Atlas MF Mezzanine Borrower, LLC v. Macquarie Texas Loan Holder, LLC

Filing 23

OPINION AND ORDER: re: 5 EMERGENCY MOTION for Preliminary Injunction filed by Atlas MF Mezzanine Borrower, LLC. Atlas's motion for a preliminary injunction (Dkt. No. 5) is Denied. SO ORDERED. (Signed by Judge Louis L. Stanton on 2/23/2017) (ama)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ATLAS MF MEZZANINE BORROWER, LLC, a
Delaware limited liability company,

17 Civ. 1138 (LLS)
Plaintiff,
OPINION & ORDER

- against MACQUARIE TEXAS LOAN HOLDER, LLC, a
Delaware limited liability company,

Defendant.
Plaintiff Atlas MF Mezzanine Borrower, LLC ("Atlas"),
moves, under Fed. R. Civ. P. 65(a) and N.Y. U.C.C.

§

9-625(a),

for a preliminary injunction against defendant Macquarie Texas
Loan Holder, LLC ("Macquarie"), to prevent Macquarie from
selling on Monday, February 27, 2017 Atlas's equity interest in
Atlas MF Holdco, LLC ("Holdco"), a subsidiary of Atlas, that Atlas
pledged as collateral to secure a loan from Macquarie.
For the reasons that follow, the motion is denied.
BACKGROUND

The following facts appear uncontroverted:
Atlas, its parent company, and affiliate companies, develop
and operate multi-family housing. Ver. Compl.

(Dkt. No. 1)

~

18.

In or around December of 2013, Atlas, through its wholly owned
subsidiary Holdco, purchased eleven apartment complexes located
in the State of Texas. Id.

~~

19, 21, 24. Each purchase was

financed by a separate loan insured by the United States

1

Department of Housing and Urban Development ("HUD"). Id. ! 19.
The purchase of the apartment complexes was financed through a
mezzanine loan that Atlas obtained from Macquarie in the sum of
$71 million. Id. ! 28; Jones Decl.

(Dkt. No. 18) ! 13. The terms

of the loan were memorialized in a mezzanine loan agreement and
a promissory note executed by Atlas and Macquarie and dated
December 30, 2013. Ver. Compl. ! 29, Exhs. A-B; Jones Decl. !
16, Exhs. C-D. In a pledge and security agreement executed the
same day, Atlas pledged its equity interest in Holdco and other
collateral as security for the mezzanine loan. Ver. Compl. ! 31,
Exh. C.; Jones Decl. ! 17, Exh. E. Under the mezzanine loan
agreement, the loan was to mature on January 2, 2017, but
because that day was a public holiday, the agreement provided
that final payment was due on the preceding business day, which
was December 30, 2016. See Ver. Compl. ! 30, Exh. A; Jones Decl.
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20, Exh. C. The loan documents set forth certain conditions

under which Atlas could extend the maturity date for two oneyear periods. See Ver. Compl. ! 30, Jones Decl. ! 19. According
to Macquarie's president Hayden Jones, at the time the loan
matured Atlas had not met the conditions to extend the maturity
date, and Atlas did not request an extension of the maturity
date. Jones Decl. ! 19.
As the maturity date approached Atlas sought financing to
enable it to pay off the balance of the mezzanine loan. Ver.
2

Compl.

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33. On December 22, 2016 Atlas asked Macquarie to

forebear for a short period from exercising its rights and
remedies,

informing Macquarie it would be able to pay the loan

in full within 45 days of the maturity date, and Macquarie
indicated its openness to a short period of forbearance. Ver.
~~

Compl.

35-37; Jones Decl.

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21. Atlas and Macquarie agreed

that neither party's rights and remedies were waived by the
negotiation over the forbearance agreement. Jones Decl.

~

22,

Exh. B. Macquarie sent two draft forbearance agreements on
December 28 and 30, 2016, but Atlas refused to agree to either
of them, claiming that they contained provisions that violated
HUD regulations, and other provisions that are not customary in
such agreements. Ver. Compl.

~~

37-42; Jones Decl.

~~

22-24.

Atlas claims that "Macquarie purposefully led Atlas to
believe that a forbearance would be granted, only so that Atlas
would allow the Maturity Date to pass, so that Macquarie could
then declare the Mezzanine Loan to be in default." Ver. Compl.

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53.
Atlas did not pay the loan balance before the December 30,
2016 maturity date. Jones Decl.

~

25.

on January 3, 2017, Macquarie sent Atlas a notice of
default and demand for payment. Ver. Compl.
Decl.

~

25 1

Exh.

~

42, Exh. D; Jones

F. On the following day Macquarie sent Atlas an

updated notice of default. Jones Decl.
3

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26, Exh. G.

On January 11, 2017 Macquarie sent Atlas notice that it
would hold a sale, under New York's Uniform Commercial Code, of
Atlas's interest in Holdco and the other collateral on February
27, 2017. Ver. Compl.

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44, Exh. E; Jones Decl.

Macquarie hired CBRE Capital Advisors,

Inc.

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27, Exh. H.
("CBRE"), a

licensed auctioneer, to commence the marketing and conduct the
sale of Atlas's interest in Holdco and the other collateral.
Jones Decl.

~~

29, 36. CBRE sent marketing documents to

approximately 8,400 investors in the multifamily property
industry who have purchased properties similar to the eleven
apartment complexes and together with Macquarie posted
approximately 189 documents concerning Atlas, Holdco, and the
apartment complexes to an online data site on January 12, 2017.
Id.

~~

30-31. Prospective bidders can access the online data

site after executing a confidentiality agreement available from
CBRE. Id.

~

33. A form sale agreement was posted to the online

data site on January 18, 2017, and a revised version of the form
agreement was posted to the site on February 6, 2017. Id.
According to Mr. Jones,

~

32.

69 prospective bidders have executed

confidentiality agreements and gained access to the online data
site. Id.

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34.

A "UCC Public Sale Notice" advertising the date, time, and
location of the sale was published in the Real Estate Alert on
February 15, 2017 and in the Wall Street Journal beginning on
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February 17, 2017 and continuing to run each publishing day
through February 25, 2017. Id.

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35, Exhs. I-J.

As a result of Macquarie declaring the mezzanine loan in
default, Atlas's lender refused to go forward with refinancing
the loan. Ver. Compl.

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47. Atlas maintains that it is

finalizing a new refinancing loan with a different lender that
will enable it to pay off the mezzanine loan in full within 60
days. Ver. Compl.

~

48; Ivankovich Decl.

(Dkt. No. 22-1)

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3.

Atlas claims that the terms of the scheduled sale are not
commercially reasonable and therefore violate N.Y. U.C.C.
610(b). See Memo (Dkt. No.

§

9-

6) at 1. Alternatively, Atlas claims

that Macquarie should be precluded from purchasing the
collateral at the sale because the scheduled sale is not a
"public disposition" under N.Y. U.C.C.

§

9-610(c) (1).

On February 14, 2017 Atlas filed a complaint against
Macquarie, and on the same day moved for a preliminary
injunction to stop Macquarie from selling Holdco pending the
outcome of this action, or, in the alternative, to stop
Macquarie from purchasing Holdco for itself at the sale. The
parties submitted papers supporting and opposing the motion, and
a hearing was held on February 22, 2017.
DISCUSSION

Jurisdiction exists under 28 U.S.C.

§

1332(a) (2) because,

as pleaded, Atlas is a citizen of Illinois and Macquarie is a
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citizen of a foreign state, and the matter in controversy exceeds
the sum or value of $75,000, exclusive of interest and costs.
A party seeking a preliminary injunction must demonstrate
"(1) that he or she will suffer irreparable harm absent
injunctive relief, and (2) either (a) that he or she is likely
to succeed on the merits, or (b) that there are sufficiently
serious questions going to the merits to make them a fair ground
for litigation, and that the balance of hardships tips decidedly
in favor of the moving party." Moore v. Consol. Edison Co. of
N.Y.,

Inc., 409 F.3d 506, 510 (2d Cir. 2005). A preliminary

injunction "is an extraordinary and drastic remedy, one that
should not be granted unless the movant, by a clear showing,
carries the burden of persuasion." Id.
Irreparable Harm
"[I]rreparable injury is one that cannot be redressed
through a monetary award. Where money damages are adequate
compensation a preliminary injunction should not issue."
Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 427

(2d Cir.

2004). "It is not sufficient for a movant to demonstrate the
mere possibility of irreparable harm; the movant must show that
it is likely to suffer irreparable harm if equitable relief is
denied." Worldwide Diamond Trademarks, Ltd. v. Blue Nile, Inc.,
14 Civ. 3521 (VSB), 2014 WL 7933941, at *3 (S.D.N.Y. Nov. 6,
2014), citing JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75,
6

79 (2d Cir. 1990).
Atlas argues that because Holdco's underlying assets are
real property which the law deems unique, its injury in losing
Holdco cannot be adequately compensated by monetary damages.
Memo at 21. However, what is being sold here is Atlas's equity
interest in Holdco. Where a "Plaintiff's interest in the real
estate is commercial, and the harm it fears is the loss of its
investment, as opposed to loss of its home or a unique piece of
property in which it has an unquantifiable interest," such
losses "are ordinarily compensable by damages, and do not
necessarily amount to an irreparable harm as a matter of law."
SK Greenwich LLC v. W-D Grp.

(2006) LP, 10 Civ. 7846 (RPP), 2010

WL 414 0 4 4 5, at * 3 (S.D. N.Y. Oct. 21, 2 010) .
The First Department went further, affirming the denial of
a preliminary injunction in a case similar to this one, holding:
Since plaintiffs' interest in the real estate is commercial, and
the harm they fear is the loss of their investment, as opposed
to loss of their home or a unique piece of property in which
they have an unquantifiable interest, they can be compensated
by damages and therefore cannot demonstrate irreparable harm.

Broadway 500 W. Monroe Mezz II LLC v. Transwestern Mezzanine
Realty Partners II, LLC, 80 A.D.3d 483, 484, 915 N.Y.S.2d 248,
249 (1st Dep't 2011), citing SK Greenwich, 2010 WL 4140445, at
*3 (alterations and quotation marks omitted).
The Second Department held similarly, in reversing a
preliminary injunction order, that:

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Since the plaintiff does not reside in any of the subject
apartments, and his interest in the apartments is commercial,
involving only the potential loss of his investment, as opposed
to the loss of his home or a unique piece of property in which
he has an unquantifiable interest, he failed to show that he
would sustain irreparable harm absent a preliminary injunction."
Lombard v. Station Sq. Inn Apts. Corp., 94 A.D.3d 717, 721,

942

N.Y.S.2d 116, 121 (2d Dep't 2012), citing Broadway 500, supra.
Atlas also argues that the monetary damages it will suffer
from losing the eleven properties "could not be measured with
any reasonable degree of certainty." Memo at 22. But as the
First Department held in Broadway 500: "Plaintiffs maintain that
it would be impossible to quantify the future value of the
revenue stream and waterfall from the Property. However, even
lost profits that are difficult to ascertain can be compensated
by money damages." Broadway 500, 80 A.D.3d at 484,
at 249

915 N.Y.S.2d

(quotation marks and citation omitted).

Atlas claims that if the sale goes through it will suffer
reputational harm which cannot be quantified and for which it
cannot be adequately compensated with monetary damages, but that
is speculative.
Because Atlas has failed to demonstrate irreparable injury
that cannot be redressed through a monetary award, it cannot
obtain a preliminary injunction.
Likelihood of Success on the Merits
Atlas argues that it is likely to succeed on the merits
because the terms of the sale are not commercially reasonable as
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required by N.Y. U.C.C.

§

9-610(b). Atlas points to specific

terms in the sale that it claims render the sale commercially
unreasonable. Memo at 24.
Atlas claims that "No potential bidder could possibly
conduct due diligence on the $100 million asset that is the
subject of sale by the sale date." Id. But the February 27, 2017
sale date was set by January 11, 2017, information about the
sale was sent by CBRE to thousands of multifamily property
investors on January 12, 2017, and Macquarie and CBRE made 189
documents concerning the sale available on the online data site
on January 12, 2017, more than six weeks before the sale date.
Additionally, notice of the sale was published in the Real
Estate Alert on February 15, 2017 and in the Wall Street Journal
starting February 17, 2017 and is scheduled to run each
publishing day through February 25, 2017. On this score

§

lO(d) (v) of the pledge and security agreement requires only
that, "The notice of the date, time, and location of the
foreclosure sale is published in the

. Wall Street Journal

. for seven (7) consecutive days prior to the date of the
foreclosure sale." Ver. Compl., Exh. C.; Jones Decl., Exh. E.
Also, Macquarie notified Atlas of the sale of its
collateral on January 11, 2017, which is reasonable under N.Y.

u.c.c.

§

9-612(b).

Atlas claims that "The terms of the sale can be changed on
9

the date of the sale without prior notice to the potential
bidders, rendering meaningless all of the assumptions on which
the bidders prepared their bids." Memo at 24. But Atlas fails to
demonstrate that is commercially unreasonable: reasons beyond
Macquarie's control can cause the sale to be cancelled at the
last minute, for example if Atlas exercised its right of
redemption prior to the sale, or a court enjoined the sale.
Atlas claims that "The $100 million asset that is the
subject of the sale is subject to governing documents which
bidders will not be permitted to see in advance, even though
Macquarie could easily provide the governing documents." Id. In
fact a form sale agreement was posted to the online data site on
January 18, 2017 and a revised version of the form sale
agreement was posted to the site on February 6, 2017. Atlas
argues that the form agreement is a draft subject to change, but
Macquarie has committed that "it's the form that will be used"

and "this is a sale contract that Macquarie has prepared to use"
and it is merely protecting its ability to make changes in the
event "that the borrower wants to make some changes .

that

may be negotiated at the end." Transcript of hearing Feb. 22,
2017,

23:5-9.

Atlas argues that "Even if the governing documents were
made available to potential bidders, no potential bidder could
possibly have counsel review and evaluate the governing
10

documents before the sale date." Memo at 24. But the form sale
agreement was made available on January 18, 2017 and the revised
version was made available on February 6, 2017, three weeks
before the sale, no prospective bidder has complained, and bids
are coming in.
Atlas points to the fact that a purchaser who intends to
assume the HUD insured loans on the apartment complexes must
deposit $8.25 million which is forfeited if HUD denies or fails
to approve the purchaser's application to assume the loans
within 96 days, and argues that "If the winning bidder intends
to assume the HUD Mortgage Loans, the winning bidder is very
likely to be unable to complete the sale and to be forced to
surrender the required $8.25 million deposit because HUD is
unlikely to approve or deny the bidder's application to take
ownership of the Holding Company within 96 days of the sale
date." Id.
Atlas supports this argument with a declaration of Steven
Ivankovich, an Atlas manager, that it took Atlas 24 months to
get HUD approval when it assumed the HUD insured loans on the
apartment complexes at issue. Ivankovich Decl.

(Dkt. No. 22-1)

6. But the HUD approval process a purchaser would go through is
not quite the same process that Atlas went through; it is more
quickly processed. Macquarie has indicated that it can extend
the 96 days if more time is needed for HUD approval. Transcript
11

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of hearing Feb. 22, 2017, 27:11-17.
Also, a purchaser who intends to pay off the HUD insured
loans on the apartment complexes must deposit $4.125 million,
which will be forfeited if the loans are not paid off within 21
days. Atlas claims that "If the winning bidder intends to pay
off the HUD Mortgage Loans, the winning bidder is very likely to
be unable to complete the sale and to be forced to surrender the
required $4.125 million deposit because it will not be possible
to obtain financing and pay off the HUD Mortgage Loans and also
close on the purchase of the Holding Company within 21 days of
the sale date." Memo at 24. That pessimistic speculation does
not render the sale terms commercially unreasonable: no
prospective bidder has complained, for prospective purchasers
can begin to secure financing before the sale date. With a while
still to go to the bidding deadline, bids are already being
received.
Balance of Hardships
The balance of hardships decidedly favors Atlas because it
faces the loss of assets it values in excess of $100 million,
while Macquarie's loss is markedly less than $150,000 in
expenses organizing and advertising the sale. The harm to Atlas,
however, comes from business realities which do not present a
fair ground for litigation, or for court intervention.
Alternative Relief Sought
12

In the alternative, Atlas seeks to enjoin Macquarie from
purchasing the collateral for itself.
Under N.Y. U.C.C. § 9-610(c), "A secured party may purchase
collateral:

(1) at a public disposition; or(2) at a private

disposition only if the collateral is of a kind that is
customarily sold on a recognized market or the subject of widely
distributed standard price quotations." Atlas argues that
because this sale does not fit within§ 9-610(c) (2), Macquarie
should be prohibited from purchasing Holdco because it claims
the scheduled sale is not a "public disposition."
The Comment to § 9-610 states "a 'public disposition' is
one at which the price is determined after the public has had a
meaningful opportunity for competitive bidding.

'Meaningful

opportunity' is meant to imply that some form of advertisement
or public notice must precede the sale .

. and that the public

must have access to the sale." Id., Comment 7. This sale has
been advertised in the Real Estate Alert and is being advertised
in the Wall Street Journal and information about the sale was
shared with thousands of investors by CBRE and was made
available by CBRE and Atlas on the online data site. At least 69
people have accessed the online data site.
Atlas's motion to enjoin Macquarie from purchasing the
collateral is therefore denied.
CONCLUSION
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Atlas's motion for a preliminary injunction (Dkt. No. 5) is
denied.
So ordered.
Dated:

New York, New York
February 23, 2017

LOUIS L. STANTON
U.S.D.J.

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