed, West Virginia brought an adversary proceeding seeking, among other relief, turnover of funds for unpaid maintenance and termination-related declarations.
- LaSalle counterclaimed for accelerated rent under the lease’s acceleration and unconditional-payment provisions; West Virginia asserted defenses including OPM’s breach, LaSalle’s alleged bad faith, and sovereign immunity.

## Issues

1. Whether West Virginia waived sovereign immunity as to LaSalle’s counterclaim by initiating an adversary proceeding arising from the same lease transactions.
2. Whether the lease’s hell-or-high-water clause required West Virginia to continue paying rent to LaSalle despite OPM’s alleged failure to satisfy maintenance obligations.
3. Whether LaSalle’s alleged knowledge of OPM’s defaults or financial condition, or any supposed assignee duty to perform lessor obligations, could defeat LaSalle’s enforcement of the assigned payment stream.

## Decision

- The court held West Virginia waived sovereign immunity as to the related counterclaim by voluntarily commencing the adversary proceeding.
- The court enforced the hell-or-high-water clause under New York law and held West Virginia’s rent obligation to LaSalle was absolute and unconditional, not excused by OPM’s alleged maintenance breach.
- The court rejected West Virginia’s bad-faith defense as unsupported and held the documents allocated performance risk to OPM, not the assignee.
- LaSalle’s motion for summary judgment was granted as to liability on its counterclaim for accelerated rent, and West Virginia’s motion to dismiss the counterclaim was denied.

## Legal Principles

- A governmental unit that seeks affirmative relief in bankruptcy court waives sovereign immunity as to counterclaims that are property of the estate and arise from the same transaction or occurrence (11 U.S.C. § 106).
- Under New York law, an enforceable hell-or-high-water clause in an equipment finance lease makes the lessee’s payment duty to an assignee absolute, even if the lessor allegedly breaches performance obligations.
- Where lease and consent documents state the assignee assumes no lessor performance duties, the lessee cannot withhold assigned rent based on the lessor’s nonperformance; remedies lie against the lessor/debtor, not the assignee.
- Conclusory allegations of an assignee’s “bad faith,” without specific supporting facts, do not create a triable issue sufficient to defeat summary judgment enforcing an unconditional payment undertaking.

## Conclusion

The bankruptcy court ruled that West Virginia’s initiation of the adversary proceeding waived sovereign immunity as to LaSalle’s related counterclaim and that West Virginia remained bound by its unconditional promise to pay assigned rent, making it liable to LaSalle for accelerated rents despite OPM’s alleged maintenance default.


In re O.P.M. Leasing Servs., Inc., 21 B.R. 993 (Bankr. S.D.N.Y. 1982)