U.S. Bank National Association, as Trustee for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2006-C28 v. Dexia Real Estate Capital Markets

Filing 102

OPINION AND ORDER. For the reasons set forth above, the Trust's Statement of the purchase price is AFFIRMED in part and MODIFIED in part. The purchase price must included attorneys' fees in the amount of $1,269,930.80. The purchase pr ice must also include prejudgment interest running from December 28, 2011 until September 3, 2014, to be calculated according to the formula set out in Plaintiff's Statement. The Trust is ordered to submit a proposed recalculation of the repurchase price for the Court's approval no later than September 3, 2014. (Signed by Judge Shira A. Scheindlin on 8/28/2014) (lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

U.S. BANK NATIONAL ASSOCIATION,
AS TRUSTEE FOR THE REGISTERED
HOLDERS OF WACHOVIA BANK
COMMERCIAL MORTGAGE TRUST,
COMMERCIAL MORTGAGE PASSTHROUGH CERTIFICATES, SERIES
2006-C28, ACTING BY AND THROUGH
ITS SPECIAL SERVICER CWCAPITAL
ASSET MANAGEMENT LLC,

OPINION AND ORDER
12-cv-9412 (SAS)

Plaintiff,
- against DEXIA REAL ESTATE CAPITAL
MARKETS F/K/A ARTESIA MORTGAGE
CAPITAL CORPORATION,
Defendant.

--------------------------------------------------------

)(

SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION
In 2006, Dexia Real Estate Capital Markets ("Dexia") issued a

$13,800,000 commercial real estate loan ("Marketplace Loan") to several
borrowers. It then resold the loan to a third-party buyer, who in tum reassigned it
to U.S. National Bank Association ("the Trust"). The resale was consummated by
a Mortgage Loan Purchase Agreement ("MLP A"), and the reassignment by a
Pooling and Servicing Agreement ("PSA"). In tandem, the MLP A and PSA set out
-1-

the representations and warranties to which Dexia stipulated, and to which it was
bound, as the issuer of the Marketplace Loan.
On July 9, 2014, I ruled that Dexia has been in breach of those
representations and warranties since 2011. 1 By way of remedy, I held that Dexia is
obligated- pursuant to Section 2.03(a) of the PSA- to repurchase the Marketplace
Loan from the Trust. 2 The only remaining dispute concerns the amount of the
repurchase price. The Trust asserts that it is entitled to $19,650,370.17, 3 a
calculation that includes (1) reimbursement for attorneys' fees and (2) prejudgment
interest during the window between Dexia's breach - in 2011 - and my July 2014
ruling. 4
Dexia disagrees on both fronts. It argues that the Trust was wrong to
include attorneys' fees and prejudgment interest in the repurchase price. 5 For the

See US. National BankAss'n v. Dexia, No. 12 Civ. 9412, 2014 WL
3368670 (July 9, 2014) ("Merits Op."). Familiarity with the underlying facts is
presumed.
2

See id. at *9.
See Plaintiffs Statement of the Purchase Price ("Plaintiffs

Statement").
4

See id. at 3-6.

See Dexia's Response to Plaintiffs Statement of the Purchase Price
("Response"). In addition to its core claims regarding attorneys' fees and
prejudgment interest, Dexia also argues (1) that the Trust's attorneys' fees are
unreasonable, and (2) that the Trust's calculation of "P & I Advances" - the
-2-

reasons set forth below, the repurchase price should be calculated as set out in the
Trust's statement, 6 subject to a ninety-day modification in the calculation of
prejudgement interest, as outlined below.

II.

APPLICABLE LAW
A.

Attorneys' Fees
Under New York law, 7 parties are permitted to shift attorneys' fees

by contract, but their "intention to do so [must be] unmistakably clear from the
language of the promise."8 This does not mean, however, that contracts must
incant the magic words "attorneys' fees." Rather, the inquiry is holistic: the

expense category referring to bank advances used to cover its continued obligation
on the Marketplace Loan - is slightly overstated. These arguments can be disposed
of summarily. As for the reasonableness of attorneys' fees, the Trust argues that
Dexia has "failed to come forward with a single shred of evidence" to substantiate
its position. Plaintiff's Reply Brief ("Plaintiff's Reply"), at 8. I agree. As for the
calculation of "P & I Advances," even if Dexia is right, the error is plainly de
minimis: it would make a difference of roughly $25,000 in an overall price of
nearly $20,000,000. Apart from that, the discrepancy between how the Trust
calculated the "P & I Advances" and how Dexia believes it ought to have done so
is plainly an accounting dispute. Unless the parties' agreement speaks to that
question - and there is no evidence to that effect - this Court has no basis to
intervene.
6

See Plaintiff's Statement.

7

The MLPA and PSA are governed by New York law. See MLP A §
15 and PSA § 11.04.
Hooper Assoc. Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487, 492
(1989).
-3-

parties' intention to shift attorneys' fees can be "manifest from the surrounding
facts and circumstances or purpose of the agreement." 9

B.

Prejudgment Interest
Section 500l(a) of New York's Civil Practice Law and Rules provides

that
[i]nterest shall be recovered upon a sum awarded because of a breach of
performance of a contract, or because of an act or omission depriving or
otherwise interfering with title to, or possession or enjoyment of,
property, except that in an action of an equitable nature, interest and the
rate and date from which it shall be computed shall be in the court's
discretion. 10
The section establishes a statutory default for breach of contract disputes governed
by New York law: the prevailing party is presumptively entitled to prejudgment
interest on the "sum awarded." 11 The purpose of assessing prejudgment interest is
not to "penal[ize] [] the breaching party, but rather [] to compensate the wronged

9

Promoto v. Waste Mgmt., Inc., 44 F. Supp. 2d 628, 650 (S.D.N.Y.
1999) (citing Hooper, 74 N.Y.2d at 492). Accord LaSalle Bank v. Capco American
Securitization Corp., No. 02 Civ. 9916, 2005 WL 3046292, at *6 (S.D.N.Y. Nov.
13, 2005) (holding that an agreement allowing for the "recovery of any expenses
arising out of the enforcement of the repurchase obligation" establishes an
intention to shift attorneys' fees).
10

N.Y. C.P.L.R. § 500l(a).

II

See JD 'Addario & Co. v. Embassy Indus., 20 N.Y.3d 113, 117-18

(2012).
-4-

party for the loss of use of the money." 12 The purpose, in other words, is to make
the prevailing party whole, not only for the breach, but also for the delay between
the occurrence of the breach and its recovery of the sum owed.
The application of section 500l(a) is not always mandatory. Under
New York law, parties are free to set a "contract rate" of prejudgment interest in
lieu of the statutory rate. 13 And they may even choose to waive prejudgment
interest entirely: by bargaining for an "exclusive" remedy, 14 designed to make the
parties whole without assessing prejudgment interest. 15

III.

DISCUSSION
A.

Attorneys' Fees
Dexia argues that the Trust is not entitled to attorneys' fees because it

failed to meet the "extraordinarily exacting" burden of showing, through

12

Katzman v. Helen ofTroy, No. 12 Civ. 4220, 2013 WL 1496952, at *2
(S.D.N.Y. Apr. 11, 2013) (citing J. D 'Addario, 20 N.Y.3d at 117).
13

See Williamson & Co., Inc. v. Colby Engraving & Rubber Plate
Corp., 413 N.Y.S.2d 580, 581-82 (1979).
14

J. D 'Addario, 20 N.Y.3d at 119.

15

See id. at 118-19 (holding that "parties to a civil dispute are free to

chart their own course [and] may fashion ... how damages are to be computed
without interference by the courts") (citing Town of Orangetown v. Magee, 88
N.Y.2d 41, 54 (1996)).
-5-

"unmistakably clear[] language," that the parties intended to shift attorneys' fees. 16
But Section 16 of the MLP A provides that in "any legal action, suit or proceeding
[] commenced between the Seller and the Purchaser regarding their respective
rights and obligations under this Agreement, the prevailing party shall be entitled
to recover, in addition to damages or other relief, costs and expenses, attorneys'
fees and court costs." 17 There can be no dispute that Dexia is bound by the terms
of the MLP A. Nor can be there be any dispute that the Trust, when it signed the
PSA, assumed the "rights [of a purchaser] under the MLPA." 18 Therefore,
attorneys' fees are owed. 19
A.

Prejudgment Interest

Dexia offers two arguments against including prejudgment interest in
the repurchase price.
1.

Section SOOl(a) Does Not Apply

Dexia's first argument is based on a narrowly technical reading of the

16

Response at 6 (citing Hooper, 74 N.Y.3d at 492).

17

MLPA § 16.

18

Merits Op., 2014 WL 3368670, at *8.

19

Because the MLPA authorizes the inclusion of attorneys' fees in the
calculation of the repurchase price, I need not resolve the parties' dispute about
whether the PSA independently authorizes the inclusion of attorneys' fees. See
Response, at 7-12; Plaintiffs Reply, at 5-7.
-6-

governing statute. Section 500l(a) provides that prejudgment interest "shall be
recovered upon a sum awarded" in breach of contract actions. 20 Because my July
2014 ruling ordered specific performance, not damages, Dexia argues that the
ruling "awarded" no "sum. " 21 According to Dexia, the "repurchase remedy in this
case is not a money damages award [but] specific performance of the repurchase
obligation,"22 which means that section 500l(a) does not apply, and prejudgment
interest - which is "purely a creature of statute" 23 - should not be assessed.
Dexia correctly notes that my July 2014 ruling requires specific
performance, as opposed to contract damages. It is also right that specific
performance, as a remedy for breach of contract, is distinct from a damages award.
But on the facts at hand, this distinction is bereft of a meaningful difference.
Although my July 2014 ruling does not formally award a "sum" to the Trust, the
functional result is identical. The specific performance that Dexia must now
undertake - repurchasing the Marketplace Loan - requires it to pay a large (and
specifc) sum of money to the Trust.

20

N.Y. C.P.L.R. § 500l(a) (emphasis added).

21

Response at 4-6.

22

Id. at 5.

23

Matter ofBello v. Roswell Park Cancer Inst., 5 N.Y.3d 170, 172

(2005).
-7-

Dexia asks me to read section 5001(a) in a way that distinguishes
between (1) requiring a party to transfer a sum of money, and (2) requiring
performance that can only be discharged by transferring a sum of money. I decline
to interpret the statute so narrowly. There is no indication that New York courts
favor this formalistic construction of section 500l(a). 24 Nor does the policy
rationale behind awarding prejudgment interest - ensuring that parties are
compensated not only for the hardship of breach, but also for the hardship of delay
- cut in Dexia's favor. In fact, it is just the opposite. To hold section 5001(a)
inapplicable here would, in effect, net a windfall for Dexia, who clearly derived an
economic benefit from retaining the money it otherwise would have paid to the
Trust during the period between the breach in 2011 and my July 2014 ruling.

2.

Prejudgment Interest Was Waived

Alternatively, Dexia argues that even if my July 2014 ruling triggers
section 5001(a), the loan documents operate as an effective waiver of statutory
interest because they set out repurchase as the "sole remedy" for breach. 25 Dexia's

24

Longstanding principles of federalism support this approach to
unresolved matters of state law. See Railroad Comm 'n of Texas v. Pullman, 312
U.S. 496, 500 (1941) ("The reign of law is hardly promoted if an unnecessary
ruling of a federal court is thus supplanted by a controlling decision of a state

court.").
25

Response at 2-3.
-8-

main authority for this proposition is a 2012 New York Court of Appeals case, J
D 'Addario & Company v. Embassy lndustries, 26 which held that "regardless of

what [Section] 5001 (a) customarily requires in terms of statutory interest for
breach of contract cases," when parties bargain for an "exclusive remedy" for
breach, that remedy "should be honored."27 Simply put, if parties wish to contract
around section 500l(a)'s default, they may.
In Dexia's view, the logic of J. D 'Addario applies directly to this
case: because the MLP A makes clear that "repurchase [is] the sole remedy
available to [the Trust]," it should be construed as an effective waiver of statutory
interest under section 5001(a). 28 The success of this argument depends on a broad
reading of J D 'Addario, which could support the proposition that any time parties
specify an exclusive remedy, they circumvent section 5001(a). But the facts of J
D 'Addario belie this claim. There, the parties set up an interest-bearing escrow

account to be liquidated as damages in the event of breach, and they specified that
the wronged party would retain "no further rights" once those liquidated damages
- from the escrow account - were awarded.

26

20 N.Y.3d 113 (2012).

27

Id. at 119.

28

Response at 2.
-9-

In other words, the parties in J. D 'Addario devised an alternative
means of resolving the problem that statutory prejudgment interest serves to
rectify: the economic hardship associated with delayed judgment, due to the timevalue of money. Here, it is true - as it was in J D 'Addario - that the loan
documents set out an "exclusive remedy." But unlike in JD 'Addario, the
exclusive remedy agreed on by Dexia and the Trust involves no built-in substitute
for statutory interest. J D 'Addario is therefore easily distinguishable from the
instant case. Here, section 5001(a) requires an award of prejudgment interest. 29

3.

Ninety Days Should Be Excluded from the Calculation
Finally, as an addendum to its main arguments, Dexia has asked that

the calculation of prejudgment interest be modified to exclude the first ninety days
of the time-window proposed by the Trust. According to the Trust, "prejudgment
interest should be assessed from and after the date when the Trust demanded that
29

In adopting this narrow reading of J D 'Addario, I note that two of my
colleagues - Judges Engelmayer and Oetken - recently issued opinions that decline
to apply J D 'Addario's waiver rule to contracts governed by New York law. See
Katzman, 2013 WL 1496952, at *6 (holding that J D 'Addario did not apply to a
contract governing a failed corporate merger because, despite the existence of a
sole remedy provision, the parties had not "expressly anticipated a particular form
of breach and agreed upon an exclusive remedy for [it]"). See also Wells Fargo v.
Bank of America, No. 10 Civ. 9584, 2014 WL 476299 (S.D.N.Y. Feb. 6, 2014)
(declining to apply J. D 'Addario to a judgment requiring loan repurchase because
the underlying loan documents provided for either repurchase or damages as the
proper remedy for breach).
-10-

Dexia repurchase the Marketplace Loan on September 19, 2011." 30 In response,
Dexia argues that interest should "not start running until [] 90 days" from that
point, since "Section 2.03 of the PSA does not require the repurchase to actually
occur for 90 days."31
The purpose of assessing prejudgment interest is to restore the Trust
to the position it would have enjoyed had Dexia complied with its obligations. The
PSA makes it very clear Dexia had ninety days "from [the] receipt of [a] written
request" to either cure the defect or repurchase the loan. 32 By its own admission,
the Trust submitted a written request to Dexia on September 29, 2011. Therefore,
Dexia was not in breach until ninety days after September 29, 2011 - or, December
28, 2011. Interest runs from the latter. 33

30

Plaintiff's Statement at 4.

31

Response at 6 n.13. AccordPSA § 2.03.

32

PSA § 2.03.

33

In support of assessing interest from September 29, 2011, the Trust
cites to Section 5001 for the proposition that "interest shall be computed from the
earliest ascertainable date the cause of action existed." Plaintiff's Statement at 4,
n.3. Accord N.Y. C.L.P.R. § 5001(b). Under New York law, a cause of action for
breach of contract "exists" when the plaintiff has a legal right to make the demand
- that is, at the time of breach. Merits Op., 2014 WL 3368670, at *6. However,
because Dexia was not obligated to repurchase the Marketplace Loan until ninety
days after the Trust's demand, the Trust was not wrongfully deprived of the benefit
of repurchase during the intervening period. Therefore, the Trust is not entitled to
prejudgment interest until after the ninety days elapsed. Accord Wells Fargo, 2014
-11-

VI.

CONCLUSION
For the reasons set forth above, the Trust's Statement of the purchase

price is AFFIRMED in part and MODIFIED in part. The purchase price must
included attorneys' fees in the amount of $1,269,930.80. The purchase price must
also include prejudgment interest running from December 28, 2011 until
September 3, 2014, to be calculated according to the formula set out in Plaintiffs
Statement. 34 The Trust is ordered to submit a proposed recalculation of the
repurchase price for the Court's approval no later than September 3, 2014.

SO ORDERED:

------New York, New York
August 28, 2014

Dated:

WL 476299, at *4 ("The correct calculation of damages is therefore the amount
that [the breaching party] would have paid if it had repurchased the loans when it
was supposed to have done so, plus statutory prejudgment interest from that date")
(emphasis added).

See July 21, 2014 Declaration ofDemetrios J. Morakis, Vice President
of CWCapital Asset Management LLC [Dkt. # 93].
34

-12-

- Appearances For Plaintiff:
Michael C. Hartmere, Esq.
Venable LLP
1270 Avenue of the Americas, 25th Floor
New York, NY 10020
[phone]
Gregory A. Cross, Esq.
Heather Deans Foley, Esq.
Colleen Mallon, Esq.
Venable LLP
750 East Pratt Street, Suite 900
Baltimore, MD 21202
[phone]

For Defendant:
David D. Ferguson, Esq.
G. Edgar Jam es, Esq.
Polsinelli Shughart PC
900 W. 48th Place, Ste. 900
Kansas City, MO 64112
[phone]

-13-