The New York Supreme Court, Kings County, recently denied a plaintiff’s motion for an injunction staying the foreclosure sale of shares of a corporation that indirectly owned the State Street Financial Center (the “Property”) in Boston, finding that the foreclosing lender did not act unreasonably under the UCC.  See Lincoln St. Mezz II, LLC v. One Lincoln Mezz 2 LLC, 2021 NY Slip Op 32635(U) (Sup. Ct.).  The Property is owned by a non-party, and Plaintiff Lincoln St. Mezz II, LLC (“Plaintiff”) owns 100% of the shares of a corporation that indirectly owns the Property.  Plaintiff had been negotiating to refinance the four outstanding loans on the Property. However, Plaintiff defaulted on the loan on November 10, 2021, triggering a notice by Defendant One Lincoln Mezz 2 LLC (“Defendant”), who owned one of the loans, pursuant to Article 9 of the UCC.  The notice was for the sale of collateral:  the 100% equity interest in defendant corporation pursuant to an agreement executed when the Defendant purchased the loan. Defendant scheduled a foreclosure sale for December 20, 2021. Plaintiff moved to stay the foreclosure sale, and Defendant opposed.

The Court noted that, pursuant to New York law, a preliminary injunction could be issued if the party seeking it could demonstrate a probability of success on the merits, the danger of irreparable injury, such that monetary damages would be insufficient, and a balance of the equities.  As to the likelihood of success on the merits, Plaintiff argued that Defendant had failed to satisfy §9-627(b) of the UCC, requiring that the “disposition of the collateral” be “made in a commercially reasonable manner.” Plaintiff’s primary argument as to the commercial reasonableness was that the timeline of the foreclosure sale was convoluted and confusing because it was during the holiday season, and that the sale occurring right before the holiday season provides insufficient time for buyers to obtain the necessary financing.

The Court noted that under New York law, 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.” Regarding Plaintiff’s first argument, the Court found that notices of the sale of the building were publicized on November 11, 2021, well before the holiday season, and that the mere fact the actual sale was a few days before a holiday and might interfere with the holiday season does not mean the sale is commercially unreasonable as a matter of law, and that detailed information about vacation habits, flight availability and reduced work hours would “virtually eliminate most of the year as appropriate for scheduling a sale.”

As to irreparable injury, Plaintiff argued that one of the loan agreements provided that, where the lender has acted unreasonably, the “borrower’s sole remedy shall be limited to commencing an action seeking injunctive relief or declaratory judgment.” The Court found that Plaintiff had provided no evidence that Defendant had acted unreasonably, which was a necessary prerequisite to any injunction.  Further, Plaintiff argued that the foreclosure sale of the Property would result in loss of the Property which cannot be “replaced with any money damages.”  To this argument, the Court noted that the Plaintiff did not actually own the Property – rather, it owned all of the shares of a corporation that indirectly owned the Property. As such, the Court found that there was no basis for Plaintiff to argue that it had an interest in the Property that cannot be compensated with money damages.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.