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FILED: ROCKLAND COUNTY CLERK 09/19/2022 11:55 AM INDEX NO. 034885/2021
NYSCEF DOC. NO. 140 RECEIVED NYSCEF: 09/19/2022
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ROCKLAND
HELLO LIVING DEVELOPER NOSTRAND LLC
and HELLO NOSTRAND LLC, Index No: 034885/2021
Plaintiffs, MEMORANDUM OF LAW IN
SUPPORT OF PLAINTIFFS’
- against - MOTION FOR A
TEMPORARY RESTRAINING
1580 NOSTRAND MEZZ LLC and MADISON ORDER AND PRELIMINARY
REALTY CAPITAL LP, INJUNCTION
Defendants.
Plaintiffs Hello Living Developer Nostrand LLC (“Developer”) and Hello Nostrand LLC
(“Hello”) submit this Memorandum of Law in Support of the Motion for a Temporary Restraining
Order and Preliminary Injunction in this matter.
PRELIMINARY STATEMENT
Plaintiffs seek entry of an order (i) adding Nostrand Mezz Lender LLC (“Nostrand Mezz”),
the current payee of the mezzanine loan at issue, as a party defendant, and (ii) pursuant to CPLR
6301, issuing a preliminary injunction directing (a) that the “Summary of Path for 421A” document
be withdrawn from the data room and replaced with correct and accurate information concerning
the property’s 421a tax abatement eligibility and (b) that Nostrand Mezz adjourn the UCC sale
currently scheduled to take place on September 21, 2022, at 2:00 p.m., for at least thirty (30) days
to allow sufficient time for accurate material information to be published to the market at large
and disseminated to prospective bidders who have previously inquired with The Corbin Group at
Rosewood Realty.
This Court’s intervention is immediately required to temporarily delay the commercially
unreasonable sale of Developer’s membership interests in Hello (the “Collateral”). Without the
Court’s intervention, Nostrand Mezz intends to sell those interests by public sale on September
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21, 2022, at 2:00 p.m. Allowing the sale to proceed, in light of the manifestly unreasonable sales
process (which includes providing misleading and false information to artificially depress the
likelihood of outside bidders and the value of any outside bids), will irreparably harm the plaintiffs.
As demonstrated below, the plaintiffs are entitled to a temporary restraining order and
preliminary injunction because (a) they are likely to succeed on their claim that because the bidding
procedures are designed so that the defendants and their affiliates will be the only bidder, the
process is commercially unreasonable, (b) the plaintiffs will be irreparably harmed if the UCC sale
is allowed to go forward based upon materially misleading information, and (c) the equities heavily
tip in favor of the plaintiffs.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
This action was stayed when Developer filed for relief under Chapter 11 of the United
States Bankruptcy Code on December 21, 2021. Developer’s bankruptcy case was dismissed on
July 25, 2022, on the motion of Nostrand Mezz. Nostrand Mezz, an affiliate of the Arch Companies
(“Arch”), had purchased the mezzanine loan at issue in this action from defendant 1580 Nostrand
Mezz LLC (“1580 Nostrand”) in or around March 2022. Another Arch affiliate, Nostrand Senior
Lender LLC (“Lender”), acquired Hello’s mortgage loans for the underlying property at the same
time. Lender recently commenced a foreclosure action in the Supreme Court State of New York,
County of Kings, Index No. 524162/2022.
It should be noted that the so-called mezzanine loan at issue was part of a workout with
respect to the original loan, in which the then owner of the first mortgage created a mezzanine loan
in 2020 during the pandemic shutdown when mortgage foreclosure cases in New York had been
halted. In other words, the instrument that is at issue here is not from a separate and independent
lender. Instead, it is an integral part of the underlying mortgage, intended to supplement the power
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of the lender by effectively removing foreclosure from the judicial process, and is deliberately
designed to prevent Hello from being able to exercise its rights to redeem the underlying mortgage.
Counsel for the plaintiffs became aware several weeks ago of an advertisement by
Rosewood Realty Group for a UCC sale of Developer’s membership interest in Hello. As noted
above, the sale is scheduled for September 21, 2022 at 2 p.m., with a bid deadline of September
19, 2022, at 4 p.m. After repeated phone calls to various lawyers representing the defendants and
their affiliates were unsuccessful in obtaining information about the sale, on August 25, 2022,
Victor A. Worms, Esq. (co-counsel for plaintiffs) sent a letter to Jerold C Feuerstein, Esq., counsel
for the defendants, requesting information about the sale. In addition to requesting information to
confirm that the sale was properly noticed in accordance with the requirements of this Court’s
order of October 25, 2021 (NYSCEF No. 58), the letter specifically requested “a copy of the
complete bidding procedures and terms of sale as well as access to the due diligence data room for
prospective bidders.” Aloe Aff. ¶ 4.
The only response to Mr. Worms’ letter was an email dated August 26, 2022 from Mr.
Feuerstein. That email states in its entirety: “Victor- As you are aware from the participating in
the bankruptcy our client sold the loan to a third party.” Accordingly, on August 30, 2022, counsel
for the plaintiffs sent a letter to Gayle Pollack, Esq., counsel to defendants’ affiliates in the newly-
filed foreclosure action in Kings County (Nostrand Senior Lender LLC v. Hello Nostrand LLC et
al., Index No. 524162/2022). This letter included a copy of Mr. Worms’ letter of August 25, 2022,
and reiterated plaintiffs’ request for information concerning the sale. I received no response from
Ms. Pollack. Aloe Aff. ¶ 6.
On September 6, 2022, Greg Corbin of Rosewood Realty Group sent Mr. Worms a Word
document which purported to be a notice of sale. This document did not include any of the
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information required by the Court in its October 25, 2021 Order, nor did it include any due
diligence or other information that would allow plaintiffs to assess whether the proposed sale
would be commercially reasonable.
Having received no meaningful information regarding the sale in response to these letters,
on September 6, 2022 Mr. Worms submitted a letter to the Court (NYSCEF No. 117) to bring the
Court’s attention to plaintiffs’ concerns with the conduct of defendants and their affiliates in
scheduling the sale and request an emergency conference with the Court. The Court scheduled a
Teams conference on September 12, 2022 and, among other things, directed that counsel for
plaintiffs be provided with full information regarding the sale, including access to the due diligence
data room maintained by Rosewood Realty Group. Counsel for the plaintiffs received access to
the data room on September 13, 2022. Aloe Aff. ¶ 10. Included in the materials maintained in the
data room is a one-page Word document titled “Summary of Path for 421A” a copy of which is
attached as Exhibit A to the Aloe Aff. This document states the following:
Summary of path for 421a
No action was needed to take place before the June 15, 2022 421a expiration date
To qualify for 421a for the expanded building:
Amend plans/combine the tax lots
Reopen the application to file a PAA with cellar level connecting the two buildings
Amend the Building Permit
To enlarge the permit to include the second lot
Renew and expand existing TCO to the full enlarged building
Existing CO originally issued June 24, 2021
Complete the expanded building by June 2026
Pay full taxes on the existing building until the new expanded building is complete
Once TCO for the expanded building is received, follow the typical steps for 421a
application and approval
This document leads prospective bidders to believe that the undeveloped portion of the
property located at 1580 Nostrand Avenue, Brooklyn, New York 11226, Block 5131, lot 106 (“Lot
106”) is ineligible for a 421a tax abatement as of right because the June 15, 2022 1 deadline to
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Under RPTL § 421-a(16)(a)(xxviii), work had to “commence” by June 15, 2022 for the property to be eligible for
an abatement under that program
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commence work on the undeveloped portion of the property was not met. The assertion that the
June 15, 2022 deadline was not met is false and misleading, and so counsel for plaintiffs sent a
letter on September 15, 2022 to counsel for Nostrand Mezz to correct the record. Aloe Aff. ¶ 16.
Attached to the letter was a copy of a Site Safety Log dated May 22, 2018 (Exhibit B) and a ZD 1
Zoning Diagram (Exhibit C), which conclusively demonstrates that required work commenced 2 in
May of 2018, well before the deadline. Aloe Aff. ¶ 15. Counsel for the plaintiffs then stated in the
letter that the “Summary of Path for 421A” document should be withdrawn from the data room
and replaced with correct and accurate information concerning the property’s 421a tax abatement
eligibility and demanded that Nostrand Mezz adjourn the UCC sale currently scheduled to take for
at least thirty (30) days to allow sufficient time for this material information to be published to the
market at large and disseminated to prospective bidders.
The presence of this false and misleading information will, absent correction, result in a
sales process that is not commercially reasonable. Eligibility for a 421a tax abatement is a
significant component in determining the value of commercial real estate and development
projects in New York City. For a property the size of the one at issue in this proceeding, the
difference in value of the property based upon a 421a tax abatement could be in the tens of millions
of dollars.
This suppression of information regarding the valuation of the property appears to be
intentional. As Nostrand Mezz and the current lenders on the property at issue are affiliates, they
have an incentive to preclude other bidders from participating in the sale and in suppressing the
value of any bids. Aloe Aff. ¶ 21. Instead of seeking to maximize the value of any bids in order to
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As construction on the project was overseen and monitored by Hello’s lenders, presumably defendants and their
affiliates had this information, but the information available to potential bidders in the data room suggests the opposite.
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recover as much of their investment as possible, it appears that the strategy of Nostrand Mezz is
to gain control of Developer so that it can, as the sole member of Hello, direct the capitulation of
Hello on defaults, resulting in the seizure of ownership of the property and project.
Absent restraint, the plaintiffs will suffer irreparable harm as a result of a commercially
unreasonable sale of the Collateral. Plaintiffs are seeking modest relief; they simply are asking this
Court to direct the removal of the false information from the data room, direct that the
misrepresentations be corrected to those potential bidders who accessed the false information and
scheduling the sale thirty (30) days out from the current sale date so that it can be conducted in a
commercially reasonable manner.
ARGUMENT
Plaintiffs are entitled to a temporary restraining order and preliminary injunction to protect
it from the irreparable harm that will result if Nostrand Mezz continues with the planned
commercially unreasonable UCC sale.
A preliminary injunction may be granted when plaintiff has shown: “(1) a likelihood of
success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld;
and (3) a balance of the equities tipping in the moving party’s favor.” Apple Air Conditioning &
Appliance Service, Inc. v. Apple Home Heating Corp., 164 A.D.3d 460, 461 (2d Dep’t 2018)
(internal quotations omitted). Similarly, a TRO may be granted “where it appears that immediate
and irreparable injury, loss or damage will result unless the defendant is restrained before the
hearing can be had.” CPLR § 6301. Moreover, New York U.C.C. § 9-625 explicitly authorizes
injunctive relief to prevent a secured lender from foreclosing on property in a commercially
unreasonable manner. See N.Y. U.C.C. § 9-625(a) (allowing the court to “order or restrain
collection, enforcement, or disposition of collateral”). Because the proposed non-judicial
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foreclosure sale is commercially unreasonable and the plaintiffs satisfy the requirements for
injunctive relief, this court should enter a TRO and preliminary injunction barring the currently
scheduled sale.
I. Plaintiffs are Likely to Succeed on the Merits that the Proposed UCC Sale is not
Commercially Reasonable.
A. The New York U.C.C. requires that “all aspects” of the sale be conducted in a
commercially reasonable manner.
Under the UCC, every proposed sale must be a “good faith attempt to dispose of the
collateral to the parties’ mutual best advantage.” Long Island Trust Co. v. Williams, 507 N.Y.S.2d
993, 997 (N.Y. Civ. Ct. 1986) (internal quotations omitted). It is not enough that the sale happens
to benefit the creditor. See id. Under Article 9 of the UCC, “[e]very aspect of a disposition of
collateral, including the method, manner, time, place, and other terms, must be commercially
reasonable.” N.Y. U.C.C. § 9-610(b). As relevant here, Section 9-627(b) provides that a
“disposition of collateral is made in a commercially reasonable manner if the disposition is made.
. . in conformity with reasonable commercial practices among dealers in the type of property that
was the subject of the disposition.” N.Y. U.C.C. § 9-627(b). In other words, the sale must follow
commercially reasonable procedures. See Federal Deposit Ins. Corp. v. Herald Square Fabrics
Corp., 81 A.D.2d 168, 184 (2d Dep’t 1981).
Whether a sale is commercially reasonable is a fact-intensive inquiry. Coxall v. Clover
Commercial Corp., 781 N.Y.S.2d 567, 574 (Civ. Ct. King County 2004). Courts consider
“accepted business practices as a guide to what is most likely to protect both debtor and creditor.”
Dougherty v. 425 Dev. Assocs., 93 A.D.2d 438, 446 (1983). Among the factors considered in
assessing reasonableness is the timing between the notice and sale and “whether the seller
permitted necessary inspections by prospective bidders.” In re Comprehensive Power, Inc., 578
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B.R. 14, 40-41 (D. Mass. Bankr. 2017) (construing identical U.C.C. provisions and noting that a
number of factors in addition to the price need to be considered to determine whether a transaction
was commercially reasonable). “[C]loser scrutiny” is warranted where, as here, “the possibilities
for self-dealing are substantial.” LBO Capital Corp. v. Home & City Sav. Bank, 1992 WL 209310,
at *7 (N.D.N.Y. Aug. 18, 1992).
B. A Sales Process Based Upon False and Misleading Information Is Not Reasonable
Under New York law, the creditor bears the burden of establishing that it is conducting a
UCC sale in a commercially reasonable manner. See, e.g., GE Credit Corp. v. Durante Bros. &
Sons, Inc., 79 A.D.2d 509, 510 (1st Dep’t 1980); Security Tr. Co. v. Thomas, 59 A.D.2d 242, 247
(4th Dep’t 1977); Central Budget Corp. v. Garrett, 48 A.D.2d 825, 826 (2d Dep’t 1975). The UCC
requires that “[e]very aspect of a disposition of collateral, including the method, manner, time,
place, and other terms, must be commercially reasonable.” N.Y. U.C.C. § 9-610(b). Pursuant to
UCC § 9-627(b), the sale of collateral after a default is commercially reasonable if made “(1) in
the usual manner on any recognized 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.”
The purpose is to “insure that the debtor has an opportunity to redeem prior thereto, and
that the property is not sacrificed at a price below its actual value.” See Sumner v. Extebank, 88
A.D.2d 887, 888 (1st Dep’t 1982) (citation omitted); see also Federal Deposit Ins. Corp. v. Herald
Square Fabrics Corp., 81 A.D.2d 168, 184 (2d Dep’t 1981). Commercial reasonableness requires
a secured lender to employ the methods and procedures that will fulfill the UCC’s prime objective
of “optimizing resale price” the sale. See European Am. Bank v. Sackman Mortg. Corp. (In re
Sackman Mortg. Corp.), 158 B.R. 926, 936 (Bankr. S.D.N.Y. 1993).
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Given the importance of the availability of a 421-a tax benefit to the value of the property
at issue in this case, it is clear that the presence of false and misleading information in the data
room (which has the effect of deflating the value of the property) is not in conformity with
“reasonable commercial practices” among buyers and sellers of commercial real estate in New
York and will not result in “optimizing resale price.” As noted in the Korngold Affidavit at ¶ 14,
“Eligibility for a 421-a tax abatement is a significant component in determining the value of
commercial real estate and development projects in New York City.” Indeed, with respect to the
specific parcel at issue, “the difference in value of the property based upon a 421-a tax exemption
could be in the tens of millions of dollars.” Id. With the potential for saving over $1.5 million
annually on taxes if the property received a 421-a benefit, the inclusion of false information about
the eligibility and availability of this benefit destroys any claim that the sale would be
commercially reasonable.
C. Plaintiffs Will Suffer Irreparable Injury In The Absence Of Injunctive Relief
Absent injunctive relief, the plaintiffs will suffer immediate and irreparable injury. Under
New York law, irreparable harm is shown if money damages would be inadequate to compensate
plaintiff for its loss. See McLaughlin, Piven, Vogel, Inc. v. W.J. Nolan & Co., 114 A.D.2d 165, 174
(2d Dep’t 1986). Where the potential injury would be the loss of real estate, courts repeatedly and
consistently find that the harm to be irreparable. See, e.g., Brooklyn Heights Ass’n, Inc. v. Nat’l
Park Serv., 777 F. Supp. 2d 424, 435 (E.D.N.Y. 2011) (“[I]t is well-settled that unauthorized
interference with a real property interest constitutes irreparable harm as a matter of law, given that
a piece of property is considered to be a unique commodity for which a monetary remedy for injury
is an inherently inadequate substitute”) (citations omitted). Additionally, absent preliminary
injunction, the plaintiffs will suffer irreparable harm because itwill lose its invaluable control
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rights over Hello, which in turn owns the underlying property and controls the ongoing
development. Loss of business control rights cannot be measured through money damages. See
Int’l Equity Inv., Inc. v. Opportunity Equity Partners, Ltd., 407 F. Supp. 2d 483 (S.D.N.Y. 2005).
Needless to say, if as a result of a commercially unreasonable sale that is artificially low
based upon buyers and potential buyers relying upon the false information the defendants and their
affiliates created and refuse to remove from the data room, the plaintiffs will be irreparably harmed
by losing control of all aspects of Hello’s business, including, most importantly, its defense of the
pending foreclosure action brought by Nostrand Mezz’s mortgage affiliate, as well as control of
the plaintiffs’ inviolable equitable right of redemption, which will ultimately result in the
plaintiff’s loss of ownership and control of the real property at issue. The defendants’ refusal to
remove the false information in the data room underscores the fact that that information was placed
there to deliberately ward off any bidders other than an affiliate of Nostrand Mezz.
D. Balancing of the Equities Favors Injunctive Relief
In deciding whether to grant a preliminary injunction, the Court must weigh the harm that
the plaintiffs will suffer if the injunction is denied against the harm that the defendants are is likely
to face if the requested relief is granted. See Gerald Modell Inc. v. Morgenthau, 196 Misc. 2d 354,
363 (Sup. Ct. N.Y. Cty. 2003). In doing so, the court should seek to maintain the status quo. See
Gramercy Co. v. Benenson, 223 A.D.2d 497, 498 (1st Dep’t 1996). Here, the equities clearly weigh
in favor of the plaintiffs and in favor of maintaining the status quo. Nostrand Mezz is threatening
to proceed with a UCC sale of Developer’s ownership interests in Hello despite the fact that it has
distributed false and misleading information that has the effect of reducing the interests of potential
bidders and depresses any potential bids.
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In contrast, plaintiffs are seeking only modest relief. All they are requesting from this Court
is an Order directing that the defendants and affiliates ensure that corrected information regarding
the potential 421-a benefit be uploaded to the data room and provided to potential bidders and that
the sale be delayed thirty (30) days to allow the market to digest this important information. This
correction of information and a brief pause surely cannot result in a legally recognizable harm.
Perhaps defendants and affiliates are resisting this because they have a plan to obtain control of
Hello (and then ultimately the property) at a below market price for their own use and benefit. This
should not be permitted – if they ultimately obtain control through a commercially reasonable
process, that is one thing. Obtaining control by improper means, like artificially understating the
value of the collateral to deter prospective bidders, is quite another. Thus, plaintiffs’ motion should
be granted in order to ensure that the requirements of commercial reasonableness under the UCC
are followed.
CONCLUSION
Accordingly, for the foregoing reasons, the plaintiffs respectfully request that this Court
enter an order (i) adding Nostrand Mezz, the current payee of the mezzanine loan at issue, as a
party defendant, and (ii) pursuant to CPLR 6301, issuing a preliminary injunction directing (a) that
the “Summary of Path for 421A” document be withdrawn from the data room and replaced with
correct and accurate information concerning the property’s 421a tax abatement eligibility and (b)
that Nostrand Mezz adjourn the UCC sale currently scheduled to take place on September 21,
2022, at 2:00 p.m., for at least thirty (30) days to allow sufficient time for accurate information to
be published to the market at large and disseminated to prospective bidders who have previously
inquired with The Corbin Group at Rosewood Realty.
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Dated: New York, New York
September 19, 2022
By: _______________________
Paul H. Aloe
David N. Saponara
Francis M. Curran
KUDMAN TRACHTEN ALOE POSNER LLP
800 Third Avenue, 11th Floor
New York, New York 10022
Tel: (212) 868-1010
paloe@kudmanlaw.com
dsaponara@kudmanlaw.com
fcurran@kudmanlaw.com
Victor A. Worms
LAW OFFICES OF VICTOR A. WORMS
48 Wall Street, Suite 1100
New York, New York 10005
Tel: (212) 374-9590
vworms@victorawormspc.com
Attorneys for Plaintiffs
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