Kairos Credit Strategies Operating Partnership v. The Friars National…

Background

Kairos Credit Strategies Operating Partnership, LP brought the action against The Friars National Association, Inc., described in the order as “Friars Club,” after Friars Club defaulted on loans made between 2018 and 2023. Kairos sought to foreclose its mortgage and security interest. On December 12, 2023, Judge Arun Subramanian granted Kairos’s motion for summary judgment on foreclosure and referred the calculation of damages to Judge Robyn F. Tarnofsky.

Kairos supported its proposed damages with proposed findings and declarations from Raymond Hu and Mark Lichtenstein. Friars Club made no submission opposing the claimed damages. Judge Tarnofsky reviewed Kairos’s materials and concluded that they did not contain all the information needed to calculate damages with reasonable certainty. Under the cited New York statute, the court may calculate the amount owed or appoint a referee to do so, but Kairos had the burden of proving its damages.

Deficiencies in the Damages Submissions

The order identified several deficiencies:

- Accrued default-rate interest: Kairos stated that the loan balance as of February 23, 2024, was $16,711,321.71, but the spreadsheet and declaration did not explain the numerical calculations used to reach the default-interest figures. Kairos cited sections of the loan documents that did not provide a calculation formula. The order also noted that Kairos referred to a Loan Agreement amended on January 10, 2022, but did not attach an amended version to its submissions or identify one elsewhere on the docket. - Property-inspection fees: Kairos claimed $13,600 for property inspections, described in the spreadsheet as an updated property-condition assessment and lender site-inspection travel. Kairos supplied no receipts or other evidence explaining or supporting this charge. - Special-servicing fee: Kairos’s request for a special-servicing fee was unsupported because it did not identify the workout firm or individual allegedly engaged for the services described in Section 2.10 of the Loan Agreement. The order referred to documentation showing a claimed $130,000 payment that Kairos was required to address. - Legal fees for an uncompleted loan modification: Kairos claimed $23,610.15 in legal fees and costs related to preparing requested loan-modification documents. Kairos did not cite a specific provision in the Loan Agreement, mortgage, or other loan document establishing entitlement to reimbursement for those expenses.

Order

Judge Tarnofsky did not set the final damages amount. Instead, she gave Kairos another opportunity to explain its calculations and provide the materials needed to understand and duplicate them.

The order directed Kairos to file a supplemental submission by May 22, 2024. An affidavit from someone with knowledge of the underlying facts had to explain the numerical formula for accrued default-rate interest, address whether the Loan Agreement was amended on January 31, 2024, identify who conducted the inspections underlying the $13,600 charge, and state whether Kairos retained a special servicer within the meaning of Section 2.10. Kairos was directed to attach the amended agreement or other supporting documentation where applicable and to explain any unavailable documentation or reasoned estimates.

Kairos had to serve the defendants with the supplemental submission and the order by May 23, 2024, and file proof of service by that date. The defendants could submit responses within one week after service.