In re Trusts Established Under the Pooling & Servicing Agreements Relating to the Wachovia Bank Commercial Mortg. Trust Commercial Mortg. Pass-Through Certificates, Series 2007–C30, Civil No. 16–2487 (DWF/KMM)

• Decision Date: 14 March 2017
• Docket Number: Civil No. 16–2487 (DWF/KMM)
• Citation: 241 F.Supp.3d 905
• Parties: In the MATTER OF the TRUSTS ESTABLISHED UNDER THE POOLING AND SERVICING AGREEMENTS RELATING TO THE WACHOVIA BANK COMMERCIAL MORTGAGE TRUST COMMERCIAL MORTGAGE PASS–THROUGH CERTIFICATES, SERIES 2007–C30; COBALT CMBS Commercial Mortgage Trust 2007–C2 Commercial Mortgage Pass–Through Certificates, Series 2007–C2; Wachovia Bank Commercial Mortgage Trust Commercial Mortgage Pass–Through Certificates, Series 2007–C31 ; ML–CFC Commercial Mortgage Trust 2007–5 Commercial Mortgage Pass–Through Certificates, Series 2007–5; and ML–CFC Commercial Mortgage Trust 2007–6 Commercial Mortgage Pass–Through Certificates, Series 2007–6
• Court: U.S. District Court — District of Minnesota

241 F.Supp.3d 905

In the MATTER OF the TRUSTS ESTABLISHED UNDER THE POOLING AND SERVICING AGREEMENTS RELATING TO THE WACHOVIA BANK COMMERCIAL MORTGAGE TRUST COMMERCIAL MORTGAGE PASS–THROUGH CERTIFICATES, SERIES 2007–C30; COBALT CMBS Commercial Mortgage Trust 2007–C2 Commercial Mortgage Pass–Through Certificates, Series 2007–C2; Wachovia Bank Commercial Mortgage Trust Commercial Mortgage Pass–Through Certificates, Series 2007–C31 ; ML–CFC Commercial Mortgage Trust 2007–5 Commercial Mortgage Pass–Through Certificates, Series 2007–5; and ML–CFC Commercial Mortgage Trust 2007–6 Commercial Mortgage Pass–Through Certificates, Series 2007–6

Civil No. 16–2487 (DWF/KMM)

United States District Court, D. Minnesota.

Signed March 14, 2017

241 F.Supp.3d 909

Ana Chilingarishvili, Esq., James F. Killian, Esq., and Michael C. McCarthy, Esq., Maslon LLP; and Kevin J. Biron, Esq., and Michael Stephan Kraut, Esq., Morgan, Lewis & Bockius LLP; counsel for Petitioner U.S. Bank National Association.

George A Kielman, Esq., and Scott L. Walker, Esq., Federal Home Loan Mortgage Corporation; Lindsey A. Davis, Esq., Zelle Hoffman Voelbel & Mason LLP; and Michael Steven Schuster, Esq., and Neil R. Lieberman, Esq., Holwell Shuster & Goldberg LLP; counsel for Respondent Federal Home Loan Mortgage Corporation.

Barbara P. Berens, Esq., and Erin K. Fogarty Lisle, Esq., Berens & Miller, PA; and Christopher P. Johnson, Esq., and Uri A. Itkin, Esq., Kasowitz, Benson, Torres & Friedman LLP; counsel for Respondent Federal National Mortgage Association.

Adam M. Nathe, Esq., and Norman M. Abramson, Esq., Gray Plant Mooty; Lawrence M. Rolnick, Esq., Michael J. Hampson, Esq., and Thomas Edward Redburn, Jr., Esq., Lowenstein Sandler LLP; counsel

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for Respondent Appaloosa Investment L.P.I. and Palomino Master Ltd.

Colleen M. Mallon, Esq., and Gregory A. Cross, Esq., Venable LLP, David R. Crosby, Esq., and Thomas F. Nelson, Esq., Stinson Leonard Street LLP, counsel for Respondent CWCapital Asset Management LLC.

Charles N. Nauen, Esq., and David J. Zoll, Esq., Lockridge Grindal Nauen P.L.L.P.; and Howard S. Koh, Esq., and Stephen B. Meister, Esq., Meister, Seeling & Fein LLP; counsel for Respondent PSW NYC LLC.

MEMORANDUM OPINION AND ORDER

DONOVAN W. FRANK, United States District Judge

INTRODUCTION

Petitioner U.S. Bank National Association ("U.S. Bank" or "Trustee"), acting in its capacity as Trustee, initiated this trust instruction proceeding under the Minnesota Trust Code by filing a Petition in Minnesota state court. Through its Petition, the Trustee seeks judicial instruction concerning the proper interpretation of the trusts' governing agreements. As explained below, five other entities appeared in state court in various capacities regarding the Petition, including: Appaloosa Investment, L.P., I and Palomino Fund Ltd. ("Appaloosa"), Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac"), CWCapital Asset Management LLC ("CWCAM"), and PSW NYC LLC ("PSW"). CWCAM filed a Motion to Dismiss on jurisdictional grounds, and the state court denied the motion. Freddie Mac thereafter removed the proceeding to this Court. The matter is currently before the Court on: (1) CWCAM's Motion to Rehear CWCAM's Motion to Dismiss Under Fed. R. Civ. P. 12(b) or Alternatively, to Adopt the State Court Order (Doc. No. 30); (2) Appaloosa's Motion to Remand (Doc. No. 46); and (3) Freddie Mac's Motion to Transfer (Doc. No. 53). For the reasons discussed below, the Court reserves determination on the Motion to Rehear, denies the Motion to Remand, and grants the Motion to Transfer.

BACKGROUND

U.S. Bank serves as Trustee for five trusts governed by the pooling and servicing agreements ("PSAs") for which it seeks judicial instruction in this matter. The relevant trusts (collectively, the "Trusts") are designated as follows:

(1) Wachovia Bank Commercial Mortgage Trust Commercial Mortgage Pass–Through Certificates, Series 2007–C30 (the "C30 Trust");

(2) COBALT CMBS Commercial Mortgage Trust 2007–C2 Commercial Mortgage Pass–Through Certificates, Series 2007–C2;

(3) Wachovia Bank Commercial Mortgage Trust Commercial Mortgage Pass–Through Certificates, Series 2007–C31;

(4) ML–CFC Commercial Mortgage Trust 2007–5 Commercial Mortgage Pass–Through Certificates, Series 2007–5; and

(5) ML–CFC Commercial Mortgage Trust 2007–6 Commercial Mortgage Pass–Through Certificates, Series 2007–6.

(Doc. No. 1 ("Notice of Removal") ¶ 19, Ex. A ("Pet.") at 1–2.) Wells Fargo Bank, N.A. ("Wells Fargo") serves as Master Servicer for the Trusts, and CWCAM serves as Special Servicer.¹ (Pet. at 1–2, Ex. A; Doc.

241 F.Supp.3d 911

No. 56 ("Davis Decl.") ¶ 4, Ex. B ("Iannarone Aff.") ¶ 7.) The PSA for the C30 Trust was entered into on March 1, 2007, by and among Wachovia Commercial Mortgage Securities, Inc., as Depositor; Wachovia Bank, National Association, as Master Servicer; CWCAM, as Special Servicer; and Wells Fargo Bank, N.A., as the original Trustee. (Pet. at 1–2.) The PSAs are governed by New York law. (Id. ¶ 24.)

The Trustee seeks judicial instruction regarding a disputed interpretation over the proper allocation of proceeds from the sale of a significant trust asset—a loan secured by a mortgage on the Peter Cooper Village and Stuyvesant Town property in New York, New York (the "Property" or "Stuy Town"). (Id. at 1–2, ¶ 2.) The Property is New York City's largest residential development. (Iannarone Aff. ¶ 14.) A $3 billion senior loan (the "Senior Loan") secured by a mortgage on the Property was divided into six promissory notes sold to the Trusts. (Pet. ¶¶ 20, 22.) On March 12, 2007, a Co–Lender Agreement was entered into by and among Wachovia Bank, National Association and Merrill Lynch Mortgage Lending, Inc. establishing a "Lead Lender" on the Senior Loan with the right to administer the Senior Loan and enforce the loans on behalf of all of the Trusts. (Id. ¶ 26 & n.4; see also Doc. No. 94 ("Davis Decl. III") ¶ 3, Ex. B ("Co–Lender Agreement").) According to the Petition, the C30 Trust holds the rights of the Lead Lender. (Id. ¶ 26.)

Beginning in November 2009, CWCAM administered the Senior Loan on the Property as Special Servicer for the C30 Trust from offices in New York and Maryland. (Id. ¶ 28; Iannarone Aff. ¶¶ 9–10.) Following default by the borrowers, CWCAM foreclosed on the Property and eventually obtained title to the Property via a deed in lieu of foreclosure in 2014.² (Pet. ¶¶ 4, 29–33.) In October 2015, it was announced that the Property was to be sold for approximately $5.3 billion. (Id. ¶ 36.) CWCAM, as Special Servicer for the C30 Trust, claimed that it was entitled to more than $500 million constituting Penalty Interest from the sale of the Property as compensation pursuant to the PSA. (Id. ¶ 7; see also Doc. No. 33 ("Crosby Aff.") ¶ 9, Ex. G at 5–6.) Certain investors, namely Appaloosa, have argued that these amounts belong to the Trusts as Gain-on–Sale Proceeds. (Pet. ¶ 8.)

On November 12, 2015, Appaloosa filed a lawsuit concerning the Trusts in New York State Court, seeking a preliminary injunction against CWCAM to enforce its interpretation of the proper distribution of

241 F.Supp.3d 912

sale proceeds.³ (Id. ¶¶ 56–58.) Appaloosa's motion for a preliminary injunction was denied for lack of standing, and Appaloosa voluntarily discontinued its lawsuit. (Id. ¶ 58.) Thereafter, Appaloosa requested that the Trustee take action to enforce the PSA and threatened litigation against the Trustee if it failed to take steps necessary to preserve and protect the Trusts. (Id. ¶ 59.)

On December 18, 2015, the Property was sold; the sale negotiations and closing took place in New York. (Iannarone Aff. ¶ 17.) CWCAM thereafter allocated the proceeds from its offices in New York. (Id. ¶ 18.) CWCAM has retained the portion of the proceeds representing Penalty Interest based on its interpretation of the PSA. (Id. ¶ 19.)

On December 17, 2015, in light of the competing interpretations regarding the distribution of the sale proceeds, the Trustee filed a Petition for Instructions in state court in Ramsey County, Minnesota ("State Court") pursuant to the Minnesota Trust Code.⁴ (See generally Pet.) Specifically, the Petition posed two discrete issues for judicial resolution:

A. Can any sale proceeds from the Property be properly allocated to pay any "penalty interest (arising out of a default)" that accrued on the REO Loans relating to the Property?

B. What amount of "penalty interest (arising out of a default)" accrued on the REO Loans relating to the Property?

(Id. at 10–13.) Accordingly, in its Request for Relief, the Trustee sought an Order from the Court, in relevant part, as follows:

(i) Instructing the Trustee, beneficiaries, and any other interested parties as to the amount of the Disputed Funds, if any, that constitute Penalty Interest that CWCAM is entitled to receive as additional servicing compensation, with respect to each Trust;

(ii) Instructing the Trustee, beneficiaries, and any other interested parties as to the amount of the Disputed Funds, if

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