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FILED: NEW YORK COUNTY CLERK 08/31/2010 INDEX NO.

651293/2010
NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 08/31/2010

SUPREME COURT OF THE STATE OF NEW YORK


COUNTY OF NEW YORK
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:
BANK OF AMERICA, N.A., as Trustee for the :
Registered Holders of Wachovia Bank Commercial :
Mortgage Trust 2007-C30, acting by and through its : Index No.: 651293/2010
Special Servicer, CWCapital Asset Management : Hon. Richard B. Lowe III
LLC, BANK OF AMERICA, N.A., as Trustee for the : Commercial Division
Registered Holders of COBALT CMBS Commercial : IAS Part 56
Mortgage Trust 2007-C2, acting by and through :
CWCapital Asset Management LLC pursuant to the :
authority granted under that certain Amended and : Motion Sequence No. 001
Restated Co-Lender Agreement dated March 12, :
2007 and U.S. BANK NATIONAL ASSOCIATION, :
as Trustee for the Registered Holders of Wachovia :
Bank Commercial Mortgage Trust 2007-C31, ML- :
CFC Commercial Mortgage Trust 2007-5 and ML- : PLAINTIFFS’ REPLY IN
CFC Commercial Mortgage Trust 2007-6, acting by : FURTHER SUPPORT OF
and through CWCapital Asset Management LLC : THEIR MOTION FOR
pursuant to the authority granted under that certain : PRELIMINARY INJUNCTION
Amended and Restated Co-Lender Agreement dated :
March 12, 2007, :
:
Plaintiffs, :
:
-against- :
:
PSW NYC LLC, :
:
Defendant. :
:
:
:
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TABLE OF CONTENTS

PAGE

PRELIMINARY STATEMENT ............................................................................................1

ARGUMENT............................................................................................................................3

I. PSW, As a Junior Lender, is Subordinate in Every Relevant Respect to the Senior


Lenders...........................................................................................................................3

II. Section 6(d) of the Intercreditor Agreement Requires the Senior Loan to be Paid
in Full for Any Transfer of the Equity Collateral to Occur ...........................................6

III. PSW’s Interpretation of Section 11(d)(ii) is Irrelevant to the Motion Before The
Court ............................................................................................................................10

IV. PSW’s Assertion That There Is No Justiciable Controversy Strains Credulity...........11

V. CWCAM Will Be Irreparably Harmed if PSW is Not Enjoined .................................11

VI. The Balance of Equities Do Not Favor a Junior Lender That is Attempting to
Leap Frog Over the Rights of the Senior Lenders .......................................................13

VII. CWCAM Should Not be Required to Post More Than a De Minimis Bond...............14

VIII. PSW’s Recitation of the Facts Surrounding CWCAM’s Interest in the Mezzanine
Loans is an Exercise in Revisionist History ................................................................14

CONCLUSION ......................................................................................................................15

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TABLE OF AUTHORITIES

CASES PAGE

Bank of N.Y. Mellon v. Realogy Corp.,


979 A.2d 1113 (Del. Ch. 2008)..................................................................................................7

Barrows v. Rozansky,
111 A.D.2d 105, 489 N.Y.S.2d 481 (1st Dep’t 1985) .......................................................10, 12

Beal Savings v. Sommer,


8 N.Y.3d 318, 865 N.E.2d 1210 (2007).....................................................................................5

City of N.Y. v. Delafield 246 Corp.,


236 A.D.2d 11, 662 N.Y.S.2d 286 (1st Dep’t 1997) .................................................................8

Elliot Coal Min. Co., Inc. v. Dir., Office of Workers’ Comp. Programs,........................................8
17 F.3d 616, 630 (3d Cir. 1994)

Excess Ins. Co. Ltd v. Factory Mut. Ins. Co.,


3 N.Y.3d 577, N.E.2d 768 (2004)..............................................................................................5

Highland Park CDO I Grantor Trust v. Wells Fargo Bank, N.A.,


No. 08 Civ. 5723(NRB), 2009 WL 1834596 (S.D.N.Y. June 16, 2009).............................4, 11

In re Andrus’ Will,
281 N.Y.S. 831 (Sur. Ct. Westchester County 1935) ................................................................7

In re Erickson Ret. Cmtys., L.L.C.,


425 B.R. 309 (Bankr. N.D. Tex. 2010)......................................................................................4

In re Rehab. of Frontier Ins. Co.,


27 A.D.3d 274, 813 N.Y.S.2d 50 (1st Dep’t 2006) .................................................................14

J. Brooks Secs., Inc. v. Vanderbilt Secs., Inc.,


484 N.Y.S.2d 472 (Sup. Ct. N.Y. County 1985) .....................................................................10

Marshall v. Commercial Trays. Milt. Acc. Ass’n of Am.,


170 N.Y. 434, 63 N.E. 446 (1902).............................................................................................7

Matter of D & B Constr. of Westchester, Inc.,


21 Misc. 3d 1125(A), 2008 N.Y. Slip Op. 52172(U)
(Sup. Ct. Westchester County Nov. 3, 2008).............................................................................9

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McMillan v. Police Dogs, Inc.,
52 A.D.2d 369, 384 N.Y.S.2d 36 (3d Dep’t 1976) ....................................................................7

N.Y. State Comm’r of Corr. v. Gulotta,


194 A.D.2d 540, 598 N.Y.S.2d 547 (2d Dep’t 1993) ..............................................................14

N.Y. State Urban Dev. Corp. v. Paul T. Freund Corp.,


23 Misc. 3d 1102(A), 2009 Slip Op. 50553(U) (Sup. Ct. N.Y. County Mar. 31, 2009) ...........9

People v. Shrader,
16 N.Y.S.2d 424 (Nassau County Ct. 1939)..............................................................................8

PPM Fin., Inc. v. Norandal USA, Inc.,


297 F. Supp. 2d 1072 (N.D. Ill. 2004) ...................................................................................4, 7

Sackman v. Maritas,
595 N.Y.S.2d 655 (Sup. Ct. Nassau County 1992)..................................................................10

Smith v. Davis Surgical Ctr. LLC,


472 F. Supp. 2d 1316 (D. Utah 2006)........................................................................................7

Union Commerce Leasing Corp. v. Kanbar,


155 A.D.2d 396, 548 N.Y.S.2d 22 (2d Dep’t 1989) ................................................................14

Vernon v. Vernon,
100 N.Y.2d 960, 800 N.E.2d 1085 (2003).................................................................................7

White v. Cont’l Cas. Co.,


9 N.Y.3d 264, 878 N.E.2d 1019 (2007)...................................................................................13

Wilshire State Bank v. Unger,


25 Misc. 3d 1243(A), 2009 N.Y. Slip Op. 52559(U)
(Sup. Ct. Queens County Dec. 16, 2009)...................................................................................9

SECONDARY SOURCES

Andrew R. Berman, Risks and Realities of Mezzanine Loans, 72 MO. L. REV. 993 (2007)...........3

Dee Martin Calligar, Subordination Agreements, 70 YALE L.J. 376 (1961)...................................3

Patrick Darby, Southeast and New England Mean New York: The Rule of Explicitness and
Post-Bankruptcy Interest on Senior Unsecured Debt, 38 CUMB. L. REV. 467 (2008) .............. 3

David Kravitz, The Outer Fringes of Chap. 11: Nonconsenting Senior Lenders’ Rights Under
Subordination Agreements in Bankruptcy, 91 MICH. L. REV. 281 (1992) ............................... 3

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PRELIMINARY STATEMENT

PSW plays a game throughout its brief attempting again and again to persuade the Court

that the Senior Lenders are the ones seeking a unique reading of the Intercreditor Agreement or

that the Senior Lenders are attempting to sneak something by the Court. PSW apparently

believes that the Court cannot or will not read the language that is at issue or the Intercreditor

Agreement as a whole. When the Court reads the Intercreditor Agreement, the inaccuracies of

PSW’s assertions will be quickly revealed.

By way of illustration, PSW asserts that the gravamen language of Section 6(d) which

requires all Senior Loan defaults to be cured prior to a transfer of Equity Collateral actually is

“designed to protect Junior Lenders by giving them the ability to prevent the Senior Lenders

from exercising rights they would otherwise have to accelerate the Senior Loans solely due to a

transfer of the Equity Collateral” (Opp. at 10), and “is wholly irrelevant where, as here, the

Senior Loan has already been accelerated” (Id. at 11). Yet, the Senior Lenders do not even have

the right to accelerate the Senior Loan merely because of a transfer of Equity Collateral. This

obvious error dooms all of PSW’s contentions but there is much more as PSW’s other

characterizations of the Intercreditor Agreement are equally hollow and simply wrong.

This is not the first time that a court has been asked to interpret similar intercreditor

provisions. And those courts have consistently found in favor of the senior lenders and the plain

reading advanced by CWCAM here. Highland Park, a decision rendered within the past year in

the Southern District of New York, is on point. PSW ignores this case altogether. Indeed, PSW

does not cite a single case, industry expert or secondary source material in support of the

intercreditor interpretations it advances. The absence of any support for PSW’s assertions is

striking, but explainable. No support exists.


PSW owns mezzanine debt. As a holder of mezzanine debt, PSW’s rights are

subordinate in every relevant respect to the Senior Lenders’ rights. This is precisely how

mezzanine loans work – they are subordinated to senior debt and cannot be enforced or collected

upon until a senior loan default is satisfied. Despite the clear delineations of priority among

senior lenders and junior lenders, PSW seeks to turn this capital structure on its head. PSW even

has the chutzpah to claim that, through this action, the Senior Lenders are improperly trying to

“leap frog over PSW’s legitimate rights.” (Opp. at 5). But PSW has it backwards. It is the

Senior Lenders that have priority, and it is PSW that is improperly trying to leap frog over the

Senior Lenders’ rights by not complying with their contractual subordination.

PSW further argues that there will be no irreparable harm if the Court refuses to enter an

injunction because the Senior Lenders will retain the Senior Loan, but that if an injunction is

entered requiring a Senior Loan cure PSW will be deprived of the “opportunity” to control the

Property and a workout. This is precisely the point at issue. Intercreditor agreements like this

one apportion payment and control rights among creditors. The Senior Lenders bargained for

priority and control following an Event of Default. The Junior Lenders accepted a higher rate of

return in exchange for complete subordination and an opportunity to cure Senior Loan defaults.

When the Junior Lenders passed up the opportunity to cure the Senior Loan defaults, the

Senior Lenders began a nine month process to transition management of the Property away from

Tishman Speyer and to the Senior Lenders following what everyone believes to be a $3.66

Billion credit bid foreclosure sale. Failing to enter an injunction enforcing the terms of the

Intercreditor Agreement so that the process may continue will stand the creditors’ negotiated

agreement on its head and result in an unprecedented denial of the Senior Lenders’ rights.

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ARGUMENT

I. PSW, As a Junior Lender, is Subordinate in Every Relevant Respect to the Senior


Lenders

These principles of mezzanine financing are widely accepted and deeply entrenched:

(i) a junior lender’s rights are subordinate to the senior lender’s rights; and (ii) the junior loans

are subordinated to senior debt and cannot be enforced or collected upon until the senior loan

default is cured. Andrew Berman, an Associate Professor of Law at New York Law School,

wrote:

Mezzanine loans are structurally subordinated to the senior mortgage loan


because of the legal superiority of the mortgage lender vis-a-vis the mezzanine
lender. Notwithstanding this structural subordination, mezzanine loans are also
typically contractually subordinated to the related senior mortgage loans pursuant
to the terms of an intercreditor agreement entered into between the senior
mortgage lender and mezzanine lender. [] These intercreditor agreements severely
limit and restrict the ability of mezzanine lenders to enforce their rights and
remedies under the mezzanine loan documents.

Andrew R. Berman, Risks and Realities of Mezzanine Loans, 72 MO. L. REV. 993, 1018 (2007).

An article in the Yale Law Journal provides:

[T]he basic concept of a subordination agreement is simple: It is the subordination


of the right to receive payment of certain indebtedness (the subordinated debt to
the prior payment of certain other indebtedness (the senior debt) of the same
debtor. Put another way—in the circumstances specified in the subordination
agreement, the senior debt must be paid in full before payment may be made on
the subordinated debt and retained by the subordinating creditor.

Dee Martin Calligar, Subordination Agreements, 70 YALE L.J. 376, 376 (1961).1

1
See also David Kravitz, The Outer Fringes of Chap. 11: Nonconsenting Senior Lenders’ Rights Under
Subordination Agreements in Bankruptcy, 91 MICH. L. REV. 281, 284 (1992) (“The basic concept behind
subordinated debt is simple: the subordinated creditor agrees that under certain circumstances, the claims of
specified senior creditors must be paid in full before any payment may be made to, and retained by, the subordinated
creditor.”); Patrick Darby, Southeast and New England Mean New York: The Rule of Explicitness and Post-
Bankruptcy Interest on Senior Unsecured Debt, 38 CUMB. L. REV. 467, 470 (2008) (“The defining feature of a
subordination agreement is that one creditor defers payments on its claims until another creditor is paid in full. The
subordinated creditor is often called the junior creditor and the beneficiary of the subordination the senior creditor”).

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Courts that have been asked to interpret analogous intercreditor agreements have

uniformly come to the same conclusion. In Highland Park CDO I Grantor Trust v. Wells Fargo

Bank, N.A., No. 08 Civ. 5723(NRB), 2009 WL 1834596 (S.D.N.Y. June 16, 2009), a decision

PSW hides from, the district court was asked to decide whether a junior lender could recover

from guarantors on the mezzanine loan before the senior lender recovered in full on the senior

loan. Id. at *3. Relying on subordination language virtually identical to the language found in

Sections 9 and 10 of the Intercreditor Agreement before this Court, the district court ruled that,

based on a plain reading of the agreement, the provisions therein “are obviously designed to

ensure that the senior loan is paid in full before [the junior lender] is permitted to keep any

money received in repayment of the mezzanine loan.” Id. at *4. Not only did the district court

dismiss the junior lender’s claim, but it granted the senior lender’s request for an injunction

and enjoined the junior lender “from exercising any right or remedy under the mezzanine

loan guaranty unless or until [the senior lender] or its successors and/or assigns shall have

received payment and performance in full of all amounts due under the senior loan.” Id. at *5

(emphasis added).2

The Intercreditor Agreement at issue here recognizes these principles as well. Section 9

of the Intercreditor Agreement, which is titled “Subordination of Junior Loans and Junior Loan

Documents,” plainly states that the Junior Loans are subordinate in every relevant respect to the

Senior Loan. Affidavit of Andrew J. Hundertmark dated August 17, 2010 (“Hundertmark Aff.”),

Ex. E at 60. Additionally, Section 10 of the Intercreditor Agreement, which is titled “Payment

2
See also PPM Fin., Inc. v. Norandal USA, Inc., 297 F. Supp. 2d 1072, 1081-82 & 1097 (N.D. Ill. 2004)
(interpreting provision in subordination agreement and entering judgment in favor of senior lender against
subordinate lender for monies received after default and dismissed the subordinate lender’s counterclaim), aff’d 392
F.3d 889 (7th Cir. 2004); In re Erickson Ret. Cmtys., L.L.C., 425 B.R. 309, 315 (Bankr. N.D. Tex. 2010) (agreeing
with senior creditor that subordinate creditor’s attempt to file an examiner motion runs afoul of the subordination
agreement). Additional cases for this proposition appear at page 11 of CWCAM’s opening brief. PSW does not
even attempt to distinguish this body of caselaw.

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Subordination,” plainly states that the Senior Loan is to be paid in full before a Junior Lender is

permitted to keep any money received in repayment of the mezzanine loans. Id. at 61. The

conditions on Equity Collateral transfer found in Section 6(d) expressly requiring payment of the

Senior Loan are in addition to the language the court in Highland Park found sufficient to

warrant an injunction against the junior lenders.3

PSW misleadingly states that “Sections 10(a) and 10(d) also provide that a Junior

Lender’s rights to foreclose upon its own Equity Collateral is exempted from the general

provisions regarding payment subordination that CWCAM cites in its papers. (Opp. at 16).

Section 10(a) begins with “[e]xcept (i) as otherwise expressly provided in this Agreement . . .”,

(Hundertmark Aff., Ex. E at 61), and Section 10(d) includes the following language: “Subject to

the terms and provisions of Section 6” and “in accordance with the terms of this Agreement. . .”

(Hundertmark Aff., Ex. E at 63). PSW totally ignores this qualifying language and the

language in Section 10(b) which states in relevant part:

If . . . (ii) there shall have occurred and be continuing an Event of Default


under the Senior Loan Documents, after giving effect to Junior Lender’s cure
rights pursuant to Section 12, except as expressly otherwise provided herein,
Senior Lender shall be entitled to receive payment and performance in full of
all amounts due or become due to Senior Lender before any Junior Lender is
entitled to receive any payment (including any payment which may be payable by
reason of the payment of any other indebtedness of Borrower being subordinated
to the payment of the Junior Loans) on account of any Junior Loan.

Id. (emphasis added). Here, the Senior Loan is indisputably in default. PSW’s rights to

foreclose are therefore not exempt from the payment subordination provisions.

3
It is a well recognized maxim that a court “should construe [an] agreement so as to give full meaning and effect to
the material provisions.” Beal Savings v. Sommer, 8 N.Y.3d 318, 324, 865 N.E.2d 1210, 1213 (2007) (quoting
Excess Ins. Co. Ltd v. Factory Mut. Ins. Co., 3 N.Y.3d 577, 582, 822 N.E.2d 768 (2004)). The material provisions
of this Intercreditor Agreement are the subordination of the PSW’s rights and remedies, as a Junior Lender, to the
rights and remedies of the Senior Lenders. PSW’s attempt to excise this subordination of rights and remedies by a
strained and fanciful reading of Section 6(d) is unpersuasive, and violates both the New York law of contract
interpretation and common sense.

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II. Section 6(d) of the Intercreditor Agreement Requires the Senior Loan to be Paid in
Full for Any Transfer of the Equity Collateral to Occur

PSW’s interpretation of Section 6(d) is incoherent. Although PSW concedes that the

“provided” language creates a condition precedent, (Opp. at 14-15), it offers up unsupported

reasons why CWCAM’s plain reading of Section 6(d) is not correct, and in the process reveals

its desperation. Section 6(d) plainly says what it means. If PSW conducts a UCC sale, no

transfer of title can occur to any Qualified Transferee (e.g., purchaser or credit bidder) unless, in

relevant part, (1) the purchaser assumes all obligations owing under the Intercreditor Agreement,

(2) the purchaser acquires the Equity Collateral subject to all terms of the Senior Loan

Documents, and (3) all defaults under the Senior Loan are cured.

Acceleration is Not the Issue

PSW’s primary contention is that Section 6(d) is concerned solely with preventing

acceleration. PSW writes that “Section 6(d) is designed to protect Junior Lenders by giving them

the ability to prevent the Senior Lenders from exercising rights they would otherwise have to

accelerate the Senior Loans solely due to a transfer of the Equity Collateral.” (Opp. at 10). Later

PSW goes so far as to assert that Section 6(d) “is wholly irrelevant where, as here, the Senior

Loan has already been accelerated and PSW is not seeking to prevent acceleration of the Senior

Loan.” (Opp. at 11).

This is non-sense. Indeed, under PSW’s reading of Section 6(d), the Senior Lenders

would never accelerate the Senior Loan because doing so would eliminate the cure obligation.

Section 6 is titled, “Foreclosure of Separate Collateral,” not “Acceleration.” There is nothing in

Section 6(d) that remotely suggests that it was concerned solely about acceleration. Critically,

the Senior Lenders do not have a contractual right under any reading of the Loan Agreement

or Intercreditor Agreement to accelerate the Senior Loans solely due to a transfer of the

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Equity Collateral done in accordance with the loan documents. The controlling language is

found in Section 9.02(a) of the Senior Loan Agreement:

a Transfer in connection with an exercise of remedies by a Mezzanine Lender


shall not be prohibited hereunder, provided such Transfer is done in accordance
with any intercreditor agreement that such Mezzanine Lender and Lender are
party to in connection with the Loan and the Mezzanine Loan.

Hundertmark Aff., Ex. B at 89 (emphasis added). The sentence fragment of Section 6(d) that

PSW obsesses over simply makes clear that the Senior Lenders do not have this right. Given this

indisputable fact, the cure requirements embodied in Section 6(d)(B)(1) & (2) can only be a

condition to PSW acquiring or selling the Equity Collateral.

The Doctrine of Last Antecedent Is Inapplicable

Without any explanation, PSW injects the doctrine of last antecedent to convince this

Court that an entire clause that follows a semicolon modifies a sentence fragment that precedes

the semicolon. Once again, PSW’s assertions lack any legal support. Under New York law, it is

well-established that a semicolon creates independent and separate sentences. See Vernon v.

Vernon, 100 N.Y.2d 960, 971, 800 N.E.2d 1085, 1091 (2003) (rejecting interpretation that would

“conflate the two separate subsections” divided by a semicolon) (emphasis added).4

PSW is not the first subordinate lender to misapply the doctrine of last antecedent in an

effort to contort clearly worded intercreditor provisions to escape the economic consequences of

their subordination. In PPM Fin., Inc. v. Norandal USA, Inc., 297 F. Supp. 2d 1072 (N.D. Ill.

4
McMillan v. Police Dogs, Inc., 52 A.D.2d 369, 360, 384 N.Y.S.2d 36, 37 (3d Dep’t 1976) (holding that where
clauses were separated “by a semicolon . . . a separate grouping is clearly indicated”) (emphasis added). Accord
Marshall v. Commercial Travelers’ Mut. Ass’n of Am., 170 N.Y. 434, 437-38, 63 N.E. 446, 447 (1902); In re
Andrus’ Will, 281 N.Y.S. 831, 852 (Sur. Ct. 1935). To avoid New York’s interpretation of semicolons, PSW
searches far and wide outside of New York. It comes up with only two, inapposite cases. (Opp. at 13). In Smith v.
Davis Surgical Ctr. LLC, 472 F. Supp. 2d 1316 (D. Utah 2006) the court was applying Utah law and focused on a
“poorly drafted” four-word phrase with only one prior clause. Id. at 1317-18. Contrary to PSW’s false quotation,
the Realogy opinion does not contain the term “provided however,” and the key issue there was the meaning of a
“shall specify” clause. Compare Opp. at 13 with Bank of N.Y. Mellon v. Realogy Corp., 979 A.2d 1113, 1124 (Del.
Ch. 2008)). In any event, this Delaware opinion does not even discuss the use of semicolons, much less upend New
York law on semicolons.

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2004), aff’d 392 F.3d 889 (7th Cir. 2004), the district court held that the subordinate lender’s

reliance on the doctrine of last antecedent in support of its gloss of a provision in the

subordination agreement was not persuasive and refused to apply it. Id. at 1083.5 The doctrine

of last antecedent has no application here, and should be rejected by this Court.

All Five Subsections of Section 6 Apply to PSW’s Ability to Foreclose

PSW also advances the novel theory that only subsection (a) of Section 6 contains

conditions to a foreclosure sale by a junior lender. Section 6 is titled in its entirety “Foreclosure

of Separate Collateral.” Under this section heading, there are subsections (a) – (e). None of

these subsections are individually titled. Rather, they all relate to Foreclosure of Separate

Collateral, and each include different conditions/obligations inherent in any sale. The fact that

the requirements of subsection (d) are discussed in their own subsection and do not appear in

subsection (a) is of no consequence. PSW’s effort to impart more significance on subsection (a)

over subsection (d) is self-serving and unsupported by the plain language of the Intercreditor

Agreement. The language in subsection (d) that reads, “in accordance with the provisions and

conditions of this Agreement,” clearly reinforces the requirement that the Equity Collateral

cannot be acquired unless all conditions are satisfied, including those found in Section 6(d).6

PSW’s Obligation to Cure is a Condition Precedent to Transfer

PSW contends that Section 6(d) applies only after foreclosure of the Equity Collateral

has occurred. Nowhere in Section 6(d) is there any language that supports this reading. In fact,

the verbs used in Section 6(d) establish just the opposite (e.g., “To the extent that any Qualified

5
See also Elliot Coal Min. Co., Inc. v. Dir., Office of Workers’ Comp. Programs, 17 F.3d 616, 630 (3d Cir. 1994)
(explaining that when punctuation separates the phrases, “the qualifying language is to be applied to all of the
previous phrases and not merely the immediately preceding phrase”).
6
See City of N.Y. v. Delafield 246 Corp., 236 A.D.2d 11, 22, 662 N.Y.S.2d 286, 293 (1st Dep’t 1997) (noting
document requiring “notice of violation in accordance with . . . any conditions or obligations contained herein”
created condition precedent). See also People v. Shrader, 16 N.Y.S.2d 424, 428 (Nassau County Ct. 1939) (holding
that erecting signs “in accordance with the conditions therein” was a condition precedent to the enactment of
ordinance).

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Transferee acquires the Equity Collateral . . .”) Hundertmark Aff., Ex. E at 54. The fact that

clause (A) allows the Qualified Transferee a ten day period after the transfer to affirm in writing

that it is bound by the Senior Loan documents does not change the analysis. Clause (B) in fact

requires that defaults that can be cured “as of the date of such acquisition” must be cured as a

precondition to acquiring the Equity Collateral: “(B) all defaults under (1) the Senior Loan . . .

which remain uncured or unwaived as of the date of such acquisition have been cured by such

Qualified Transferee or in the case of defaults that can only be cured by the Junior Lender

following its acquisition of the Equity Collateral, the same shall be cured by the Junior Lender

prior to the expiration of the applicable Extended Non-Monetary Cure Period.” Id. (emphasis

added). It would be completely illogical to include the bold and italicized language above if the

Junior Lender could elect to cure after the transfer.

PSW’s Anticipatory Breach of Its Obligations


to Cure the Senior Loan Default is an Independent Ground for Injunctive Relief

Regardless of whether the obligation to cure Senior Loan defaults must be satisfied

before or after an Equity Collateral Transfer, PSW’s stated repudiation of any obligation to cure

entitles CWCAM to injunctive relief. The obligation to cure the defaults under the Senior Loan

must still be satisfied regardless of when the condition is satisfied.7 Without qualification, PSW

has stated that Section 6(d) does not require a purchaser of the Equity Collateral to pay off the

Senior Loan. Hundertmark Aff., Ex. T. As noted in CWCAM’s opening brief, injunctions are

7
Conditions can be performed simultaneous with or after execution of the act. See Wilshire State Bank v. Unger,
25 Misc. 3d 1243(A), 2009 N.Y. Slip Op. 52559(U), at *3 (Sup. Ct. Queens County Dec. 16, 2009) (enforcing lease
amendment which “contained a condition precedent, to wit, the simultaneous execution of a subordination . . . .
agreement” with mortgagees) (emphasis added); Matter of D & B Constr. of Westchester, Inc., 21 Misc. 3d
1125(A), 2008 N.Y. Slip Op. 52172(U) at *1 (Sup. Ct. Westchester County Nov. 3, 2008). See also N.Y. State
Urban Dev. Corp. v. Paul T. Freund Corp., 23 Misc. 3d 1102(A), 2009 Slip Op. 50553(U) at *4 (Sup. Ct. N.Y.
County Mar. 31, 2009) (enforcing condition subsequent requiring 20% repayment after the transaction).

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routinely entered by courts in the face of this type of anticipatory breach. See CWCAM Brief at

13.

III. PSW’s Interpretation of Section 11(d)(ii) is Irrelevant to the Motion Before The
Court

In a footnote, PSW concedes that “so long as it is a Junior Lender, its ability to solicit,

direct or cause the Senior Borrowers to institute bankruptcy proceedings is restricted by Section

11(d)(ii).” (Opp. at 17). The thrust of PSW’s argument, however, focuses on what it could

theoretically do as an owner of the Borrowers once a transfer of the Equity Collateral occurs.

Once a transfer/sale occurs, the second part of Section 11(d)(ii) imposes on PSW, as purchaser,

the additional requirements of the Borrowers under their organizational documents (e.g., a vote

of independent directors, etc.). Since no transfer has occurred, PSW must abide by the

restrictions quoted in the first part of Section 11(d)(ii), and it is the violation of these restrictions

by PSW that the Senior Lenders seek to enjoin.

Is there any legitimate dispute that either retaining bankruptcy counsel on behalf of the

Borrowers or threatening the use of bankruptcy to leverage negotiations with the Senior Lenders

is an act in furtherance of bankruptcy that is expressly prohibited by the Intercreditor

Agreement?8 Not surprisingly, PSW does not even address this argument in its brief. Although

the Senior Lenders disagree with PSW’s reading of what it can do after it purchases the Equity

Collateral those disputes are not germane here. Until PSW acquires the Equity Collateral

8
As CWCAM noted in its opening brief, PSW has freely admitted that it has contacted and retained Kirkland &
Ellis to represent the Borrowers in a nonconsensual bankruptcy. PSW does not dispute this fact, and it must be
accepted as true. See Barrows v. Rozansky, 111 A.D.2d 105, 107-08, 489 N.Y.S.2d 481, 484-85 (1st Dep’t 1985)
(granting preliminary injunction after accepting as true plaintiff’s allegations that were controverted only by defense
attorney’s affidavit not made on personal knowledge). Accord Sackman v. Maritas, 595 N.Y.S.2d 655, 656 (Sup. Ct.
Nassau County 1992); J. Brooks Secs., Inc. v. Vanderbilt Secs., Inc., 484 N.Y.S.2d 472, 474 (Sup. Ct. N.Y. County
1985).

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pursuant to the requirements of Section 6, it should be enjoined from taking additional steps in

furtherance of bankruptcy.9

IV. PSW’s Assertion That There Is No Justiciable Controversy Strains Credulity

It is remarkable that PSW even makes this argument. First, as noted above, PSW is in

breach of Section 11(d)(ii) of the Intercreditor Agreement because it already has retained

bankruptcy counsel for the Borrowers. Second, PSW has made it very clear that contrary to

Section 6(d) it will not require a purchaser of the Equity Collateral to pay off the Senior Loan ,

describing any obligation to do so as “ludicrous.” Hundertmark Aff., Ex. T. PSW, however,

clearly intends to acquire the Equity Collateral through a credit bid and has formed six (6) shell

entities to accomplish its ends. Supplemental Affidavit of Andrew J. Hundertmark dated August

31, 2010 (the “Supp. Hundertmark Aff.”) ¶ 9. The names of these shell entities are: PSW PCV

1 LLC, PSW PCV 2 LLC, PSW PCV 3 LLC, PSW ST 1 LLC, PSW ST 2 LLC, and PSW ST 3

LLC. Id. (emphasis added). There is clearly a present controversy here.

V. CWCAM Will Be Irreparably Harmed if PSW is Not Enjoined

Just two weeks ago, PSW agreed to be bound by the provisions found in the Intercreditor

Agreement including the provision that any breach of the Intercreditor Agreement would

irreparably harm the Senior Lenders. Highland Park and multiple other decisions have enforced

virtually identical language, finding irreparable harm. See Highland Park, 2009 WL 1834596 at

*5 n.7; CWCAM’s Brief at 17-18 (citing additional cases in opening brief). By contrast, PSW is

unable to cite a single case rejecting an express provision in an operative agreement allowing for

irreparable harm and injunctive relief.

9
PSW perverts CWCAM’s argument in regard to Section 11(d)(ii). (Opp. at 19). CWCAM is not asking this Court
to enjoin the Senior Borrowers from filing a bankruptcy petition. To the extent that PSW complies with Section
6(d), PSW is free to direct or cause the Senior Borrowers to file a bankruptcy petition.

11
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The Senior Lenders expressly bargained for the right to control the exercise of remedies

after a Senior Loan default. Part of the bargained for right was a prohibition against Junior

Lenders acquiring ownership and control of the Equity Collateral unless and until any then

existing Senior Loan defaults are cured. This bargained-for contractual right is completely

ignored by PSW. PSW does not even respond to it in its Opposition or the case law upon which

CWCAM relies. These cases clearly establish that the Senior Lenders’ loss of their bargained-

for contractual rights as set forth in the Intercreditor Agreement constitutes irreparable harm.10

Furthermore, PSW’s assertion with respect to its ability to immediately operate and

manage the Property lacks all credibility. This is a Property with more than 11,000 units and

25,000 residents. There are over 550 employees, including 350 union employees represented by

seven unions, some of which have expired collective bargaining agreements, and an 80 person

private security force with the powers of arrest that is integrated with the NYPD. It has costs

millions of dollars to rebuild the information technology systems at the Property, infrastructure

that is critical to the preservation of rent records, the administration of repairs and maintenance

and the oversight of the private security force. Supp. Hundertmark Aff. ¶ 3. Months have been

consumed and hundreds of thousands of dollars spent recruiting a new senior management team

to replace the employees that will be redeployed away from the Property. Id. Seven months

have been spent evaluating and working through environmental issues at the Property. Id. In

total, CWCAM has spent nine months and millions of dollars cooperatively working with the

10
PSW confuses the point made by CWCAM insofar as the $3.66 Billion that is at risk. Given PSW’s brief
existence as a shell entity, CWCAM alleges that it likely does not have sufficient assets capable of compensating
Plaintiffs in money damages equivalent to that amount. PSW did not controvert these facts and they should be
accepted as true. See Barrows v. Rozansky, supra note 8. CWCAM cited cases ignored by PSW where injunctive
relief was granted where the collection of money damages was deemed unlikely. See CWCAM Brief at 20-21.

12
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Borrowers to ensure a smooth transition of the Property.11 A last minute takeover by the

Mezzanine holders and resulting bankruptcy will undoubtedly throw these plans into disarray.

VI. The Balance of Equities Do Not Favor a Junior Lender That is Attempting to Leap
Frog Over the Rights of the Senior Lenders

PSW totally fails to respond to the points CWCAM makes in its opening brief on this

factor. Instead, PSW claims that it will lose out on the opportunity to invest in the Property, and

argues that this fact weighs in favor of not entering an injunction. PSW has every opportunity to

invest in the Property but it is conditioned on curing the defaults under the Senior Loan. PSW

does not have a “contractual” opportunity to undo and manipulate the Property at the expenses of

the Senior Lenders. To the extent PSW complies with the Intercreditor Agreement, it will have

the opportunity to invest in the Property. PSW also claims that it will suffer hardship because,

upon CWCAM’s real estate foreclosure, PSW will lose the entire economic value of its

mezzanine 1-3 loans. Unfortunately, for PSW this is not an issue of fairness. Rather, at issue is

an unambiguous contract,12 the enforcement of that contract negotiated between sophisticated

lenders, and as recognized by other courts, the inherent authority of the Senior Lenders to control

the exercise of their remedies.

If the Court were not to enjoin PSW from acquiring or selling the Equity Collateral

unless the Senior Loan default is cured and from taking any action in furtherance of bankruptcy,

PSW will have successfully circumvented the terms of the Intercreditor Agreement and a flood

of copycat actions will ensue at the instigation of mezzanine lenders in unrelated projects. The

balance of equities tips decidedly in favor of entering an injunction here.

11
PSW suggests that CWCAM is delaying its foreclosure for the singular purpose of collecting “massive servicer
fees.” (Opp. at 7, n.5). This sort of baseless claim has no place in PSW’s brief and reveals PSW’s ignorance of the
tremendous amount of time and effort that has been required to transition the Property.
12
“[I]f the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the
contract to reflect its personal notions of fairness and equity.” See White v. Cont’l Cas. Co., 9 N.Y.3d 264, 878
N.E.2d 1019, 1021 (2007).

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VII. CWCAM Should Not be Required to Post More Than a De Minimis Bond

All parties agree that the Property is not worth $3.66 Billion. PSW admitted that it paid

only 15 cents on the dollar, or $45 million, for the three mezzanine loans that have a face amount

of $300 million. Thus, PSW’s request for a bond in the amount of $300 million is specious.

In fact, a foreclosure on the Property by CWCAM will cause no damage to PSW. PSW’s

position and interests vis-à-vis the Equity Collateral securing its lien will be unchanged and

unaffected by the foreclosure sale. To the extent that PSW believes the Property that secures the

Trusts’ liens is worth more than $3.6 Billion its remedy is to bid at the foreclosure sale or allow a

third party to bid. Any resulting proceeds above what is owed to the Trusts would be distributed

to the Borrowers and available to satisfy PSW’s debt. Accordingly, the amount of any bond

should be negligible. CWCAM also respectfully requests that to the extent a bond is required

that it be permitted to secure a letter of credit in lieu of a bond.13

VIII. PSW’s Recitation of the Facts Surrounding CWCAM’s “Interest” in the


Mezzanine Loans is an Exercise in Revisionist History

Mr. Ashner, one of PSW partners, submitted an Affidavit where he suggests that

CWCAM sought to purchase the Mezzanine 1-3 Loans position. In fact, the Mezzanine 1-3

holders approached CWCAM requesting that CWCAM make an offer to purchase the position

because they had received an offer from a third party who was looking to “take control from the

13
PSW also requests that the Court stay CWCAM’s “mortgage foreclosure (including any advertising in
furtherance thereof) pending final adjudication of this action.” (Opp. at 23). There is no support for PSW’s request,
PSW has not sought any form of injunctive relief against CWCAM, and there is no authority supporting a state court
enjoining or staying a federal court judgment. See In re Rehab. of Frontier Ins. Co., 27 A.D.3d 274, 275, 813
N.Y.S.2d 50, 52 (1st Dep’t 2006) (holding that “New York courts must give full faith and credit to a federal court
judgment”); Union Commerce Leasing Corp. v. Kanbar, 155 A.D.2d 396, 396, 548 N.Y.S.2d 22, 22 (2d Dep’t 1989)
(rejecting as impermissible a collateral attack made in a New York state court on a federal court judgment). See also
N.Y. State Comm’r of Corr. v. Gulotta, 194 A.D.2d 540, 541, 598 N.Y.S.2d 547, 548 (2d Dep’t 1993) (noting that
“Supremacy Clause considerations require a State court to respect Federal court judgments”). CWCAM has a
judgment in the amount of $3,667,000,000 and an order directing foreclosure by the United States District Court
for the Southern District of New York.

14
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Senior Lenders.”14 Supp. Hundertmark Aff. ¶ 5. While CWCAM investigated the position, it

rejected the greenmail approach.

Mr. Ashner asserts that CWCAM’s offer to purchase the loans was rejected by all of the

Mezzanine 1-3 holders. This is simply not true. Counsel for CWCAM indicated to Steven

Ostrow, an attorney representing the Mezzanine 1-3 holders, that CWCAM was going to “pass

and will not be purchasing the mez 1-3 position”:

The Trust, however, is very concerned that your clients would consider selling
their positions to an individual/entity who they know to be acquiring the mez 1-3
position with the objective of attacking/undermining the rights and remedies of
the Trust as Senior Lender. Please ask your clients to consider their actions
carefully as the Trust will vigorously defend its rights under the intercreditor
agreement.

Supp. Hundertmark Aff., Ex. A. In response to Mr. Cross’ email, Mr. Ostrow wrote:

We are disappointed with CW’s abrupt withdrawal. We had explained that we


were not representing 100% of the senior mezz debt stack and that we did not
have the entire debt stack on board yet. We disagree and take issue with the
remainder of your email . . . .

Id. (emphasis added). Thus, PSW’s portrayal of events even as to this extraneous fact is

inaccurate.

CONCLUSION

For the reasons set forth herein and in CWCAM’s opening brief, Plaintiffs respectfully

request that this Court grant their motion for a preliminary injunction and award Plaintiffs such

other and further relief that this Court deems just and proper.

14
Although no disclosure was made to CWCAM during the initial approach, in the conversation that Mr. Ashner
references in his Affidavit, he suggested that he did not want to sell his 9% interest in the loans while the holders of
the other 91% were anxious to sell. Supp. Hundertmark Aff. ¶ 4.

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Dated: New York, New York
August 31, 2010

Respectfully submitted,

VENABLE LLP

By: s/Gregory A. Cross


Gregory A. Cross (pro hac vice)
David E. Rice
Colleen M. Mallon (pro hac vice)
750 East Pratt Street, Suite 900
Baltimore, Maryland 21202
Telephone: (410) 244-7400

Michael K. Madden
Rockefeller Center
1270 Avenue of the Americas, 25th Floor
New York, New York 10020
Telephone: (212) 307-5500

Attorneys for CWCapital Asset Management


LLC, Solely in Its Capacity as Special
Servicer

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