Preview
FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021
NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ROCKLAND
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HELLO LIVING DEVELOPER NOSTRAND LLC and Index No. 034885/2021
HELLO NOSTRAND LLC,
Plaintiffs,
-against-
1580 NOSTRAND MEZZ, LLC,
MADISON REALTY CAPITAL, L.P.,
Defendants.
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PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF THEIR
MOTION FOR A STAY PURSUANT TO CPLR 2201
Law Offices of Victor A. Worms
48 Wall Street, Suite 1100
New York, New York 10005
(212) 374-9590
Attorneys for plaintiffs Hello Living Developer
Nostrand, LLC and Hello Nostrand, LLC
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ......................................................................................................... ii
PRELIMINARY STATEMENT ................................................................................................... 1
STATEMENT OF FACTS ............................................................................................................ 2
I. The Commencement of This Action………………………………………………………. ..2
A. This Court’s August 24, 2021 Order……………………………………………………...3
B. This Court’s October 25, 2021 Order……………………………………………………..4
II. The October 20, 2021 Notice of Sale………………………………………………………..4
III. The Motion To Dismiss This Action……………………………………………………...5
A. The Plaintiffs’ Opposition To The Motion To Dismiss………………………………...6
B. The December 22, 2021 Return Date For The Motion To
Dismiss And The Notice of Sale And The Need For A Stay…………………………..11
ARGUMENT…………………………………………………………………………………...11
THE COURT SHOULD ISSUE A STAY OF ITS OCTOBER 25, 2021
ORDER SUSPENDING THE NOTICE OF SALE AND THE UCC
FORECLOSURE SALE OF THE COLLATERAL WHICH IS
SCHEDULED FOR DECEMBER 22, 2021 PENDING A RESOLUTION
OF THIS ACTION……………………………………………………………………………11
CONCLUSION………………………………………………………………………………..15
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TABLE OF AUTHORITIES
Cases
Belopolsky v. Renew Data Corp., 41 A.D.3d 322,
837 N.Y.S.2d 154 (1st Dep’t 2007)………………………………………………………….12
Onebeacon Am. Ins. Co. v. Colgate–Palmolive Co., 96 A.D.3d 541,
949 N.Y.S.2d 14, 15 (1st Dep’t 2012)………………………………………………………12
Sears v. Country Developers, Inc., 178 A.D.2d 708,
577 N.Y.S.2d 338 (3rd Dep’t 1991)…………………………………………………………..12
Zonghetti v. Jeromack, 150 A.D.2d 561, 563,
541 N.Y.S.2d 235 (2d Dep’t 1989)…………………………………………………………..11
1544-48 Properties, v. Maitre, 184 Misc. 2d 984, 985,
712 N.Y.S.2d 303 (App. Term, 2d Dep’t. 2000)…………………………………………..12
Statues
CPLR 2201………………………………………………………………………………………11
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PRELIMINARY STATEMENT
This memorandum of law is submitted by plaintiffs Hello Living Developer Nostrand
LLC (“Hello Developer”) and Hello Nostrand LLC (“Hello Nostrand”) in support of their
motion, pursuant to CPLR 2201, for a stay of this Court’s order of October 25, 2021, and
suspending the notice of sale and the UCC foreclosure sale of the Collateral which is scheduled
for December 22, 2021, pending a resolution of this action.1 This memorandum is also
submitted in support of an interim stay pending a determination by this Court of the plaintiffs’
motion for a stay pursuant to CPLR 2201.
On December 22, 2021, the very same day on which the Collateral is scheduled for a
UCC foreclosure sale, the defendants’ motion to dismiss all five causes of action in the plaintiffs’
complaint is returnable before this Court.
The plaintiffs in their second cause of action have alleged that the security agreement,
and the related agreements, which are the predicate for the pending UCC foreclosure sale of the
Collateral violate N.Y.UCC Law § 9-109(d)(11) which states that Article 9 of N.Y.U.C.C. Law
does not apply to “the creation or transfer of an interest in or lien on real property.” Therefore,
the Collateral is not subject to a UCC foreclosure sale.
Based upon this Court’s order of October 25, 2021, the notice of sale and the UCC
foreclosure sale of the Collateral must be in compliance with that order. As such, this Court has
the authority to suspend the notice of sale and the UCC foreclosure sale of the Collateral.
1
The Collateral is defined in the notice of sale which is annexed as Exhibit “D” to the accompanying affirmation of
Victor A. Worms dated December 10, 2021.
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Under New York law, a court can issue a stay, pursuant to CPLR 2201, to prevent an
inequitable outcome in an action.
It would be an inequitable outcome if there was a UCC foreclosure sale of the Collateral
based upon a security agreement and related agreements, which this Court subsequently
determined violated Article 9 of the UCC and could not have been the legal predicate for the
UCC foreclosure sale of the Collateral.
To prevent such an inequitable outcome, the Court should grant a stay, pursuant to CPLR
2201, of its October 25, 2021, and suspend the notice of sale and the UCC foreclosure sale of the
Collateral, pending a resolution of this action.
STATEMENT OF FACTS
I. The Commencement of This Action
On August 17, 2021, the plaintiffs commence the underlying action with the filing of the
summons and verified complaint alleging five causes of action.
The first cause of action in the plaintiffs’ complaint seeks a declaratory judgment
declaring that defendant 1580 Nostrand Mezz, LLC (“1580 Nostrand Mezz”) is not authorized to
do business in the state of New York; the second cause of action seeks a declaratory judgment
that the Collateral is not subject to a UCC foreclosure and sale because the relevant agreements
which are the predicate for the security interest in the Collateral violated N.Y.UCC Law § 9-
109(d)(11) which states that Article 9 of N.Y.U.C.C. Law does not apply to “the creation or
transfer of an interest in or lien on real property;” the third cause of action seeks a declaratory
judgment that the foreclosure sale of the Collateral is commercially unreasonable; the fourth
cause of action seeks a declaratory judgment that the defendants violated N.Y.UCC Law § 1-304
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which imposes an obligation of good faith in every UCC transaction, and the fifth cause of action
seeks a permanent injunction enjoining the commercially unreasonable sale of the Collateral.
(A copy of the summons and complaint and the exhibits thereto is annexed as Exhibit “A” to the
accompanying affirmation of Victor A. Worms dated December 10, 2021(hereafter the “Worms
Aff.”)).
Subsequently, the plaintiffs’ moved, by order to show cause, for a preliminary injunction
enjoining the commercially unreasonable UCC foreclosure sale of the Collateral which was
scheduled for September 2, 2021.
A. This Court’s August 24, 2021 Order
In connection with the motion for a preliminary injunction, the plaintiffs sought a
Temporary Restraining Order (“TRO”) of the UCC foreclosure sale of the Collateral, and on
August 24, 2021, this court issued a TRO of the foreclosure sale of the Collateral that was
scheduled for September 2, 2021, on the condition that the plaintiffs post a bond in the amount of
$100,000.00. (A copy of the Court’s order of August 24, 2021 is annexed hereto as Exhibit “B”
to the Worms Aff.).
The Court’s order of August 24, 2021 directed that opposition papers from the
defendants’ were to be served on September 20, 2021, and that reply papers by the plaintiffs
should be served on September 28, 2021.
Additionally, the Court’s order of August 24, 2021 also scheduled a hearing on October
1, 2021 on the plaintiffs’ motion for a preliminary injunction. That hearing date was
subsequently adjourned by the Court to October 18, 2021.
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B. This Court’s October 25, 2021 Order
After the hearing on October 18, 2021, the Court subsequently issued an order on
October 25, 2021 denying the plaintiffs’ motion for a preliminary injunction of the UCC
foreclosure sale of the Collateral, and ordered that any future sale of the Collateral would be
subject to, among other things, at least 60 days’ notice of sale and a qualifying deposit in the
amount of $450,000.00 and that “all remaining aspects of the Sale must be in accordance with
the terms and provisions of the Ownership Interests Pledge and Security Agreement by and
between the Mezz Borrower and Mezz Lender, and shall be commercially usable in accordance
with the Uniform Commercial Code. . . .”
Thus, any notice of sale and any future UCC foreclosure sale of the Collateral are
pursuant to, and subject to, this Court’s order of October 25, 2021.
Therefore, this Court has the authority to issue a stay suspending the notice of sale and
any future UCC foreclosure sale of the Collateral based upon the Court’s October 25, 2021
order.
II. The October 20, 2021 Notice of Sale
On October 20, 2021, defendant 1580 Nostrand Mezz issued a notice of sale of the
Collateral for December 22, 2021 at 2 PM. (A copy of the notice of sale of October 20, 2021 is
annexed as Exhibit “D” to the Worms Aff.).2
Importantly, the notice of sale explicitly indicated that the sale of the Collateral is being
conducted pursuant to the following agreements between plaintiff Hello Developer and
2
As the hearing transcript of October 18, 2021 hearing indicates [NYSCEF Doc-69], prior to, but subject to, the
written order to be issued by the Court, the defendants were given permission by the Court to serve a notice of sale.
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defendant 1580 Nostrand Mezz: the Mezzanine Loan Agreement dated August 28, 2020 (the
“Mezzanine Loan Agreement”), the Mezzanine Promissory Note dated August 28, 2020, (the
“Mezzanine Promissory Note”), the Ownership Interest Pledge And Security Agreement dated
August 28, 2021 (the “Pledge Agreement”), and the related Loan Agreements (collectively
referred to herein as the “Related Mezzanine Loan Agreements”).
Accordingly, if any of these agreements is legally invalid under N.Y.U.C.C. Law, the
UCC foreclosure sale of the Collateral cannot proceed consistent with New York law, and this
Court has the authority under its October 25, 2021 order to suspend the notice of sale and the
UCC foreclosure sale of the Collateral.
III. The Motion To Dismiss This Action
This Court’s order of October 25, 2021 denying the plaintiffs’ motion for a preliminary
injunction did not dispose of this action. Nonetheless, on November 2, 2021, the defendants
made a motion to dismiss all five causes of action in the plaintiffs’ complaint arguing that those
causes of action were now moot based upon the Court’s decision of October 25, 2021. [See
NYSCEF Dos. 60-68].
While the plaintiffs’ first, third, and fifth causes of action can properly be said to be moot
based upon this Court’s decision of October 25, 2021, the same cannot be said about the
plaintiffs’ second and fourth causes of action.
In particular, the plaintiffs’ second cause of action alleged that the Collateral is not
subject to a UCC foreclosure sale because the security agreement violated N.Y.U.C.C. Law § 9-
109(d)(11), which explicitly provides that Article 9 does not apply to “the creation or transfer of
an interest in or lien on real property.”
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The fourth cause of action alleged that the defendants cannot rely upon the Pledge
Agreement, and related agreements as a predicate for the UCC foreclosure sale of the Collateral
because they violated N.Y.U.C.C. Law § 1-304. That statute provides that in “[e]ery contract or
duty within this act imposes an obligation of good faith in its performance and enforcement.”
Good faith is defined by N.Y. U.C.C. Law § 1-201(20) as “honesty in fact in the transaction or
conduct concerned.”
A. The Plaintiffs’ Opposition To The Motion To Dismiss
The plaintiffs, in their opposition papers to the motion of the defendants to dismiss the
five causes of action in the complaint, demonstrated that the Pledge Agreement, and the Related
Mezzanine Loan Agreements, are legally invalid and cannot provide a predicate for the UCC
foreclosure sale of the Collateral. [See NYSCEF Dos. 73-82].3
In particular, the Mezzanine Loan Agreement provided in paragraph 2.1 as follows:
Agreement to Lend: Subject to the terms and conditions of this Agreement
and Borrower's compliance with all the provisions hereof, and relying on
Borrower's representations set forth herein, Lender agrees to lend to Borrower,
and Borrower agrees to borrow from Lender, an amount not to exceed the Loan
Amount, to be disbursed in several advances at such times and in such amounts as
Lender shall determine in accordance with the procedures set forth in this
Agreement. Lender and Mortgage Lender shall determine in their sole and
absolute discretion whether Advances are made first from the Mortgage Loan or
the Loan. (Emphasis added).
Importantly, the Mezzanine Loan Agreement in paragraph 5.1 explicitly provided that it
was an event of default under that agreement if any of the following things, among others,
occurred:
3
To avoid unnecessary duplication, the Related Mezzanine Loan Agreements which are annexed to the plaintiffs’
opposition papers to the plaintiffs’ motion to dismiss will not be reproduced herein.
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(a) Any default or Event of Default (as defined in the Mortgage, the Mortgage
Loan Agreement, or the other Mortgage Loan Documents) by the Mortgage
Borrower under the Mortgage or the other Mortgage Loan Documents;
(b) Failure to provide Proof of Payment for the Mortgage unless Lender remains
an Affiliate of Mortgage Lender . . . . (Emphasis added).
The Mezzanine Loan Agreement defined Proof of Payment in paragraph 1.29 as follows:
Mortgage Loan Default: A failure of Borrower to timely provide Lender with
either (i) cancelled checks, (ii) bank statements, (iii) or any other proof,
reasonably satisfactory to Lender, evidencing that Mortgage Borrower has made
the monthly installment payment required pursuant to the terms of the Mortgage
Loan (the "Proof of Payment"). If requested, Borrower shall be required to submit
Proof of Payment no later than the fifteenth (15th) day of each calendar month
commencing on October 1, 2020 and continuing the fifteenth (15th) of each
month through the Maturity Date, as same may be extended; provided, however,
that for any monthly installment payment under the Mortgage Loan processed in
full by Lender and Mortgage Lender pursuant to Section 2.5(f) of this Agreement,
Borrower shall not be required to submit proof of such payment. (Emphasis
added). i
Under the Mezzanine Loan Agreement, if there was a default under the mortgage loans
secured against the Nostrand Building, the agreement explicitly provided that defendant 1580
Nostrand Mezz could foreclose on the Collateral under Article 9 of the UCC by stating in
paragraph 6.1 as follows:
Remedies: (a) If any Event of Default shall have occurred and be continuing, all
obligations of Lender under this Agreement shall, at the option of Lender, cease
and terminate, and Lender may immediately exercise any or all rights, remedies
and recourse available to it at law or in equity or under any of the Collateral
Documents, including, without limitation, the right to accelerate the Loan and
foreclose any and all liens and security interests securing the repayment of the
Loan under any of the Collateral Documents including, without limitation, the
Pledge Agreement. (Emphasis added.).
Thus, there is no dispute that the Mezzanine Loan Agreement applied to the mortgages
that were secured by the Nostrand Building, which is owned by the “Mortgage Borrower” as
well as the interest in the Collateral which is owned by the “Borrower.”4
4
The “Nostrand Building” is the real property which is owned by plaintiff Hello Nostrand and which is located at
1580 Nostrand Avenue, Brooklyn, New York.
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Similarly, the Mezzanine Promissory Note explicitly covered the mortgages which were
secured against the Nostrand Building because paragraph 4 made it an event of default under the
promissory note if there was a default under the mortgages secured by the Nostrand Building.
Specifically, paragraph 4 of the Mezzanine Promissory Note provides as follows:
4. The failure to make any payment required under this Note or the occurrence of
any Event of Default (as such term is defined in the Loan Agreement or the Other
Security Documents) shall constitute an Event of Default under this Note.
(Emphasis added). Oh
Critically, the Mezzanine Promissory Note in paragraph 9 provided that plaintiff Hello
Developer could not prepay the note unless the mortgages secured by the Nostrand Building
were simultaneously prepaid by providing, in relevant part, as follows:
9. Notwithstanding anything to the contrary contained herein, except for the
prepayment described in Section 7(c) above, the Principal Balance of this Note
may not be prepaid by Maker unless, simultaneously with such prepayment, the
following is also prepaid in full: (a) that certain loan originated as of December 6,
2017 (the "First Land Loan") in the principal amount of $17,730,000.00 from
PROPHET MORTGAGE OPPORTUNITIES LP (the "Original Mortgage
Lender"), to HELLO NOSTRAND LLC, a New York limited liability company
(the “Mortgage Borrower"), as evidenced by that certain Amended, Restated and
Consolidated Senior Loan Promissory Note dated as of December 6, 2017 (the
"First Land Note") in the principal amount of $17,730,000.00 executed by
Mortgage Borrower in favor of Original Mortgage Lender, and as secured by that
certain Consolidation, Extension and Modification of Senior Loan Mortgage,
Assignment of Leases and Rents, Security Agreement and Fixture Filing executed
by Mortgage Borrower in favor of Original Mortgage Lender in the principal
amount of $17,730,000.00 and encumbering the property owned by Mortgage
Borrower located at 1580 Nostrand Avenue, Brooklyn, New York 11226 (the
"Property"), as well as all guarantees, pledges, and other documents executed in
connection therewith (the "First Land Loan Documents"), which First Land Loan
was assigned by an Assignment of Consolidation, Extension and Modification of
Senior Loan Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing and Senior Loan Collateral Assignment of Leases and Rents dated
June 7, 2019 by Original Mortgage Lender to 1580 NOSTRAND AVE LLC, a
Delaware limited liability company (collectively, together with its successors
and/or assigns, the "Mortgage Lender") . . . .
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In addition, the Pledge Agreement defined the loan documents to refer collectively to the
Mezzanine Promissory Note, the Mezzanine Loan Agreement, and all of the other documents
and agreements securing the Mezzanine Promissory Note.
As such, the Pledge Agreement made it clear that it applied to the mortgages which were
secured by the Nostrand Building by explicitly stating that based upon the Pledge Agreement
entered into between the Pledgor (plaintiff Hello Developer) and Lender (1580 Nostrand Mezz),
“Lender has agreed to make that certain mezzanine loan to the Pledgor in the principal amount of
up to $3,000,000.00 (the “Loan”), as evidenced and secured by all of the obligations under and
secured by all of the obligations under and in connection with the Loan Documents (the
“Obligations”); and . . .” (Emphasis added).
Notably, the Pledge Agreement explicitly provides that a default under the mortgages
secured by the Nostrand Building is a default under the Pledge Agreement by providing in
paragraph 11 (a) the following:
An ‘Event of Default’ shall exist if any of the following occurs:
The occurrence of an "Event of Default", as such term is defined in the Note and
the other Loan Documents. . . (Emphasis added).
Accordingly, the Pledge Agreement covers the creation or transfer of an interest in or lien
on real property; namely, the mortgages secured against the Nostrand Building.
The Pledge Agreement defined the loan documents to refer collectively to the Mezzanine
Promissory Note, the Mezzanine Loan Agreement, and all of the other documents and
agreements securing the Mezzanine Promissory Note.
Therefore, there is no dispute that the Pledge Agreement covered not only the $3 million
mezzanine loan, but it also covered the obligations that are contained in the Mezzanine Loan
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Agreement relating to the mortgages secured against the Nostrand Building as explicitly
provided for in that loan agreement.
Critically, the Pledge Agreement explicitly provides that a default under the mortgages
secured by the Nostrand Building is a default under the Pledge Agreement by providing in
paragraph 11 (a) the following:
An ‘Event of Default’ shall exist if any of the following occurs:
The occurrence of an "Event of Default", as such term is defined in the Note and
the other Loan Documents. . . (Emphasis added).
Accordingly, the Pledge Agreement covers the creation or transfer of an interest in or lien
on real property; namely, the mortgages secured against the Nostrand Building.
Therefore, based upon a default under the Mezzanine Promissory Note or the Mezzanine
Loan Agreement, which includes a default under the mortgages secured against the Nostrand
Building, the Pledge Agreement provides that defendant 1580 Nostrand Mezz can exercise its
rights against the Collateral, under Article 9 of the UCC by providing in paragraph 12 (a), in
relevant part, as follows:
If any Event of Default shall have occurred, then Lender may exercise in respect
of the Collateral, in addition to all other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral), inclusive of the management rights of the Pledgor in the Issuer, as set
forth in the Operating Agreement, and Lender may also in its sole discretion,
without notice except as specified below, sell the Collateral or any part thereof in
one or more parts at public or private sale, . . . . at such time or times and at such
price or prices and upon such other terms as Lender may deem commercially
reasonable. . . .
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B. The December 22, 2021 Return Date For The Motion To
Dismiss And The Notice of Sale And The Need For A Stay
The UCC foreclosure sale of the Collateral has been scheduled for December 22, 2021 by
the notice of sale, and the return date of the defendants’ motion to dismiss the five causes of
action in the plaintiffs’ complaint is also on December 22, 2021.
Therefore, we could have the anomalous situation of this Court deciding on December
22, 2021 that the Pledge Agreement, and the Related Mezzanine Loan Agreements, violate
Article 9 of the UCC, and cannot provide a legal predicate for a UCC foreclosure sale on the
same day, December 22, 2021, that there is a foreclosure sale of the Collateral pursuant to the
very same Pledge Agreement, and the Related Mezzanine Loan Agreements.
To prevent such a contradictory and inequitable outcome, this Court should issue a stay,
pursuant to CPLR 2201, of its October 25, 2021 order and suspend the notice of sale and the
UCC foreclosure sale of the Collateral which is scheduled for December 22, 2021, pending a
resolution of the underlying action.
ARGUMENT
THE COURT SHOULD ISSUE A STAY OF ITS OCTOBER 25,
2021 ORDER SUSPENDING THE NOTICE OF SALE AND THE
UCC FORECLOSURE SALE OF THE COLLATERAL WHICH IS
SCHEDULED FOR DECEMBER 22, 2021 PENDING A
RESOLUTION OF THIS ACTION
CPLR 2201 provides as follows:
Except where otherwise prescribed by law, the court in which an
action is pending may grant a stay of proceedings in a proper case,
upon such terms as may be just.
It is well settled that under CPLR 2201, a New York court “has broad discretion to grant
a stay in order to avoid the risk of inconsistent adjudications, application of proof and potential
waste of judicial resources.” Zonghetti v. Jeromack, 150 A.D.2d 561, 563, 541 N.Y.S.2d 235 (2d
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Dep’t 1989). The determination as to whether to grant a stay is discretionary with the court. See
Sears v. Country Developers, Inc., 178 A.D.2d 708, 577 N.Y.S.2d 338 (3rd Dep’t 1991). See
also, Onebeacon Am. Ins. Co. v. Colgate–Palmolive Co., 96 A.D.3d 541, 949 N.Y.S.2d 14, 15
(1st Dep’t 2012)(“The duplication of effort, waste of judicial resources, and possibility of
inconsistent rulings in the absence of a stay outweigh any prejudice to plaintiff. . . .”) and
Belopolsky v. Renew Data Corp., 41 A.D.3d 322, 837 N.Y.S.2d 154 (1st Dep’t 2007)(a stay
affirmed based upon the consideration of “the goals of judicial economy, orderly procedure and
the prevention of inequitable results”).
Significantly, “[a] stay is defined as ‘a direction of the court, usually embodied in an
order, ‘freezing' an action or proceeding before it at whatever point it has reached and precluding
it from going any further.’" 1544-48 Properties, v. Maitre, 184 Misc. 2d 984, 985, 712 N.Y.S.2d
303 (App. Term, 2d Dep’t. 2000)(Internal citation omitted).
In this action, to prevent an inequitable result favors the granting of a stay by this Court
of its October 25, 2021 order suspending the notice of sale and the UCC foreclosure sale of the
Collateral which is scheduled for December 22, 2021, pending a resolution of this action.
The motion of the defendants to dismiss this action is returnable on December 22, 2021.
That is the very same day on which the Collateral is scheduled for a UCC foreclosure sale in
conformity with this Court’s order of October 25, 2021, and based upon the Pledge Agreement
and the other Related Mezzanine Loan Agreements. However, those agreements violate
N.Y.U.C.C. Law §9-109 (d)(11).
In their second cause of action, the plaintiffs alleged that the Collateral could not be the
subject of a UCC foreclosure sale because the Mezzanine Promissory Note, and the other related
agreements, including the Pledge agreement, violated N.Y.U.C.C. Law §9-109 (d)(11). That
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statute provides that Article 9 of the N.Y.U.C.C. Law does not apply to “the creation or transfer
of an interest in or lien on real property.”
A close examination of the Pledge Agreement clearly, as discussed above, makes a
default on the mortgages secured against the Nostrand Building a default under the Pledge
Agreement, and provides defendant 1580 Nostrand Mezz with the remedies provided for in
Article 9 of N.Y.U.C.C. Law, included the right to conduct a UCC foreclosure sale of the
Collateral.
Specifically, paragraph 5.1(a) of the Mezzanine Loan Agreement explicitly provides that
an event of default occurs under that agreement if there is a default in the payment of the
mortgages secured against the Nostrand Building.
In turn, paragraph 4 of the Mezzanine Promissory Note provides that there is an event of
default under that note if there is a default under the Mezzanine Loan Agreement.
In the same vein, paragraph 11 of the Pledge Agreement makes it an event of default
under that agreement if there is an “occurrence of an "Event of Default", as such term is defined
in the Note and the other Loan Documents. . . (Emphasis added).
Critically, paragraph 12 (a) of the Pledge Agreement provides for the following remedy
when an event of default occurs under the Pledge Agreement:
If any Event of Default shall have occurred, then Lender may exercise in respect
of the Collateral, in addition to all other rights and remedies provided for herein
or otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral), inclusive of the management rights of the Pledgor in the Issuer, as set
forth in the Operating Agreement, and Lender may also in its sole discretion,
without notice except as specified below, sell the Collateral or any part thereof in
one or more parts at public or private sale, . . . . at such time or times and at such
price or prices and upon such other terms as Lender may deem commercially
reasonable. . . . (Emphasis added).
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Thus, there can be no dispute that the Pledge Agreement effectively applied Article 9 of
the UCC to a “lien on real property.”
The fact that the Pledge Agreement also applied to the Mezzanine Promissory Note and
the Mezzanine Loan Agreement does not change the fact that its application also extended to the
mortgages that are secured against the Nostrand Building.
Accordingly, since the Pledge Agreement extended the remedies available under Article
9 of the UCC upon a default under the mortgages secured against the Nostrand Building, the
Pledge Agreement violated N.Y.U.C.C. Law §9-109 (d)(11). As such, the Collateral cannot be
the subject of a UCC foreclosure sale.
Therefore, without a stay of this Court’s October 25, 2021suspending the notice of sale
and the UCC foreclosure sale of the Collateral scheduled for December 22, 2021, there could be
an inequitable outcome in this action in which the Collateral is sold based upon the Pledge
Agreement, and the Related Mezzanine Loan Agreements, only to have this Court later
determine that the Pledge Agreement and the Related Mezzanine Loan Agreement are in
violation of Article 9 of the UCC.
In such an event, after the Collateral is sold, there is no way to unsell it, and the inequity
that would be visited upon the plaintiffs could not be remedied.
Therefore, any prejudice to the defendants by a stay of this Court’s October 25, 2021
order suspending the notice of sale and the UCC foreclosure sale of the Collateral which is
scheduled for December 22, 2021 is outweighed by the inequitable outcome to the plaintiffs if
there was a UCC foreclosure sale of the Collateral based upon agreements that violate Article 9
of the UCC.
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CONCLUSION
For the foregoing reasons, the Court should grant the motion of the plaintiffs for a stay of
this Court’s order of October 25, 2021 suspending the notice of sale and the UCC foreclosure
sale of the Collateral which is scheduled for December 22, 2021, pending the resolution of this
action, and pending a hearing and determination on the motion for a stay, the Court should issue
an interim stay suspending the notice of sale and the UCC foreclosure sale of the Collateral, and
grant the plaintiff such other and further relief as to the court seems just and proper.
Dated: New York, New York
December 10, 2021
Law Offices of Victor A. Worms
Attorneys for plaintiffs Eli Karp,
Hello Living Developer, Nostrand LLC
and Hello Nostrand LLC
By:____________________________
Victor A. Worms
48 Wall Street, Suite 1100
New York, New
Preview
FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ROCKLAND ---------------------------------------------------------------------X HELLO LIVING DEVELOPER NOSTRAND LLC and Index No. 034885/2021 HELLO NOSTRAND LLC, Plaintiffs, -against- 1580 NOSTRAND MEZZ, LLC, MADISON REALTY CAPITAL, L.P., Defendants. ------------------------------------------------------------------------X PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION FOR A STAY PURSUANT TO CPLR 2201 Law Offices of Victor A. Worms 48 Wall Street, Suite 1100 New York, New York 10005 (212) 374-9590 Attorneys for plaintiffs Hello Living Developer Nostrand, LLC and Hello Nostrand, LLC 1 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 TABLE OF CONTENTS TABLE OF AUTHORITIES ......................................................................................................... ii PRELIMINARY STATEMENT ................................................................................................... 1 STATEMENT OF FACTS ............................................................................................................ 2 I. The Commencement of This Action………………………………………………………. ..2 A. This Court’s August 24, 2021 Order……………………………………………………...3 B. This Court’s October 25, 2021 Order……………………………………………………..4 II. The October 20, 2021 Notice of Sale………………………………………………………..4 III. The Motion To Dismiss This Action……………………………………………………...5 A. The Plaintiffs’ Opposition To The Motion To Dismiss………………………………...6 B. The December 22, 2021 Return Date For The Motion To Dismiss And The Notice of Sale And The Need For A Stay…………………………..11 ARGUMENT…………………………………………………………………………………...11 THE COURT SHOULD ISSUE A STAY OF ITS OCTOBER 25, 2021 ORDER SUSPENDING THE NOTICE OF SALE AND THE UCC FORECLOSURE SALE OF THE COLLATERAL WHICH IS SCHEDULED FOR DECEMBER 22, 2021 PENDING A RESOLUTION OF THIS ACTION……………………………………………………………………………11 CONCLUSION………………………………………………………………………………..15 i 2 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 TABLE OF AUTHORITIES Cases Belopolsky v. Renew Data Corp., 41 A.D.3d 322, 837 N.Y.S.2d 154 (1st Dep’t 2007)………………………………………………………….12 Onebeacon Am. Ins. Co. v. Colgate–Palmolive Co., 96 A.D.3d 541, 949 N.Y.S.2d 14, 15 (1st Dep’t 2012)………………………………………………………12 Sears v. Country Developers, Inc., 178 A.D.2d 708, 577 N.Y.S.2d 338 (3rd Dep’t 1991)…………………………………………………………..12 Zonghetti v. Jeromack, 150 A.D.2d 561, 563, 541 N.Y.S.2d 235 (2d Dep’t 1989)…………………………………………………………..11 1544-48 Properties, v. Maitre, 184 Misc. 2d 984, 985, 712 N.Y.S.2d 303 (App. Term, 2d Dep’t. 2000)…………………………………………..12 Statues CPLR 2201………………………………………………………………………………………11 ii 3 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 PRELIMINARY STATEMENT This memorandum of law is submitted by plaintiffs Hello Living Developer Nostrand LLC (“Hello Developer”) and Hello Nostrand LLC (“Hello Nostrand”) in support of their motion, pursuant to CPLR 2201, for a stay of this Court’s order of October 25, 2021, and suspending the notice of sale and the UCC foreclosure sale of the Collateral which is scheduled for December 22, 2021, pending a resolution of this action.1 This memorandum is also submitted in support of an interim stay pending a determination by this Court of the plaintiffs’ motion for a stay pursuant to CPLR 2201. On December 22, 2021, the very same day on which the Collateral is scheduled for a UCC foreclosure sale, the defendants’ motion to dismiss all five causes of action in the plaintiffs’ complaint is returnable before this Court. The plaintiffs in their second cause of action have alleged that the security agreement, and the related agreements, which are the predicate for the pending UCC foreclosure sale of the Collateral violate N.Y.UCC Law § 9-109(d)(11) which states that Article 9 of N.Y.U.C.C. Law does not apply to “the creation or transfer of an interest in or lien on real property.” Therefore, the Collateral is not subject to a UCC foreclosure sale. Based upon this Court’s order of October 25, 2021, the notice of sale and the UCC foreclosure sale of the Collateral must be in compliance with that order. As such, this Court has the authority to suspend the notice of sale and the UCC foreclosure sale of the Collateral. 1 The Collateral is defined in the notice of sale which is annexed as Exhibit “D” to the accompanying affirmation of Victor A. Worms dated December 10, 2021. 1 4 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 Under New York law, a court can issue a stay, pursuant to CPLR 2201, to prevent an inequitable outcome in an action. It would be an inequitable outcome if there was a UCC foreclosure sale of the Collateral based upon a security agreement and related agreements, which this Court subsequently determined violated Article 9 of the UCC and could not have been the legal predicate for the UCC foreclosure sale of the Collateral. To prevent such an inequitable outcome, the Court should grant a stay, pursuant to CPLR 2201, of its October 25, 2021, and suspend the notice of sale and the UCC foreclosure sale of the Collateral, pending a resolution of this action. STATEMENT OF FACTS I. The Commencement of This Action On August 17, 2021, the plaintiffs commence the underlying action with the filing of the summons and verified complaint alleging five causes of action. The first cause of action in the plaintiffs’ complaint seeks a declaratory judgment declaring that defendant 1580 Nostrand Mezz, LLC (“1580 Nostrand Mezz”) is not authorized to do business in the state of New York; the second cause of action seeks a declaratory judgment that the Collateral is not subject to a UCC foreclosure and sale because the relevant agreements which are the predicate for the security interest in the Collateral violated N.Y.UCC Law § 9- 109(d)(11) which states that Article 9 of N.Y.U.C.C. Law does not apply to “the creation or transfer of an interest in or lien on real property;” the third cause of action seeks a declaratory judgment that the foreclosure sale of the Collateral is commercially unreasonable; the fourth cause of action seeks a declaratory judgment that the defendants violated N.Y.UCC Law § 1-304 2 5 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 which imposes an obligation of good faith in every UCC transaction, and the fifth cause of action seeks a permanent injunction enjoining the commercially unreasonable sale of the Collateral. (A copy of the summons and complaint and the exhibits thereto is annexed as Exhibit “A” to the accompanying affirmation of Victor A. Worms dated December 10, 2021(hereafter the “Worms Aff.”)). Subsequently, the plaintiffs’ moved, by order to show cause, for a preliminary injunction enjoining the commercially unreasonable UCC foreclosure sale of the Collateral which was scheduled for September 2, 2021. A. This Court’s August 24, 2021 Order In connection with the motion for a preliminary injunction, the plaintiffs sought a Temporary Restraining Order (“TRO”) of the UCC foreclosure sale of the Collateral, and on August 24, 2021, this court issued a TRO of the foreclosure sale of the Collateral that was scheduled for September 2, 2021, on the condition that the plaintiffs post a bond in the amount of $100,000.00. (A copy of the Court’s order of August 24, 2021 is annexed hereto as Exhibit “B” to the Worms Aff.). The Court’s order of August 24, 2021 directed that opposition papers from the defendants’ were to be served on September 20, 2021, and that reply papers by the plaintiffs should be served on September 28, 2021. Additionally, the Court’s order of August 24, 2021 also scheduled a hearing on October 1, 2021 on the plaintiffs’ motion for a preliminary injunction. That hearing date was subsequently adjourned by the Court to October 18, 2021. 3 6 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 B. This Court’s October 25, 2021 Order After the hearing on October 18, 2021, the Court subsequently issued an order on October 25, 2021 denying the plaintiffs’ motion for a preliminary injunction of the UCC foreclosure sale of the Collateral, and ordered that any future sale of the Collateral would be subject to, among other things, at least 60 days’ notice of sale and a qualifying deposit in the amount of $450,000.00 and that “all remaining aspects of the Sale must be in accordance with the terms and provisions of the Ownership Interests Pledge and Security Agreement by and between the Mezz Borrower and Mezz Lender, and shall be commercially usable in accordance with the Uniform Commercial Code. . . .” Thus, any notice of sale and any future UCC foreclosure sale of the Collateral are pursuant to, and subject to, this Court’s order of October 25, 2021. Therefore, this Court has the authority to issue a stay suspending the notice of sale and any future UCC foreclosure sale of the Collateral based upon the Court’s October 25, 2021 order. II. The October 20, 2021 Notice of Sale On October 20, 2021, defendant 1580 Nostrand Mezz issued a notice of sale of the Collateral for December 22, 2021 at 2 PM. (A copy of the notice of sale of October 20, 2021 is annexed as Exhibit “D” to the Worms Aff.).2 Importantly, the notice of sale explicitly indicated that the sale of the Collateral is being conducted pursuant to the following agreements between plaintiff Hello Developer and 2 As the hearing transcript of October 18, 2021 hearing indicates [NYSCEF Doc-69], prior to, but subject to, the written order to be issued by the Court, the defendants were given permission by the Court to serve a notice of sale. 4 7 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 defendant 1580 Nostrand Mezz: the Mezzanine Loan Agreement dated August 28, 2020 (the “Mezzanine Loan Agreement”), the Mezzanine Promissory Note dated August 28, 2020, (the “Mezzanine Promissory Note”), the Ownership Interest Pledge And Security Agreement dated August 28, 2021 (the “Pledge Agreement”), and the related Loan Agreements (collectively referred to herein as the “Related Mezzanine Loan Agreements”). Accordingly, if any of these agreements is legally invalid under N.Y.U.C.C. Law, the UCC foreclosure sale of the Collateral cannot proceed consistent with New York law, and this Court has the authority under its October 25, 2021 order to suspend the notice of sale and the UCC foreclosure sale of the Collateral. III. The Motion To Dismiss This Action This Court’s order of October 25, 2021 denying the plaintiffs’ motion for a preliminary injunction did not dispose of this action. Nonetheless, on November 2, 2021, the defendants made a motion to dismiss all five causes of action in the plaintiffs’ complaint arguing that those causes of action were now moot based upon the Court’s decision of October 25, 2021. [See NYSCEF Dos. 60-68]. While the plaintiffs’ first, third, and fifth causes of action can properly be said to be moot based upon this Court’s decision of October 25, 2021, the same cannot be said about the plaintiffs’ second and fourth causes of action. In particular, the plaintiffs’ second cause of action alleged that the Collateral is not subject to a UCC foreclosure sale because the security agreement violated N.Y.U.C.C. Law § 9- 109(d)(11), which explicitly provides that Article 9 does not apply to “the creation or transfer of an interest in or lien on real property.” 5 8 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 The fourth cause of action alleged that the defendants cannot rely upon the Pledge Agreement, and related agreements as a predicate for the UCC foreclosure sale of the Collateral because they violated N.Y.U.C.C. Law § 1-304. That statute provides that in “[e]ery contract or duty within this act imposes an obligation of good faith in its performance and enforcement.” Good faith is defined by N.Y. U.C.C. Law § 1-201(20) as “honesty in fact in the transaction or conduct concerned.” A. The Plaintiffs’ Opposition To The Motion To Dismiss The plaintiffs, in their opposition papers to the motion of the defendants to dismiss the five causes of action in the complaint, demonstrated that the Pledge Agreement, and the Related Mezzanine Loan Agreements, are legally invalid and cannot provide a predicate for the UCC foreclosure sale of the Collateral. [See NYSCEF Dos. 73-82].3 In particular, the Mezzanine Loan Agreement provided in paragraph 2.1 as follows: Agreement to Lend: Subject to the terms and conditions of this Agreement and Borrower's compliance with all the provisions hereof, and relying on Borrower's representations set forth herein, Lender agrees to lend to Borrower, and Borrower agrees to borrow from Lender, an amount not to exceed the Loan Amount, to be disbursed in several advances at such times and in such amounts as Lender shall determine in accordance with the procedures set forth in this Agreement. Lender and Mortgage Lender shall determine in their sole and absolute discretion whether Advances are made first from the Mortgage Loan or the Loan. (Emphasis added). Importantly, the Mezzanine Loan Agreement in paragraph 5.1 explicitly provided that it was an event of default under that agreement if any of the following things, among others, occurred: 3 To avoid unnecessary duplication, the Related Mezzanine Loan Agreements which are annexed to the plaintiffs’ opposition papers to the plaintiffs’ motion to dismiss will not be reproduced herein. 6 9 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 (a) Any default or Event of Default (as defined in the Mortgage, the Mortgage Loan Agreement, or the other Mortgage Loan Documents) by the Mortgage Borrower under the Mortgage or the other Mortgage Loan Documents; (b) Failure to provide Proof of Payment for the Mortgage unless Lender remains an Affiliate of Mortgage Lender . . . . (Emphasis added). The Mezzanine Loan Agreement defined Proof of Payment in paragraph 1.29 as follows: Mortgage Loan Default: A failure of Borrower to timely provide Lender with either (i) cancelled checks, (ii) bank statements, (iii) or any other proof, reasonably satisfactory to Lender, evidencing that Mortgage Borrower has made the monthly installment payment required pursuant to the terms of the Mortgage Loan (the "Proof of Payment"). If requested, Borrower shall be required to submit Proof of Payment no later than the fifteenth (15th) day of each calendar month commencing on October 1, 2020 and continuing the fifteenth (15th) of each month through the Maturity Date, as same may be extended; provided, however, that for any monthly installment payment under the Mortgage Loan processed in full by Lender and Mortgage Lender pursuant to Section 2.5(f) of this Agreement, Borrower shall not be required to submit proof of such payment. (Emphasis added). i Under the Mezzanine Loan Agreement, if there was a default under the mortgage loans secured against the Nostrand Building, the agreement explicitly provided that defendant 1580 Nostrand Mezz could foreclose on the Collateral under Article 9 of the UCC by stating in paragraph 6.1 as follows: Remedies: (a) If any Event of Default shall have occurred and be continuing, all obligations of Lender under this Agreement shall, at the option of Lender, cease and terminate, and Lender may immediately exercise any or all rights, remedies and recourse available to it at law or in equity or under any of the Collateral Documents, including, without limitation, the right to accelerate the Loan and foreclose any and all liens and security interests securing the repayment of the Loan under any of the Collateral Documents including, without limitation, the Pledge Agreement. (Emphasis added.). Thus, there is no dispute that the Mezzanine Loan Agreement applied to the mortgages that were secured by the Nostrand Building, which is owned by the “Mortgage Borrower” as well as the interest in the Collateral which is owned by the “Borrower.”4 4 The “Nostrand Building” is the real property which is owned by plaintiff Hello Nostrand and which is located at 1580 Nostrand Avenue, Brooklyn, New York. 7 10 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 Similarly, the Mezzanine Promissory Note explicitly covered the mortgages which were secured against the Nostrand Building because paragraph 4 made it an event of default under the promissory note if there was a default under the mortgages secured by the Nostrand Building. Specifically, paragraph 4 of the Mezzanine Promissory Note provides as follows: 4. The failure to make any payment required under this Note or the occurrence of any Event of Default (as such term is defined in the Loan Agreement or the Other Security Documents) shall constitute an Event of Default under this Note. (Emphasis added). Oh Critically, the Mezzanine Promissory Note in paragraph 9 provided that plaintiff Hello Developer could not prepay the note unless the mortgages secured by the Nostrand Building were simultaneously prepaid by providing, in relevant part, as follows: 9. Notwithstanding anything to the contrary contained herein, except for the prepayment described in Section 7(c) above, the Principal Balance of this Note may not be prepaid by Maker unless, simultaneously with such prepayment, the following is also prepaid in full: (a) that certain loan originated as of December 6, 2017 (the "First Land Loan") in the principal amount of $17,730,000.00 from PROPHET MORTGAGE OPPORTUNITIES LP (the "Original Mortgage Lender"), to HELLO NOSTRAND LLC, a New York limited liability company (the “Mortgage Borrower"), as evidenced by that certain Amended, Restated and Consolidated Senior Loan Promissory Note dated as of December 6, 2017 (the "First Land Note") in the principal amount of $17,730,000.00 executed by Mortgage Borrower in favor of Original Mortgage Lender, and as secured by that certain Consolidation, Extension and Modification of Senior Loan Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by Mortgage Borrower in favor of Original Mortgage Lender in the principal amount of $17,730,000.00 and encumbering the property owned by Mortgage Borrower located at 1580 Nostrand Avenue, Brooklyn, New York 11226 (the "Property"), as well as all guarantees, pledges, and other documents executed in connection therewith (the "First Land Loan Documents"), which First Land Loan was assigned by an Assignment of Consolidation, Extension and Modification of Senior Loan Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing and Senior Loan Collateral Assignment of Leases and Rents dated June 7, 2019 by Original Mortgage Lender to 1580 NOSTRAND AVE LLC, a Delaware limited liability company (collectively, together with its successors and/or assigns, the "Mortgage Lender") . . . . 8 11 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 In addition, the Pledge Agreement defined the loan documents to refer collectively to the Mezzanine Promissory Note, the Mezzanine Loan Agreement, and all of the other documents and agreements securing the Mezzanine Promissory Note. As such, the Pledge Agreement made it clear that it applied to the mortgages which were secured by the Nostrand Building by explicitly stating that based upon the Pledge Agreement entered into between the Pledgor (plaintiff Hello Developer) and Lender (1580 Nostrand Mezz), “Lender has agreed to make that certain mezzanine loan to the Pledgor in the principal amount of up to $3,000,000.00 (the “Loan”), as evidenced and secured by all of the obligations under and secured by all of the obligations under and in connection with the Loan Documents (the “Obligations”); and . . .” (Emphasis added). Notably, the Pledge Agreement explicitly provides that a default under the mortgages secured by the Nostrand Building is a default under the Pledge Agreement by providing in paragraph 11 (a) the following: An ‘Event of Default’ shall exist if any of the following occurs: The occurrence of an "Event of Default", as such term is defined in the Note and the other Loan Documents. . . (Emphasis added). Accordingly, the Pledge Agreement covers the creation or transfer of an interest in or lien on real property; namely, the mortgages secured against the Nostrand Building. The Pledge Agreement defined the loan documents to refer collectively to the Mezzanine Promissory Note, the Mezzanine Loan Agreement, and all of the other documents and agreements securing the Mezzanine Promissory Note. Therefore, there is no dispute that the Pledge Agreement covered not only the $3 million mezzanine loan, but it also covered the obligations that are contained in the Mezzanine Loan 9 12 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 Agreement relating to the mortgages secured against the Nostrand Building as explicitly provided for in that loan agreement. Critically, the Pledge Agreement explicitly provides that a default under the mortgages secured by the Nostrand Building is a default under the Pledge Agreement by providing in paragraph 11 (a) the following: An ‘Event of Default’ shall exist if any of the following occurs: The occurrence of an "Event of Default", as such term is defined in the Note and the other Loan Documents. . . (Emphasis added). Accordingly, the Pledge Agreement covers the creation or transfer of an interest in or lien on real property; namely, the mortgages secured against the Nostrand Building. Therefore, based upon a default under the Mezzanine Promissory Note or the Mezzanine Loan Agreement, which includes a default under the mortgages secured against the Nostrand Building, the Pledge Agreement provides that defendant 1580 Nostrand Mezz can exercise its rights against the Collateral, under Article 9 of the UCC by providing in paragraph 12 (a), in relevant part, as follows: If any Event of Default shall have occurred, then Lender may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral), inclusive of the management rights of the Pledgor in the Issuer, as set forth in the Operating Agreement, and Lender may also in its sole discretion, without notice except as specified below, sell the Collateral or any part thereof in one or more parts at public or private sale, . . . . at such time or times and at such price or prices and upon such other terms as Lender may deem commercially reasonable. . . . 10 13 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 B. The December 22, 2021 Return Date For The Motion To Dismiss And The Notice of Sale And The Need For A Stay The UCC foreclosure sale of the Collateral has been scheduled for December 22, 2021 by the notice of sale, and the return date of the defendants’ motion to dismiss the five causes of action in the plaintiffs’ complaint is also on December 22, 2021. Therefore, we could have the anomalous situation of this Court deciding on December 22, 2021 that the Pledge Agreement, and the Related Mezzanine Loan Agreements, violate Article 9 of the UCC, and cannot provide a legal predicate for a UCC foreclosure sale on the same day, December 22, 2021, that there is a foreclosure sale of the Collateral pursuant to the very same Pledge Agreement, and the Related Mezzanine Loan Agreements. To prevent such a contradictory and inequitable outcome, this Court should issue a stay, pursuant to CPLR 2201, of its October 25, 2021 order and suspend the notice of sale and the UCC foreclosure sale of the Collateral which is scheduled for December 22, 2021, pending a resolution of the underlying action. ARGUMENT THE COURT SHOULD ISSUE A STAY OF ITS OCTOBER 25, 2021 ORDER SUSPENDING THE NOTICE OF SALE AND THE UCC FORECLOSURE SALE OF THE COLLATERAL WHICH IS SCHEDULED FOR DECEMBER 22, 2021 PENDING A RESOLUTION OF THIS ACTION CPLR 2201 provides as follows: Except where otherwise prescribed by law, the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just. It is well settled that under CPLR 2201, a New York court “has broad discretion to grant a stay in order to avoid the risk of inconsistent adjudications, application of proof and potential waste of judicial resources.” Zonghetti v. Jeromack, 150 A.D.2d 561, 563, 541 N.Y.S.2d 235 (2d 11 14 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 Dep’t 1989). The determination as to whether to grant a stay is discretionary with the court. See Sears v. Country Developers, Inc., 178 A.D.2d 708, 577 N.Y.S.2d 338 (3rd Dep’t 1991). See also, Onebeacon Am. Ins. Co. v. Colgate–Palmolive Co., 96 A.D.3d 541, 949 N.Y.S.2d 14, 15 (1st Dep’t 2012)(“The duplication of effort, waste of judicial resources, and possibility of inconsistent rulings in the absence of a stay outweigh any prejudice to plaintiff. . . .”) and Belopolsky v. Renew Data Corp., 41 A.D.3d 322, 837 N.Y.S.2d 154 (1st Dep’t 2007)(a stay affirmed based upon the consideration of “the goals of judicial economy, orderly procedure and the prevention of inequitable results”). Significantly, “[a] stay is defined as ‘a direction of the court, usually embodied in an order, ‘freezing' an action or proceeding before it at whatever point it has reached and precluding it from going any further.’" 1544-48 Properties, v. Maitre, 184 Misc. 2d 984, 985, 712 N.Y.S.2d 303 (App. Term, 2d Dep’t. 2000)(Internal citation omitted). In this action, to prevent an inequitable result favors the granting of a stay by this Court of its October 25, 2021 order suspending the notice of sale and the UCC foreclosure sale of the Collateral which is scheduled for December 22, 2021, pending a resolution of this action. The motion of the defendants to dismiss this action is returnable on December 22, 2021. That is the very same day on which the Collateral is scheduled for a UCC foreclosure sale in conformity with this Court’s order of October 25, 2021, and based upon the Pledge Agreement and the other Related Mezzanine Loan Agreements. However, those agreements violate N.Y.U.C.C. Law §9-109 (d)(11). In their second cause of action, the plaintiffs alleged that the Collateral could not be the subject of a UCC foreclosure sale because the Mezzanine Promissory Note, and the other related agreements, including the Pledge agreement, violated N.Y.U.C.C. Law §9-109 (d)(11). That 12 15 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 statute provides that Article 9 of the N.Y.U.C.C. Law does not apply to “the creation or transfer of an interest in or lien on real property.” A close examination of the Pledge Agreement clearly, as discussed above, makes a default on the mortgages secured against the Nostrand Building a default under the Pledge Agreement, and provides defendant 1580 Nostrand Mezz with the remedies provided for in Article 9 of N.Y.U.C.C. Law, included the right to conduct a UCC foreclosure sale of the Collateral. Specifically, paragraph 5.1(a) of the Mezzanine Loan Agreement explicitly provides that an event of default occurs under that agreement if there is a default in the payment of the mortgages secured against the Nostrand Building. In turn, paragraph 4 of the Mezzanine Promissory Note provides that there is an event of default under that note if there is a default under the Mezzanine Loan Agreement. In the same vein, paragraph 11 of the Pledge Agreement makes it an event of default under that agreement if there is an “occurrence of an "Event of Default", as such term is defined in the Note and the other Loan Documents. . . (Emphasis added). Critically, paragraph 12 (a) of the Pledge Agreement provides for the following remedy when an event of default occurs under the Pledge Agreement: If any Event of Default shall have occurred, then Lender may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral), inclusive of the management rights of the Pledgor in the Issuer, as set forth in the Operating Agreement, and Lender may also in its sole discretion, without notice except as specified below, sell the Collateral or any part thereof in one or more parts at public or private sale, . . . . at such time or times and at such price or prices and upon such other terms as Lender may deem commercially reasonable. . . . (Emphasis added). 13 16 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 Thus, there can be no dispute that the Pledge Agreement effectively applied Article 9 of the UCC to a “lien on real property.” The fact that the Pledge Agreement also applied to the Mezzanine Promissory Note and the Mezzanine Loan Agreement does not change the fact that its application also extended to the mortgages that are secured against the Nostrand Building. Accordingly, since the Pledge Agreement extended the remedies available under Article 9 of the UCC upon a default under the mortgages secured against the Nostrand Building, the Pledge Agreement violated N.Y.U.C.C. Law §9-109 (d)(11). As such, the Collateral cannot be the subject of a UCC foreclosure sale. Therefore, without a stay of this Court’s October 25, 2021suspending the notice of sale and the UCC foreclosure sale of the Collateral scheduled for December 22, 2021, there could be an inequitable outcome in this action in which the Collateral is sold based upon the Pledge Agreement, and the Related Mezzanine Loan Agreements, only to have this Court later determine that the Pledge Agreement and the Related Mezzanine Loan Agreement are in violation of Article 9 of the UCC. In such an event, after the Collateral is sold, there is no way to unsell it, and the inequity that would be visited upon the plaintiffs could not be remedied. Therefore, any prejudice to the defendants by a stay of this Court’s October 25, 2021 order suspending the notice of sale and the UCC foreclosure sale of the Collateral which is scheduled for December 22, 2021 is outweighed by the inequitable outcome to the plaintiffs if there was a UCC foreclosure sale of the Collateral based upon agreements that violate Article 9 of the UCC. 14 17 of 18 FILED: ROCKLAND COUNTY CLERK 12/10/2021 11:58 PM INDEX NO. 034885/2021 NYSCEF DOC. NO. 84 RECEIVED NYSCEF: 12/10/2021 CONCLUSION For the foregoing reasons, the Court should grant the motion of the plaintiffs for a stay of this Court’s order of October 25, 2021 suspending the notice of sale and the UCC foreclosure sale of the Collateral which is scheduled for December 22, 2021, pending the resolution of this action, and pending a hearing and determination on the motion for a stay, the Court should issue an interim stay suspending the notice of sale and the UCC foreclosure sale of the Collateral, and grant the plaintiff such other and further relief as to the court seems just and proper. Dated: New York, New York December 10, 2021 Law Offices of Victor A. Worms Attorneys for plaintiffs Eli Karp, Hello Living Developer, Nostrand LLC and Hello Nostrand LLC By:____________________________ Victor A. Worms 48 Wall Street, Suite 1100 New York, New