CCO Condo Portfolio Junior Mezzanine, LLC v. Feldman

Background

CCO Condo Portfolio (AZ) Junior Mezzanine, LLC sued Ziel Feldman and HFZ Capital Group LLC to recover amounts allegedly due under four junior mezzanine loans. CCO Condo’s predecessor made the loans in November 2018 in connection with four condominium projects. Feldman and HFZ jointly and individually guaranteed payment of the loan principal, interest, certain carrying costs, deficiency amounts, and recourse obligations.

All four borrowers defaulted in November 2019. The predecessor lender sent default and payment-demand notices, then assigned its interests in the loans to CCO Condo on September 1, 2020. CCO Condo later sold interests serving as collateral for the loans at a January 7, 2021 sale. CCO Condo submitted the winning $65 million bid, but the proceeds did not satisfy the loans. CCO Condo stated that the defendants owed $86,350,220.27, including amounts under the guaranties, attorneys’ fees, and costs.

Before the sale, HFZ and others sued CCO Condo in New York state court, claiming that a planned sale was commercially unreasonable. The state court found that the original sale terms were commercially unreasonable but allowed a new sale to proceed under revised terms. The parties then agreed to terms under which a sale would be considered commercially reasonable if it met specified requirements, including compliance with New York law, advance notice, licensed auction procedures, publication, and notice to secured parties. Their stipulation of discontinuance preserved the ability to challenge the commercial reasonableness of a future sale.

Motion and Positions

CCO Condo moved for summary judgment before discovery. Summary judgment is a decision without a trial when the evidence shows that no genuine dispute exists about a fact that could affect the outcome. CCO Condo argued that the guaranties, the underlying debt, and the defendants’ failure to pay established liability. It also argued that the earlier state-court proceeding barred the defendants from disputing whether the later sale was commercially reasonable.

The defendants did not dispute that they had failed to meet their obligations as guarantors. They argued, however, that the sale’s commercial reasonableness remained a fact-intensive issue. Their objections concerned the timing and advertising of the sale during the winter holiday season and the COVID-19 pandemic, the wording of the advertisements, the required deposits, the sale terms, and the allegedly below-market price. They requested an opportunity for discovery.

Rule 56.1 and Discovery

The court found that many of the defendants’ factual denials lacked supporting citations under the court’s local summary-judgment rule. It therefore treated the corresponding facts in CCO Condo’s statement as admitted for purposes of the motion. The court also accepted CCO Condo’s affidavit and attached loan documents as evidence supporting the claimed amount owed, noting that the defendants supplied no competing calculations.

The court nevertheless declined to grant summary judgment solely because the defendants had not filed a separate affidavit requesting additional discovery. Because no formal discovery had occurred in this action, the court interpreted the defendants’ opposition as adequately requesting discovery-related relief and proceeded to consider the merits of the motion.

Liability Under the Guaranties

The court held that the defendants were liable under the guaranties. It reasoned that a creditor seeking summary judgment on a written guaranty generally must establish an absolute and unconditional guaranty, the underlying debt, and the guarantor’s failure to perform. Those elements were established here, and the defendants acknowledged their liability as guarantors.

The court rejected the argument that a commercially unreasonable sale would eliminate liability. It agreed with CCO Condo’s position that the sale’s commercial reasonableness could affect the amount of damages but would not change the defendants’ liability for any remaining shortfall under the guaranties.

Collateral Estoppel

Collateral estoppel is a rule that can prevent a party from relitigating an issue necessarily decided in an earlier case after that party had a full and fair opportunity to contest it. The court rejected CCO Condo’s argument that this rule barred the defendants’ challenge to the January 7, 2021 sale.

The earlier state-court order addressed the terms needed for a future sale to be commercially reasonable; it did not decide whether the January 7 sale actually was commercially reasonable. The state court was not later asked to decide that question. The court therefore found no identity between an issue necessarily decided earlier and the issue presented here. The language preserving challenges to a future sale and the defendants’ arguments under New York law also supported allowing the challenge to proceed.

Commercial Reasonableness and Damages

New York’s Uniform Commercial Code requires every aspect of a collateral disposition—including its method, manner, timing, place, and other terms—to be commercially reasonable. The court explained that commercial reasonableness depends on the totality of the circumstances and may include the creditor’s good-faith efforts and accepted practices in the relevant industry.

The court identified disputed issues concerning the final sale price, the timing and manner of advertising, the required deposits, and the sale terms. There was also a dispute about whether the collateral was clearly described in the advertising, although the record contained evidence that the advertising described the collateral as limited liability company interests. Because the inquiry was fact-intensive and material factual disputes remained, the court held that the issue could not be resolved on pre-discovery summary judgment.

Disposition

The court granted CCO Condo’s motion for summary judgment as to the defendants’ liability but denied it as to damages. The case was set to continue toward an initial pretrial conference, and the clerk was directed to terminate the summary-judgment motion.