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LLC v. Wachovia Bank Commercial Mort'g Trust 2007-C30

United States District Court, S.D. New York

January 12, 2015

PCVST Mezzco 4, LLC, et al., Plaintiffs,
Wachovia Bank Commercial Mort'g Trust 2007-C30, et al., Defendants.


ALISON J. NATHAN, District Judge.

Before the Court is Plaintiffs' motion to remand the case to New York state court for lack of federal subject matter jurisdiction. See Dkt. No. 29. For the reasons below, Plaintiffs' motion is GRANTED.


This case stems from the sale of the prominent New York residential development known as Stuyvesant Town-Peter Cooper Village, commonly referred to as "Stuy Town." In 2006, Defendants PCV ST Owner Land ST Owner LP (the "Borrowers") purchased Stuy Town from Metropolitan Life for $5.4 billion. Compl. ¶ 22. The purchase was financed with a $3 billion mortgage on the property (the "Senior Loan") and eleven levels of mezzanine debt in descending order of seniority totaling $1.4 billion (the "Junior Loans"). Id. ¶¶ 23, 28; Opp. 3. The Senior Loan is held currently by Defendants Wachovia Bank Commercial Mortgage Trust 2007-C30, the COBALT CMBS Commercial Mortgage Trust 2007-C2, the Wachovia Bank Commercial Mortgage Trust 2007-C31, the ML-CFC Commercial Mortgage Trust 2007-5, and the ML-CFC Commercial Mortgage Trust 2007-6 (collectively the "Senior Lender") Compl. ¶ 24. Plaintiffs hold nearly all of Junior Loans 4-9. Id. ¶ 33; Opp. 4. The rights of the various lenders are controlled by an Intercreditor Agreement ("ICA"). Compl. ¶¶ 2, 32-33.

Several years after the initial purchase of Stuy Town, the Borrowers defaulted on the $3 billion Senior Loan. Compl. ¶ 43; Opp. 4. As a result, several of the Defendants brought a statelaw foreclosure action against the Borrowers in this Court based on diversity jurisdiction. Compl. ¶ 45. See also Bank of America, N.A. v. PCV st Owner LP, et al., 10-cv-1178 (AKH) (S.D.N.Y.). On April 22, 2010, the plaintiffs in that action filed a motion requesting foreclosure on the mortgage and a computation on the amount due on the Senior Loan. Pls.' Mot. Remand, Ex. 1. The Court foreclosed on the property and on June 21, 2010 entered a judgment granting the Senior Lender judgment in the amount of approximately $3.6 billion plus interest. Pls.'s Mot. Remand, Ex. 2, at 5; Opp. 5; Compl. ¶ 45. The judgment specified that interest was to be calculated on the judgment at the contract interest rate plus the default interest rate between April 22, 2010 and the date the judgment was entered, with interest subsequent to the date of judgment to be calculated "at the legal rate." Compl. ¶¶ 46-49.

Shortly after the foreclosure judgment was entered, Defendant PCV-M Holdings acquired Junior Loans 1-3. Id. ¶ 57. Although it is unrelated to the matter immediately before the Court, Plaintiffs believe this acquisition was in violation of the ICA. Id. ¶ 58. In May 2014, the Plaintiffs allegedly first learned that the Defendants intended to conduct a UCC foreclosure sale for the equity interests in the companies securing Junior Loans 1-3. Id. ¶¶ 59-60. Around this time, Plaintiffs allegedly received a flyer from a real estate brokerage firm announcing the impending sale and clarifying that any interested purchaser would be required to demonstrate the ability to fully pay off the Senior Loan at the time of closing. Id. ¶ 61. Concerned that the requirement to pay off the full Senior Loan would not apply to PCV-M or its affiliates, and accordingly would grant them a multi-billion dollar advantage in any auction, the Plaintiffs requested postponement of the auction in a letter dated May 28, 2014;. Id. ¶ 64. When Defendants denied this request, Plaintiffs attempted to exercise their option under the ICA to purchase Junior Loans 1-3 at par. Id. ¶ 70.

On June 3, 2014, the Defendants executed a deed in lieu of foreclosure agreement ("DIL"), transferring the property to several special purpose entities of their own designation. Id ¶¶ 76-77. Plaintiffs claim that this allegedly self-dealing transaction was motivated by the Defendants' desire to maintain exclusive control over the property. Id. ¶ 81. The Plaintiffs allege that by transferring the property via the DIL to entities they controlled, the Defendants wiped out the value of Junior Loans 4-11 and secured themselves an unearned windfall to be realized whenever the property is ultimately sold for its fair market value. Id. ¶¶ 83-85. This windfall is equal to what Plaintiffs deem the "excess value" in the property, representing the difference between the property's fair market value and the amount due on the Senior Loan. Id. ¶ 78. Plaintiffs believe that the Junior Loan holders are entitled to a share of this excess value. Id. ¶ 85.

The parties dispute the precise sum of this excess value, due primarily to a disagreement over how interest should be calculated on the 2010 foreclosure judgment entered by this Court. See Pls.' Mot. Remand 2 n.1; Opp. 17. Plaintiffs argue that application of28. U.S.C. § 1961, a federal statute governing post-judgment interest, renders an outstanding balance on the Senior Loan of $3.45 billion. Compl. ¶ 78. Estimating the fair market value of the property to be about $5 billion, they contend the "excess value" on the property is approximately $1.5 billion. Id. Defendants dispute the applicability of § 1961 and propose a post-judgment interest rate that results in a significantly greater sum being due on the Senior Loan. Defs.' Mot. Dismiss 33-35; Compl. ¶ 78.

Critically for purposes of this motion, however, Plaintiffs allege that the Defendants will reap windfall profits regardless of how the interest rate is calculated on the Senior Loan, because in either instance the estimated value of the property will be greater than the outstanding balance on the loan. Compl. ¶ 78. According to their pleadings, "[e]ven using [Defendants'] incorrect and vastly overstated Senior Loan payoff amount of approximately $4.4 billion, the value of Stuy Town is still worth hundreds of millions of dollars more." Id. Accordingly, the Plaintiffs allege nearly half a billion dollars in damages even if they are incorrect in their calculation of interest on the Senior Loan. Pls.' Mot. to Remand 7; Compl. ¶¶ 78-84. Favorable interpretation of § 1961 is not the sine qua non of their damages claim, but rather affects the "additional billion dollars" in windfall profits Defendants allegedly stand to gain. Pls.' Mot. Remand 7 (emphasis added); Compl. ¶ 83.

On July 3, 2014, Plaintiffs filed this suit in the Supreme Court of the State of New York, County of New York. Pls.' Mot Remand 7. On August 1, 2014, Defendants removed the case from New York court to this Court. Id. 8. Plaintiffs now seek to have the case remanded back to New York Supreme Court.


Although the "vast majority" of cases brought into federal court on the jurisdictional basis of 28 U.S.C. § 1331-providing for federal question jurisdiction-or 28 U.S.C. § 1441 (a)-the federal removal statute-are those involving a federal cause of action, see Grable & Sons Metal Products, Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 321 (2005) (Thomas, J., concurring), it is by now well established that such a cause of action is "not a necessary condition for federal-question jurisdiction." Broder v. Cablevision Sys. C:nrp., 418 F.3d 187, 194 (2d Cir. 2005) (citing Grable, 545 U.S. at 311). "Instead, the question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities." Grable, 545 U.S. at 314. Only "[w]hen all four of these requirements are met" will federal jurisdiction be appropriate over a state-law claim. Gunn v. Minton, 133 S.Ct. 1059, 1065 (2013).

While Grable opened the federal question door wider than proposed by Justice Holmes in Am. Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916) (holding that "[a] suit arises under the law that creates the cause of action"), the Supreme Court has nonetheless defined this genus of cases as a "special and small category." Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 699 (2006). Moreover, it has clarified that it is more likely to arise when the case concerns the action of a federal agency and the federal question is "both dispositive of the case and [] controlling in numerous other cases." Id. at 700. In other words, the simple presence of a federal issue is insufficient to "open the arising under door" of federal jurisdiction. Id. at 701 (citing Grable at 545 U.S. at 313) (internal quotations removed).

Finally, it is "well-settled that the party asserting federal jurisdiction bears the burden of establishing jurisdiction." Blockbuster, Inc. v. Galena, 472 F.3d 53, 57 (2d Cir. 2006). However, the Defendants do not bear this burden in regards to each of the Plaintiffs' claims, as "a single claim can constitute sufficient basis for subject matter jurisdiction." Gamoran ...

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