Sale of Collateral Not a Foreclosure, Can Move Forward Despite Pandemic, Manhattan Judge Rules
If Cuomo had intended to prohibit such sales, he would have "explicitly provided" for the UCC in his order, just as he did with several laws affected by the pandemic, Justice Frank Nervo wrote.
May 20, 2020 at 06:08 PM
3 minute read
Judge Frank Nervo of the New York County Supreme Court/courtesy photo
A Manhattan Supreme Court justice ruled in favor of the lender in a Midtown real estate matter Monday, finding that Gov. Andrew Cuomo's executive order suspending commercial foreclosures does not apply to the planned sale of collateral under the Uniform Commercial Code.
If Cuomo had intended to prohibit such sales, he would have "explicitly provided" for the UCC in his order, just as he did with several laws affected by the pandemic, Justice Frank Nervo wrote.
"Defendant … notes a foreclosure to be a judicial proceeding, whereas the proposed (and Noticed) sale addresses disposition of collateral pursuant to the UCC, a non-judicial proceeding," Nervo wrote. "The Court concurs with the defendant."
The plaintiff in the case is a single-purpose entity indirectly owned by Hidrock Properties, which is developing a 31-story Hilton timeshare with ground-floor retail at 12-14 East 48th Street, according to court documents. A spokeswoman for the plaintiff's attorneys, Allen & Overy, declined to comment Wednesday.
The plaintiff sued in late April to stop the auction of collateral by the holder of its junior mezzanine loan, arguing that the auction had been improperly noticed and would be a "commercially unreasonable fire sale" at the shuttered law offices of the lender's attorneys, Paul Hastings.
James Gabriel, a partner in the lending organization, wrote in a May 18 affidavit that the auction, scheduled for May 1, would have happened virtually and not at the closed offices. He argued that notice was published several times in The Wall Street Journal and The New York Times and garnered interest from at least 10 potential bidders.
Gabriel, who is a partner in the real estate private equity investment firm 54 Madison Partners, according to emails included in court papers, wrote that the plaintiff owed at least $6.9 million on the junior mezzanine loan as of May 18.
The auction of collateral is scheduled to proceed virtually on June 1, Paul Hastings partners Peter Olsen and Jodi Kleinick said in a statement Wednesday.
"We and our client were extremely pleased that the court resolved this matter quickly and determined that the mezzanine lender was entitled to proceed with the UCC disposition of collateral now," they said. "We have rescheduled the public auction for June 1 at 10 a.m. and will be conducting the auction via Webex and teleconference."
In addition to lifting a temporary restraining order, Nervo ordered that the case should no longer be categorized as essential under Cuomo's order prioritizing essential matters in the courts.
"Plaintiff's anticipation of economic damage resulting from the noticing, the manner, or timing of the sale, particularly in light of the current economic shutdown and restrictions on travel as a result of the COVID-19 pandemic, is merely speculative," Nervo wrote.
The case was captioned 1258 Assoc Mezz II LLC v 12E48 Mezz II LLC.
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