Opinion
20-CV-5309 (JGK) (VF)
12-21-2023
WILMINGTON TRUST, NATIONAL ASSOCIATION, Plaintiff, v. WINTA ASSET MANAGEMENT LLC, et al., Defendants.
JOHN G. KOELTL, UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION
VALERIE FIGUEREDO, UNITED STATES MAGISTRATE JUDGE.
This matter was referred to the undersigned for a Report and Recommendation as to whether a judgment of foreclose and sale should be issued and the amount of the judgment, as well as whether a receiver should be appointed.
Citations herein to documents on the electronic docket (“ECF”) are to the original pagination in those documents.
Plaintiff, Wilmington Trust, National Association, as Trustee for the Registered Holders of Wells Fargo Commercial Mortgage Trust 2015-NXS2, Commercial Mortgage Pass-Through Certificates, Series 2015-NXS2, acting by and through Rialto Capital Advisors, LLC (the “Special Servicer”), under the Pooling and Servicing Agreement dated as of July 1, 2015, commenced this action against Winta Asset Management LLC (the “Borrower”), New York City Department of Finance, and Shuigun Chen (the “Guarantor,” and together with the Borrower, the “Defendants”) to foreclose a Consolidated, Amended and Restated Mortgage, Assignment of Lease and Rents and Security Agreement dated April 29, 2015 (the “Mortgage”), see ECF No. 149-3, in the original principal amount of $15,000,000. The Mortgage is secured by, among other things, the real property at 70 Broad Street in Manhattan (the “Property”). See ECF No. 149, Decl. of Javier Callejas (“Callejas Decl.”) ¶¶ 2, 5, 8.
The New York City Department of Finance was voluntarily dismissed without prejudice from this action on August 12, 2022. See ECF No. 140.
In a loan agreement dated April 29, 2015 (the “Loan Agreement”), the Borrower obtained a loan from Silverpeak Real Estate Finance LLC in the amount of $15,000,000 (the “Loan”). Callejas Decl. ¶¶ 5-6, Ex. 1 (the Loan Agreement). The loan was memorialized in the Consolidated, Amended and Restated Promissory Note, dated April 29, 2015, and executed by the Borrower (the “Note”). Callejas Decl. ¶ 7, Ex. 2 (the “Note”). As additional collateral security for payment of the Loan, the Borrower executed a Mortgage and an Assignment of Leases and Rents, dated April 29, 2015. Id. at ¶¶10-11. The Mortgage granted the lender a security interest in the Property and the Assignment of Leases and Rents granted the lender a security interest in all rents generated from the property. Id.
In Count I of the First Amended Complaint, Plaintiff sought a judgment of foreclosure and on November 5, 2021, Plaintiff moved for summary judgment against the Borrower on that count. See ECF No. 107, at 2; see also ECF No. 57 at ¶¶ 10-62 (First Am. Compl.). In a memorandum opinion and order dated July 8, 2022, the Honorable John G. Koeltl granted Plaintiff's summary judgment motion as to Count I, concluding that Plaintiff had set forth sufficient facts to establish its prima facie entitlement to a judgment of foreclosure and Defendants had failed to raise a genuine issue of fact as to a bona-fide defense to the foreclosure claim. See ECF No. 136 at 11, 15, 19. More specifically, the Court concluded that Plaintiff had set forth facts establishing the existence of the Mortgage, the Note, and the Borrower's default. See ECF No. 136 at 11. As the Court explained: Plaintiff had shown that the Borrower executed the Note in favor of the lender; the lender advanced the loan to the Borrower pursuant to the terms of the Loan Agreement and the Note; as collateral security for payment of the Loan, the Borrower executed and delivered the Mortgage to the lender; the Plaintiff is the assignee of the Note by virtue of assignments of the Mortgage; and the Borrower is in default of its obligations under the Loan Agreement. Id. The Court instructed Plaintiff to file “a proposed judgment of foreclosure or seek a reference to the Magistrate Judge for an inquest as to the proper judgment.” Id. at 22.
In his summary judgment decision, Judge Koeltl set out in detail the factual and procedural background of this case. See ECF No. 136 at 2-6. Familiarity with those facts is presumed. I include herein only those facts necessary for resolution of the instant motion.
On February 10, 2023, Plaintiff moved for entry of a Final Judgment of Foreclosure pursuant to Federal Rule of Civil Procedure 54(b) in favor of Plaintiff and against the Borrower. See ECF No. 147. As part of its motion, Plaintiff seeks a computation of the amounts owed to it as follows: (1) the principal balance of the Loan, in the amount of $15,000,000; (2) accumulated unpaid interest owed on the principal balance of the Loan through February 6, 2023, in the amount of $1,853,467.92; (3) default interest, at the default rate of 5%, through February 6, 2023, in the amount of $7,372,800.64; (4) late fees under the Loan Agreement in the amount of $7,622.11; (5) fees owed to the Special Servicer in the amount of $122,500; (6) taxes and insurance advances paid by Plaintiff with respect to the Mortgaged Property in the amount of 1,357,834.89; (7) property protective advancement payments for operating expenses, repair and maintenance costs and other expenses relating to the Mortgage Premises, in the amount of $426,578.19; (8) accrued interest on the taxes and insurance advances and on the property protective advances in the amount of $249,410.61; (9) a liquidation fee for the Special Servicer in the amount of $191,610.77; (10) a yield maintenance premium of $150,000; and (11) a UCC filing fee in the amount of $85.23, and a payoff processing fee in the amount $1,200. See Callejas Decl. ¶¶ 49, 54, 58, 59, 65-68, 72, 78, 79-82; see also ECF No. 153, Reply Decl. of Javier Callejas (“Callejas Reply Decl.”) ¶¶ 7-8; ECF No. 150 at 2; ECF No. 215 at 1. Plaintiff is in possession of $260,445.90, which it will apply to the amount it claims is owed by Defendants. Callejas Decl. ¶¶ 85. Plaintiff thus seeks a total award of $26,472,664.46. See ECF No. 150 at 2; Callejas Decl. ¶ 48 and Schedule I. Plaintiff has brought no other action or proceeding to recover any part of the mortgage indebtedness it seeks to recover here. Callejas Decl. ¶ 84. Additionally, Plaintiff also seeks an award of attorneys' fees in the amount of $384,424.36 and costs in the amount of $5,891.37. See ECF No. 148, Decl. of Keith Brandofino (“Brandofino Decl.”) ¶¶ 8, 13.
In support of its motion, Plaintiff has provided declarations from Javier Callejas, in his capacity as an Asset Manager of Rialto Capital Advisors, LLC, the Special Servicer for the loan. See Callejas Decl.; Callejas Reply Decl.. Callejas attests that the facts set forth in his declaration are based on his personal knowledge and his review of the books and records of Plaintiff and the Special Servicer. Callejas Decl. ¶¶ 3-4.
On March 3, 2023, the Defendants opposed the motion. See ECF No. 151. On May 1, 2023, the motion was referred to the undersigned for Report and Recommendation. ECF No. 156. A hearing on the motion was held on December 14, 2023. See ECF No. 239 (“Tr.”).
DISCUSSION
A. Judgment of Foreclosure and Sale
After concluding that Plaintiff had established a prima facie entitlement to foreclosure and that Defendants had failed to raise a genuine issue of fact as to any defense, Judge Koeltl awarded Plaintiff summary judgment on the foreclosure claim in Count I of the First Amended Complaint. See ECF No. 136 at 11, 18-19. Plaintiff is thus entitled to a final judgment of foreclosure and sale. See Capital One Nat'l Ass'n v. 48-52 Franklin, LLC, No. 12-CV-3366 (LGS), 2014 WL 1386609, at *8 (S.D.N.Y. Apr. 8, 2014) (awarding judgment of foreclosure and sale where plaintiff established prima facie case and defendant had no defense).
Additionally, “courts regularly appoint referees in cases of mortgage foreclosures and sales” in order to oversee the sale of the property and ensure the proceeds from the sale are distributed in accordance with the Court's computation. See Windward Bora, LLC v. Brown, No. 21-CV-3147 (KAM) (RER), 2022 WL 875100, at *5 (E.D.N.Y. Mar. 24, 2022); see also U.S. Bank Tr., N.A. v. Dingman, No. 16-CV-1384 (CS), 2016 WL 6902480, at *4 (S.D.N.Y. Nov. 22, 2016) (explaining that appointment of referee is appropriate to oversee sale of property). Here, Plaintiff's proposed Judgment asks for the appointment of Ian V. Lagowitz as Referee, see ECF Nos. 150, 216, and Defendants have not objected to his appointment. I thus recommend that Mr. Lagowitz be appointed as Referee for purposes of accomplishing a sale of the property.
Moreover, I also recommend that the proceeds of the sale be applied to the total amount owed pursuant to the loan documents, as set forth below. See OneWest Bank, N.A. v. Denham, No. 14-CV-5529 (DRH) (AKT), 2015 WL 5562980, at *14 (E.D.N.Y. Aug. 31, 2015) (recommending foreclosure and sale of property with proceeds to be applied to amount owed on the loan, where plaintiff established existence of an obligation secured by a mortgage and a default of that obligation).
B. Damages
Under Section 1321 of the New York Real Property Actions and Proceedings Law (“RPAPL”), a “trial court has the authority to compute the amount owed or appoint a referee to do the same.” Dingman, 2016 WL 6902480, at *4. It is Plaintiff's burden to prove damages. Lupia v. N.J. Transit Rail Operations, Inc., No. 21-CV-11077 (LJL), 2023 WL 2387100, at *6 (S.D.N.Y. Mar. 7, 2023). Damages must be determined with reasonable certainty. Hosking v. New World Mortg., Inc., 570 Fed.Appx. 28, 31 (2d Cir. 2014). “Any determination of damages in an action for foreclosure and sale should be determined under the terms of the Notes and Mortgages.” E. Sav. Bank, FSB v. Rabito, No. 11-CV-2501 (KAM) (VVP), 2014 WL 4804872, at *1 (E.D.N.Y. Sept. 10, 2014).
1. Unpaid Principal
The original loan amount was for $15,000,000. Callejas Decl. ¶ 5; see also id. Ex. 1, § 2.1. The Borrower was obligated to make interest-only payments until March 6, 2020; payment of the principal was to begin on April 6, 2020. Callejas Decl. ¶ 50; see also id. Ex. 1, §§ 1.1, 2.2.1. On April 6, 2020, however, the Borrower did not pay the Monthly Debt Service Payment as required under the Loan Agreement and thus the Borrower defaulted. Callejas Decl. ¶¶ 19-22; see also ECF No. 136 at 4, 16-17. As such, the full principal amount of $15 million is still owed. Callejas Decl. ¶¶ 49-51. Defendants do not contend otherwise. I thus recommend that Defendants be ordered to pay $15,000,000 as the unpaid principal balance on the loan.
An event of default occurs under the Loan Agreement when “any portion of the Debt is not paid when due.” Callejas Decl. Ex. 1, § 8.1(a). Plaintiff notified Defendants of the “Payment Default” by notice of default dated April 14, 2020. See Callejas Decl. ¶ 21, Ex. 17.
2. Accumulated Unpaid Interest
The Loan Agreement provides for the accrual of interest on the outstanding principal balance of the Loan at the interest rate of 4.169% per annum. Callejas Decl. Ex. 1, §§ 1.1 (defining “Interest Rate”), 2.2.1. The agreement further provides that interest “shall be computed on the basis of the actual number of days elapsed over a 360-day year.” Id. at § 2.5.2.
Plaintiff states that the Payment Default occurred on April 6, 2020, because the Borrower last made its Monthly Debt Service Payment on March 6, 2020. See Callejas Decl. ¶¶ 19-22, 51. Under the Loan Agreement, the April 6, 2020 Monthly Debt Service Payment included the payment of non-default interest for the immediately preceding Interest Period, which was from March 6, 2020 through April 5, 2020. See Callejas Decl. Ex. 1, § 2.2.1. As such, Plaintiff calculates the amount of non-default interest owed under the Loan as beginning on March 6, 2020. See Callejas Decl. ¶¶ 54, Schedule 1. Between March 7, 2020-the day after the Borrower's last Monthly Debt Service Payment-and February 6, 2023, there are 1,067 days. Interest at the non-default rate of 4.169% has thus accumulated on the principal amount of $15,000,000 for 1,067 days. Plaintiff has calculated that amount to be $1,853,467.92. See Callejas Decl. ¶ 54.
Defendants contend that this amount is overstated because the Borrower made payments for April 2020 and May 2020, when it learned that the monthly payment for April 2020 was not withdrawn in accordance with the parties' course of dealing. See ECF No. 151 at 18. Defendants thus state that they “believe non-default interest is overstated by approximately $100,000.” Id. n.6.
In the summary judgment decision, Judge Koeltl found that the Borrower had failed to timely make its Monthly Debt Service Payment on April 6, 2020, triggering a Payment Default. See ECF No. 136 at 16-18, n.18. On May 12, 2020, Plaintiff accelerated the loan and declared the outstanding principal balance and accrued interest due and payable. Callejas Decl. ¶ 41. Following that, on May 27, 2020, the Borrower made two payments of $114,531. See Callejas Reply Decl. ¶¶ 17-18. Plaintiff did not apply those payments, a total of $229,062, towards a pay down of the non-default interest due under the Loan. Id. at ¶¶ 17, 20. Instead, Plaintiff applied those payments to other amounts of the Debt that were due, id. at ¶ 20, which was permitted under the Loan Agreement. Under the Loan Agreement, upon the occurrence and during the continuance of an Event of Default, Plaintiff had the ability to apply any funds it received from the Borrower in any order and in any manner as Plaintiff elected in its sole discretion. See Callejas Decl. Ex. 1, § 2.3.1; see also Callejas Reply Decl. ¶ 19. Because Plaintiff was not obligated under the Loan Agreement to apply the May 2020 payments towards a pay down of the accrued interest, Defendants have not shown that the amount of unpaid interest claimed by Plaintiff is overstated.
I therefore recommend that Defendants be directed to pay $1,853,467.92 in accumulated unpaid interest on the principal amount.
3. Accumulated Default Interest
The Loan Agreement provides that after “the occurrence and during the continuance of an Event of Default, the entire unpaid Debt shall bear interest at the Default Rate, calculated from the date such payment was due or such underlying Default shall have occurred without regard to any grace periods contained herein.” Callejas Decl. Ex. 1, § 2.2.2. Debt, in turn, is defined in the Loan Agreement as “the unpaid Principal, all interest accrued and unpaid thereon, any Yield Maintenance Premium and all other sums due to Lender in respect of the Loan or under any Loan Document.” Id. at § 1.1 (defining “Debt”). Additionally, the default interest rate is defined as “a rate per annum equal to the lesser of (i) the maximum rate permitted by applicable law, or (ii) five percent (5%) above the Non-Default Rate, compounded monthly.” Id. at § 1.1 (defining “Default Rate”). As Callejas explains, default interest accrues each month on the unpaid principal amount and on all accumulated and unpaid interest. Id. at ¶ 57; see also Id. at Schedule II. Plaintiff has calculated default interest using the default interest rate of 5% above the non-default rate of 4.169%. Callejas Decl. ¶¶ 53, 55, 58.
In its submissions, Plaintiff calculated default interest beginning on April 29, 2015, the date the loan originated. Callejas Decl. ¶¶ 5, 58. According to Plaintiff, on April 29, 2015, the Borrower committed a Cessation of Operations Default, because the Borrower stopped operating the property at 70 Broad Street in Manhattan as a mixed-use office and residential building. Id. ¶¶ 28-34, 58. Defendants oppose the calculation of default interest prior to May 2018. See ECF No. 151 at 8-9. Defendants contend that default interest should be calculated no earlier than May 2018 because in its summary judgment decision the Court made a finding of fact that a Cessation of Operations Default occurred after May 2018. Id.
Defendants are correct that Judge Koeltl's summary judgment decision found that a Cessation of Operations Default occurred “after May 2018.” See ECF No. 136 at 18. To be sure, in his decision concluding that Plaintiff was entitled to an order of attachment and preliminary injunction, Judge Koeltl also found that Plaintiff had established that Defendants' fraudulent conduct included providing “fictitious rent rolls to the plaintiff in order to obtain the loans at issue in this case” and misrepresenting the building's occupancy in order to obtain the loan. See ECF No. 215-2 at 10-12. But there are no allegations in the amended complaint that an event of default occurred at the loan's origination in April 2015. Instead, the amended complaint includes allegations about various events of default, none of which relate to a Cessation of Operations Default in April 2015. See ECF No. 57 at ¶¶ 29-53. Because the allegation that a Cessation of Operations Default occurred on April 29, 2015 is not contained in the First Amended Complaint, and thus was not considered by Judge Koeltl in his summary judgment decision, it cannot form the basis for an award to Plaintiff of default interest beginning in April 2015.
Additionally, Defendants raise several arguments in support of a reduction of the amount of default interest. First, Defendants argue that Plaintiff should not be awarded any amount in default interest because it constitutes a penalty in this case. See ECF No. 151 at 4-6. But it is well settled that “[p]arties are free to agree that a contract rate of interest shall increase upon default, so long as an interest rate is not usurious or does not constitute a penalty.” Emigrant Funding Corp. v. 7021 LLC, 25 Misc.3d 1220(A), 901 N.Y.S.2d 906, 2009 WL 3530022 at *3 (N.Y. Sup. Ct. Oct. 26, 2009); see also Jamaica Savings Bank, F.S.B. v. Ascot Owners, 245 A.D.2d 20, 20 (1st Dep't 1997) (“It is well settled that an agreement to pay interest at a higher rate in the event of default or maturity is an agreement to pay interest and not a penalty.”). The default interest rate of 9.169% is well below the usury limit of 25% and courts in this Circuit have enforced contractual provisions awarding default interest where the interest rate was below the 25% usury cap in New York. See, e.g., LG Cap. Funding, LLC v. Solar Energy Initiatives, Inc., No. 19-CV-907 (NG) (RML), 2019 WL 7630792, at *4 (E.D.N.Y. Nov. 1, 2019) (enforcing default interest provision in contract where default interest was 22%). Because the default interest rate in the contract is well below the usury cap, Defendants have not pointed to anything to suggest that the contractual provision operates as a penalty or is otherwise contrary to public policy.
Additionally, Defendants argue that default interest should be substantially reduced as a matter of equity. See ECF No. 151 at 6-8. The parties to the Loan Agreement here are sophisticated entities who understood the terms of the agreement when they entered into it. And the Loan Agreement plainly provides for the payment of default interest at a rate that is well below the usury cap in New York. Defendants thus have not demonstrated that the circumstances here favor a reduction in the amount of default interest as a matter of equity. Cf., E. Sav. Bank, FSB v. McLaughlin, No. 13-CV-1108 (NGG) (LB), 2015 WL 5657355, at *7 (E.D.N.Y. Aug. 17, 2015) (recommending tolling of interest in foreclosure action where plaintiff demonstrated that instant foreclosure occurred when plaintiff's tenant ceased payments, causing plaintiff financial hardship while plaintiff and spouse were seriously ill and undergoing major surgeries).
I thus recommend that default interest be calculated beginning on June 1, 2018, given Judge Koeltl's finding in his summary judgment decision that a Cessation of Operations Default occurred “after May 2018.” Moreover, as discussed at the hearing, I recommend that an award of default interest here be without prejudice to Plaintiff's ability to seek additional default interest, for a period prior to June 2018, from the guarantor in a separate proceeding under a recourse carve-out claim against the guarantor. See Tr. at 8-15.
4. Late Fees
Plaintiff also seeks an award of late fees in the amount of $7,622.11. Callejas Decl. ¶ 59, Schedule III. Under the Loan Agreement, the Borrower is obligated to pay the Lender “upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law,” if the principal balance of the loan or “other sum due under any Loan Document is not paid by the Borrower on the date on which it is due.” See Callejas Decl. Ex. 1, § 2.5.3 (“Late Payment Charge”). Plaintiff has calculated the Late Fees through May 12, 2020, the date Plaintiff accelerated the loan. Callejas Decl. ¶ 59, Schedule III. The amount of accrued late fees is $7,622.11.
Defendants do not contest the accuracy of Plaintiff's calculation of late fees. Defendants do, however, contend that the late fees should be disallowed as an unenforceable penalty. See ECF No. 151 at 14. The parties, however, contracted for the payment of such fees and courts in New York permit the collection of such costs. See In re South Side House, LLC, 451 B.R. 248, 273 (Bankr. E.D.N.Y. 2011) (“Collection costs may be recovered under New York law if they are provided for in the parties' agreement, and are proven by the creditor.”); LaSalle Bank Nat'l Ass'n v. Nomura Asset Cap. Corp., 72 A.D.3d 409, 412 (1st Dep't 2010) (concluding that plaintiff was entitled to “reasonable expenses proved” such as expenses for the Special Servicer).
I thus recommend an award of late fees in the amount of $7,622.11
5. Special Servicing Fees
Plaintiff seeks an award of $122,500, which is the amount Plaintiff incurred in Special Servicing Fees. Callejas Decl. ¶ 72. Under the Loan Agreement, the borrower agreed that Plaintiff could “securitize the Loan” and appoint a Special Servicer or Master Servicer to service the loan. See Callejas Decl. Ex. 1, §§ 9.1, 10.3. The Loan Agreement also states that the borrower is obligated to reimburse Plaintiff for “all reasonable out-of-pocket costs and expenses,” and specifically includes “fees charged by Servicer” as an example of such a recoverable expense. See id. § 5.29. Defendants thus consented to the appointment of a Special Servicer and agreed to reimburse Plaintiff for the fees charged by the Special Servicer.
Further, the Pooling and Servicing Agreement states that Plaintiff must pay the Special Servicer a Special Servicing Fee, calculated as outlined in the agreement. See ECF No. 215-1 at § 3.11. Under the terms of the agreement, the Specifical Servicing Fee is $3,500 per month. Callejas Decl. ¶¶ 71-72. Special Servicing Fees were assessed beginning in April 2020, when the Borrower first failed to make its Monthly Debt Service payment. Callejas Dec. ¶ 72. The total amount of Special Servicing Fees is $122,500. See Callejas Decl., Schedule IV.
Defendants contend that Plaintiff has not provided any basis for judging the reasonableness of the fee amount owed to the Special Servicer. See ECF No. 151 at 19. But as already discussed, the Loan Agreement obligates Defendants to reimburse for Special Servicing Fees and the amount of the fee sought here is the contracted-for amount of $3500 per month.
I thus recommend that Plaintiff be awarded $122,500 in Special Servicing Fees.
6. Tax and Insurance Payments and other Protective Advances
Under the Loan Agreement, the Borrower “shall pay all Taxes and Other Charges as the same become due and payable and deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and the Other Charges have been paid no later than thirty (30) days before they would be delinquent if not paid.” Callejas Decl. Ex. 1, § 5.2. Section 3.3 of the agreement outlines the amount of taxes and insurance premiums the Borrower was obligated to pay. See id. § 3.3. The Loan Agreement also provides that Plaintiff will be reimbursed for the amount it advances in insurance premiums and taxes. Specifically, under Section 8.2.5 of the Loan Agreement, if the “Borrower fails to perform any covenant or obligation contained herein . . . Lender may, but shall have no obligation to, perform, or cause performance of, such covenant or obligation, and all costs, expenses, liability, penalties and fines of Lender incurred or paid in connection therewith shall be payable by Borrower to Lender upon demand and if not paid shall be added to the Debt . . . and shall bear interest thereafter at the Default Rate.” Id. at Ex. 1, § 8.2.5. Additionally, the Loan Agreement obligates the Borrower to reimburse Plaintiff for reasonable out-of-pocket expenses incurred in connection with the loan. Id. at Ex. 1, § 5.29.
Callejas attests that Plaintiff has advanced a total amount of $1,357,834.89 in insurance premiums and taxes, that were owed but not paid by the Borrower. Callejas Decl. ¶ 64; see also Callejas Reply Decl. ¶¶ 7-8, Ex. 2. Plaintiff also seeks an award of $426,578.19 for property protective advances it has paid, for such things as “operating expenses, repair and maintenance costs and other expenses relating to the Mortgage Premises.” Callejas Decl. ¶ 67. Of that amount, $53,064.89 was for property inspections, appraisals, and legal work relating to the management and care of the Mortgaged Premises. See Callejas Reply Decl. ¶ 9, Ex. 3. The remaining amount paid in protective advances ($373,513.30) was for legal fees and costs incurred by Plaintiff in connection with enforcing its rights under the Loan Agreement. Id. Additionally, Plaintiff seeks $1,200 in connection with generating payoff statements and $85.23 incurred for filing a Uniform Commercial Code Financing Statement. Callejas Decl. ¶¶ 65-66; see also Callejas Reply Decl. ¶¶ 10-11. Plaintiff also seeks $249,410.61 for the accrued interest incurred for the abovementioned advances. Callejas Decl. ¶ 68. Plaintiff has substantiated these expenses with a copy of its payment history for the Taxes and Insurance Premiums it paid, as well as copies of the invoices for the protective reimbursable advances paid, such as property inspections and appraisals. See Callejas Reply Decl. ¶¶ 8-9, Exs. 2-3.
Defendants do not contest the amount of these payments. And courts in this Circuit allow plaintiffs in foreclosure actions to recover such protective advances where the plaintiff has submitted sufficient documentation to prove the accuracy of its claims, as Plaintiff has done here. See E. Sav. Bank, FSB v. Johnson, No. 13-CV-6070 (AMD) (ST), 2022 WL 18858919, at *5 (E.D.N.Y. Dec. 27, 2022). I thus recommend that Plaintiff be awarded $1,357,834.89 for payment of insurance premiums and taxes and $249,410.61 for accrued interest on these payments. I also recommend that Plaintiff be awarded $53,064.89 in property protective advances, $1,200 in fees for payoff statements, and $85.23 in UCC filing fees. The remaining amount sought by Plaintiff in property protective advances ($373,513.30) was expended by Plaintiff in legal fees. As explained in Section C., infra, I recommend that Plaintiff be awarded those legal fees.
7. Liquidation Fee
Next, Plaintiff seeks an award of $191,610.77 as a liquidation fee under the Loan Agreement. Callejas Decl. ¶ 78. Under the Loan Agreement, the borrower is obligated to reimburse Plaintiff for reasonable out-of-pocket costs and expenses incurred by the Lender or Servicer in connection with the loan including any fees charged by the Special Servicer. Callejas Decl. Ex. 1, § 10.3. Under the Pooling and Services Agreement, the Special Servicer is entitled to receive a “Liquidation Fee with respect to each Specially Serviced Mortgage Loan . . . as to which any full, partial or discounted payoff is received and . . . as to which the Special Servicer receives any . . . Liquidated Proceeds.” See ECF No. 215-1, § 3.11. And “Liquidation Proceeds” is defined in Article I of the Pooling and Services Agreement as “all cash amounts” received in connection with “the liquidation of a Mortgaged Property . . . through . . . foreclosure sale.” See ECF No. 215-1 at p. 48. The agreements thus provide that in event the property is sold at a foreclosure sale, the Special Servicer is entitled to the payment of liquidation proceeds.
At the hearing, counsel for Plaintiff explained that the exact amount of the liquidation fee is calculated “on what is recovered from the foreclosure sale” of the property. Tr. at 26-27. Given that the amount of the liquidation fee cannot be accurately computed until after the foreclosure sale of the property, Plaintiff agreed at the hearing to seek this fee from the guarantor in a separate action. See Tr. at 27-29; see also Wells Fargo Bank as Tr. for the Benefit of the Holders of COMM 2015-LC19 Mortg. Tr. Com. Mortg. Pass-Through Certificates v. 5615 N. LLC, No. 20-CV-2048 (VSB) (KHP), 2023 WL 7394340, at *10 (S.D.N.Y. May 4, 2023). As such, I do not recommend an award of a liquidation fee at this time. I recommend that Plaintiff be denied this fee here without prejudice to its ability to seek a liquidation fee under the loan documents in a separate action against the Guarantor.
8. Yield Maintenance Fee
Plaintiff also seeks an award of $150,000 as a yield maintenance fee under the Loan Agreement. Callejas Decl. ¶ 82. The Loan Agreement, in section 2.3.1, provides for the recovery of a Yield Maintenance Premium. The agreement states that “[i]f prior to the Permitted Prepayment Date, the Debt is accelerated by reason of an Event of Default, then Lender shall be entitled to receive, in addition to the unpaid Principal and accrued interest and other sums due under the Loan Documents, an amount equal to the Yield Maintenance Premium applicable to such Principal so accelerated.” Id. at Ex. 1, § 2.3.1. “Yield Maintenance Premium” is defined in the Loan Agreement as “an amount equal to . . . one percent (1%) of any applicable prepayment” but in “no event shall the Yield Maintenance Premium be less than zero.” Id. at Ex. 1, § 1.1 (defining Yield Maintenance Premium). The unpaid balance of the loan is $15,000,000, and 1% of that is $150,000. Callejas Decl. ¶ 82.
Defendants argue that the yield maintenance premium should not be awarded because it bears no correlation to Plaintiff's purported damages and is an unenforceable penalty. See ECF No. 151 at 14-15. To demonstrate that the yield maintenance premium is an unenforceable penalty, Defendants must show that the “(1) actual damages are difficult to determine, and (2) the sum is not ‘plainly disproportionate' to the possible loss.” In re 1141 Realty Owner LLC, 598 B.R. 534, 542 (S.D.N.Y. 2019). The enforceability of the provision must be determined based “on the circumstances existing at the time the parties entered into their agreement.” Id.
Defendants have not pointed to anything to show that the yield maintenance premium is conspicuously disproportionate to Plaintiff's foreseeable losses at the time of the loan or that Plaintiff's damages flowing from prepayment were readily ascertainable at the time the parties entered into the Loan Agreement. Here, the amount of the Yield Maintenance Fee was negotiated in an arms-length transaction and was intended to compensate Plaintiff for the risks associated with the loan. See JMD Holding Corp. v. Congress Fin. Corp., 4 N.Y.3d 373, 383 (2005) (explaining that a lender's “conceivable but difficult to calculate losses” include, for example, “rate of return, duration of the loan, risk, [and] extent and realizability of collateral”).
I thus recommend that Plaintiff be awarded $150,000 as a yield maintenance fee.
C. Attorneys' Fees and Costs
Plaintiff seeks attorneys' fees and costs arising out of this action in the amounts of $384,424.36 and $5,891.07, respectively. See Brandofino Decl. ¶¶ 8, 13-14. That amount includes the legal fees that Plaintiff has already paid ($373,513.30) as part of its protective advances. Tr. at 31-33. Collectively, in legal fees and costs, Plaintiff seeks an award of $390,315.43 for fees incurred through February 10, 2023. See Brandofino Decl. ¶ 15.
Attorneys' fees “may be recovered in the mortgage foreclosure action itself if the mortgage document obligates the mortgagor to pay such a fee for the expenses incurred in that action.” Levine v. Infidelity, Inc., 2 A.D.3d 691, 692 (2d Dep't 2003); Capital One Nat'l Ass'n v. 48-52 Franklin, LLC, No. 12-CV-3366 (LGS), 2014 WL 1386609, at *9 (S.D.N.Y. Apr. 8, 2014); NetJets Aviation, Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 175 (2d Cir. 2008). Here, the loan documents provide for the recovery of attorneys' fees (see Callejas Decl. Ex. 1, § 5.29; ECF No. 149-3 at § 10(a)(v), (viii)), and Defendants do not argue otherwise. Instead, Defendants contend that the amount of attorneys' fees sought is excessive and insufficiently supported by Plaintiff. See ECF No. 151 at 15. Plaintiff submitted its attorney bills and invoices (see ECF No. 152-1, 152-2) and Plaintiff's counsel submitted an attorney declaration testifying to the hours worked on this matter and the fees charged. See Brandofino Decl. ¶¶ 8-10.
A reasonable fee is generally described as the product of a reasonable hourly rate and a reasonable number of hours expended by attorneys and their staff on the matter. Millea v. MetroNorth R.R. Co., 658 F.3d 154, 166 (2d Cir. 2011). In considering the reasonableness of the hourly rate, the Court's analysis is guided by the prevailing market rate for similar services in this District. Blum v. Stenson, 465 U.S. 886, 895 n.11 (1984); Arbor Hill Concerned Citizens Neighborhood Ass'n v. Cty. of Albany, 522 F.3d 182, 183-84 (2d Cir. 2008). The Court also considers factors including the attorneys' experience, reputation, and ability; the time, labor, and skill required; the novelty and complexity of the legal issues posed; awards in similar cases; and degree of success. Arbor Hill, 522 F.3d at 186 n.3 (listing the Johnson factors). As to the reasonableness of the number of hours expended, the Court “does not play the role of an uninformed arbiter but may look to its own familiarity with the case and its experience generally as well as to the evidentiary submissions and arguments of the parties.” Gierlinger v. Gleason, 160 F.3d 858, 876 (2d Cir. 1998) (quotation marks and citation omitted). Additionally, “[f]ee awards normally include those reasonable out-of-pocket expenses incurred by the attorney,” Tr. of N.Y.C. Dist. Council of Carpenters Pension Fund, Welfare Fund, Annuity Fund v. B&L Moving & Installation, Inc., No. 16-CV-4734 (GBD) (JLC), 2017 WL 4277175, at *8 (S.D.N.Y. Sept. 26, 2017), including for items such as “shipping, filing fees, process servers, and litigation support,” HSBC Bank USA, N.A. v. PAKS Holdings, LLC, No. 19-CV-10193 (PGG) (JLC), 2021 WL 667661, at *8 (S.D.N.Y. Feb. 22, 2021).
Plaintiff seeks $384,424.36 in legal fees for the period from March 9, 2020, through February 10, 2023. Brandofino Decl. ¶ 14. In this matter, Plaintiff retained the services of two law firms-first, Kilpatrick, Townsend & Stockton, LLP, from March 9, 2020, to July 22, 2020, and then Holland & Knight LLP from August 1, 2020, through the present. See Brandofino Decl. ¶ 8. Plaintiff has provided contemporaneous time records (see ECF Nos. 152-1, 152-2), and the resumes of the individuals who performed work on the matter (see ECF No. 152-3). Legal services were primarily performed by Keith Brandofino, as a partner at Kilpatrick Townsend and later as a partner at Holland & Knight, who has extensive experience in loan servicing matters and in other mortgage foreclosure actions. See Brandofino Decl. ¶ 8. His hourly rate was $860 as a partner at Kilpatrick Townsend and $685 as a partner at Holland & Knight. See Brandofino Decl. ¶ 8. In addition to Mr. Brandofino, four other partners worked on this matter: Eric J. Beradi at an hourly rate of $690.00; Michael H. Jo at an hourly rate of $550; Jack Doherty at an hourly rate of $525; and Evelyn H. Seeler at an hourly rate of $550. Id. Multiple associates were staffed on the matter with hourly rates ranging from $645 for Edwin Garrison to $393 for Raina Duggirala. Id. at ¶ 8. The matter was also staffed, at various times, with five senior counsel, who billed at hourly rates ranging from $485 for David V. Mignardi to $540 for Maximiliano Rinaldi. Id. Finally, eight paralegals, one administrative support individual, and one special assistant worked on the matter at various times. Id. The hourly rates for the paralegals on the team ranged from $335 for Joanna Turner to $215 for Kathy Ovalle. Id. The special assistant, Elvin Ramos, billed at an hourly rate of $250, and the administrative support professional, Jeffrey Davis, billed at an hourly rate of $240. Id.
Beginning with the partner-level work, the requested hourly rates are reasonable and commensurate with hourly rates awarded attorneys of similar experience in this District. See 5615 N. LLC, 2023 WL 7394340, at *8 (awarding average hourly rate of $606 for partner work in mortgage foreclosure action); Tabatznik v. Turner, No. 14-CV-8135 (JFK), 2016 WL 1267792, at *11-12 (S.D.N.Y. Mar. 30, 2016) (applying an hourly partner rate of $650 and associate rate of $425 in action to enforce a promissory note). Even though Mr. Brandofino billed 26.2 hours at a higher $860 hourly rate, he is an experienced commercial litigator and courts in this District have approved similar hourly rates for partner-level work in a complex civil action such as this. See, e.g., U.S., ex rel. Fox Rx, Inc. v. Omnicare, Inc., No. 12-CV-275 (DLC), 2015 WL 1726474, at *2-3 (S.D.N.Y. Apr. 15, 2015) (approving partner hourly rate of $836 and citing case that approved an hourly rate of $870); U.S., ex rel. Nichols v. Computer Sciences Corp., 499 F.Supp.3d 32, 41 (S.D.N.Y. 2020) (approving partner rate of $850 in False Claims Act case). I thus recommend that Plaintiff be awarded its requested hourly rates for all partners.
For the work performed by senior counsel, the requested hourly rates between $525 and $540 are also reasonable and consistent with rates approved in other cases by courts in this District. See 5615 N. LLC, 2023 WL 7394340, at *8 (approving average hourly rate of $606 for partner and senior counsel in mortgage-foreclosure action); UMB Bank, Nat'l Ass'n v. Bluestone Coke, LLC, No. 20-CV-2043 (LJL), 2021 WL 3292519, at *6 (S.D.N.Y. Aug. 2, 2021) (approving rates of up to $1,030 per hour for services rendered in connection with a complex bankruptcy and commercial litigation among sophisticated commercial actors). For the associatelevel work, all the hourly rates, except for the rate for Edwin Garrison, are reasonable and consistent with similar rates awarded in other cases of similar complexity by courts in this District. See U.S., ex rel. Fox Rx, Inc., 2015 WL 1726474, at *2-3 (approving hourly rate of $631.75 for eighth year associate and $541.50 for fourth year associate); HSBC Bank USA, N.A. v. PAKS Holdings, LLC, 2021 WL 667661, at *7 (approving hourly rates of $571.50 and $423.00 in breach of contract case); 5615 N. LLC, 2023 WL 7394340, at *8 (approving average hourly rate of $454 for associate work). The hourly rate requested for Mr. Garrison ($645), a senior associate, exceeds the hourly rate Plaintiff requested for its senior counsel and is above the average rate awarded to senior associates in this District. I thus recommend that his hourly rate be reduced to $545.
Finally, in this District, courts typically award hourly rates for paralegals and other administrative professionals of between $100 and $200. See 1979 Fam. Tr. Licensor, LLC v. Darji, No. 19-CV-4389 (VEC), 2020 WL 9596279, at *1 (S.D.N.Y. Sept. 30. 2020) (noting that courts in this District typically approve paralegal rates between $150 and $200); see also 5615 N. LLC, 2023 WL 7394340, at *8. The requested hourly rates for paralegal work are unduly high, ranging between $335 and $215. Plaintiff also seeks an hourly rate of $250 for Elvin Ramos, a special assistant, and $240 for Jeffrey Davis, an administrative support professional. Those rates, too, are high. Courts have “generally analogized” such litigation support personnel “to paralegals and awarded comparable hourly rates.” Abraham v. Leigh, No. 17-CV-5429 (KPF), 2020 WL 5512718, at *10-11 (S.D.N.Y. Sept. 14, 2020) (awarding $250 to e-discovery expert who billed time in connection with matter related to sanctioned documents); see also Gulino v. Bd. of Edu. of City School Dist. of City of N.Y., No. 96-CV-8414 (KMW), 2022 WL 17478295, at *4 (S.D.N.Y. Nov. 30, 2022) (recommending award of $175 hourly rate for litigation support professional); VR Optics, LLC v. Peloton Interactive, Inc., No. 16-CV-6392 (JPO), 2021 WL 1198930, at *5 (S.D.N.Y. Mar. 30, 2021) (noting that courts in this District “have been loath” to award billing rates “in excess of $200” for “support staff”). I therefore recommend that the requested rate for paralegals and administrative support personnel be reduced to $200, which is consistent with what is typically deemed reasonable in this District for those professionals.
As to the number of hours expended, having reviewed the records I find that the time spent was reasonable. The time entries demonstrate that Plaintiff's counsel spent an appropriate amount of time litigating this action, including seeking the appointment of a Receiver, opposing the motion to dismiss filed by Winta, and briefing a motion for summary judgment.
I thus recommend that Plaintiff be awarded its requested attorneys' fees, as outlined in Paragraph 8 of the Brandofino Declaration, except the amount should be reduced consistent with the calculations in the table below. In total, I recommend that Plaintiff be awarded $378,623.86 in attorneys' fees.
Timekeeper
Position
Requested Hourly Rate
Awarded Hourly Rate
Hours
Requested Fees
Awarded Fees
Kathy Ovalle
Paralegal
$225
$200
72.9
$16,402.50
$14,580
Patti Green
Paralegal
$225
$200
14.2
$3,195
$2,840
Tracy Murrell
Paralegal
$225
$200
3.3
$742.50
$660
Joana Turner
Paralegal
$335
$200
14.1
$4,723.50
$2,820
Elvin Ramos
Special Assistant
$250
$200
0.7
$175
$140
Jeffrey Davis
Admin. Support
$240
$200
1.8
$432
$360
Edwin Garrison
Senior Associate
$645
$545
15.3
$9,868.50
$8,338.50
TOTAL FEES
$384,424.36
$378,623.86
Plaintiff also requests $5,891.07 in costs. Brandofino Decl. ¶ 13. Of this amount, $400 is the fee charged by the Court for filing this action, $158 is for the UCC filing fee, $4,734.25 is for service costs, and $598.82 is for title searches. Id. Plaintiff's counsel documented its accrued costs and submitted documentation substantiating these costs. See Brandofino Reply Decl. ¶¶ 711, Exs. D-H. Accordingly, I recommend that Plaintiff be awarded $5,891.07 in costs.
CONCLUSION
For the reasons set forth above, I respectfully recommend that the Court enter the Order & Judgment submitted by Plaintiff at ECF No. 241, with the following modifications: (1) unpaid principal on the loan of $15,000,000; (2) accumulated interest at the non-default rate of $1,853,467.92; (3) accumulated interest at the default rate, beginning on June 1, 2018, through February 6, 2023; (4) $7,622.11 in late fees; (5) $122,500 in special servicing fees; (6) $1,357,834.89 in taxes and insurance advances; (7) $426,578.19 in property protective advances; (8) $1,200 in payoff processing fees; (9) $85.23 in UCC filing fees; (10) $150,000 in a yield maintenance premium; and (11) $249,410.61 in interest on advances. Additionally, I recommend an award of attorneys' fees in the amount of $5,110.56, which represents the difference between the total amount of attorneys' fees I recommend Plaintiff be awarded ($378,623.86) and the attorneys' fees Plaintiff paid and included in the amount of “Property Protective Advances” sought ($373,513.30). I also recommend an award of costs in the amount of $5,891.07. Finally, I recommend the appointment of Mr. Lagowitz as referee for the sale of the property.
SO ORDERED.
PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file any objections. See also Fed. R. Civ. P. 6(a), 6(b), 6(d). A party may respond to any objections within 14 days after being served. Any objections and responses shall be filed with the Clerk of the Court. Any request for an extension of time to file objections or responses must be directed to the Honorable John G. Koeltl. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72; Fed.R.Civ.P. 6(a), 6(b), 6(d); Thomas v. Arn, 474 U.S. 140 (1985); Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010).