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Devash LLC v. German American Capital Corporation

January 10, 2013


Plaintiff appeals from an order of the Supreme Court, New York County (Charles E. Ramos, J.), entered August 1, 2011, which granted defendants CWCapital Asset Management LLC and Bank of America, N.A.'s motion to dismiss the third, fourth and fifth causes of action.

The opinion of the court was delivered by: Saxe, J.

Devash LLC v German Am. Capital Corp.

Appellate Division, First Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on January 10, 2013

Richard T. Andrias,J.P. David B. Saxe Karla Moskowitz Sheila Abdus-Salaam Sallie Manzanet-Daniels, JJ.

Meister Seelig & Fein LLP, New York (Stephen B. Meister, David E. Ross, Randi L. Maidman and Remy Stocks of counsel), for appellant. Friedman Kaplan Seiler & Adelman LLP, New York (Robert J. Lack, Richardo Solano Jr., and Jeffrey R. Wang of counsel), for respondents. Scott D. Spelfogel, New York, for CWCapital Asset Management LLC, respondent. SAXE, J.

Plaintiff Devash LLC claims that Bank of America, N.A. (BOA), as trustee for the holder of its securitized $250 million mortgage loan, and CWCapital Asset Management LLC, the appointed special servicer of plaintiff's loan, entered into what plaintiff terms a "predatory lending scheme," not in regard to the terms of the mortgage loan itself, but due to the manner in which defendants engaged in selling plaintiff's loan to a third party that planned to foreclose and take possession of the property. Plaintiff seeks money damages against BOA and CWCapital based on claims of breach of contract and tortious interference.

According to the complaint, in 1999 plaintiff purchased a 26 story office and retail building located at 1775 Broadway, also known as Three Columbus Circle, and then embarked on a multi-million dollar comprehensive renovation. On January 9, 2006, plaintiff refinanced the mortgage debt on the property by obtaining the $250 million loan at issue here from Wachovia Bank, N.A. On June 26, 2006, Wachovia assigned the Loan to Wells Fargo Bank, N.A., as trustee for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2006-C-23 (CMT-C23). On or about March 31, 2009, defendant BOA replaced Wells Fargo as trustee for CMT-C23.

The loan required interest payments through January 2010, with payments of principal scheduled to begin in February 2010, at which time the monthly payment obligation would increase substantially. With an occupancy rate in the building of approximately 23%, plaintiff approached BOA in January 2010 seeking to negotiate a restructuring of the loan, to include either forbearance from collecting principal payments or acceptance of smaller principal payments, while plaintiff found tenants for the building. BOA agreed to engage in these restructuring negotiations, and transferred the loan to defendant CWCapital as special servicer. Although BOA issued a notice of default on January 21, 2010, and on March 24, 2010 it declared the loan accelerated, CWCapital assured plaintiff that these steps were simply standard operating procedures, and that its restructuring proposal was under active consideration. Because CWCapital indicated that BOA would only consider restructuring the loan if plaintiff kept up its interest payments to BOA, plaintiff continued to pay millions of dollars in interest, real estate taxes, and construction costs, while restructuring negotiations were purportedly proceeding. During this period, plaintiff alleges, it invested more than $22 million in fresh funds.

Plaintiff alleges that in May 2010 BOA and plaintiff reached a restructuring agreement in principle, and that in early June 2010 the final terms of the agreement were set, pursuant to which plaintiff would continue making payments of interest only while it found tenants for the building. However, although plaintiff executed and delivered the prepared loan modification documents on June 11, 2010, BOA never countersigned the documents. According to the complaint, BOA did not enter into the restructuring agreement because defendant The Related Companies, L.P. (Related), a well-known developer that was developing the nearby Time Warner Center at Columbus Circle, had offered to purchase the loan from BOA. Plaintiff asserts that it was Related's plan to obtain the property through foreclosure, demolish the newly-renovated office building and construct a new mixed use tower to house a Nordstrom department store and luxury condominiums. It contends that beyond simply selling plaintiff's loan to Related, BOA and CWCapital took affirmative steps, damaging to plaintiff, to assist Related in its goal of foreclosing on the property after purchasing the loan. Specifically, plaintiff complains that CWCapital assisted Related by (1) inducing plaintiff to remain current on interest and other required payments under the loan, (2) making false representations that restructuring negotiations were proceeding in good faith, and (3) withholding consent to new leases in violation of the terms of the loan. Plaintiff alleges that these actions were undertaken to make foreclosure inevitable and ensure that the property had as few tenants as possible when Related took possession.

One of those proposed leases was with HQ Global Workplaces LLC (HQ), for a full floor of the building totaling approximately 33,000 rentable square feet with a competitive market rent per square foot. Plaintiff alleges that CWCapital granted conditional approval of a proposed lease to HQ five months earlier, but that on July 20, 2010, after Related raised the prospect of purchasing the loan, the special servicer sent plaintiff a memorandum incorrectly claiming that the terms of the HQ lease had been changed since it granted approval, and that it would not consent to the lease without the inclusion of a demolition clause permitting the landlord to terminate the lease on six months' notice in the event it elected to demolish the building, without compensation to the tenant. As a result, plaintiff claims, HQ ceased its lease negotiations with plaintiff, and prompted the brokerage community to refrain from bringing prospective tenants to the property.

Another proposed lease was with William Morris Endeavor Entertainment LLC, a prestigious global entertainment agency, for three full floors, amounting to nearly 77,000 square feet of rentable space, the aggregate rental income of which, including escalations, would allegedly exceed $100 million. Plaintiff submitted for review a term sheet containing the material economic terms of the proposed lease, but defendants refused to review it, and instead insisted that ...

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