Judge sends lenders’ suit back to state court

Stuyvesant Town leasing office (Photo by Sabina Mollot)

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.”

CW asks court to toss lenders’ lawsuit

Stuyvesant Town leasing office (Photo by Sabina Mollot)

Stuyvesant Town leasing office (Photo by Sabina Mollot)

By Sabina Mollot

On Monday, CWCapital tried to get a lawsuit that had been filed by representatives of a group of junior lenders last month tossed on the grounds that it was “a story-book portrayal of events.” In this latest court action, CWCapital and co-defendant Wachovia also accused hedge fund Centerbridge Partners, who is representing the lenders, of forming “shell entities” in order to buy into junior loans two months ago, for the sole purpose of suing the owner, the website law360.com first reported.

At that time, CWCapital had taken ownership of Stuyvesant Town/Peter Cooper Village through a deed instead of holding a previously planned auction sale on some of the property’s mezzanine debt. The lenders, once unable to purchase a key piece of mezzanine debt, filed suit in which the company also accused CW of giving themselves a near $1 billion windfall while junior lenders received nothing. Centerbridge had called CWCapital’s takeover “executed on the flawed premise that the amount owed on the senior loan was greater than the value of the property.” CW represented that $4.4 billion was owed on the mortgage when the amount was really $3.45 billion, the lenders said.

But on Monday, CW and Wachovia countered that the plaintiffs were not junior lenders “at any relevant time,” Law 360 quoted the companies as saying in their brief. “Rather, plaintiffs are shell entities that acquired their junior loan positions after, and with full knowledge that, the senior lender had pursued the DIL [deed in lieu transaction], which automatically terminated the ICA (inter-creditor agreement).”

Further, CW argued, “Through this litigation, Centerbridge does not seek to recoup any alleged loss, but rather to earn more than $1 billion in profit on a highly speculative investment in litigation that it made with eyes wide open after the DIL and the termination of the ICA. New York disdains the commercialization of litigation, and its champerty statute is a full stop to what Centerbridge is trying to do here.”

When canceling the mezzanine auction that had been set for June 13, CW also entered into talks with the ST-PCV Tenants Association and the de Blasio administration on a plan that would preserve affordability at around 6,000 apartments. Although the 60-day deadline on those talks has since passed, all parties have agreed that the conversation would continue.

In a mid-July meeting between Mayor de Blasio, the Tenants Association and local elected officials, de Blasio said the TA’s idea of maintaining affordability by going condo would be considered. However, the TA also said it was told by the mayor at that time that his “main thrust is affordable rentals.”

A spokesperson for CWCapital and a spokesperson for Centerbridge did not respond to a request for comment by Town & Village’s press time.

Update: In response to the court action, the Tenants Association issued the following statement.

“We are carefully monitoring this lawsuit because its outcome may affect the stability and long-term affordability of thousands of apartments people call home. Of course the elephant in the room is the multibillion-dollar debt saddled on this great community by speculators and predatory equity. We remain determined to prevent that from happening again.”