Lincoln St. Mezz II, LLC v. One Lincoln Mezz 2 LLC

• Decision Date: 08 December 2021
• Docket Number: Index 5304 92/2021
• Citation: 2021 NY Slip Op 32635 (U)
• Parties: LINCOLN STREET MEZZ II, LLC, Plaintiff, v. ONE LINCOLN MEZZ 2 LLC, Defendant,
• Court: New York Supreme Court

2021 NY Slip Op 32635(U)

LINCOLN STREET MEZZ II, LLC, Plaintiff, v. ONE LINCOLN MEZZ 2 LLC, Defendant,

Index No. 5304 92/2021

Supreme Court, Kings County

December 8, 2021

Unpublished Opinion

DECISION AND ORDER

HON LEON RUCHELSMAN JUDGE

The plaintiff Has moved by order to show cause seeking to enjoin the defendant from engaging in a QGG sale of the- member and equity interest in One Lincoln Mezz II LLC or from taking any action to effectuate such sale. The defendant opposes the motion. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination.

According to the complaint, the property in this case, the State Street Financial Center in Boston, Massachusetts Is owned by non-party Fortis Property Group LLC through its affiliates. Currently, there are four loans on the property, a mortgage loan administered by Morgan Stanley Mortgage Capital Holdings LLC in the amount of $535, 000, 000 and three subordinate mezzanine loans. The lender of the first mezzanine loan in the amount of $125, 000, 000 is CPPIB Credit Investments II Inc. The lender of the second mezzanine loan in the amount of $125, 000, 000 is the defendant who acquired the loan on June 24, 2021. The third mezzanine lender in the amount of $100 000, 000 is KTB CR'E Debt Fund No.. 7, A Korean Investment Trust.

Although the plaintiff had been negotiating with others to refinance the loans and secured refinancing for a majority of the outstanding debt the plaintiff defaulted on the loan on November .10, 2021. The following- day the defendant sent a notice pursuant to Article 9 of the Uniform Commercial Code for the sale of collateral, namely the one hundred percent equity interest in defendant corporation pursuant to a Pledge and Security Agreement executed when the defendant purchased the loan on June 24. The sale has been scheduled for December 20, 2021. It should be noted the third mezzanine lender, KTB has scheduled a UCC foreclosure sale for December 21, 2021. The plaintiff has npw moved seeking to stay the foreclosure sale noticed by the defendant. The defendant opposes the motion.

Conclusions of Law.

CPLR §6301, as it pertains to this case, permits the court to issue a preliminary injunction "in any action... where the plaintiff has demanded and would be entitled to a judgement restraining -defendant1 from the commission or the continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff" . (id) . A party seeking a. preliminary injunction "must demonstrate a probability of success on the merits, danger of irreparable injury in the absence of the injunction and a balance of the equities in its favor" (Nobu Next Door, LLC v. Fine Arts Hosing, Inc., 4 N.Y.3d.. 839, 800 N.Y.S.2d 48 [2005], see also, Alexandru v. Pappas, 68 Ad.3d 690, 890 N.Y.2d 593 [2d Dept., 2009]). Further, each of the above elements must be proven by the moving party with "clear and convincing evidence" (Liotta v. Mattone. 71 A.D.3d 741, 900 N.Y.S.2d 62 [2d Dept., 2010]) .

The plaintiff, argues it. has established a likelihood of. success on the. merits by demonstrating the defendant failed to satisfy §9-627(b) of the Uniform Commercial Code. That provision requires that the "disposition of the .collateral" must, be "made in a commercially reasonable manner" whereby it is done "in conformity with reasonable commercial practices among dealers: in the type of property that was the subject of the disposition" (id) . The plaintiff provides: three reasons why the proposed foreclosure sale date of December 20, 202l is not commercially reasonable. First, the defendants present an affidavit from Alan Tantleff, an expert in commercial real estate who asserts the sale notice is not commercially reasonable for four reasons. Mr. Tantleff contends that "the timeline mandated in the Terms of Sale is convoluted and confusing" the "timeline is complicated by the Christmas and New Year's Eve holidays as the Scheduled Sale is: being conducted at a time when many qualified bidders are likely to be on vacation; no value-maximizing seller would choose this date as such timing will certainly minimize attendance and chill bidding" the "timeframe between the Notice of Sale and the Scheduled Sale is too short to allow for the necessary diligence of a very significant and complex asset" and that "by scheduling the Scheduled Sale within one _:day of the Third Mezz: Scheduled Sale; the Secured Party has created the opportunity for confusion, which will ultimately chill bidding'' (see, Affidavit of Alan Tantleff, ¶ 26), The second reason offered why the sale is commercially unreasonable, and addressed by Mr. Tantleff/ is the defendant is seeking to "rush" the sale to take place one: day prior to KTB's scheduled sale. There is no basis for this accelerated schedule, argues the plaintiff, since in any event KTB is subordinate to the defendant's loan. The third reason offered, also raised by Mr, Tantleff, is that the sale is scheduled to take place right before and indeed during the holiday season and this provides insufficient time for potential buyers to obtain the necessary financing. An examination of these reasons is now necessary.

In New York a disposition of collateral is commercially. reasonable if made "in the usual matter on any recognized market...at the price current in any recognized market at the time of the disposition...or otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition" (see, NY U.C.C §9-627 (b). Further, pursuant to NY UCC §9-610(b) "every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable'' (id) . Therefore, in Bankers Trust Company v. J.V. Dowler Company Inc., 47 N.Y.2d 128, 417 NYS'2'd 47 [1979] the court explained that since the statute does not provide further particularization about commercial reasonableness, therefore, accepted business practices must be a guide when evaluating such reasonableness. Thus, "customs and usages that actually govern the members of a business calling day-in and day-out not only provide a creditor with standards that are well recognized, but tend to reflect a practical wisdom born of accumulated experience" (id) .. The court further offered two reasons inherent in the mechanisms noted, either to achieve the: highest possible price or to insure proper procedures are employed. However, prior to the sale the only considerations that must be examined are whether the procedures were proper.

Mr. Tantleff argues that scheduling the sale the day before the third mezzanine lender's proposed sale date creates confusion which could chill bidding. This is true because "a potential bidder may incorrectly assume, several things such as: i) that the notice of the Scheduled Sale is simply a re-noticing of the Third Mezz Scheduled Sale; ii) that the Third Mezz Scheduled Sale was moved to a day earlier; iii) that its participation in the Third Mezz Scheduled Sale Would automatically register it as a participant in the Scheduled Sale; or iv) the total disregard of the notice. There could be confusion as to the dates by Which bidders need to register or post deposits as a precursor to bidding. Unfortunately, such opportunity for confusion could erroneously lead a potential bidder to be excluded from participation in the Scheduled Sale and a deleterious effect on the auction" (see. Affidavit of Alan Tantleff, ¶ 62)- In truth, it is difficult to imagine a sophisticated bidder, and only a sophisticated bidder would be interested in such an expensive property, could make such elementary and easily verifiable mistakes. The fears offered and assumptions raised that could confuse a bidder are not likely to exist given the: magnitude and scope of the loans under consideration.. Only extremely well funded and well counseled bidders have the wherewithal to participate in these bids. Such individuals are unlikely to be confused by the issues raised by Mr. Tantleff. There is surely no likelihood of such mistakes sufficient to argue the notices served were improper as a matter of law.

Concerning the argument the date of the hearing occurs during the holiday season, there are cases that hold service during the holiday season raises questions whether the notice was commercially reasonable. in Commercial Credit Group Inc. v. Barber. 682 S.E.2d 760, 199 N.CApp 731 [Court of Appeals of North Carolina, : 1999] the court held that scheduling an auction two days after Christmas and providing notices a mere two days beforehand was not commercially reasonable. However, the court specifically noted the collateral in that case was a "highly specialized arid expensive piece of inoperable machinery" that had a "narrow commercial use" and the notices therefore did not "enhance competitive bidding" (id). Further, in Highland CDO Opportunity Master Fund LP v. Citibank N.A., 2016 WL 1267781 [S.D.N.Y. 2016] a party introduced an expert affidavit that opined that bids due on December 31 was commercially unreasonable because on the last day of the year "'most broker-dealers and investors are only...