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SK Greenwich LLC v. W-D Group LP

October 21, 2010


The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.


Plaintiff SK Greenwich LLC ("SKG") moves for a temporary restraining order and preliminary injunction pursuant to Fed. R. of Civ. P. 65 staying the sale of SKG's membership interest in 443 Greenwich Partners, LLC ("443 Partners"), and enjoining Defendant, W-D Group (2006) LP ("W-D Lender") from selling or otherwise disposing of SKG's membership interest. For the reasons explained below, Plaintiff's motion is denied.


Plaintiff SKG is a Delaware limited liability company controlled by its principal and sole owner, Shahab Karmely, a New York City real estate developer. (Def. Mem. in Opp. at 3, Pl. Mem. in Supp. at 2.) Defendant W-D Lender is a Delaware limited liability company controlled by Eitan Wertheimer and Ezra Dagmi, Israeli investors. (Def. Mem. in Opp. at 3.) In September 2006, Karmely and the principals of W-D Group NY1 LLC ("W-D1"), an affiliate of Defendant W-D Lender, agreed to form 443 Partners to purchase and develop the property at 443 Greenwich Street, New York, New York ("the Property"), for the purpose of converting it to luxury condominiums and a hotel. (Pl. Mem. in Supp. at 2.)

443 Partners purchased the Property for $113 million plus closing costs. (Def. Mem. in Opp. at 3.) In order to fund the purchase, 443 Partners secured an $85 million mortgage loan from Anglo Irish Bank Corporation PLC ("AIB"). (Id.) 443 Partners also contributed approximately $24.9 million of the purchase price, with W-D1 funding approximately $19.9 million of this amount and SKG funding the other $5.0 million through equity investment in 443 Partners.*fn1 (Id. at 3-4.) In exchange for W-D1's capital contribution, it obtained an 80% membership interest in 443 Partners, and in exchange for SKG's contribution, it obtained a 20% membership interest. (Pl. Mem. in Supp. at 2.)

On or about September 7, 2006, SKG, W-D1 and W-D Lender entered into a Mezzanine Loan Agreement (the "Mezzanine Loan") dated September 7, 2006, pursuant to which W-D Lender loaned $20,000,000.00 to SKG and W-D1. (Id. at 3.) The Mezzanine Loan was subordinate to the AIB mortgage, but senior to the equity investments of SKG and W-D1. (Def. Mem. in Opp. at 4.) The Mezzanine Loan is evidenced by a promissory note (the "Note") dated September 7, 2006. (Karmely Aff., Exs. 1-2.)

The Operating Agreement for 443 Partners governs the management and operation of the project, and provides for a three-person board of managers. (Karmely Aff., Ex. 3.) W-D1, as the 80% interest holder, has the right to appoint two of the three board members, and SKG has the right to appoint the third. (Id. at §6.1(a).) The Operating Agreement also provides that SKG would act as the Operations Member responsible for the day-to-day operations of the Property. (Id. at §6.1(c).) In that role, SKG stood to receive additional fees if the project succeeded. (Id.)

Under the terms of the Mezzanine Loan, W-D1 and SKG each pledged 100% of their ownership interests in 443 Partners as collateral for the loan. (Karmely Aff. Ex. 2 at 1.)

Therefore, upon an "Event of Default," SKG and W-D1 are jointly and severally liable for the entire balance of the Mezzanine Loan, and W-D Lender has the right to foreclose on 100% of either or both borrowers' equity interests in 443 Partners. (Karmely Aff., Ex. 1 at §4.26(h), Ex. 2 at ¶7.)

To date, 443 Partners has been unable to secure a construction loan to pay off the Mezzanine Loan and begin renovations on the Property. (Def. Mem. in Opp. at 4.) The Property is currently vacant, is not undergoing renovations, and is not currently generating any income. (Id.) Over the past four years, 443 Partners has accumulated losses of approximately $17.4 million. (Dagmi Decl. at ¶ 11.)

On September 30, 2010, W-D Lender sent a letter to SKG, informing SKG that "the maturity date of the [Mezzanine] Loan was October 1, 2009, (the "Maturity Date") and the principal amount of the Loan in the amount of $20,000,000, plus accrued interest in the amount of $7,459,999 was due on the Maturity Date and was not paid by the Borrower." (Karmely Aff., Ex. 6.) On October 4, 2010, W-D Lender sent a letter to SKG informing SKG of its intent to sell the 20% membership interest owned by SKG in 443 partners at a public auction to be held on October 20, 2010. (Karmely Aff., Ex. 7.) W-D Lender also ran advertisements in the NEW YORK TIMES, on October 10, 13, and 15, 2010, and in the WALL STREET JOURNAL on October 13, 2010, announcing the sale. (Gellman Aff., ¶5.)

On October 12, 2010, Plaintiff filed a complaint in New York State Supreme Court seeking a declaratory judgment that SKG is not in default of its obligations under the Mezzanine Loan Agreement, Promissory Note or Pledge Agreement, and that pursuant to the agreements there is no event of default and no money due under the Note until i) payments to the Lender are permitted under the Senior Loan Documents, and ii) there is Available Net Cash Flow or Capital

Events Proceeds, as defined in the Operating Agreement, and an order barring W-D Lender from selling SKG's membership interest. On October 14, 2010, Defendant removed the case to this Court. On October 15, 2010, Plaintiff filed an Order to Show Cause in this Court as to why a preliminary injunction and temporary restraining order should not be entered in its favor. Defendant submitted a Memorandum in Opposition on October ...

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