In re Trusts Established Under the Pooling & Servicing Agreements Relating to the Wachovia Bank Commercial Mortg. Trust Commercial Mortg. Pass-Through Certificates
| Decision Date | 09 March 2018 |
| Docket Number | 17 Civ. 1998 (KPF) |
| 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 — Southern District of New York |
This action involves a dispute over the distribution of approximately $700 million in proceeds from the October 2015 sale of the Peter Cooper Village and Stuyvesant Town property ("Stuy Town"). As it currently stands, approximately $560 million of the disputed funds have been allocated to CWCapital Asset Management LLC ("CWC" or the "Special Servicer") in the form of Penalty Interest; the remainder has been allocated to Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae," and together with Freddie Mac, the "Government-Sponsored Enterprises" or "GSEs") in the form of Yield Maintenance Charges. Appaloosa Investment L.P.I. and Palomino Master Ltd. (collectively, "Appaloosa") — investors in various trusts that held assets secured by a mortgage on Stuy Town — contest the propriety of those allocations. In Appaloosa's view, the funds should not be paid to CWC and the GSEs; instead, the disputed funds constitute Gain-on-Sale Proceeds that must be deposited directly in a Gain-on-Sale Reserve Account for the benefit of certificateholders.
Before the Court are Appaloosa's, CWC's, and the GSEs' cross-motions for judgment on the pleadings. The moving parties all contend that the governing agreements (and in particular the Pooling and Servicing Agreement (or "PSA")) are unambiguous, though they disagree on their meaning. In Appaloosa's view, the agreements preclude CWC from collecting Penalty Interest and the GSEs from collecting Yield Maintenance Charges, and instead require that the disputed funds be allocated to certificateholders as Gain-on-Sale Proceeds. In CWC's and the GSEs' view, by contrast, the agreements unambiguously establish their entitlement to Penalty Interest and Yield Maintenance Charges.
Despite, or perhaps because of, the excellent briefing by the parties, the Court can discern two reasonable interpretations of the relevant agreements. For this reason, the parties' cross-motions for judgment on the pleadings are denied.
This case involves commercial mortgage-backed securities ("CMBS"). In the type of CMBS transaction at issue, an entity (called the "Depositor") deposits a pool of mortgage loans backed by mortgages on commercial real estate into a trust in exchange for certificates. (Pet. ¶ 19). The Depositor then sells the certificates to various purchasers who are entitled to receive cash flows from the trust assets. Pursuant to a Pooling and Servicing Agreement, a Master Servicer and a Special Servicer are often appointed to service the loans. (Id.). Here, CWC was appointed as Special Servicer, and in that capacity was required, inter alia, to collect payments on the mortgage loans and to enforce the terms of the loan. (Id. at ¶¶ 19, 28).
In November 2006, Tishman Speyer Properties ("Tishman") and its partner BlackRock Realty ("BlackRock") purchased Stuy Town, one of New York City's largest residential complexes, for $5.4 billion. (Pet. ¶ 20). In connection with that purchase, Tishman and BlackRock borrowed $3 billion under a senior mortgage loan (the "Senior Loan"), which itself was split into six loans. (Id. at ¶¶ 20-23). The six loans were sold to CMBS trusts ("Trusts," or "Senior Lender"), which in turn issued certificates to investors, including Appaloosa and the GSEs. (Id.). One such trust (the "C30 Trust") was charged with administering the Senior Loan on behalf of the other Trusts in accordance with the PSA. (Id. at ¶¶ 26-27). In late 2009, servicing of the loan secured by the mortgage on Stuy Town was transferred to CWC, as Special Servicer for the C30 Trust. (Id. at ¶ 3).
On January 8, 2010, Tishman and BlackRock defaulted on their mortgage. (Pet. ¶¶ 4, 29). CWC, on behalf of the C30 Trust, provided written notice of the default to the borrowers by letter dated January 8, 2010; when the default was not cured, CWC accelerated the loan by letter dated January 29, 2010. (Id. at ¶ 29). On February 16, 2010, CWC commenced foreclosure proceedings in this District, and on June 21, 2010, the Court entered a Judgment of Foreclosure and Sale authorizing the Senior Lender to sell the property at a foreclosure sale. (Id. at ¶¶ 30-31). However, no foreclosure sale took place. Instead, on June 3, 2014, the Senior Lenderacquired title to the Property via a deed in lieu of foreclosure, at which point Stuy Town became real-estate-owned property ("REO Property") under the terms of the PSA. (Id. at ¶¶ 33-34).
On December 18, 2015, Blackstone Group LP ("Blackstone") and Ivanhoe Cambridge Inc. ("Ivanhoe") purchased Stuy Town for $5.3 billion. (Pet. ¶ 36; Not. Rem. ¶ 2). The proceeds were expected to — and did — cover all of the unpaid principal interest due on the Senior Loan at the time of the Foreclosure Judgment ($3,666,734.70) by more than $1 billion. (Id. at ¶ 37). CWC claimed approximately $560 million of the proceeds in Penalty Interest (id. at ¶ 7), and the GSEs claimed Yield Maintenance Charges on the order of $100-$150 million (Rolnick Decl., Ex. J at 4; id., Ex. K at 7).
The moving parties' disputes implicate various definitions and provisions within the PSA. The PSA governs, inter alia, the creation of the C30 Trust; the transfer of mortgage loans into the Trust; the issuance of certificates; and the duties, rights, and obligations of the various parties, including the Depositor, Master Servicer, Special Servicer, and Trustee. (See generally PSA). It also governs the allocation and distribution of proceeds from the sale of REO Properties like Stuy Town. (Id.). The Court here reviews the provisions most relevant to the pending motions.
The PSA defines Gain-on-Sale Proceeds as "the excess of (i) Liquidation Proceeds of the Mortgage Loan or related REO Property net of any related Liquidation Expenses,3 over (ii) the Purchase Price for such Mortgage Loan on the date on which such Liquidation Proceeds were received." (PSA § 1.01).
The PSA defines Liquidation Proceeds, in relevant part, as:
All cash amounts ... received by the Master Servicer or the Special Servicer in connection with: ... the liquidation of a Mortgaged Property or other collateral constituting security for a Defaulted Mortgage Loan, through trustee's sale, foreclosure sale, REO Disposition or otherwise, exclusive of any portion thereof required to be released to the related Mortgagor in accordance with applicable law and the terms and conditions of the related Mortgage Note and Mortgage[.]
(PSA § 1.01).
The PSA defines Purchase Price, in relevant part, as:
With respect to any Mortgage Loan or REO Loan to be purchased by a Mortgage Loan Seller pursuant to the applicable Mortgage Loan Purchase Agreement, by the Majority Subordinate Certificateholder, the Companion Holder or the Special Servicer ... or by the Depositor, the Special Servicer, the Majority Subordinate Certificateholder or the Master Servicer ... , a cash price equal to the outstanding principal balance of such Mortgage Loan or REO Loan, as of the date of the purchase, together with [i] all accrued and unpaid interest on such Mortgage Loan or REO Loan at the related Mortgage Rate to but not including the Due Datein the Collection Period of purchase plus any accrued interest on [Principal & Interest] Advances made with respect to such Mortgage Loan, [ii] all related and unreimbursed Servicing Advances plus any accrued and unpaid interest thereon, [iii] any reasonable costs and expenses, including, but not limited to, the cost of any enforcement action, incurred by the Master Servicer, the Special Servicer or the Trust Fund in connection with any such purchase by a Mortgage Loan Seller ... and [iv] any other Additional Trust Fund Expenses in respect of such Mortgage Loan ... , or in the case of any Loan Pair, the purchase price specified in the Intercreditor Agreement; provided that the Purchase Price shall not be reduced by any outstanding [Principal & Interest] Advance.
(PSA § 1.01).
The PSA defines Penalty Interest as:
With respect to any Mortgage Loan or Companion Loan (or successor REO Loan), any amounts collected thereon, other than late payment charges, Additional Interest, Prepayment Premiums or Yield Maintenance Charges, that represent penalty interest (arising out of a default) in excess of interest on the Stated Principal Balance of such Mortgage Loan or Companion Loan (or successor REO Loan) accrued at the related Mortgage Rate.
(PSA § 1.01).
The PSA defines REO Loan as:
The Mortgage Loan deemed for purposes hereof to be outstanding with respect to each REO Property to the extent of the Trust Fund's interest therein. ... Collections in respect of each REO Loan ... shall be treated: first, as a recovery of Nonrecoverable Advances and Unliquidated Advances ... with respect to such REO Loan ... ; second, as a recovery of accrued and unpaid interest on such REO Loan at the related Mortgage Rateto but not...
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