Clark Tower, LLC v. Wells Fargo Bank
| Decision Date | 14 April 2023 |
| Docket Number | Index No. 651319/2019,Motion Seq. Nos. 007,008,009 |
| Citation | 2023 NY Slip Op 31187 (U) |
| Parties | CLARK TOWER, LLC, Plaintiff, v. WELLS FARGO BANK, N.A. AS TRUSTEE FOR THE REGISTERED HOLDERS OF J.P. MORGAN CHASE COMMERCIAL MORTGAGE SECURITIES TRUST 2007-CIBC20, COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2007-CIBC20, C-III ASSET MANAGEMENT LLC, MIDLAND LOAN SERVICES, INC., AXONIC CAPITAL LLC Defendant. |
| Court | New York Supreme Court |
DECISION + ORDER ON MOTION
The following e-filed documents, listed by NYSCEF document number (Motion 007) 263, 264, 265, 266, 267, 268, 269, 270, 271 272, 273, 274, 275, 276, 277, 278, 279, 280, 281, 282, 283 284, 285, 286, 287, 288, 289, 290, 291, 292, 293, 294, 295, 296, 297, 298, 299, 300, 301, 302, 303, 304, 305, 306, 307, 308, 309, 310, 311, 312, 313, 314, 315, 316, 317, 318, 319, 320, 321, 322, 323, 324, 398, 450, 451, 452, 453, 454, 455, 456, 457, 458, 459, 460, 461, 462, 463, 464, 468, 469 were read on this motion to/for JUDGMENT - SUMMARY.
The following e-filed documents, listed by NYSCEF document number (Motion 008) 325, 326, 327, 328, 329, 330, 331, 332, 333, 334, 335, 336, 337, 338, 339, 340, 341, 342, 343, 344, 345, 346, 347, 348, 349, 350, 351, 352, 353, 354, 355, 356, 357, 358, 359, 360, 361, 362, 363, 364, 365, 366, 367, 368, 369, 370, 371, 372, 373, 374, 375, 376, 377, 378, 379, 380, 381, 382, 383, 384, 385, 397, 400, 401, 402, 403, 404, 405, 406, 407, 408, 409, 410, 411, 412, 413, 414, 415, 416, 417, 418, 419, 420, 421, 422, 423, 424, 425, 426, 427, 428, 429, 430, 431, 432, 433, 434, 435, 436, 437, 438, 439, 440, 441, 442, 443, 444, 445, 446, 447, 448, 449, 470, 471, 472, 473, 474, 475, 476, 477 were read on this motion to/for JUDGMENT - SUMMARY.
The following e-filed documents, listed by NYSCEF document number (Motion 009) 386, 387, 388, 389, 390,391,392,393,394,395,396,399, 465, 466, 478 were read on this motion to/for JUDGMENT - SUMMARY.
Plaintiff Clark Tower LLC (Clark) is the former owner of an office tower (Clark Tower) in Memphis, Tennessee. Clark took out a loan secured by a mortgage on Clark Tower, in the amount of $60,750,000.00 (the Loan) from JP Morgan Chase Bank, N.A. (JP Morgan Chase), pursuant to a Deed of Trust and Security Agreement dated August 14, 2007 (Deed of Trust). On September 28, 2007, JP Morgan Chase entered into a Pooling and Servicing Agreement (the PSA) that created a Trust Fund into which to place the Loan.
The Registered Holders of JP. Morgan Chase Commercial Mortgage Securities Trust 2007 CIBC20 (the Lender or the Trust) was to own the Trust Fund. The other parties to the PSA are defendant Wells Fargo Bank, NA. as the Lender's trustee (Trustee or Lender), Centerline Services Inc. (C-III) as the Special Servicer for the loans the Trust held, and defendant Midland Loan Services, a division of PNC Bank, N.A., formerly Midland Loan Services, Inc. (Midland), as the Master Servicer for the loans the Trust held (collectively, the Servicers).
Clark defaulted on the original mortgage in 2015 and Clark and the Trustee, as the representative of the Trust, and C-III acting as Special Servicer, then negotiated to restructure the loan pursuant to a Loan Modification Agreement (LMA) (Doc 339 [LMA]). The LMA allowed Clark to avoid foreclosure and to restructure its debt by bifurcating the mortgage into two notes: (1) a $43.5 million "A Note," that Clark was absolutely required to repay; and (2) a $17 million "B Note," that would be repaid if the property generated sufficient proceeds in a sale or refinancing. In exchange, Clark invested an additional $5.7 million in "New Equity" into Clark Tower (see id. Section 6 [a] [12]). The Notes had an original maturity date of September 1, 2017. Under the LMA, Clark could have exercised two options to extend the maturity date by one year each. Clark could exercise those options by giving the Trust sixty days' notice and paying a fee equal to 0.25% of the principal balance of the A Note.
After Clark exercised the first of its two options to extend the maturity date in 2017, it began to try to refinance the loan. Clark obtained an appraisal of Clark Tower, effective as of August 2017, that valued the property at $58,600,000 on an "as is" basis. The Trust obtained an appraisal, effective as of November 2017, that valued the property at $53,500,000 on an "as is" basis and $59,300,000 on an "as stabilized" basis (i.e., assuming that Clark would invest several millions of dollars into the building and projecting the building's renovated value in November 2020). Midland calculated an "Appraisal Value" under the LMA of $50,107,000 by averaging the two appraisals. Clark and Midland agreed to that Appraisal Value on January 26, 2018.
Clark's affiliate, nonparty In-Rel Properties, Inc. (In-Rel), executed a term sheet with Deutsche Bank (DB) to refinance Clark Tower, for "up to" $75 million. The DB refinancing loan would have been secured by Clark Tower and an unrelated In-Rel property, Meidinger Tower. The maximum loan-to-value ratio would have been 75% of the value of both properties combined. The term sheet was signed on March 2, 2018.
On April 21, 2018, Clark informed Midland that the DB loan was being "finalized" and had a "May 10 deadline to close." On April 23, 2018, Clark requested that Midland assign to Clark's affiliate the B Note, rather than forgiving the B Note debt as the LMA contemplated. Plaintiff sought to avoid income tax liability for "cancellation of [the $17 million Note B] debt" by assigning Note B to its affiliate (Doc 329 [Cypel EBT] at 95-97; see also Doc 358 [Clark/In-Rel emails]; but see Docs 360, 362 [Clark/In-Rel emails and letters claiming to defendants that plaintiffs "go forward equity investors require an assignment of the B Note," but not mentioning plaintiffs expected tax relief]). Midland contacted C-III and Axonic to seek their consent, and Axonic and C-III requested additional information about the proposed refinance. On May 4, 2018, Clark provided the Trust and Midland with the DB term sheet that appraised Clark Tower's value "around" $62 million. Axonic then directed C-III and Midland (the Special Servicer and Master Servicer, respectively) not to consent to the refinance.
On May 14, 2018, DB completed an appraisal that valued Clark Tower in "as is" condition at $63,500,000. The parties attempted to negotiate towards the refinance, and on June 15, 2018, the Trust (through C-III and Axonic) offered to consent to the transaction with the B Note assignment if Clark agreed to use the $63.5 million DB appraisal value as the basis for the "Liquidity Proceeds" amount to be run through the LMA's waterfall provision. If the Liquidity Proceeds were calculated in that manner, Clark would have received $2.8 million in cash proceeds through the refinance, instead of $4.5 million, and the Trust would have received a $1.7 million payment towards the outstanding B Note principal through the LMA's refinancing waterfall.
Clark refused the request, and the Trust did not consent to the refinancing. Clark continued to own Clark Tower, then failed to exercise on time its second option to extend the maturity date under the LMA. The Loan then matured on September 1, 2018. Clark failed to pay the outstanding balance on the bifurcated notes upon the maturity date. Thereafter, C-III found that Clark had not been complying with the LMA's "lockbox" provision and demanded that Clark deposit the misdirected rents into the lockbox account in December 2018. Clark refused.
Finally, as relevant here, the Trust initiated a nonjudicial foreclosure of Clark Tower in February 2019. In May 2020, after litigating over the foreclosure in this court and the Appellate Division,[1] the Trust foreclosed on the property and purchased the property with a credit bid for around $43 million. In December 2020, the property was appraised at a fair market value of $38.9 million, and the Trust sold the property to a nonparty in August 2021 for $37.1 million.
Now, in Motion Seq. No. (MS) 07, defendant Axonic moves for summary judgment dismissing plaintiffs wrongful foreclosure cause of action against it, the only claim that is left against Axonic (Doc 191 [decision and order resolving defendants' motions to dismiss]). In MS 08, defendants C-III and Midland (together, the Servicer Defendants, and collectively with the Trustee/Lender, the Trust Defendants) move for summary judgment dismissing (a) plaintiffs breach of contract claim against the Trust and (b) plaintiffs wrongful foreclosure claim against all of the Trust Defendants. In MS 09, the Trustee moves for summary judgment dismissing the breach of contract and wrongful foreclosure claims against it.
Summary judgment is a drastic remedy that will be granted only when the party seeking summary judgment has established that there are no triable issues of fact (see CPLR 3212[b]; Alvarez v Prospect Hosp., 68 N.Y.2d 320, 324 [1986]; DeCintio v Lawrence Hosp., 33 A.D.3d 329, 329 [1st Dept 2006]). To prevail, the party seeking summary judgment must make a prima facie showing of entitlement to judgment as a matter of law by tendering evidentiary proof in admissible form (see Olan v Farrell Lines, 64 N.Y.2d 1092, 1093 [1985]; Zuckerman v City of New York, 49 N.Y.2d 557 562 [1980]).
If the movant makes that initial showing, the burden shifts to the party opposing the motion to establish that there are material issues of fact requiring a trial (see Kaufman v Silver, 90 N.Y.2d 204, 208 [1997]). The court must scrutinize the motion papers in a light most favorable to the party opposing the motion and must give that party the...
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