U.S. Bank Nat'l Ass'n v. Lightstone Holdings LLC

• Decision Date: 22 July 2021
• Docket Number: 13779 & M–739,Index No. 651951/10,Case No. 2020-02376
• Parties: U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR the REGISTERED HOLDERS OF WACHOVIA BANK COMMERCIAL MORTGAGE TRUST COMMERCIAL MORTGAGE PASS–THROUGH CERTIFICATES, SERIES 2007–ESH, acting by and through its Special Servicer, CWCapital Asset Management LLC, Plaintiff–Appellant, v. LIGHTSTONE HOLDINGS LLC et al., Defendants, Line Trust Corporation Ltd., et al., Defendants–Respondents. Cadwalader, Wickersham & Taft LLP, Nonparty Respondent Real Estate Board of New York, and The Real Estate Roundtable, Amici Curiae.
• Court: New York Supreme Court — Appellate Division

196 A.D.3d 445

152 N.Y.S.3d 441

U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR the REGISTERED HOLDERS OF WACHOVIA BANK COMMERCIAL MORTGAGE TRUST COMMERCIAL MORTGAGE PASS–THROUGH CERTIFICATES, SERIES 2007–ESH, acting by and through its Special Servicer, CWCapital Asset Management LLC, Plaintiff–Appellant,

v.LIGHTSTONE HOLDINGS LLC et al., Defendants, Line Trust Corporation Ltd., et al., Defendants–Respondents.

Cadwalader, Wickersham & Taft LLP, Nonparty Respondent

Real Estate Board of New York, and The Real Estate Roundtable, Amici Curiae.

13779 & M–739

Index No. 651951/10

Case No. 2020-02376

Supreme Court, Appellate Division, First Department, New York.

ENTERED July 22, 2021

Venable LLP, New York (Gregory A. Cross of counsel), for appellant.

Neuberger, Quinn, Gielen, Rubin & Gibber P.A., New York (Brian M. Boyle of counsel), for Line Trust Corporation LTD. and Deuce Properties LTD., respondents.

Morrison & Foerster LLP, New York (Adam J. Hunt of counsel), for Wells Fargo & Co. as successor-in-interest to Wachovia Bank, N.A., respondent.

Cole Schotz, PC, New York (Elizabeth Carbone of counsel), for Ashford Hospitality Finance LP, respondent.

Cadwalader, Wickersham & Taft LLP, New York (William J. Natbony of counsel), for Cadwalader, Wickersham & Taft LLP, respondent.

Troutman Pepper Hamilton Sanders, LLP, New York (Avi Schick of counsel), for Amici Curiae.

Renwick, J.P., Kapnick, Kennedy, Mendez, JJ.

Order, Supreme Court, New York County (Barry R. Ostrager, J.), entered on or about March 10, 2020, which, to the extent appealed from as limited by the briefs, dismissed plaintiff's claims against defendants Line Trust Corp. Ltd., Deuce Properties Ltd., and Ashford Hospitality Finance LP, unanimously affirmed, without costs.

This action stems from a $7.4 billion loan from defendant Wachovia Bank, NA (succeeded by Wells Fargo) and nonparties Bear Stearns and Bank of America (the Original Lenders) to affiliates of defendants Lightstone Holdings LLC (Lightstone) and David Lichtenstein (Lichtenstein), entered into for the purpose of purchasing Extended Stay Hotels (ESH), a real-estate investment trust that held a portfolio of over 600 hotel properties. Of the $7.4 billion, $4.1 billion consisted of a "Senior Loan," which was secured by mortgages on the hotel chain's properties, and the remaining $3.3 billion consisted of 10 tranched mezzanine or "Junior Loans" (the ESH Transaction). The Original Lenders acted as the senior and junior lenders on the aggregate loan. Lightstone and Lichtenstein (the Guarantors) extended a $100 million capped guaranty for payment on the loans (the Guaranty Cap).

After the closing, the Original Lenders securitized their interests in the Senior Loan in a commercial mortgage-backed security trust, receiving in return certificates representing their interests in the Trust entity. Ultimately, the trust certificates were sold to other investors. Plaintiff here is the special servicer to the Trustee, acting on behalf of the present holders of the certificates, and thus acts on behalf of the current senior lender holders (the Senior Lender). The junior loans were sold off to various entities including, as relevant herein, to defendants Line Trust, Deuce, Wachovia and Ashford (the Junior Lenders).

On June 15, 2009, the borrowers filed for bankruptcy. The senior lender recovered the gross amount of $4,149,414,854.32, and the junior lenders were essentially wiped out. The junior lenders then sued the Guarantors, which actions were ultimately settled with the Guarantors paying the junior lenders certain amounts.

In the instant action, plaintiff (as Senior Lender) seeks to claw back settlement payments received by the remaining Junior Lender defendants in this action, alleging it has priority over them pursuant to the Intercreditor Agreement (the ICA), the document governing the relationship between the lenders in their respective capacities as debtholders under the senior and junior loans. Nonparty respondent Cadwalader Wickersham & Taft, LLP (Cadwalader) represented the Original Lenders in the ESH Transaction and drafted the ICA.

At the bench trial, the Junior Lenders relied on the testimony of the two Cadwalader attorneys who drafted the ICA, as well as Tony Fineman (Fineman), Wachovia's (as one of the Original Lenders) primary contact with respect to the ESH Transaction. The witnesses testified as to the meaning and intent of certain provisions of the ICA. At that time, and at various times prior to trial, plaintiff sought the production of Cadwalader documents that were protected by the attorney-client privilege. Plaintiff contended, as it does on appeal, that the Junior Lenders’ reliance on counsel's testimony as to the meaning and intent of the ICA resulted in a subject matter waiver, requiring the production of privileged documents on the same topic. Supreme Court denied plaintiff's request and after the bench trial, dismissed the claims against the Junior Lenders, finding that the evidence established, by a preponderance of the evidence, that the parties intended to give priority over the Guaranty Cap to the Junior Lenders.

On appeal, plaintiff asks this Court to remand this matter for a new trial on the basis that it was entitled to the privileged Cadwalader documents.¹ We decline to do so and affirm.

Subject matter waiver of a privilege occurs when "a party affirmatively...