WILLKIEFARR & GALLAGHER LLP MATTHEW FREIMUTH

Transcription

1 WILLKIEFARR & GALLAGHER LLP MATTHEW FREIMUTH SeventhAvenue New York, NY Tel: Fax: May 22, 2018 VIA ECF AND FEDERAL EXPRESS The Honorable Judith R. McMahon New York County Supreme Court 60 Centre Street, Room 659 New York, NY Re: ~ 542 Broadway J Lender LLC v. ~ 60G 542 Broadway %A0%4TlaJ Owner, M WTuvaa ~4J& LLC QAAb and 60G vv& M542Ik 4/Lvl4k BroadwayTvlkJ Holdings, LLC, No /2017 Dear Justice McMahon, We write on behalf of Plaintiff 542 Broadway Lender LLC to request that Your Honor enter the Proposed Judgment of Foreclosure and Sale (ECF No. 41) and to address the false accusations and misstatements contained in the letter submitted by non-party Prince Fashions, (" Prince" Inc. â ("Prince") (ECF No. 63) on May 14, 2018-over 17 months after this action was commenced and Prince first received notice of it-and â repeated by s counsel at our recent conference on May 15, Of greatest concern was s wholly inaccurate characterization of findings in an ongoing Civil Court proceeding between Prince and the Defendant in this action. This is a straightforward foreclosure action in which Plaintiff seeks to foreclose on three mortgages in connection with loans that have been in default since December 22, Prince has no standing in this proceeding as it is a holdover tenant under a lease that is expressly subordinate to Plaintiff's mortgage. s last-minute attempt to disrupt and delay this foreclosure proceeding at this late stage is untimely, would unjustifiably harm Plaintiff's legitimate economic interest, and is based entirely on unfounded allegations. For the reasons set forth more fully below, we respectfully request that the Court enter the Proposed Judgment on or before our next appearance before Your Honor on June 5, L Background. This foreclosure proceeding results from a series of transactions among Plaintiff 542 (" PlaintifF' Broadway Lender ("Plaintiff"), Defendants 60G 542 Broadway Owner, LLC and 60G 542 Broadway Holdings, LLC (collectively, "60G"), and 542 Broadway Holding Corporation NEW YORK WASHINGTON «rsrxc pans LON DON MILAN ROME FRANKFURT BRUSSELS in IB alliance BlhMICCwith WILESDidkon o'fcidop,mmm 1'V'tiBCGW~ 'Vs., London ~QB(1QBand BXI8Edmburgb ECHBI3Llfgfl

2 (" Seller" ("Seller"), the prior owner of the property commonly known as 542 Broadway. Each party to the transactions was represented by reputable counsel, including this firm on behalf of Plaintiff, Ropes and Gray LLP on behalf of Seller, and Cole, Schotz, Meisel, Forman & Leonard, P.A. on behalf of 60G. 542 Broadway is a six story, mixed use building that was previously owned and operated by Seller as a cooperative corporation. It consists of retail space on the ground floor and basement and residential space on floors two through six. In connection with the transactions, 60G purchased the retail space, which is currently occupied by two sub-tenants of Prince. Prince "Lease" originally entered into a lease on the retail space pursuant to a lease and rider (the "Lease") on April 11, The transactions ultimately giving rise to this foreclosure proceeding contemplated that 60G and Seller would create a condominium for the property containing two units: a Residential Condominium Unit to be owned by Seller and a Retail Condominium Unit to be owned by 60G. Plaintiff provided financing to 60G in connection with its purchase of the Retail Condominium Unit. The terms of Plaintiff's financing are memorialized in the Promissory Note that is attached to the Complaint as Exhibit A. At the time of the transactions, the Lease was already subject to significant prior litigation. In connection with the litigation, Seller had sought an order of ejectment against Prince and the subtenants, a declaration that the Lease had terminated by its express terms, as well as unpaid rent and use and occupancy fees. As part of the transactions with Seller, 60G agreed to continue to pursue those claims against Prince in order that it might obtain a fee simple interest in the as-yet to be formed condominium. Once the two condominiums contemplated by the transactions were formed, on May 13, 2015, Plaintiff and 60G entered into a Note Severance Agreement, attached to the Complaint as Exhibit B, pursuant to which the Promissory Note was severed into three separate notes: (1) the Senior Loan Note in the initial maximum principal amount of $9,300,000.00; (2) the Project Loan Note in the initial maximum principal amount of $2,353,325.00; and (3) the Building Loan Note in the initial maximum principal amount of $1,246, The mortgages that are subject to this foreclosure proceeding secure these three Notes. Critically, s interest (if any) is subordinated to the mortgages given that Paragraph 7 of the Lease expressly states as much.1 Furthermore, on March 4, 2016, 60G, now s landlord, served a Notice of Default on Prince due to s failure to maintain general liability insurance in favor of the landlord, a material breach of the Lease. Lease 8 ("Tenant (" agrees, at Tenant's sole cost and expense, to maintain general public liability insurance in standard form in favor of Landlord and Tenant against claims for bodily injury or death or property damage occurring in or upon the demised 1 In pertinent part, the Paragraph 7 of the Lease provides as follows: This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying lease or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. See Ex. A to Prince Letter (ECF No. 64). -2-

3 premises...."). In response, Prince sued 606 seeking a Yellowstone injunction. On June 30, injunction , the New York Supreme Court denied s application for a Yellowstone injunction. On July 1, 2016, 60G served a Notice of Lease Cancellation on Prince. Pursuant to that notice, the Lease was effectively terminated on July 5, A subsequent decision of the First Department upheld the denial of the Yellowstone injunction, and expressly found that s Lease had effectively terminated on July 5, On July 11, 2016, 606 initiated holdover proceedings against Prince. In the context of that holdover proceeding, on September 19, 2017, the Civil Court dismissed s affirmative defenses, granted summary judgment to 60G, and Prince.4 awarded final judgment of possession against Prince. While the holdover proceedings were pending, 60G defaulted on the mortgages that secure the Senior Loan Note, the Project Loan Note, and the Building Loan Note. On December 22, 2016, Plaintiff sent 60G a Notice of Event of Default and Acceleration Notice. Not receiving accelerated payment, Plaintiff initiated this foreclosure action against 606 on January 13, Plaintiff sent a copy of the foreclosure Complaint to s counsel in the holdover proceeding on January 17, 2018 and received confirmation that it was delivered on January 18, Despite having received the foreclosure Complaint on January 18, 2017, Prince waited until December 7, 2017 to move the Civil Court to reconsider its award of final possession against Prince. In doing so, Prince raised the same baseless assertions of fraud and collusion that it raises in its letter to this Court and alleged that the Promissory Note attached to the foreclosure Complaint presented new-found evidence of such collusion. Despite statements that s counsel made to this Court at the hearing on May 15, the Civil Court did not find that 606 had committed any fraud. The Civil Court overturned its decision not in response to s baseless assertion of some grand fraudulent scheme, but to permit a trial to address the questions of which party was obligated to maintain insurance and, by extension, whether 606 acted in 6 good faith when it issued the Notice of Default to Prince. On March 5, 2018, 60G appealed these orders to the Appellate Division, First Department, where they are currently pending. Statements â by s counsel at the May 15 proceeding before Your Honor-which the "fraud" "collusion" Court will surely remember-that the Civil Court found and were utterly false. In the Civil Court's decision, the Court merely held that it had mistakenly concluded, as a matter of law, that the First Department's decision-affirming the denial of the Yellowstone injunction on the basis of s failure to obtain insurance-wasâ dispositive of the merits of the holdover proceeding. The Court said a trial should be held to resolve disputed facts. In this regard, the faith," Court recounted s allegations of "bad including its claim that the "transfer of title to lease." the premises was engineered simply to terminate [s] Ex. E at 8. With respect to trial." these allegations, the Court simply said: "These issues are to be determined at Id. The Court also affirmed its earlier decision striking one of s defenses and denying s 2 Prince Fashions, inc. v. 60G 542 Broadway Owner, LLC, No /2016, ECF No.45 (N.Y. Cty. Sup. Ct. June 29, 2016), attached as Exhibit A. 3 Prince Fashions, Inc. v. 60G 542 Broadway Owner, LLC, 149 A.D.3d 529 (1st Dep't 2017), attached as Exhibit B. 4 60G 542 Broadway Owner, LLC v. Prince Fashions, Inc., L&T Index No /2016 (N.Y. Cty. Civ. Ct. Sept. 19, 2017), attached as Exhibit C. 5 Letter and accompanying tracking receipt attached as Exhibit D. 6 60G 542 Broadway Owner, LLC v. Prince Fashions, Inc., L&T Index No /2016 (N.Y. Cty. Civ. Ct. Feb. 9, 2017), attached as Exhibit E. -3-

4 motion to dismiss. We find it difficult to understand how counsel could justify or explain his false statements about the Civil Court's order, as he also serves as counsel in that proceeding for Prince. Since filing this foreclosure action in January 2017, Plaintiff has acted appropriately at all times to protect its economic interest and pursue an expeditious foreclosure process. Plaintiff worked diligently with the Court-appointed referee, and submitted the referee's report and Proposed Judgment on November 27, This Court scheduled a May 15 hearing to enter the Proposed Judgment. On the eve of that hearing, despite having known about this action for 17 months prior, and despite having litigated the very issues asserted in their letter in the holdover proceeding, Prince wrote seeking to delay this foreclosure proceeding. There is no basis to do so because s attempt to intervene is untimely, Prince is not a necessary party and has no standing, and its letter is advances a preposterous conspiracy theory that is unsupported by the facts as laid out above. IL s Submission is Procedurally Improper and Untimely. With no legal basis, and without having filed any motion papers, Prince seeks to delay entry of the Judgment. For two reasons, we respectfully submit that there is no basis to do so. First and foremost, Prince is a not a party to this action, nor is Prince a necessary party for the Court to adjudicate this foreclosure proceeding. s interest (if any) is entirely subordinate to that of Plaintiff mortgagor, and s status is simply that of a holdover tenant. Indeed, as noted above, 60G served a notice of cancellation on July 1, 2016, after the Supreme Court denied s request for a Yellowstone injunction, and accordingly, s Lease terminated on July 5, Between service of the Notice of Cancellation and the termination of the Lease, Prince never sought a temporary restraining order or any other injunctive relief to prevent the termination on July 5. The First Department in affirming the denial of the Yellowstone injunction expressly held that the Lease terminated on July 5, Given s status as a holdover tenant, they are not a necessary party. See 585 A.P. Lenox Assoc. v. 585 Lenox Ave Assoc., 194 A.D. 2d 380 (1st Dep't 1993) (holding that "[i]n [an] action for foreclosure of mortgage, there was no requirement that month-to-month tenants be served with complaint" notice of pendency, summons and complaint"); see also 2 Bergman on New York Mortgage (" Foreclosures ("Month to month tenants... have not been held to be necessary parties."). To be clear, Prince has raised issues about the effectiveness of 60G's termination in the context of the holdover proceedings in the Civil Court, but those issues are being litigated in another forum and need not alter the course of this proceeding. Second, Prince has plainly waited until the last possible moment to attempt to interject itself into this proceeding and to unjustifiably delay an orderly foreclosure. Indeed, were s aim to protect a valuable 161 year lease interest, as it suggests, Prince could have sought to intervene in this case more than a year ago given that it has been on notice of this proceeding from the outset. Intervention is not timely when it will unduly delay the determination of the action or prejudice the rights of a party. Wells Fargo Bank, N.A. v. Mazzara, 124 A.D. 3d 875, (2d Dep't 2015). Moreover, when parties allow substantial delay from the time of notice to that of the motion to intervene, courts are likely to find such motions untimely. See RKH (" Holding Corp. v. 207 Second Ave. Realty Corp., 236 A.D. 2d (1st Dep't 1997) ("Leave to intervene was also properly denied in view of the proposed intervenor's year-long delay in -4-

5 seeking such relief, despite her undisputed knowledge that the foreclosure action had been commenced."). Here, the prejudice to Plaintiff of further delay is obvious. The loans at issue remain in default and Plaintiff will be unduly delayed in its effort to recover if Prince is permitted to intervene and delay entry of the Proposed Judgment. Moreover, s letter was literally submitted on the eve of the hearing to approve the Proposed Judgment, approximately 17 months after it received notice of the pendency of this action. This is clearly well beyond the time permitted for timely intervention and, in fact, seems designed to inflict the maximum amount of prejudicial delay into these proceedings as possible. Accordingly, to the extent it can be construed as a motion to intervene, s request should be denied. III. The Inflammatory Allegations are Baseless. Prince alludes to some sort of improper or collusive behavior because 60G's counsel else" have "rendered appearances but done nothing and because 60G has elected to "allow this action to go undefended." However, 60G principals all signed personal guarantees making themselves personally liable for payment of the full amount of indebtedness if 60G obstructs or otherwise interferes with Plaintiff's exercise of its valid rights and remedies, including the initiation of these proceedings. Indeed, consistent with these guaranties, 60G and its counsel have continued to prosecute the litigation involving the termination of the Lease and the holdover proceedings against Prince, likely recognizing that if they can recapture the premises, they may be able to refinance and obtain the proceeds necessary to pay Plaintiff. Prince suggests that the fact that the Promissory Note was entered into the same day that Seller and 60G entered into the purchase and sale transaction is suspicious. To the contrary, the fact that contracts were executed the same day is not remarkable at all. The purchase and sale execution triggered obligations that 60G needed to capitalize. As reflected in the budget attached the Promissory Note, such obligations included: (a) payment of Seller's $775,000 mortgage; (b) over $1.2M of estimated capital improvements to the building (c) creation of a condo; (d) assumption and resolution of outstanding legal bills from Seller's prior litigation and L&T proceedings; (e) assumption of Seller's litigation with Prince. On the one hand, it would have been unreasonable for 60G to enter into financing via the Promissory Note before those obligations accrued. It also would have been irrational for 60G to take on those obligations before having secured the necessary financing to cover the cost of those obligations. Viewed in this context, the timing of the transactions is perfectly logical and consistent with custom and practice in most, if not all, real estate transactions involving financing. Similarly, s assertion that Plaintiff made a $12.9M loan to fund a $1,000 purchase price demonstrates a fundamental misunderstanding of the transaction and a misrepresentation of Not only is s letter untimely, but the substantive allegations about the nature of the transactions underlying this foreclosure proceeding are utterly without merit. None of the socalled related to the transaction indicate, as Prince suggests, "material or a "facts" misconduct" fraud." "carefully orchestrated As demonstrated above, despite s claims to the contrary, this foreclosure proceeding arises from a series of arms-length transactions negotiated by competent counsel on behalf of sophisticated parties. -5-

6 the information reflected in the Budget attached to the Promissory Note. As noted above, 60G took on other substantial obligations in connection with the purchase and sale agreement. The $12.9M in funding provided by Plaintiff was necessary to satisfy the entirety of those obligations, not just the $1,000 line item that Prince misleadingly points out. s other assertions are similarly baseless. For example, despite s naked "collusion," claims that the 20% base interest rate is evidence of no evidence supports this claim. Rather the interest rate is arms-length compensation to Plaintiff for the risk of lending in connection with this particular asset, which involved a to-be created condominium unit fraught with messy and long-standing litigation. Prince offers not a scintilla of evidence that the 20% interest rate was something other than an arms-length agreement, nor does it show that the rate was widely different than those found in deals of a similar nature. Moreover, s claim that the 60G website-which indicates that 60G and Plaintiff have engaged in other real estate transactions together-is â "collusion," further evidence of any prior dealings between the two firms do not change the critical fact that this transaction, the only one at issue here, was anything other than an arms-length transactions between sophisticated commercial parties. Finally, despite s repeated assertions that the Promissory Note "was clearly not meant to be filed," divulged, let alone publicly its attachment to the Complaint was not an accident. Rather, the Promissory Note gives the proper context for the three mortgages that are subject of this foreclosure proceeding, which is why we intentionally attached it to our filings. In short, the "evidence" that Prince cites to does not support the assertion of collusion between Plaintiff and Defendant in this action. For the reasons provided above, we respectfully submit that Your Honor should reject s untimely effort to intervene and enter an order approving the Proposed Judgment. Respect tted Matthew reimuth cc: All Counsel of Record (by ECF) -6-