Stuyvesant Town leasing office (Photo by Sabina Mollot)
By Sabina Mollot
A federal court judge has decided that the lawsuit against CWCapital by a group of junior lenders involved in Stuyvesant Town should be handled by a state court, as the lenders had been hoping.
It was on Monday when United States District Judge Alison Nathan remanded the litigation to the New York State court where it was originally filed.
In the decision, Nathan wrote that “this case invokes no comparable federal interest, scheme or agency. Rather it is a contract dispute between private parties, turning almost entirely on construction of a private contract, and failing to present any dispositive question of federal law.”
The lawsuit was filed last summer after CWCapital took ownership of Stuyvesant Town and Peter Cooper through a deed, rather than holding a planned foreclosure sale on mezzanine debt. A group of lenders represented by Centerbridge Partners had hoped for a chance to buy a key piece of the mezzanine or junior debt and accused CW of violating an intercreditor agreement. The deed-in-lieu of auction wipes out the value of the junior debt, they’d argued, allowing CW to reap an “unearned windfall” when the property is sold.
They also accused CW of inflating the interest it was owed to calculate the total senior debt at $4.4 billion.
However, in its arguments, the lenders said that even though they believe CW’s figures are wrong, they still stand to “reap windfall profits regardless of how the interest rate is calculated on the senior loan.”
Even when using CW’s “incorrect and vastly overstated senior loan payoff amount of $4.4 billion, the value of Stuy Town is still worth hundreds of millions of dollars more,” the lenders said.
News of the court action was first reported on Tuesday by Law360, a legal news service.
Michele de Milly, a spokesperson for Centerbridge, declined to comment on the latest court action. Brian Moriarty, a spokesperson for CWCapital, didn’t respond to a request for comment.
Last month, the total amount of debt as calculated by CW reached $4.7 billion, a figure announced at a Tenants Association meeting by Council Member Dan Garodnick. He explained the amount was due to interest and fees. It’s also the amount that was reportedly being prepared as a bid by CWCapital’s parent company, Fortress. The Tenants Association has since said it is still hoping for a tenant-led condo conversion with partner Brookfield.
Following the suit being remanded, Susan Steinberg, chair of the ST-PCV Tenants Association said it basically just means more waiting around for would-be buyers.
“The decision to remand the case back to state court means that if CWCapital is waiting to settle with Centerbridge et. al. before proceeding with plans to sell, it will have a longer wait,” said Steinberg. “Ultimately, so will would-be buyers, including the tenants here. Whether the remand is a good or a bad thing for either the plaintiffs or the defendants will depend on which judge the case comes before. We will stay tuned.”