| Matter of U.S. Bank N.A. v SBMC Holdings LLC |
| 2019 NY Slip Op 08150 [177 AD3d 443] |
| November 12, 2019 |
| Appellate Division, First Department |
| Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. |
| In the Matter of U.S. Bank National Association,
Respondent, v SBMC Holdings LLC et al., Appellants, and DW Partners, LP, et al., Respondents. Elliott Management Corporation et al., Objectants-Respondents. |
Jenner & Block LLP, New York (Stephen L. Ascher of counsel), for appellants.
Morgan Lewis & Bockius LLP, New York (Susan F. DiCicco of counsel), for U.S. Bank National Association, respondent.
Goulston & Storrs PC, New York (Charles R. Jacob, III of counsel), for DW Partners, LP, respondent.
Venable LLP, New York (Konstantina A. Calabro of counsel), for C-III Asset Management LLC, respondent.
Kasowitz Benson Torres LLP, New York (Michael A. Hanin of counsel), for M.H. Davidson & Co. and others, respondents.
Wollmuth Maher & Deutsch LLP, New York (Thomas P. Ogden of counsel), for Elliott Management Corporation and others, respondents.
Order, Supreme Court, New York County (Eileen Bransten, J.), entered on or about November 15, 2018, which denied the petition brought pursuant to CPLR article 77 for a judicial instruction that the loss of interest on two commercial mortgage loans held by the subject trust must be applied first to reduce the principal balance of the most junior class of certificates in the trust, unanimously reversed, on the law, without costs, the petition granted to the extent of ruling that lost interest was a Realized Loss under Section 6.6 (f) of the Pooling and Servicing Agreement (PSA), and the matter remanded to Supreme Court for further proceedings to calculate the loss allocation.
The court erred in denying the petition on the ground that the trust's governing PSA is ambiguous as to the proper allocation of lost interest (see Greenfield v Philles Records, 98 NY2d 562, 569-570 [2002]).
The issue is governed by Section 6.6 (f) of the PSA which unambiguously provides that Realized Losses must first be applied to reduce the principal balance of the most junior class of certificates in the trust, until the principal balance of such class is reduced to zero. Section 6.5 only governs the distribution of cash down the waterfall in sequential order, not the allocation of Realized Losses up in the opposite direction, and the more specific provisions regarding Realized Losses in Section 6.6 (f) must control. Moreover, the provisions of the PSA that apply to Real Estate Mortgage Investment Conduit (REMIC) I (which was an internal trust vehicle, as was REMIC II), such as Section 6.6 (a), have no application to REMIC III realized losses.[FN*]
However, the parties agree that the proceeding must be remanded to Supreme Court to determine the loss allocations and payment distributions. Concur—Friedman, J.P., Kapnick, Kern, Singh, JJ.