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Life Ins. Fund Elite, LLC v. Hamburg Commercial Bank AG
Life Ins. Fund Elite, LLC v Hamburg Commercial Bank AG 2024 NY Slip Op 30014(U) January 3, 2024 Supreme Court, New York County Docket Number: Index No. 153100/2023 Judge: Melissa A. Crane Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.
INDEX NO. 153100/2023 NYSCEF DOC. NO. 49 RECEIVED NYSCEF: 01/03/2024
SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. MELISSA A. CRANE PART 60M Justice ----------------------------------------------------------------- ----------------X INDEX NO. 153100/2023 LIFE INSURANCE FUND ELITE, LLC., MOTION DATE 09/12/2023 Plaintiff, MOTION SEQ. NO. 002 - V -
HAMBURG COMMERCIAL BANK AG, CERBERUS EUROPEAN CAPITAL ADVISORS, LLP., PROMONTORIA DECISION + ORDER ON HOLDING 260 BV, MOTION
Defendant. ------------------------------------------------------------------- --------------X
The following e-filed documents, listed by NYSCEF document number (Motion 002) 19, 20, 21, 22, 23, 34,40,41,42,43,44,46,47 were read on this motion to/for DISMISS
Defendants Hamburg Commercial Bank AG ("HCOB"), Cerberus European Capital
Advisors, LLP ("Cerberus European"), and Promontoria Holding 260 BV ("Promontoria") have
moved to dismiss Plaintiff Life Insurance Fund Elite, LLC' s ("LIFE") complaint pursuant to CPLR
321 l(a)(l), (5), (7), and (8). At oral argument on September 12, 2023, the court dismissed the third
cause of action (breach of fiduciary duty against HCOB), sixth cause of action (civil conspiracy
against Cerberus European), and seventh cause of action (demand for an accounting against
HCOB). The court denied dismissal of the first cause of action (2013 breach of duty of commercial
reasonableness against HCOB). The court otheiwise reserved on the motion to dismiss. For the
following reasons, the court denies the remainder of Defendants' motion to dismiss in its entirety.
FACTUAL AND PROCEDURAL BACKGROUND
This case arises from Defendants' alleged failure to dispose of collateral in a reasonable
manner that Defendants obtained from Plaintiff after Plaintiff defaulted on a loan. LIFE is a
"private equity fund that invested in life insurance policies held by a non-discretionary trust"
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(Complaint, NYSCEF Doc. No. 1, i1 2). As part of this business, HSH Nordbank ("HSH"),
HCOB's predecessor, agreed to loan LIFE up to $150,000,000 in 2007 pursuant to a Loan Security
Agreement between HSH, LIFE, and LIFE' s subsidiary ISM Insurance Agency, LLC ("ISM
Agency") (id., ,i 20; Loan Security Agreement ["LSA"], NYSCEF Doc. No. 2). A portfolio oflife
insurance policies secured the loan (Complaint, ,i,i 21-25). Under the LSA, HSH could "at any
time sell to one or more Qualified Purchasing Lenders 1 (an 'Assignee'), all or any part of its rights
and obligations under [the] Agreement" (LSA, § 11.14[a]). Additionally, while HSH could "sell
or offer to sell participating interests in the Note ... without the consent of, or notice to, [LIFE] .
. . [HSH] [would] retain the sole right and responsibility to exercise the rights of [HSH], and
enforce the obligations of the Loan Parties" (id., § 11.14[b ]). In the event of a sale of participating
interests in the Note, "[n]o Participant [would] have any rights ... to receive payment of principal,
interest or any other amount payable hereunder except through a Lender and as provided in this
Section 11.14(b )" (id.).
In January 2013, after LIFE defaulted on the loan, it agreed, along with ISM Agency, to
tum over to HSH the collateral that secured the loan pursuant to a Standstill Agreement
(Complaint, ,i,i 22-24; Standstill Agreement, NYSCEF Doc. No. 3). According to the Standstill
Agreement, LIFE and ISM Agency owed HSH an aggregate principal amount "not less than
$55,000,000" plus interest, costs, expenses, attorneys' fees, and other charges or contractual
obligations (Standstill Agreement, Recitals, § C). Pursuant to the Standstill Agreement, LIFE
agreed that "[s]ubject to the occurrence of a Trigger Event ... [LIFE] hereby surrenders, delivers,
grants and turns over to Collateral Agent [Wells Fargo Bank, N.A. ], and Guarantors [ISM Agency]
1 The LSA defines a "Qualified Purchasing Lender" as a "financial institution organized under the laws of a country which is a member of the Organization for Economic Co-operation and Development and that has a long-term unsecured senior debt rating of least A and A by S&P and Moody's, respectively (or the equivalent thereof)" (LSA, § 1.1). 153100/2023 LIFE INSURANCE FUND ELITE, LLC. vs. HAMBURG COMMERCIAL BANK AG ET Page 2 of 18 AL Motion No. 002
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hereby acknowledge and consent to such surrender, delivery, grant and turnover by [LIFE] to
Collateral Agent, peaceful possession of the Collateral" (id., §§ 2.1-2.1 [a]). Additionally, LIFE
and ISM Agency "waive[ d] all of their respective rights to notification" as to the "sale or other
disposition by Collateral Agent of the Collateral" pursuant to the UCC (id., § 2.1 [b ]).
The complaint alleges that, after HSH took control of the collateral insurance policies and
paid $500,000 in reinstatement fees, the policies were worth $70 million (Complaint, ,i 30). In
addition to the value of the insurance policies, the trust also allegedly held a $62 million receivable
from Avon Capital LLC ("Avon"), a former defaulting member of Plaintiff, bringing the total
value of the LIFE assets HSH held to $132 million (id., ,i,i 32-36). LIFE alleges, that after taking
control of the assets, HSH effected an unauthorized disposition of collateral by improperly
claiming in disclosures to have merged with LIFE and treating income from the life insurance
policies as "Other operating income" on its balance sheet (Complaint, ,i,i 57, 67). The complaint
alleges that HSH concealed this improper purported merger by keeping two separate sets of
financial records, one that treated LIFE as a subsidiary ofHSH and one that treated the relationship
as a loan, "in connection with which the bank sent LIFE phony quarterly cash and collateral
reports" (id., ,i,i 58-61 ). Subsequently, HSH allegedly pursued the trust's breach of contract claim
against Avon, obtained a judgment for the trust of over $86 million in a 2016 arbitration, but then
took no steps to collect the award (id., ,i 71). LIFE alleges, that through booking the trust's
judgment as its own asset and using that asset as leverage to settle a different lawsuit against Avon,
HSH engaged in another improper disposition of assets (id.).
In 2018, Promontoria, a company consisting of a "consortium of private equity investors"
led by Cerberus Capital Management LP ("Cerberus"),2 purportedly purchased a portfolio ofloans
2 The complaint alleges that Defendant Cerberus European is a subsidiary of Cerberus, which is not a party to this litigation (Complaint, ,r 10). 153100/2023 LIFE INSURANCE FUND ELITE, LLC. vs. HAMBURG COMMERCIAL BANK AG ET Page 3 of 18 AL Motion No. 002
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from HSH, including the LIFE loan (id., ,i,i 76, 78; Loan Sale and Purchase Agreement ["LSPA"],
NYSCEF Doc. No. 23). 3 According to the Promontoria February 22, 2018 management board
resolution approving the transaction, the board "intended that the Company enters [sic] into a loan
sale and purchase agreement (the LSPA) with respect to the sale and purchase of certain loan
portfolio items by the Company from HSH Nordbank AG (the Seller)" (id., Written Resolution of
the Management Board of Promontoria Holding 260 B.V. ["Promontoria Resolution"],§ 1.1.1).
Under the LSP A, Promontoria would first pay the purchase price to HSH, and then Promontoria
or an assignee and HSH would enter into a sub-participation agreement" (id., § 4.7[a][i]-[ii]).
Pursuant to the sub-participation agreement, HSH would provide "commercial title" to the
portfolio items to Promontoria or the assignee, but HSH would "retain legal title" (id.). As the
LSP A contemplated, Promontoria allegedly "sub-participated the Loan into a Master Fund Sub-
participation and Trust Agreement ('MFSPA'), in which HCOB and another Cerberus-controlled
entity, Promontoria North Designated Activity Company ('Promontoria North'), were
participants" (Complaint, ,i 80).
In 2019, Cerberus European allegedly initiated a process to sell the LIFE portfolio of
insurance policies on Promontoria's behalf, retaining the investment bank Houlihan Lokey, Inc.
("Houlihan Lokey") (id., ,i,i 90-91). After discovering the impending sale, LIFE allegedly
indicated to counsel for HCOB and Cerberus that it was prepared to make a bid itself for the
collateral (id., ,i 114). Two days after this inquiry, counsel for HCOB and Cerberus informed LIFE
that a different bidder purchased the collateral (id.). LIFE later learned that the purchaser bought
the collateral at what LIFE contends was an "unreasonably low sales price" of $31. 5 million (id.,
3 The complaint alleges that this transaction was part of HSH' s compliance with a European Commission mandate to undergo privatization by 2018, that ultimately resulted in HSH being sold to a consortium of private equity investors led by Cerberus and being "rebranded" as defendant HCOB (see Complaint, ,r 75). 153100/2023 LIFE INSURANCE FUND ELITE, LLC. vs. HAMBURG COMMERCIAL BANK AG ET Page 4 of 18 AL Motion No. 002
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,i 116). LIFE asserts that the policies "would have sold for more if LIFE had been given an
opportunity to bid" (id.).
LIFE initially filed an action in federal court against HCOB, including for breach of the
duty of commercial reasonableness related to the 2019 auction. Upon a motion to dismiss for
failure to state a cause of action, the court dismissed the negligence and implied covenant of good
faith and fair dealing claims, but denied dismissal of the breach of the duty of commercial
reasonableness claim (see Life Ins. Fund Elite LLC v Hamburg Commercial Bank AG, 545 F Supp
3d 86, 91-93 [SDNY 2021]). However, the parties ultimately stipulated to voluntarily dismiss that
federal action without prejudice (PACER, Life Ins. Fund Elite LLC v Hamburg Commercial Bank
AG, 20-cv-8553, Doc. No. 62), and the court later dismissed a separate federal action for lack of
subject matter jurisdiction (see Life Ins. Fund Elite LLC v Hamburg Commercial Bank AG, 2023
WL 1797169, *3 [SDNY Feb 7, 2023]).
LIFE then filed the complaint in this action on April 4, 2023, alleging causes of action for
breach of the duty of commercial reasonableness based on the alleged 2013 disposition of
collateral (count I), breach of the duty of commercial reasonableness based on the alleged
disposition of the Avon arbitration award (count II), breach of fiduciary duty (count III), breach of
contract (count IV), breach of the duty of commercial reasonableness based on HCOB and/or
Promontoria' s4 2019 auction of the policies (count V), civil conspiracy (count VI), and an
accounting (count VII).
4 The complaint alleges that "[a]ssuming HSH Nordbank had not disposed of the Collateral to itself in 2013 and assuming HCOB retained rights to dispose of the Collateral after the 2018 Portfolio Transaction, HCOB was obligated to dispose of the Collateral in a commercially reasonable manner," but, apparently in the alternative, that" [a]ssuming Promontoria Holding acquired any rights in the Collateral, it was obligated to dispose of it in a commercially reasonable manner" (Complaint, ir,r 167-68). 153100/2023 LIFE INSURANCE FUND ELITE, LLC. vs. HAMBURG COMMERCIAL BANK AG ET Page 5 of 18 AL Motion No. 002
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On June 5, 2023, Defendants moved to dismiss the complaint pursuant to CPLR
321 l(a)(l), (5), (7), and (8). On September 12, 2023, the court held oral argument. At oral
argument, the court dismissed the third, sixth, and seventh causes of action, denied dismissal of
the first cause of action, and reserved decision on the remainder.
DISCUSSION
On a motion to dismiss pursuant to CPLR 321 l(a)(7), the court must "accept the facts as
alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference,
and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v
Martinez, 84 NY2d 83, 87-88 [1994]; see also Chapman, Spira & Carson, LLCv Helix BioPharma
Corp., 115 AD3d 526, 527 [1st Dept 2014]). On a motion to dismiss under CPLR 321 l(a)(l),
"dismissal is warranted only if the documentary evidence submitted conclusively establishes a
defense to the asserted claims as a matter of law" (Leon, 84 NY2d at 88; Chen v Romona Keveza
Collection LLC, 208 AD3d 152, 157 [1st Dept 2022]).
1. Breach of Duty of Commercial Reasonableness -Avon Arbitration Award (HCOB)
The court denies dismissal of the second cause of action for breach of the duty of
commercial reasonableness based on the allegedly improper disposition of the Avon arbitration
award. Under UCC 9-610(a)-(b), "[a]fter default, a secured party may sell, lease, license, or
otherwise dispose of any or all of the collateral in its present condition or following any
commercially reasonable preparation or processing" but "[e]very aspect of a disposition of
collateral, including the method, manner, time, place, and other terms, must be commercially
reasonable" (TAP Holdings, LLC v Orix Finance Corp., 45 Misc3d 1217(A), *16 [Sup Ct, NY
County Nov 7, 2014]; HSBC Bank USA, Nat. Ass'n v Amagli, 18 Misc3d 139(A), *1 [App Term
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2nd and 11th Dist. Feb 26, 2008]; North Hill Funding of New York, LLC v Maiden & Madison
Holdings, LLC, 131 AD3d 836, 838 [1st Dept 2015]).
Here, Defendants argue that the duty of commercial reasonableness does not apply to the
Avon arbitration award because HCOB did not dispose of collateral. Rather, HCOB merely failed
to pursue the judgment and "record[ed] the award as an 'asset' in [its] financial statements"
(Opening Memo., NYSCEF Doc. No. 20, p. 10 [citing Complaint, ,i,i 138-39]).
The court rejects this argument. While UCC 9-610(a) refers to a secured party's right to
"sell" or "lease" collateral after a default, the section also refers to the secured party's right to
"otherwise dispose of any or all of the collateral" (UCC 9-610[a] [emphasis added]). New York
courts have held that non-sale dispositions such as abandoning collateral may amount to
dispositions of collateral subject to Article 9 of the UCC (see Marine Midland Bank v CMR
Industries, Inc., 159 AD2d 94, 107 [2d Dept 1990] [finding outstanding issues of fact as to whether
disposition was commercially reasonable where defendants contended collateral was "worth
approximately $99,450 and that the plaintiff or the SBA should have sold it rather than abandoning
it," but the plaintiff argued "that the collateral was uniformly old and in poor condition and that
the cost ofremoval would have exceeded its resale value"] 5; see also Bank of China v Chan, 937
F2d 780, 784, 787 [2d Cir 1991] [finding that bank owed duty to "preserve the value of the
accounts receivable by drawing down the master letters of credit when the shipping documents
were properly presented to it" and that Chan raised an issue of fact "as to the commercial
reasonableness of the Bank's handling of the company's accounts receivable"]).
5 The court notes that, while Marine Midland Bank involved a defense under UCC 9-504 (id. at 103), it is still applicable here because UCC 9-504 was the previous iteration ofUCC 9-610 (see UCC 9-610, Comment 1 ("Source. Former Section 9-504(1), (3)"). 153100/2023 LIFE INSURANCE FUND ELITE, LLC. vs. HAMBURG COMMERCIAL BANK AG ET Page 7 of 18 AL Motion No. 002
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Courts outside New York, that have interpreted the phrase "otherwise dispose" under
Article 9 of the UCC, have found that the inclusion of the term "disposition" separate from the
term "sale" indicates that a "disposition of collateral need not necessarily be in the form of a sale"
(Williams v Regency Financial Corp., 309 F3d 1045, 1048-49 [8th Cir 2002], citing In re Estate
of Rothko, 84 Misc2d 830, 864 [Surrogate's Ct, NY County Dec 18, 1975] ["The phrase 'other
disposition' implies the parting with, alienation or giving up property ... and were intended to
include conveyances other than sales"]; see also In re Godfrey, 557 BR 469,475 [ND W Va Sept
12, 2016] ["Many courts have considered the definition of 'disposition' under Article 9, and
concluded that it encompasses various types of permanent transfers of possession."]).
Therefore, while HSH allegedly recording the Avon arbitration award as an asset may not
have been a "sale," Plaintiff has sufficiently alleged that HSH executed an "other disposition" of
the collateral. Plaintiff has alleged that the "Trust" held the breach of contract claim against Avon
and that "HSH Nordbank pursued the claim, through the Trust, against Avon" (Complaint, ,-i,i
135-37 [emphasis added]). Ultimately, "the Trust was awarded more than $86M at arbitration in
2016" but HSH allegedly "took no steps to collect the award" (id., ,i 71 [emphasis added]).
Subsequently, HSH "recorded this award as an asset in its financial statements" (id., ,i 139). Even
though HSH did not "sell" the Avon award, the complaint alleges that HSH abandoned the pursuit
of the judgment and effected a permanent transfer of the Avon award from the trust to itself, by
recording it as an asset. As such, there is at least an issue of fact as to whether HSH "disposed" of
the award.
In addition, Plaintiffs allegations that HSH disposed of the Avon arbitration award in a
commercially unreasonable manner are sufficient to survive this motion. UCC 9-627 defines a
"commercially reasonable disposition" as one made "(l) in the usual manner on any recognized
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market; (2) at the price current in any recognized market at the time of the disposition; or (3)
otherwise in conformity with reasonable commercial practices among dealers in the type of
property that was the subject of the disposition" (UCC 9-627(b ); Atlas MF Mezzanine Borrower,
LLC v Macquarie Texas Loan Holder LLC, 174 AD3d 150, 163 [1st Dept 2019] [emphasis added]
[internal quotation marks omitted]). The secured creditor ultimately has the "burden of establishing
the commercial reasonableness of every aspect of the disposition of the collateral" ( General Elec.
Credit Corp. v Durante Bros. & Sons, Inc., 79 AD2d 509, 510 [1st Dept 1980]; Highland CDO
Opportunity Master Fund, L.P. v Citibank, NA., 2016 WL 1267781, *18 [SDNY Mar 30, 2016]).
The commercial reasonableness of a disposition of collateral is generally an issue of fact that the
court cannot decide at the motion to dismiss stage (Atlas, 174 AD3d at 165; see also NatWest Bank
NA. v Grauberd, 228 AD2d 337, 337 [1st Dept 1996] [finding that summary judgment should
have been denied because there were triable issues of fact "as to the commercial reasonableness
of plaintiff bank's conduct regarding the preservation of its collateral"]).
Here, the complaint adequately alleges that HSH's disposition of the Avon award was
commercially unreasonable. Plaintiff alleges that HSH improperly abandoned any attempt to
collect on the Avon award, but still recorded the award as an asset on its own financial statements
(Complaint, ,i,i 71, 138-39). In response, Defendants argue that HCOB may never be able to
recover the judgment from Avon given its financial distress and that an unsuccessful pursuit of the
award would have simply increased the balance of the loan (Reply in Further Support of Motion,
NYSCEF Doc. No. 46, p. 8). While Defendants may succeed at summary judgment or at trial with
this argument, it is not sufficient to succeed at this stage (see Weinsten v Fleet Factors Corp., 210
AD2d 74, 74 [1st Dept 1994] ["issues of fact whether defendant acted in a commercially
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reasonable manner in disposing of certain assets of the debtor"]; cf CCO Condo Portfolio (AZ)
Junior Mezzanine, LLC v Feldman, 2022 WL 3867910, *6 [SDNY Aug 30, 2022]).
The Second Department's decision in Marine Midland Bank v CMR Industries ( 159 AD2d
94 [1st Dept 1990]) (supra, p. 7), is directly applicable. There, the court found that there were
triable issues of fact where the defendants contended "the plaintiff or the SBA should have sold
the collateral rather than abandoning it" (id. at 107). Just as in Marine Midland, the court cannot
determine at this stage whether it was commercially reasonable for HSH to decline to pursue an
$86 million award. Therefore, the court denies the motion to dismiss the UCC 9-610 claim.
The court also rejects Defendants' argument that HCOB had no duty to apply the Avon
award to Plaintiff's loan balance. The complaint alleges that HSH violated UCC 9-615( c) through
recording the award as its own asset and failing to credit the award against the loan balance
(Complaint, ,i,i 139-40). Pursuant to UCC 9-615(c), a secured party "need not apply or pay over
for application noncash proceeds of disposition under Section 9-610 unless the failure to do so
would be commercially unreasonable" (UCC 9-615[c]). Defendants argue, based on comment 3
to UCC 9-615( c), that HCOB had no duty to apply the Avon award to the loan balance because an
arbitration award is not a type of noncash proceeds that HCOB generates in the ordinary course of
business (Opening Memo., p. 10). In response, Plaintiff asserts that Defendants have misread
comment 3 and that there is no such requirement that the proceeds be the type generated in the
ordinary course ofbusiness (Opposition, NYSCEF Doc. No. 40, pp. 16-17). Plaintiff is correct.
Comment 3 provides an "Example" of the application of subsection (c), in which a secured
party takes possession of an automobile following a default on an automobile loan (UCC 9-615 [c],
Comment 3). After selling the automobile on credit, the secured party is left with chattel paper that
it could potentially credit against the defaulting debtor's debt (id.). The comment explains that the
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secured creditor is required to "apply the value of the chattel paper to the original debtor's secured
obligation" under UCC 9-615( c) because the chattel paper is the type of noncash proceeds that the
secured creditor "regularly generates in the ordinary course of its financing business" (id.).
Contrary to Defendants' argument, this comment does not resolve whether HSH violated UCC 9-
615( c) through failing to apply the Avon award to the loan. While the comment provides an
"example" of when failure to apply noncash proceeds would be unreasonable, it does not remotely
suggest that this example is exclusive and that noncash proceeds must be generated in the ordinary
course of business for UCC 9-615(c)'s reasonableness requirement to apply.
Therefore, regardless of whether awards such as the Avon award are generated in the
ordinary course of business, the court is left to apply the standard UCC 9-627 analysis in
determining if the failure to apply the noncash proceeds to the loan, while simultaneously
recording the award as an asset, was commercially unreasonable. As with HSH's failure to pursue
the Avon award and subsequent recording of the award as an asset, Defendants have simply not
met their burden to establish that the failure to apply the award to Plaintiffs loan was commercially
reasonable. Therefore, the court denies dismissal of this cause of action.
2. Breach of Contract (HCOB)
The court denies Defendants' motion to dismiss the fourth cause of action for breach of
contract. To state a cause of action for breach of contract, a plaintiff must allege "the existence of
a contract, the plaintiffs performance thereunder, the defendant's breach thereof, and resulting
damages" (Second Source Funding, LLC v Yellowstone Capital, LLC, 144 AD3d 445, 445-46 [1st
Dept 2016]; Chappo & Co., Inc. v Ion Geophysical Corp., 83 AD3d 499, 500 [1st Dept 2011]).
However, a breach of contract claim should not be dismissed pre-answer where the contract is
ambiguous (Almah LLCv AIG Empl. Servs., Inc., 157 AD3d 416,416 [1st Dept 2018]). A contract
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is ambiguous if the provisions "are reasonably or fairly susceptible of different interpretations"
(id. [internal quotation marks and citations omitted]; LDIR, LLC v DB Structured Prods., Inc., 172
AD3d 1, 4 [1st Dept 2019]; Ladder Capital Finance LLC v 1250 North SD Mezz LLC, 211 AD3d
608, 608 [1st Dept 2022] [holding that lower court properly denied motion to dismiss where
plaintiffs interpretation of the contract was reasonable, but defendants' interpretation was "also
reasonable"]).
Here, Plaintiff alleges that HSH/HCOB breached the contract by purportedly selling the
collateral to Promontoria, despite Promontoria not being a qualified purchasing lender under the
LSA, and subsequently failing to tum the collateral over to LIFE despite no longer having any
rights in the collateral (Complaint, ,i,i 156-60). Defendants argue that this cause of action should
be dismissed because HCOB did not actually sell the collateral to Promontoria, but rather simply
assigned an economic participation to Promontoria (Opening Memo., p. 20). The court denies
dismissal because provisions of the LSP A with Promontoria conflict as to whether or not there
was an actual sale of the collateral. Defendants are correct that section 11.14(b) of the LSA
permitted the lender to sell "participating interests in the Note ... without the consent of, or
notice to, the Borrower and [that] the grant of such participation shall not relieve such Lender of
its obligations" (LSA, § 11.14[b] [emphasis added]). Further, the LSP A that effectuated the alleged
sale between HSH and Promontoria stated that under the anticipated sub-participation agreement,
"commercial title" to portfolio items would pass to the purchaser or assignee, but the seller would
"retain legal title ... to the Portfolio Items" (LSPA, § 4.7[a][ii]). This suggests that Defendants
are correct that the transaction was not a sale of the collateral and that, therefore, the transaction
did not breach the LSA.
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However, other documentary evidence suggests that the transfer of interest was, indeed, a
sale. Section 1.1 of the LSP A defines the "Portfolio Items" at issue as "All rights, title, interest and
benefit in and to ... all present or future, conditional or unconditional receivables, rights ...
ancillary rights, claims, contractual undertakings and contractual and quasi-contractual
obligations" (LSPA, § 1. 1). Further, the HSH supervisory board resolution attached to the LSP A
states that the board is resolving to approve a "sale of a loan portfolio" (HSH Nordbank
Supervisory Board Resolution, § I.a [emphasis added]). Additionally, the Promontoria
management board resolution attached to the LSPA states that it is "intended that the Company
enters [sic] into a loan sale and purchase agreement (the LSP A) with respect to the sale and
purchase of certain loan portfolio items by the Company from HSH Nordbank AG" (Promontoria
Resolution, § 1.1.1 [emphasis added]).
Thus, there is a question of fact whether the transfer from HSH to Promontoria of the
collateral was a transfer of only commercial title, or, whether that transfer was, in fact, a sale of all
rights associated with the collateral. Therefore, the court cannot determine at this juncture if HSH
breached the LSA through entering into the LSP A with Promontoria. The court, therefore, denies
the motion to dismiss the fourth cause of action.
3. Breach of Duty of Commercial Reasonableness - 2019 Sale (HCOB and Promontoria)
At oral argument, the court reserved decision on the fifth cause of action for breach of the
duty of commercial reasonableness because of Promontoria' s challenge to personal jurisdiction.
The court rejects this challenge because there is personal jurisdiction over Promontoria. A New
York court may not exercise personal jurisdiction over a non-domiciliary unless "the action is
permissible under New York's long-arm statute, and the exercise of jurisdiction comports with due
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process" (English v Avon Products, Inc., 206 AD3d 404, 405 [1st Dept 2022]). Plaintiff has
asserted that the court has personal jurisdiction over Promontoria pursuant to CPLR 302(a)(l).
Under CPLR 302(a)(l), a court may exercise personal jurisdiction over a non-domiciliary
where the party, in person or through an agent, "transacts any business within the state or contracts
anywhere to supply goods or services in the state" (CPLR 302[a][l]; In re Estate of Stettiner, 148
AD3d 184, 192 [1st Dept 2017] [finding that the court acquired personal jurisdiction over one
party because of its agreement with a different party to "act as its agent to sell [a] painting in New
York"]). Determining whether long-arm jurisdiction exists pursuant to CPLR 302( a)(l) is a "two-
pronged jurisdictional inquiry" in which the court first decides "whether defendant conducted
sufficient activities to have transacted business within the state" and then decides "whether
plaintiffs claims arise from the transactions" (English, 206 AD3d at 406). For the court to have
personal jurisdiction under CPLR 302(a)(l), the plaintiff's claims "must have an articulable nexus
with the defendant's transactions within [the] state" (id. [internal quotation marks and citation
omitted]; 4069 Rosen Assoc., LLC v Tournamentone Corp., 206 AD3d 464, 465 [1st Dept 2022]
[finding personal jurisdiction under CPLR 302(a)(l) where defendant's "New York activities were
purposeful and substantially related to plaintiffs' claims"]; Great Lakes Insurance SE v American
Steamship Owners Mutual Protection and Indemnity Association Inc., 214 AD3d 593, 594 [1st
Dept 2023] [finding personal jurisdiction under CPLR 302(a)(l) where the complaint alleged that
the individual defendants were the "primary actors with respect to the transaction[] at issue"]).
Here, the court has personal jurisdiction over Promontoria pursuant to CPLR 302(a)(l).
The complaint alleges that Promontoria "participat[ed] in the sales and marketing process with
[investment bank] Houlihan Lokey and its personnel in New York" (Complaint, ,i 92 [emphasis
added]). Even if Promontoria did not allegedly take action itself in New York, Promontoria did
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ultimately sign the LSP A and allegedly acted through Houlihan Lokey employees in New York.
This is sufficient to confer personal jurisdiction under CPLR 302(a)(l) (see Front, Inc. v Khalil,
103 AD3d 481, 482 [1st Dept 2013] [finding personal jurisdiction under CPLR 302(a)(l) where
the allegations were sufficient to establish that particular defendants "transacted business in New
York, through [a different defendant] as their agent"]; RP Business Marketing, Inc. v Timlin
Industries, Inc., 67 Misc3d 1205(A), *5 [Sup Ct, NY County Apr 10, 2020] [finding long arm
jurisdiction where plaintiff made a prima facie showing that the defendants "engaged in a sustained
and substantial transaction of business with [] a New York business"]).
Additionally, the court's exercise of personal jurisdiction over Promontoria would comport
with due process. Due process requires both that the defendant have "minimum contacts with the
forum state such that the defendant should reasonably anticipate being haled into court there" and
that "the prospect of having to defend a suit in New York comports with traditional notions of fair
play and substantial justice" (State v Vayu, Inc., 39 NY3d 330, 337 [2023]; English v Avon
Products, 206 AD3d 404, 406-07 [1st Dept 2022] [internal citations and quotation marks
omitted]). Minimum contacts exist where the court finds "some act by which the defendant
purposefully avails itself of the privilege of conducting activities within [New York], thus invoking
the benefits and protection of its laws" (Wilson v Dantas, 128 AD3d 176, 182 [1st Dept 2015]
[citations and internal quotation marks omitted]; Al Rushaid v Pictet & Cie, 28 NY3d 316, 331
[2016]; see also Clingerman v Ali, 212 AD3d 572, 572 [1st Dept 2023]). Promontoria has
sufficient minimum contacts with the forum through allegedly participating in a sales and
marketing process with Houlihan Lokey-an investment bank with offices and personnel in New
York and through employing attorneys based in New York from the firm Schulte Roth & Zabel
LLP (Complaint, ,i,i 92, 99). Thus, Promontoria purposely availed itself of this forum.
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Further, the court's exercise of jurisdiction over Promontoria would comport with
traditional notions of fair play and substantial justice. In order to determine if the exercise of
jurisdiction would comport with traditional notions of fair play and substantial justice, courts will
assess: "the burden on the defendant, the forum State's interest in adjudicating the dispute, the
plaintiffs interest in obtaining convenient and effective relief, the interstate judicial system's
interest in obtaining the most efficient resolution of controversies, and the shared interest of the
several States in furthering fundamental substantive social policies" (Al Rushaid, 28 NY3d at 331;
In re Renren, Inc. v. XX¥, 67 Misc3d 1219(A), 15 [Sup Ct, NY County May 20, 2020]). It is the
defendant's burden to establish that jurisdiction would be unreasonable under this prong (id.).
Here, Promontoria has failed to address this aspect of the due process analysis at all and
has, therefore, failed to meet this burden. Regardless, any burden to Promontoria would be minimal
measured against this forum's significant interest in having this dispute adjudicated here. While
Promontoria is a Dutch domiciliary, the burden of taking part in this matter is reduced with the
advent ofremote proceedings (see Al Rushaid, 28 NY3d at 331 ["Here, while the parties are foreign
nationals, the burden of litigation in New York is reduced by modem communication and
transportation"] [internal quotation marks and citation omitted]). Further, New York has a
substantial interest in resolving the claim against Promontoria related to the sale of the collateral
where Promontoria allegedly hired New York investment bankers and New York lawyers from
Schulte Roth & Zabel LLP, who allegedly brokered the transaction. Therefore, the court denies
dismissal of the cause of action for breach of the duty of commercial reasonableness against
Promontoria on the basis of lack of personal jurisdiction.
Additionally, the court denies the motion to dismiss the fifth cause of action against
Promontoria and HCOB for failure to state a cause of action. The fifth cause of action alleges
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breach of the duty of commercial reasonableness against both Promontoria and HCOB based on
the sale of the collateral in 2019. In particular, the complaint alleges that Promontoria failed to
disclose details to LIFE about the prior loan sale or the upcoming sale of the collateral and that
"HCOB and/or Promontoria Holding also ... accepted a sales price below what LIFE was willing
to bid" (id., ,i,i 173-74). Defendants argue that the cause of action should be dismissed because
Plaintiffs mere disappointment with the price at which Defendants sold the collateral at auction
is not a basis for showing that the sale was commercially unreasonable. Rather, according to
Defendants, the sale price must "shock the conscience" to support a claim that the sale was
commercially unreasonable (Opening Memo., pp. 11-12).
However, as Judge Marrero already found in the first federal action, whether or not a
disposition of collateral was commercially reasonable is a "necessarily fact intensive" question,
and the dispute over the reasonableness of the sales price is "not [] appropriate to resolve [] at this
stage of the litigation" (Life Insurance Fund Elite LLC v Hamburg Commercial Bank AG, 545 F
Supp 3d 86, 91 [SDNY 2021] [holding that the fund had adequately pled breach of the duty of
commercial reasonableness through allegations of "the value of collateral compared to the
apparent sale price and the lack of notice to interested parties"]; cf Atlas MF Mezzanine Borrower
LLC v Macquarie Texas Loan Holder LLC, 199 AD3d 439, 440 [1st Dept 2021] [finding after
trial that the evidence did not "support a finding that the price received for the properties at auction
was 'so inadequate as to shock the court's conscience"'] [internal citation omitted]). UCC 9-610
requires that "[e]very aspect of a disposition of collateral ... be commercially reasonable," and
UCC 9-627 states that part of the analysis of commercial reasonableness of a disposition of
collateral is the "price current in any recognized market at the time of the disposition." Plaintiff
has alleged that as a result of not being allowed to bid, the ultimate sale price was lower than it
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would have been if Plaintiff could have bid. Whether that price was so low as to "shock the
conscience" is not for the court to decide at this stage.
The court has considered the parties' remaining contentions and finds them unavailing.
Accordingly, it is
ORDERED that the third cause of action (breach of fiduciary duty against HCOB), sixth
cause of action (civil conspiracy against Cerberus European), and seventh cause of action (demand
for an accounting against HCOB) are dismissed for the reasons stated on the record at oral
argument on September 12, 2023; and it is further
ORDERED that Defendants' motion to dismiss the first cause of action (2013 breach of
duty of commercial reasonableness against HCOB) is denied for the reasons stated on the record
at oral argument on September 12, 2023; and it is further
ORDERED that the remainder of Defendants' motion to dismiss is denied as expressed in
this decision and order; and it is further
ORDERED that Defendants must answer the complaint within 20 days of the efiled date
of this decision and order.
01/03/2024 DATE MELISSA A. CRANE, J.S.C.
CHECK ONE: CASE DISPOSED NON-FINAL DISPOSITION
~ GRANTED □DENIED GRANTED IN PART [JoTHER APPLICATION: SETTLE ORDER SUBMIT ORDER CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT □REFERENCE
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