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Alden Global Value Recovery Master Fund, L.P. v. KeyBank National Association

Supreme Court of New York, First Department

March 29, 2018

Alden Global Value Recovery Master Fund, L.P., etc., Plaintiff-Appellant,
v.
KeyBank National Association, et al., Defendants-Respondents, Wells Fargo Bank, N.A., etc., Nominal Defendant.

          Duval & Stachenfeld LLP, New York (Kirk L. Brett of counsel), for appellant.

          Steptoe & Johnson, Chicago, IL (Michael Dockterman of the bar of the State of Illinois, admitted pro hac vice, of counsel), for KeyBank National Association, respondent.

          Loeb & Loeb LLP, New York (Gil Feder of counsel), for Berkadia Commercial Mortgage LLC, respondent.

          Miller Field Paddock & Stone, P.L.C., Troy, MI (James L. Allen of the bar of the State of Michigan, the State of Ohio and the State of Illinois, admitted pro hac vice, of counsel), for Berkadia Commercial Mortgage LLC, respondent.

          Friedman, J.P., Kahn, Gesmer, Kern, Moulton, JJ.

         Orders, Supreme Court, New York County (Anil C. Singh, J.), entered November 29, 2016, which granted defendants KeyBank National Association and Berkadia Commercial Mortgage LLC's motions to dismiss the complaint as against them with prejudice, unanimously affirmed, without costs.

         The principal issue before us is whether, in granting defendants' motions to dismiss in this purported derivative action for breach of an Amended and Restated Pooling and Servicing Agreement (PSA), Supreme Court improperly interpreted the term "default, " as employed in one provision of the PSA, as synonymous with the term "Event of Default, " as defined in a preceding provision of the PSA. We find that Supreme Court's determination was correct, and therefore affirm.

         I. Background

         This appeal arose from the sale of a commercial mortgage loan for allegedly less than "fair value."

         In 2007, the Bryant Park Hotel, located at 40 W. 40th Street, borrowed funds from the J.P. Morgan Chase Commercial Mortgage Securities Trust Series 2007-CIBC18 (the Trust), which was created pursuant to a pooling and servicing agreement dated March 7, 2007. Under the terms of that agreement, defendant Wells Fargo Bank was designated as the Trustee and Paying Agent, defendant Berkadia was designated as the Master Servicer and defendant KeyBank was designated as the Special Servicer. The Bryant Park Hotel loan was pooled with other commercial mortgage loans and securitized into the Trust.

         Section 6.03 of the PSA limits the potential claims of liability that may be brought against the servicers of the Trust to willful misfeasance, bad faith, negligence or negligent disregard of their duties under the PSA. That section also provides that the servicers will be indemnified by the Trust for all expenses unless incurred by reason of bad faith, willful misconduct, negligence or negligent disregard.

         Article VII of the PSA, entitled "Default, " includes alternative definitions of the term "Event of Default" (Section 7.01[a]). The parties agree that the only definition of "Event of Default" applicable to the circumstances presented in this case is the following:

         "[A]ny failure on the part of the Master Servicer [or] the Special Servicer... duly to observe or perform in any material respect any of its other covenants or obligations contained in this Agreement which continues unremedied for a period of 30 days... after the date on which written notice of such failure, requiring the same to be remedied, shall have been given... to the Master Servicer [or] the Special Servicer... as the case may be, with a copy to each other party to this Agreement, by the Holders of Certificates evidencing Percentage Interests aggregating not less than 25%" (Section 7.01[a][iii] [emphasis added]).

         Section 12.03(c) of the PSA (the "no-action" clause) sets forth the limited circumstances under which a certificateholder may institute suit. Section 12.03(c) provides, in pertinent part:

"No Certificateholder shall have any right by virtue of any provision of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement or any Mortgage Loan, unless, with respect to any suit, action or proceeding upon or under or with respect to this Agreement, such Holder previously shall have given to the Trustee and the Paying Agent a written notice of default hereunder, and of the continuance thereof, as herein before provided, and unless also (except in the case of a default by the Trustee) the Holders of Certificates of any Class evidencing not less than 25% of the related Percentage Interests in such Class shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding" (emphasis added).

         The PSA sets forth no definition of the term "default" as employed in section 12.03(c).

         In October 2011, the borrower defaulted on the loan, and Berkadia, which had been responsible for servicing the loan as Master Servicer, transferred that responsibility to KeyBank, as Special Servicer. KeyBank, as Special Servicer, was tasked with determining the "fair value" of the loan, and Berkadia, as Master Servicer, was responsible for reviewing KeyBank's fair value determination.

         Effective February 27, 2012, the original pooling and servicing agreement was ...


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