Opinion
Index No. 653390/2024 Motion Seq. No. 001
09-23-2024
ART LENDING, INC., Plaintiff, v. ANDREW ROSE and ART FINANCE PARTNERS LLC, Defendants.
Unpublished Opinion
DECISION + ORDER ON MOTION
HON. ANDREA MASLEY, JUDGE:
The following e-filed documents, listed by NYSCEF document number (Motion 001) 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 52, 54, 56, 57, 58, 59, 60, 83, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 110, 111, 112, 113 were read on this motion to/for INJUNCTION/RESTRAINING ORDER
Upon the foregoing documents, plaintiff's motion for a preliminary injunction is denied.
Plaintiff Art Lending, Inc. moves pursuant to CPLR 6301,7102, and 7109 for a preliminary injunction and an order of seizure against defendants Andrew Rose and Art Finance Partners LLC (AFP), of which Rose is president, enjoining defendants from selling the collateral. (NYSCEF Doc. No. [NYSCEF] 59, Rose aff¶ 1 NYSCEF 32, Plaintiff's Memo of Law at 2.) The collateral consists of 64 artworks. (NYSCEF 101, Amended List of Artworks.)
Plaintiff withdrew its request to seize the collateral. (NYSCEF 106, Plaintiff's Memo of Law at 2, n 1.)
Defendants make loans to borrowers secured by art as collateral. (NYSCEF 59, Rose aff¶ 4.) Generally, defendants' affiliates are parties to a loan and security agreement with borrowers who pledge their artworks as collateral. (See generally NYSCEF 67, Howe Intervenor Complaint; NYSCEF 73, OHP Intervenor Complaint ¶¶ 6-8, 12 and chart.) Plaintiff entered into 15 loan participation arrangements with defendants' affiliates: AF Funding (X), LLC, Art Finance Funding VI, LLC, AF Funding VIII, and Knickerbocker Funding LLC (Lenders). (NYSCEF 59, Rose aff ¶ 8.) Plaintiff alleges that Rose controls the Lenders. (NYSCEF 1, Complaint ¶ 11,)
Plaintiff is reminded to file exhibits separately in NYSCEF. For example, NYSCEF 39 is 606 pages making it unwieldy and difficult to use.
On January 24, 2024, plaintiff foreclosed and allegedly purchased the loan and security agreements at issue here at its foreclosure sale in its California office. (Id. ¶ 7; NYSCEF 59, Rose aff ¶ 15.) Plaintiff alleges that borrowers failed to pay the amounts due under the loan and security agreements. (NYSCEF 1, Complaint ¶ 27.) Defendants challenge the foreclosure sale because plaintiff allegedly purchased loans worth $25 million for $75,000 but the art collateral is worth $50 million. (NYSCEF 59, Rose aff¶ 22.) Defendants also insist that plaintiff failed to comply with the notice provisions in the participation agreements. (NYSCEF 59. Rose aff ¶ 16; see also NYSCEF 60, Participation Agreements § 7.5.) Delaware law, which applies here, also requires notice. (Del UCC §9-611; NYSCEF 60, Participation Agreements §7.4 ["This Agreement shall be governed by the laws of the State of Delaware"].) Plaintiff claims it gave notice by email which satisfies Delaware law. (NYSCEF 106, Plaintiff's Memo of Law at 4-5.) Failure to comply with a notice provision and advertising requirements would constitute a breach of contract by plaintiff.
Section 7.5 provides that "[a]ny notice or request hereunder may be given to Participant or Lender at their respective addresses set forth below or at such other address as may hereafter be specified in a notice designated as a notice of change of address under this Section. Any notice or request hereunder shall be given by (a) hand delivery (b) overnight courier, or (c) telecopy to the number set out below (or to such other number as may hereafter be specified in a notice designated as a notice of change of address) with telephone communication to a duly authorized officer of the recipient confirming its receipt as subsequently confirmed by registered or certified mail. Notices and requests shall be deemed effective only when received." (NYSCEF 60, Participation Agreements § 7.5.)
While the Participation Agreements provide that Delaware law applies, the parties rely on New York cases. Accordingly, the court also uses New York cases.
Defendants also challenge plaintiff's claims against Rose who is not a party to any agreement.
Plaintiff filed this action on July 2, 2024, asserting claims for (1) replevin of the collateral; (2) conversion of the collateral; (3) a permanent injunction for possession; and (4) a declaratory judgment pursuant to CPLR 3001 that plaintiff has the right to possession of the collateral, allowing plaintiff to sell and deliver good title to a buyer, and defendants have no rights to prevent or interfere with such possession or sale, or to assert a later claim against such buyer. (NYSCEF 1, Complaint ¶¶ 29-52.)
On September 16, 2024, the court granted the intervention motions of OHPSMA, LLC, OHPC LP (together, OHP), and SR Alternative Credit, LLC (SRAC; and collectively, OHP Intervenors) (mot. seq. no. 002) and Art Howez, LLC and Howe 2011 Dynasty Trust (collectively, Howe Intervenors) (mot. seq. no. 003). (NYSCEF 114, Decision and Order [mot. seq. no. 002 and 003].) OHP provided loans to AF Funding (XI) LLC and AF Funding (XII) LLC. (NYSCEF 74, Faigl aff ¶ 3.) SRAC manages those loans on behalf of OHP. (Id.) The OHP Intervenors assert one cause of action seeking a declaratory judgment that the OHP Intervenors hold a first-priority perfected security interest, including possessory rights, in the collateral superior to that of plaintiff. (NYSCEF 73, OHP Intervenor Complaint ¶ 34.) The Howe Intervenors assert one claim for a declaratory judgment that they have the senior, secured interest in the collateral, and that they are entitled to all the rights of a senior, secured creditor, including receiving the proceeds of the sale of the artwork to satisfy amounts owed to them under lending agreements. (NYSCEF 67, Howe Intervenor Complaint ¶¶ 57-58.) "A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do or is doing or procuring or suffering to be done, an act in violation of the plaintiff's rights respecting the subject of the action and tending to render the judgment ineffectual." (CPLR 6301.)
To obtain a preliminary injunction, a movant must establish: "(1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the moving party's favor." (Doe v Axelrod, 73 N.Y.2d 748, 750 [1988] [citation omitted].) Movant must demonstrate such "by clear and convincing evidence." (Uber Tech., Inc. v Am. Arbitration Assn., Inc., 204 A.D.3d 506, 508 [1st Dept 2022] [citations omitted].)
This motion is denied because plaintiff failed to show by clear and convincing evidence that it is likely to succeed on the merits. Plaintiff's claims turn on whether defendants initially breached the participation agreements. For replevin, plaintiff must allege a superior possessory right to the property that defendant possesses. (Reif v Nagy, 175A.D.3d 107, 120 [1st Dept 2019] [citation omitted].) For conversion of the collateral, plaintiff must allege (1) a possessory right or interest in the property and "(2) defendant's dominion over the property or interference with it, in derogation of plaintiff's rights." (Id. [citation omitted].) For a permanent injunction for possession of the collateral, plaintiff must establish that (1) its current possessory right is being violated; (2) it has no other adequate remedy at law; and (3) absent such injunction irreparable and serious harm could result. (See Caruso v Bumgarner, 120 A.D.3d 1174, 1175 [2d Dept 2014] ["To sufficiently plead a cause of action for a permanent injunction, a plaintiff must allege that there was a violation of a right presently occurring, or threatened and imminent, that he or she has no adequate remedy at law, that serious and irreparable harm will result absent the injunction, and that the equities are balanced in his or her favor" (internal quotation marks and citations omitted)].) For a declaratory judgment that plaintiff's interest is superior to any alleged interests of defendants and the intervenors, plaintiff must establish that its possessory rights will be directly and immediately affected. (CPLR 3001; Am. Ins. Asso. v Chu, 64 N.Y.2d 379, 383 [1985] [holding that "[t]he 'justiciable controversy' upon which a declaratory judgment may be rendered requires not only that the plaintiffs in such an action have an interest sufficient to constitute standing to maintain the action but also that the controversy involve present, rather than hypothetical, contingent or remote, prejudice to plaintiffs"].) Further, "a declaratory judgment is unnecessary and inappropriate when the plaintiff has an adequate, alternative remedy in another form of action." (Apple Records, Inc. v Capitol Records, Inc., 137 A.D.2d 50, 54 [1st Dept 1988] [citation omitted].)
Plaintiff cannot demonstrate any of the above at this juncture because the intervenors assert their interests are superior. An injunction cannot be issued when there are issues of fact preventing plaintiff from establishing likelihood of success. (Residential Bd. of Mgrs. of the Columbia Condominium v Alden, 178 A.D.2d 121, 123 [1st Dept 1991] [holding that when there are "sharp issues of fact, injunctive relief should be denied" (citation omitted)]; see also Motichka v MP 1291 Trust, 136 A.D.3d 445, 445 [1st Dept 2016].)
Defendants also raise additional issues that preclude an injunction. While plaintiff may be correct that defendants may not unwind the challenged foreclosure sale, if plaintiff breached the participation agreements first by failing to give notice and advertise the sale, then injunctive relief is not available to plaintiff. It may also constitute an unclean hands defense for defendants. (Amarant ex rel. Mercury Beach-Maid v D'Antonio, 197 A.D.2d 432, 434 [1st Dept 1993] [denying injunctive relief where plaintiff's violation of an agreement induced defendants to violate a different agreement].) The complaint is also silent on piercing the corporate veil of AFP to charge Rose individually with AFP's alleged violations. (Cortlandt St. Recovery Corp, v Bonderman, 31 N.Y.3d 30, 47 [2018] [explaining that piercing the corporate veil "is an assertion of facts and circumstances which will persuade the court to impose the corporate obligation on its owners"].)
The court also finds no irreparable harm because plaintiff can be compensated by money damages. (Definitions Private Training Gyms, Inc. v Lutke, 200 A.D.3d 602, 603 [1st Dept 2021] [holding that "plaintiff cannot show irreparable harm, since it can be adequately compensated by money damages"].) While art is unique chattel, plaintiff is a lender who will sell the collateral, like any other collateral, to recoup its loan proceeds. This case is not about the art; it is about money. (See Robins vZwirner, 713 F.Supp.2d 367, 375 [SDNY 2010] [denying preliminary injunction when plaintiff constantly buys and sells art because art is not unique in plaintiff's hands].) Plaintiffs conclusory allegations do not support how the value of the art will dissipate; evidentiary support is required for the extraordinary relief of a preliminary injunction. (See Westchester Fire Ins. Co. v DeNovo Constructors, Inc., 177 F.Supp.3d 810, 814 [SDNY 2016] [holding that movant failed to demonstrate irreparable harm where there was no evidentiary showing to support the contention that the pool of available funds would dissipate or disappear].) Moreover, Rose's offer to hold proceeds from sales in escrow until this dispute is resolved addresses plaintiff's concern.
The balance of equities is neutral. Plaintiff fails to establish that the equities favor it. (Barbes Rest. Inc. vASRR Suzer218, LLC, 140 A.D.3d 430, 432 [1st Dept 2016] [holding that "the balancing of the equities requires the court to determine the relative prejudice to each party accruing from a grant or denial of the requested relief" (citation omitted)].) Moreover, plaintiff's requested relief upsets the status quo. (Gama Aviation Inc. v Sandton Capital Partners, L.P., 93 A.D.3d 570, 571 [1st Dept 2012].) Defendants' assertion of harm to their relationships with borrowers and art dealers such as Christie's and Sotheby's is rejected as conclusory. However, plaintiffs notification to "all known lenders, auction houses, storage facilities, and the Delaware Art Museum of this Action" supports defendants' concern that plaintiff and this case are injuring defendants' reputation in the art market. (NYSCEF 95, Lazarus aff ¶ 3; NYSCEF 96, Notification Emails.)
Plaintiff is reminded not to use letters to identify exhibits.