FILED: NEW YORK COUNTY CLERK 11/12/2015 09:40 AM INDEX NO. 653741/2015 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 11/12/2015 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ---------------------------------------------------------------------X APPALOOSA INVESTMENT L.P. I, PALOMINO FUND LTD., THOROUGHBRED FUND L.P. and THOROUGHBRED MASTER LTD., -against- Plaintiffs, CWCAPITAL ASSET MANAGEMENT LLC and WELLS FARGO BANK, N.A., Defendants. ---------------------------------------------------------------------X Index No. Date of Purchase: SUMMONS Plaintiffs designate New York County as the place of trial TO THE ABOVE NAMED DEFENDANTS. YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance, on the Plaintiff's attorney within 20 days after the service of this summons, exclusive of the day of service (or within 30 days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint. The basis for venue designated is CPLR 503, because Defendant CWCapital Asset Management LLC is registered to do business in New York and its principal New York office is located in New York County, and CPLR 507, because this action affects real property that is located in New York County.
DATED: New York, New York November 12, 2015 LOWENSTEIN SANDLER LLP By: /s/ Lawrence M. Rolnick Lawrence M. Rolnick Marc B. Kramer Michael J. Hampson 1251 Avenue of the Americas New York, New York 10020 (212) 262-6700 Attorneys for Plaintiffs TO: CWCapital Asset Management LLC 555 5th Avenue, 5th Floor New York, NY 10017 Wells Fargo Bank, N.A. 9062 Old Annapolis Road Columbia, MD 21045-2-
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -------------------------------------------------------------------------X APPALOOSA INVESTMENT L.P. I, PALOMINO FUND LTD., THOROUGHBRED FUND L.P. and THOROUGHBRED MASTER LTD., -against- Plaintiffs, VERIFIED COMPLAINT CWCAPITAL ASSET MANAGEMENT LLC and WELLS FARGO BANK, N.A., Defendants. -------------------------------------------------------------------------X Plaintiffs Appaloosa Investment L.P. I, Palomino Fund Ltd., Thoroughbred Fund L.P., and Thoroughbred Master Ltd. (collectively, Plaintiffs ), acting by and through their attorneys Lowenstein Sandler LLP, for their Complaint against Defendants CWCapital Asset Management LLC ( CWC ) and Wells Fargo Bank, N.A. ( Wells Fargo and, collectively with CWC, Defendants ), hereby allege as follows. NATURE OF THE ACTION 1. Plaintiffs bring this action to prevent CWC from unlawfully absconding with more than one-half billion dollars in proceeds from a real estate transaction. Under the relevant contracts, those specific funds are required to be deposited into segregated accounts and used to offset losses suffered by Plaintiffs and other investors in the commercial mortgage backed securities ( CMBS ) trusts that hold the senior loan secured by the real estate. 2. Plaintiffs are investors in Wachovia Bank Commercial Mortgage Trust 2007-C30 (the C30 Trust ), COBALT CMBS Commercial Mortgage Trust 2007-C2 (the C2 Trust ), Wachovia Bank Commercial Mortgage Trust 2007-C31 (the C31 Trust ), ML-CFC Commercial Mortgage Trust 2007-5 (the 5 Trust ), and ML-CFC Commercial Mortgage Trust
2007-6 (the 6 Trust and, collectively, with the C30 Trust, the C2 Trust, the C31 Trust and the 5 Trust, the Stuy Town CMBS Trusts ). 3. Wells Fargo is the Paying Agent and Master Servicer of the C30 Trust, and CWC is the Special Servicer of the C30 Trust. As Special Servicer, CWC services mortgage loans held by the C30 Trust where the borrower is behind in its payment. CWC is also responsible for selling properties securing loans held by the C30 Trust where the borrower has defaulted and the C30 Trust has obtained title to the properties. As Paying Agent, Wells Fargo is responsible for establishing a Gain-on-Sale Reserve Account in which to deposit gains from the sale of such properties (the Gain-on-Sale Proceeds ), and distributing such gains to investors to offset losses suffered on other properties held by the C30 Trust. 4. One of the C30 Trust s most significant assets is a $1.5 billion-share of a $3 billion senior loan (the Senior Loan ) secured by a mortgage on the Peter Cooper Village & Stuyvesant Town ( Stuy Town ) in New York City. The remaining $1.5 billion of the Senior Loan is owned by the other Stuy Town CMBS Trusts. The C30 Trust is Lead Lender on the Senior Loan, and has the exclusive right and obligation to administer the Senior Loan and to enforce the loan documents on behalf of the Stuy Town CMBS Trusts. 5. In 2010, after Stuy Town s owners defaulted on their payments on the Senior Loan, CWC, as Special Servicer of the C30 Trust, obtained a foreclosure judgment against Stuy Town and then, in 2014, transferred the property through a deed in lieu of foreclosure to special purpose entities designed to hold Stuy Town for the benefit of the Stuy Town CMBS Trusts. 6. In late October 2015, Blackstone announced that it has agreed to purchase Stuy Town for $5.3 billion. According to industry analysts, the sale will result in Gain-on-Sale -2-
Proceeds on the Senior Loan of in excess of $1.1 billion. The recovery of these amounts is critical to investors in the Stuy Town CMBS Trusts. The C30 Trust, for example, has already suffered realized losses of almost $130 million, and is likely to suffer future realized losses on other properties. Under the relevant contractual agreements, the Gain-on-Sale Proceeds from the sale of Stuy Town must be used to offset these realized losses and the remainder must be kept in the Gain-on-Sale Reserve Accounts to offset future realized losses suffered by the Stuy Town CMBS Trusts on other properties. 7. CWC will not go uncompensated for its work in servicing the Senior Loan and selling Stuy Town. Under the governing contracts, CWC is entitled to a Special Servicing Fee of $7.5 million per year for nearly six years while the Senior Loan was in Special Servicing (almost $45 million), and a Liquidation Fee of $15 million for the sale of Stuy Town. 8. However, CWC is reportedly seeking to obtain more than one-half billion dollars in additional funds to which it is not contractually entitled. Specifically, it has been reported that CWC claims that it is entitled to recover approximately $566 million in default interest that has purportedly run on the Senior Loan at a rate of 3% since 2010. If CWC is permitted to collect and retain this default interest, it will constitute a significant and unprecedented windfall to CWC and will deplete the amount of Gain-on-Sale Proceeds that should otherwise be deposited into the Gain-on-Sale Reserve Accounts of the Stuy Town CMBS Trusts for the benefit of their investors. 9. CWC is contractually prohibited from collecting the purported $566 million in default interest. While in some circumstances the Special Servicer is permitted to collect nominal Penalty Interest on a defaulted mortgage loan as additional servicing compensation, it is never entitled to collect such Penalty Interest and retain it for itself when the -3-
sale of the mortgaged property results in a gain on sale. Indeed, a contrary interpretation of the contract would thwart the purpose of the gain-on-sale provision, and allow CWC to receive huge, windfall sums as an agent of the C30 Trust while the beneficiaries of the Stuy Town CMBS Trusts are left suffering hundreds of millions of dollars in losses. 10. Indeed, according to one expert interviewed by the Wall Street Journal, CWC s claim to the more than one-half billion dollars in default interest is unprecedented: Comb through structured finance there s nothing like this.... That s a pretty flippin crazy amount of money. (Emphasis added). 11. Even if the Court were to conclude that the contracts permit CWC to deduct default interest from the Gain-on-Sale Proceeds generated by the sale of Stuy Town (which they clearly do not), CWC is not entitled to the amount of default interest it is claiming. Pursuant to a Foreclosure Judgment issued by the United States District Court for the Southern District of New York in the matter Bank of America, N.A. v. PCV ST Owner LP, No. 10-cv-1178, default interest stopped accruing on the Senior Loan as of June 21, 2010. Thus, the only default interest to which CWC could possibly state a claim is the default interest set forth in the Foreclosure Judgment, which totaled approximately $38.2 million. 12. Plaintiffs have attempted on multiple occasions to contact CWC, Wells Fargo, and the Trustee of the C30 Trust, inquiring about how those parties intend to disburse the sale proceeds of a sale of Stuy Town. Plaintiffs inquiries, however, have been repeatedly deflected or ignored by Defendants and the Trustee. 13. Plaintiffs therefore bring this action seeking a declaration of Defendants obligations under the governing agreements. Specifically, the Court should declare that CWC is required to pay the Gain-on-Sale Proceeds in connection with the sale of Stuy Town to the -4-
Paying Agent without deducting any default interest, and that the Paying Agent must deposit the Gain-on-Sale Proceeds into the Gain-on-Sale Reserve Accounts to offset past and future realized losses suffered by investors in the Stuy Town CMBS Trusts in accordance with the governing agreements. In the alternative, the Court should declare that any default interest that CWC is permitted to deduct from the Gain-on-Sale Proceeds should be limited to the amounts set forth in the Foreclosure Judgment, which stopped the running of default interest as of June 21, 2010. 14. Plaintiffs also seek injunctive relief to enjoin CWC from absconding with the more than one-half billion dollars in purported default interest from the proceeds of the sale of Stuy Town. If this Court does not issue injunctive relief, Plaintiffs will be irreparably harmed. On information and belief, CWC is owned by an investment fund that paid only about $300 million to acquire CWC in 2010. If CWC is permitted to collect more than one-half billion dollars in default interest from the sale of Stuy Town, it will, on information and belief, pass that windfall through to its investors, leaving the Stuy Town CMBS Trusts with an almost $600- million breach of contract claim against an entity that is only worth $300 million. Thus, it is imperative that CWC be prevented from absconding with the more than one-half billion dollars in purported default interest because the investors in the Stuy Town CMBS Trusts may never recover fully from CWC if it is not stopped. 15. Accordingly, Plaintiffs seek preliminary injunctive relief during the course of this litigation to maintain the status quo, and permanent injunctive relief to disburse specific funds in accordance with the terms of the PSA. Upon the sale of Stuy Town, any amounts to which CWC claims it is entitled as default interest should be deposited into an escrow account with an independent third party acceptable to Plaintiffs serving as escrow agent. Upon the -5-
conclusion of this litigation, the escrow agent should be directed to remit such funds to the Paying Agent for deposit into the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts. 16. To be clear, Plaintiffs are not seeking to enjoin the $5.3 billion dollar sale of Stuy Town. On the contrary, Plaintiffs desire for the sale to proceed, but CWC should not be permitted to flee with a windfall of more than one-half billion dollars in default interest purportedly owed on the Senior Loan that is required to be used to offset losses suffered by investors in the Stuy Town CMBS Trusts. PARTIES 17. Plaintiff Appaloosa Investment L.P. I is a Delaware limited partnership that is the beneficial owner of several certificates issued by the C30 Trust, as well as certificates issued by the other Stuy Town CMBS Trusts. 18. Plaintiff Palomino Fund Ltd. is a British Virgin Islands limited company that is the beneficial owner of several certificates issued by the C30 Trust, as well as certificates issued by the other Stuy Town CMBS Trusts. 19. Plaintiff Thoroughbred Fund L.P. is a Delaware limited partnership that is the beneficial owner of several certificates issued by the C30 Trust, as well as certificates issued by the other Stuy Town CMBS Trusts. 20. Plaintiff Thoroughbred Master Ltd. is a British Virgin Islands limited company that is the beneficial owner of several certificates issued by the C30 Trust, as well as certificates issued by the other Stuy Town CMBS Trusts. 21. Defendant CWCapital Asset Management LLC, on information and belief, is a Massachusetts limited liability company with its principal place of business in in the State of -6-
Maryland. CWC is registered to do business in New York and maintains an office in New York County. CWC serves as Special Servicer for the C30 Trust. 22. Defendant Wells Fargo Bank, N.A., on information and belief, is a national banking association with its principal place of business in the State of North Carolina. Wells Fargo maintains multiple bank branches in New York County. Wells Fargo serves as Master Servicer, Paying Agent, and Certificate Administrator for the C30 Trust. JURISDICTION AND VENUE 23. This Court has jurisdiction over this proceeding pursuant to (i) CPLR 301 because Defendants have engaged in a continuous and systematic course of doing business in New York, (ii) CPLR 302(a)(1) because Defendants at all relevant times transacted business in New York and the causes of action asserted herein arise out of those transactions, and (iii) CPLR 302(a)(4) because Defendants own, use or possess real property situated in the State of New York. 24. Venue is proper in this Court pursuant to (i) CPLR 503 because Defendant CWC is registered to do business in New York and its principal New York office is located in New York County, and (ii) CPLR 507 because this action affects real property that is located in New York County. FACTUAL ALLEGATIONS I. The C30 Trust and Plaintiffs Interest Therein 25. The C30 Trust is a New York common law trust created by Wachovia Bank in 2007 as a securitization vehicle to sell investment interests in a pool of commercial mortgage loans. -7-
26. The C30 Trust was established pursuant to a Pooling and Servicing Agreement (the PSA ) dated and effective as of March 1, 2007, among Wachovia Commercial Mortgage Securities, Inc. as Depositor, Wachovia Bank, National Association as Master Servicer, CWC as Special Servicer, and Wells Fargo as Trustee. A true and correct copy of the PSA is attached hereto as Exhibit A. Following the merger of Wells Fargo and Wachovia in 2008, Wells Fargo became Master Servicer of the C30 Trust, and Bank of America, N.A. became Trustee. In 2010, Bank of America sold its securitization business to U.S. Bank National Association, which then became Trustee of the C30 Trust. 27. The C30 Trust s assets include several hundred mortgage loans secured by some of the most prominent commercial properties around the country and, in particular, in New York City, including Five Times Square, 9 West 57th Street and Stuy Town. 28. To finance the C30 Trust s purchase of these assets, the C30 Trust issued approximately $7 billion of certificates that were offered to investors. 29. The certificates issued by the C30 Trust are broken into various classes. As of the date of filing, Plaintiffs collectively are the largest Certificateholders of the F through H classes of certificates. 30. The payments of principal and interest received by the C30 Trust from the borrowers of the mortgage loans held by the C30 Trust are distributed to the Certificateholders in accordance with the distribution priorities set forth in the PSA. 31. The payments made by borrowers on the mortgage loans are collected by either Wells Fargo, as Master Servicer, or CWC, as Special Servicer. Generally speaking, the Master Servicer services loans where the borrower is making timely and complete payments under the terms of the loan documents. The Special Servicer, on the other hand, is responsible -8-
for servicing loans where the borrower falls behind in its payments and defaults on its obligations. 32. The terms of the Special Servicer s compensation are set forth in the PSA. The primary forms of compensation for the Special Servicer are the Special Servicing Fee, the Workout Fee, and the Liquidation Fee. Under the terms of the PSA, the Special Servicing Fee is equal to 0.25% of the principal balance of a loan that is in special servicing. 33. The Special Servicer can also earn (i) a Workout Fee in the event that it is able to convert a mortgage loan subject to special servicing into a performing loan, and (ii) a Liquidation Fee in the event the property securing a special serviced loan is sold and proceeds are remitted to the C30 Trust. 34. Generally, the Workout Fee is equal to 1% of principal and interest payments made by the borrower on a special servicing loan that has been converted into a performing loan. The Liquidation Fee is generally equal to 1% of the cash proceeds received by the C30 Trust on a liquidated loan. 35. In addition to the Special Servicing Fee, the Workout Fee and the Liquidation Fee, under certain circumstances the Special Servicer is permitted to keep some nominal amounts it collects on defaulting mortgage loans. This includes the additional Penalty Interest that is charged to a borrower of a defaulted mortgage loan. The Special Servicer is not entitled to retain these amounts, however, when the Special Servicer obtains a gain on the sale of a foreclosed property, as described in more detail below. 36. When a borrower fails to make timely payments on a mortgage loan, those losses are passed through to the Certificateholders in accordance with terms of the PSA. If a borrower defaults on a mortgage loan and the C30 Trust liquidates the property, recouping less -9-
than the outstanding principal and interest payments left on the loan, then the C30 Trust recognizes a realized loss on the asset. That realized loss is passed through to the Certificateholders in accordance with the terms of the PSA, resulting in an investment loss to Certificateholders. 37. As of October 13, 2015, the C30 Trust has suffered almost $130 million in realized losses that have been passed onto Certificateholders. Moreover, on information and belief, further realized losses have been delayed by CWC in its attempt to maintain control of Stuy Town. 38. On rare occasions, however, the C30 Trust actually achieves a gain from the sale of a property securing a non-performing loan. That is, the C30 Trust is able to sell the property for more than the amounts owed by the borrower to the C30 Trust. In such circumstances, the gain on sale is used to offset past or future realized losses suffered by the Certificateholders on other trust assets. 39. To effectuate the gain-on-sale concept, Section 3.04(e) of the PSA requires the Paying Agent to establish a segregated Gain-on-Sale Reserve Account and to deposit into that account any Gain-on-Sale Proceeds received from the Special Servicer. 40. Gain-on-Sale Proceeds are defined in Section 1.01 of the PSA as the excess of (i) the Liquidation Proceeds net of any Liquidation Expenses over (ii) the Purchase Price. Liquidation Proceeds are the proceeds received in connection with the liquidation of a mortgaged property, Liquidation Expenses are the out-of-pocket expenses incurred by the C30 Trust in liquidating the mortgaged property, and the Purchase Price is generally equal to the outstanding principal balance of the mortgage loan, plus any accrued but -10-
unpaid interest on the mortgage loan, plus any servicing advances made on the mortgage loan that are owed to the Master Servicer or Special Servicer. 41. Pursuant to Section 4.01(l) of the PSA, any amounts deposited into the Gain-on-Sale-Reserve Account are required to be distributed by the Paying Agent to reimburse Certificateholders for prior realized losses (or held as a reserve for future realized losses). 42. To illustrate the gain-on-sale concept, suppose the C30 Trust owns Mortgage Loan A secured by a mortgage on Property A. The owner of Property A and borrower of Mortgage Loan A ceases making payments on Mortgage Loan A, and the loan goes into default. The servicing of Mortgage Loan A is then transferred to the Special Servicer. The Special Servicer obtains a foreclosure judgment and sells Property A at auction for $100 million. The Liquidation Expenses associated with the foreclosure and sale including the Special Servicer s Liquidation Fee are $3 million. At the time of the sale, the outstanding principal balance of the loan, the accrued but unpaid interest, and the servicing advances on Mortgage Loan A, equal $90 million. Thus, the Gain-on-Sale Proceeds from the liquidation of Mortgage Loan A are $7 million ($100 million in Liquidation Proceeds, less the $3 million in Liquidation Expenses, less the Purchase Price of $90 million). The Paying Agent is required to deposit the $7 million into the Gain-on-Sale Reserve Account and distribute that amount to offset any realized losses suffered by Certificateholders in accordance with the terms of the PSA. II. Stuy Town 43. The largest asset held by the C30 Trust is a $1.5 billion piece of a $3 billion senior loan secured by a mortgage on Stuy Town. The C30 Trust s share of the Senior Loan represents approximately 20% of the C30 Trust s total assets. -11-
44. Stuy Town is an approximately 80-acre piece of land on the East Side of Manhattan that contains scores of buildings and thousands of apartments, many of which are rent-stabilized. 45. In 2006, Stuy Town was purchased by special purpose entities (collectively, the Borrowers ) sponsored by Tishman Speyer and Blackrock Realty Advisors (collectively, the Sponsors ). The total purchase price paid for Stuy Town was $5.4 billion. The purchase price was financed through a $3 billion senior loan secured by a mortgage on Stuy Town (the Senior Loan ), eleven mezzanine loans totaling $1.4 billion secured by a lien on the equity interests in certain of the Borrowers (collectively the Mezzanine Loans and each a Mezzanine Loan ), and $1 billion in cash provided by the Sponsors. 46. The Senior Loan was split into six promissory notes, which were sold to the five Stuy Town CMBS Trusts. The relative rights of the Stuy Town CMBS Trusts with respect to the Senior Loan are set forth in an Amended and Restated Co-Lender Agreement dated as of March 12, 2007 (the Co-Lender Agreement ). A true and correct copy of the Co-Lender Agreement is attached hereto as Exhibit B. The Co-Lender Agreement provides that, among other things, the C30 Trust is the Lead Lender responsible for servicing and administering the Senior Loan. In the event that the promissory note relating to the C30 Trust s share of the Senior Loan is declared to be in default, the Controlling Class Representative of the C30 Trust has the option to purchase the other shares of the Senior Loan. 47. Because of the enormous size of the C30 Trust s share of the Stuy Town Senior Loan, the PSA contains special provisions concerning the fees owed to the Special Servicer with respect to the Senior Loan. Instead of its typical Workout Fee of 1% of principal and interest payments made by the borrower on a special servicing loan that has been converted -12-
into a performing loan, CWC s Workout Fee for the Stuy Town Senior Loan is capped at the lesser of (i) 0.5% of principal and interest payments made by the borrower on the Senior Loan if it is converted from a special servicing loan into a performing loan, or (ii) $15 million. Similarly, instead of its typical Liquidation Fee of 1% of the cash proceeds received by the C30 Trust on a liquidated loan, CWC s Liquidation Fee for the Senior Loan is capped at the lesser of (i) 0.5% of the cash proceeds received by the C30 Trust from the liquidation of the Senior Loan, or (ii) $15 million. 48. The PSA thus evidences the parties intent that CWC cannot reap a windfall in fees from actions taken with respect to the Senior Loan as a result of the enormous size of that loan. 49. In 2010, the Borrowers fell behind on their interest payments due on the Senior Loan, reportedly because they were unable to raise rents at Stuy Town as quickly as they had planned to. The Senior Loan was transferred into special servicing, and on or about January 8, 2010, CWC sent a notice of event of default to the Borrowers. On or about January 29, 2010, after the Borrowers failed to cure the event of default, CWC accelerated the unpaid loan debt. As a result, the full outstanding principal balance of the Senior Loan, plus all accrued and unpaid interest thereon, immediately became due and payable. 50. On February 16, 2010, CWC filed a foreclosure action in the United States District Court for the Southern District of New York captioned Bank of America, N.A. v. PCV ST Owner LP, No. 10-cv-1178. On June 21, 2010, the district court issued a Judgment of Foreclosure and Sale, foreclosing on Stuy Town and appointing a referee to conduct the sale of the property (the Foreclosure Judgment ). A true and correct copy of the Foreclosure Judgment is attached hereto as Exhibit C. -13-
51. The district court computed that the amount owed on the Senior Loan was $3,666,734,464.70, which represented: (1) the unpaid principal balance of $3 billion; (2) plus interest of $48,225,000 through April 7, 2010; (3) plus default interest through April 7, 2010 of $22,500,000; (4) plus default interest on unpaid interest of $220,423.67 through April 7, 2010; (5) plus per diem interest on principal and unpaid interest of $11,916,443.70 between April 7, 2010, and April 22, 2010; (6) plus yield maintenance charges of $622,110,023.31; (7) plus other charges incurred under the loan documents of $956,427.96; (8) less $39,223,853.94 in cash flow from operations, escrow balances and interest reserves. The court further found that additional interest on the outstanding principal balance and unpaid interest would continue to run at a rate 6.434%, and that default interest on the outstanding principal balance and unpaid interest would continue to run at a rate of 3%, through the date of the Foreclosure Judgment. Thereafter, postjudgment interest would run on the amount of the judgment at the legal rate, but default interest would cease to accrue. 52. The foreclosure sale of Stuy Town did not occur until four years later. Following a series of complex machinations involving the Mezzanine Loans, title to Stuy Town passed to special purpose entities that are nominees to hold Stuy Town on behalf of the Stuy Town CMBS Trusts through a deed in lieu of foreclosure executed in 2014. 53. The holders of six of the most junior Mezzanine Loans filed suit in this Court against the Stuy Town CMBS Trusts, their trustees, CWC, the holders of the three most senior Mezzanine Loans, and the Borrowers, in a case captioned PCVST Mezzco 4, LLC v. Wachovia Bank Commercial Mortgage Trust 2007-C30, No. 652045/2014. That matter has reportedly settled, and was discontinued with prejudice by the parties on October 14, 2015. -14-
54. On October 20, 2015, it was publicly announced that Blackstone Group LP ( Blackstone ) and Ivanhoe Cambridge Inc. ( Ivanhoe ) agreed to purchase Stuy Town for $5.3 billion. The exact timeframe for the closing of the transaction was not publicly disclosed. III. CWC s Improper Claim to Default Interest from Stuy Town 55. The proceeds from the sale of Stuy Town will result in a substantial gain on sale to the Stuy Town CMBS Trusts. However, CWC is reportedly improperly planning to take hundreds of millions of dollars from the Certificateholders of the Stuy Town CMBS Trusts in default interest purportedly accumulated since 2010. 56. In connection with the sale of Stuy Town to Blackstone and Ivanhoe, CWC is permitted to receive its Special Servicing Fee and its Liquidation Fee. As described above, CWC s Liquidation Fee is capped at $15 million. On information and belief, CWC s Special Servicing Fee is approximately $45 million. 57. However, according to multiple reports, CWC is claiming that it is entitled to an additional approximately $566 million in default interest that has purportedly accrued on the Senior Loan since 2010. Thus, CWC believes that it should receive a windfall of more than one-half billion dollars, rather than that amount being used to offset the Stuy Town CMBS Trusts prior and future realized losses. 58. Not surprisingly, the market has reacted with astonishment to CWC s claim that it is entitled to more than one-half billion dollars in default interest. According to an industry expert interviewed by the Wall Street Journal on November 3, 2015, CWC s claim is unprecedented: The sum is surprising for what is essentially a service provider that contracts with investors to restructure loans and managed foreclosed properties, said Edward Shugrue, chief executive of Talmage LLC, a bond manager who invests in commercialproperty debt but doesn t own bonds in tied to Stuyvesant Town. -15-
It s the mother lode, Mr. Shugrue said. Comb through structured finance there s nothing like this.... That s a pretty flippin crazy amount of money. 59. Given that CWC s reported claim to $566 million in default interest clearly violates the PSA, as explained below, Plaintiffs have repeatedly contacted the C30 Trustee and the Paying Agent to inquire how they intend to distribute the proceeds of the sale of Stuy Town. 60. Plaintiffs have also repeatedly reached out to CWC, only to be ignored or told to contact the C30 Trustee or Paying Agent. 61. On August 22, 2014, Plaintiffs, through counsel, sent letters to the C30 Trustee and the Paying Agent requesting that they provide Plaintiffs with information concerning how the C30 Trust intends to distribute amounts from the sale of Stuy Town. True and correct copies of these letters are attached hereto as Exhibit D. 62. In response to these letters, the Trustee directed Plaintiffs to the Paying Agent to handle any investor inquiries. Despite several follow-up communications to the Paying Agent, Plaintiffs requests for information have been completely ignored and no information has been provided other than a cursory response. True and correct copies of this e-mail correspondence is attached hereto as Exhibit E. 63. Having received no substantive response from the Trustee or the Paying Agent, and with the impending sale of Stuy Town to Blackstone and Ivanhoe, on November 3, 2015, Plaintiffs sent another letter to the Trustee and the Paying Agent requesting: (1) an accounting of the exact intended distribution of proceeds from the sale of Stuy Town, including what amounts are to be distributed to CWC; and (2) confirmation of the exact amount of principal and interest and all other advances to CWC. A true and correct copy of this letter, excluding attachments, is attached hereto as Exhibit F. -16-
64. As of the date of filing, Plaintiffs have received no substantive response from either the Trustee or the Paying Agent to their November 3, 2015 letter. IV. CWC s Claim to Default Interest Violates the Plain Terms of the PSA 65. The anticipated distribution based on reports of $566 million in default interest to CWC in connection with the sale of Stuy Town violates the plain terms of the PSA. 66. Section 3.04(e) of the PSA requires the Paying Agent to establish a Gainon-Sale Reserve Account for the benefit of the Certificateholders whenever the C30 Trust recognizes a gain on sale from a foreclosed property. Specifically: The Paying Agent, on behalf of the Trustee for the benefit of the Certificateholders, shall establish (upon notice from Special Servicer of an event occurring that generates Gain-on-Sale Proceeds) and maintain the Gain-on-Sale Reserve Account in the name of the Paying Agent on behalf of the Trustee for the benefit of the Certificateholders. The Gain-on-Sale Reserve Account shall be maintained as a segregated account, separate and apart from trust funds for mortgage pass-through certificates of other series administered by the Paying Agent and other accounts of the Paying Agent. Upon the disposition of any REO Property in accordance with Section 3.09 or Section 3.18, the Special Servicer will calculate the Gain-on-Sale Proceeds, if any, realized in connection with such sale and remit such funds to the Paying Agent for deposit into the Gain-on-Sale Reserve Account. 67. The PSAs for the other Stuy Town CMBS Trusts contain identical Gainon-Sale Reserve Account provisions, although in the case of the C2 Trust, the segregated account is referred to as the Excess Liquidation Proceeds Account. True and correct copies of the relevant provisions of the PSAs from the other Stuy Town CMBS Trusts are attached hereto as Exhibits G through J. For purposes of this Complaint, references to the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts includes the C2 Trust s Excess Liquidation Proceeds Account. -17-
68. Thus, when the Special Servicer sells Stuy Town, it must determine whether any Gain-on-Sale Proceeds (as defined in the PSA) are being realized from the sale and, if any exist, remit them to the Paying Agent to be deposited into the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts. part, as: 69. Gain-on-Sale Proceeds is defined in Section 1.01 of PSA as: With respect to any Mortgage Loan, the excess of (i) Liquidation Proceeds of the Mortgage Loan or related REO Property net of any related Liquidation Expenses, over (ii) the Purchase Price for such Mortgage Loan on the date on which such Liquidation Proceeds were received. 70. Liquidation Proceeds is defined in Section 1.01 of the PSA, in pertinent All cash amounts... received by the Master Servicer or the Special Servicer in connection with:... (ii) the liquidation of a Mortgaged Property or other collateral constituting security for a Defaulted Mortgage Loan, through trustee s sale, foreclosure sale, REO Disposition or otherwise, exclusive of any portion thereof required to be released to the related Mortgagor in accordance with applicable law and the terms and conditions of the related Mortgage Note and Mortgage.... 71. Thus, all cash proceeds received by CWC from the sale of Stuy Town are deemed to be Liquidation Proceeds under the PSA. 72. While not expressly defined in the PSA, the ordinary meaning of the term Liquidation Expenses is limited to out-of-pocket expenses, such as appraisal and attorneys fees, incurred in connection with consummating the sale of the property. Thus, under Section 3.04(e) of the PSA, the Paying Agent must deposit into the Stuy Town CMBS Trusts Gain-on- Sale Reserve Accounts the cash received from the sale of Stuy Town less out-of-pocket expenses incurred in connection with consummating the sale of Stuy Town, less the Purchase Price of the Senior Loan. -18-
73. Purchase Price is defined in Section 1.01 of the PSA as: With respect to any Mortgage Loan or REO Loan to be purchased by a Mortgage Loan Seller pursuant to the applicable Mortgage Loan Purchase Agreement, by the Majority Subordinate Certificateholder, the Companion Holder or the Special Servicer as described in Section 3.18(c), 3.18(d) or 3.18(e), or by the Depositor, the Special Servicer, the Majority Subordinate Certificateholder or the Master Servicer pursuant to Section 9.01, a cash price equal to the outstanding principal balance of such Mortgage Loan or REO Loan, as of the date of purchase, together with (a) all accrued and unpaid interest on such Mortgage Loan or REO Loan at the related Mortgage Rate to but not including the Due Date in the Collection Period of purchase plus any accrued interest on P&I Advances made with respect to such Mortgage Loan, (b) all related and unreimbursed Servicing Advances plus any accrued and unpaid interest thereon, (c) any reasonable costs and expenses, including, but not limited to, the cost of any enforcement action, incurred by the Master Servicer, the Special Servicer or the C30 Trust Fund in connection with any such purchase by a Mortgage Loan Seller (to the extent not included in clause (b) above) and (d) any other Additional Trust Fund Expenses in respect of such Mortgage Loan (including any Additional Trust Fund Expenses previously reimbursed or paid by the C30 Trust Fund but not so reimbursed by the related Mortgagor or other party or from Insurance Proceeds or condemnation proceeds or any other collections in respect of the Mortgage Loan or the related Mortgaged Property from a source other than the C30 Trust Fund), or in the case of any Loan Pair, the purchase price specified in the related Intercreditor Agreement; provided that the Purchase Price shall not be reduced by any outstanding P&I Advance. 74. A Loan Pair is defined in Section 1.01 as [c]ollectively, any Co-Lender Loan and its related Companion Loan(s). The share of the Senior Loan held by the C30 Trust is defined in the PSA as a Co-Lender Loan, and the shares of the Senior Loan held by the other Stuy Town CMBS Trusts are defined as Companion Loans in the PSA. Thus, the Senior Loan is a Loan Pair under the PSA. 75. Because the Senior Loan is a Loan Pair under the PSA, the applicable purchase price is defined in the related Intercreditor Agreement, which is the Co-Lender -19-
Agreement. Section 3(b) of the Co-Lender Agreement sets forth the purchase price at which the Controlling Class Representative of the C30 Trust may purchase the other Stuy Town CMBS Trusts shares of the Senior Loan in the event that a default is declared on the C30 Trust s share of the Senior Loan. In doing so, the Co-Lender Agreement refers back to the Purchase Price in the PSA. 76. Thus, the Co-Lender Agreement s definition of Purchase Price includes the outstanding principal balance, all accrued and unpaid interest plus any accrued interest on principal and interest advances, servicing advances plus any accrued and unpaid interest thereon, any reasonable costs and expenses, and any other Additional Trust Fund Expenses. 77. None of the add-ons to the calculation of a loan s Purchase Price includes default interest. Accrued interest is limited to interest that has accrued at the Mortgage Rate, which is the rate set forth in the mortgage documents, and does not include default interest. P&I Advances have nothing to do with default interest. Servicing Advances consist of hard, out-of-pocket expenses incurred by the Special Servicer in administering an REO Property, which would not include default interest accruing against the borrower. The costs of an enforcement action to effectuate repurchase of the mortgage loan by its original seller are irrelevant where the Purchase Price is being calculated for purposes of determining Gain-on-Sale Proceeds from the sale of an REO Property. Finally, Additional Trust Fund Expenses encompass a wide variety of out-of-pocket expenses incurred by the C30 Trust, including the ordinary course Special Servicing Fees paid to the Special Servicer, but do not include default interest. 78. Accordingly, upon the sale of Stuy Town, the default interest claimed by CWC is not deducted from the Liquidation Proceeds for purposes of calculating the Gain-on- Sale Proceeds. CWC must remit the entirety of the Gain-on-Sale Proceeds, as calculated under -20-
the terms of the PSA, to Wells Fargo for deposit into the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts, and may not retain any portion of those proceeds for itself. 79. Indeed, this is made abundantly clear by Section 3.18(l) of the PSA: The amount paid for a Defaulted Mortgage Loan... or related REO Property... purchased under this Agreement shall be deposited into the Certificate Account, or if applicable, applied in accordance with the related Intercreditor Agreement (except that portion of any purchase price constituting Gain-on-Sale Proceeds which shall be deposited in the Gain-on-Sale Reserve Account). (Emphasis added). 80. CWC s reported claim to $566 million in default interest is apparently premised on Section 3.11(d) of the PSA, which permits it to retain Penalty Interest it has actually collected as additional servicing compensation under certain circumstances. As an initial manner, CWC has not actually collected the default interest to which it is now attempting to stake a claim. The Borrowers did not pay CWC the default interest that allegedly accrued on the Senior Loan while that loan was in special servicing. Rather, CWC is reportedly planning to collect the claimed default interest from the proceeds of the sale of Stuy Town, which is not permitted by Section 3.11(d). 81. Moreover, nothing in Section 3.11(d) permits the Special Servicer to withhold amounts claimed as additional servicing compensation from the funds that are required to be deposited in the Gain-on-Sale Reserve Account. Indeed, none of the add-ons to the calculation of the Senior Loan s Purchase Price includes the default interest claimed by CWC as additional servicing compensation. 82. Nor may CWC or Wells Fargo withdraw default interest from the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts after the proceeds of the sale have been -21-
deposited. To the contrary, the funds in those accounts are to be used exclusively for the purpose of reimbursing certain Certificateholders for realized losses incurred by their respective tranches. 83. Section 4.01(l) of the PSA provides that the Paying Agent shall withdraw amounts from the Gain-on-Sale Reserve Account and shall distribute such amounts to reimburse the Holders of each Class of Sequential Pay Certificates... up to an amount equal to all Realized Losses and Additional Trust Fund Expenses, if any, previously deemed allocated to such Classes and unreimbursed after application of the Available Distribution Amount for such Distribution Date. If any funds are remaining in the Gain-on-Sale Reserve Account after such distributions are made, the residue shall be applied to offset future Realized Losses and Additional Trust Fund Expenses and, upon the ultimate termination of the trust, are to be distributed to certain Certificateholders. 84. Indeed, it would be commercially unreasonable to allow CWC to retain the more than one-half billion dollars in purported default interest. The Stuy Town CMBS Trusts are structured so that the losses incurred on the mortgage loans held by those trusts are borne by the Certificateholders. Thus, when the trusts achieve an unanticipated gain on a nonperforming loan, that unanticipated gain must be passed through to Certificateholders to offset the past losses they have suffered and the future losses they will suffer, and may be not collected by the Special Servicer as a windfall. 85. CWC is clearly acting in furtherance of its own interest at the expense of other Certificateholders. In addition to acting as Special Servicer, on information and belief, CWC indirectly holds certificates in the bottom tranches of the Stuy Town CMBS Trusts that have already suffered significant realized losses. CWC s claim to the one-half billion dollars of default interest will drastically reduce the Gain-on-Sale Proceeds paid to the Stuy Town CMBS -22-
Trusts, which may be sufficient to offset the losses suffered on CWC s certificates but will leave little-to-nothing to offset future losses suffered by other Certificateholders, such as Plaintiffs. 86. In sum, when the sale of Stuy Town generates Gain-on-Sale Proceeds, CWC is not entitled to receive default interest out of the sale proceeds. Instead, CWC must (i) calculate the Gain-on-Sale Proceeds without deducting default interest from the Liquidation Proceeds, (ii) inform the Paying Agent that a Gain-on-Sale Reserve Account must be created (if one has not already been set up) for each Stuy Town CMBS Trust, and (iii) remit the full amount of the Gain-on-Sale Proceeds to the Paying Agent for deposit into the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts. That money then becomes a reserve that is to be used to reimburse certain Certificateholders for realized losses they have incurred (or may incur in the future) because other loans in the trusts have failed to perform (or may fail to perform later). V. Even If Defendants Are Permitted to Deduct Default Interest from the Gain-on-Sale Proceeds Which They Are Not Such Interest Ceased to Accrue After June 21, 2010 87. The PSA clearly prohibits CWC from deducting default interest from the Gain-on-Sale Proceeds. However, even if the PSA did not contain such a prohibition, CWC s calculation of default interest is incorrect. 88. On information and belief, CWC s claim to $566 million in default interest is based on a rate of 3% running from the date of the Foreclosure Judgment. 89. However, the Foreclosure Judgment mandated that default interest would stop running as of June 21, 2010. The amount of default interest under the Foreclosure Judgment through that date is approximately $38.2 million. 90. Thus, the maximum amount of default interest that CWC could claim even though such a claim is improper under the PSA is approximately $38.2 million. -23-
VI. Plaintiffs Will Suffer Irreparable Harm if Defendants Are Not Enjoined from Breaching the PSA 91. Plaintiffs bring this action seeking a declaration of Defendants obligations under the governing agreements as well as an injunction preventing CWC from absconding with more than one-half billion dollars in claimed default interest in connection with the sale of Stuy Town. 92. If this Court does not issue injunctive relief, Plaintiffs will be irreparably harmed. 93. On information and belief, CWC is owned by an investment fund to which CWC will pass through any amounts it receives in connection with the sale of Stuy Town. Thus, if CWC is permitted to take its claimed default interest after the sale closes, that amount will be passed to third parties against whom the Stuy Town CMBS Trusts may have no recourse. 94. If Defendants are not enjoined from paying CWC its claimed default interest in connection with the closing of the sale of Stuy Town, the Stuy Town CMBS Trusts will instead be left with an almost $600-million breach of contract claim against CWC. 95. However, on information and belief, CWC is worth only approximately $300 million dollars. Thus, it is imperative that CWC be prevented from absconding with the more than one-half billion dollars in purported default interest because the Stuy Town CMBS Trusts may never be able to recover fully from CWC if it is not stopped. 96. Accordingly, Plaintiffs seek preliminary injunctive relief during the course of this litigation to maintain the status quo, and permanent injunctive relief to have specific funds disbursed in accordance with the terms of the PSA. Upon the sale of Stuy Town to Blackstone and Ivanhoe, any amounts to which CWC claims it is entitled as default interest should be deposited into an escrow account with an independent third party serving as escrow agent. Upon -24-
the conclusion of this proceeding, the escrow agent should be directed to remit such funds to the Paying Agent for deposit into the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts. 97. Plaintiffs are not seeking to enjoin the $5.3 billion dollar sale of Stuy Town to Blackstone and Ivanhoe. On the contrary, Plaintiffs desire for the sale to proceed, but CWC should not be permitted to flee with a windfall of more than one-half billion dollars in default interest purportedly owed on the Senior Loan that is required to be used to offset losses suffered by investors in the Stuy Town CMBS Trusts. herein. FIRST CAUSE OF ACTION Declaratory Relief 98. Plaintiffs repeat all the foregoing allegations as though fully set forth 99. The PSA is a valid and enforceable agreement. 100. CWC and Wells Fargo are parties to the PSA. 101. Section 3.04(e) of the PSA requires the Paying Agent to establish a Gainon-Sale Reserve Account for the benefit of the Certificateholders whenever the trust recognizes a gain on sale from a foreclosed property. 102. When the Special Servicer sells Stuy Town, it must determine whether any Gain-on-Sale Proceeds are being realized from the sale and, if any exist, remit them to the Paying Agent to be deposited into the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts. 103. Gain-on-Sale Proceeds is defined in Section 1.01 of PSA as: With respect to any Mortgage Loan, the excess of (i) Liquidation Proceeds of the Mortgage Loan or related REO Property net of any related Liquidation Expenses, over (ii) the Purchase Price for such Mortgage Loan on the date on which such Liquidation Proceeds were received. -25-
104. All cash proceeds received by CWC from the sale of Stuy Town are deemed to be Liquidation Proceeds under the PSA. The more than one-half billion dollars of default interest claimed by CWC from the sale of Stuy Town are not Liquidation Expenses under the PSA and are not included in the definition of Purchase Price. 105. Accordingly, upon the sale of Stuy Town, the default interest claimed by CWC is not deducted from the Liquidation Proceeds for purposes of calculating the Gain-on- Sale Proceeds. CWC must remit the entirety of the Gain-on-Sale Proceeds, as calculated under the terms of the PSA, to Wells Fargo for deposit into the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts, and may not retain any portion of those proceeds for itself. 106. Nothing in Section 3.11(d) permits the Special Servicer to withhold amounts claimed as additional servicing compensation from the funds that are required to be deposited in the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts. CWC has not actually collected the default interest to which it is now attempting to stake a claim. The Borrowers did not pay to CWC the default interest that allegedly accrued on the Senior Loan while that loan was in special servicing. Rather, CWC is reportedly planning to collect the claimed default interest from the proceeds of the sale of Stuy Town, which is not permitted by Section 3.11(d). Moreover, none of the add-ons to the calculation of the Senior Loan s Purchase Price includes the default interest claimed by CWC as additional servicing compensation. 107. Nor may CWC or Wells Fargo withdraw default interest from the Stuy Town CMBS Trusts Gain-on-Sale Reserve Accounts after the proceeds of the sale have been deposited. To the contrary, the funds in those accounts are to be used exclusively for the purpose of reimbursing certain Certificateholders for realized losses incurred by their respective tranches. -26-