A five-judge New York appeals court panel issued a unanimous order yesterday upholding a lower court’s decision that Davidson Kempner Capital Management did not have standing to sue special servicer C-III over servicing practices.
In the 31 May order, the New York Supreme Court Appellate Division panel’s narrowly focused opinion found that DKCM failed to comply with the pooling and servicing agreement’s no-action clause, which states that a certificate holder must give the trustee a written notice of a default before filing a suit.
“Plaintiffs did not provide the trustee with written notice of an actionable event of default under the PSA prior to instituting this action and therefore do not have standing to assert this claim,” the order states. “Accordingly, the action was properly dismissed.”
Given that determination, the panel stated it did not need to address any other arguments.
DKCM had appealed the 31 July 2017 dismissal of its suit against special servicer C-III, arguing that it has the right to sue on behalf of all trust beneficiaries of CSMC 2007-C5.
Judge O. Peter Sherwood of the Supreme Court of the State of New York ruled that DKCM didn’t have standing to sue the special servicer in part due to the pooling and servicing agreement’s no-action clause, as reported (see story, 3 August).
A spokesperson for C-III declined to comment and an attorney for Davidson Kempner did not respond.
DKCM is battling its case outside the appeal as well.
After the dismissal, DKCM regrouped by responding to some of the critiques in the judge’s decision. On 14 December it filed a similar suit against the special servicer in New York Supreme Court. But unlike its first suit, this time DKCM sued directly, on its own behalf, rather than “derivatively” along with all CMBS bondholders.
And in a 27 September letter, DKCM gave the trustee renewed notice of its view that C-III breached the servicing standard on the Jericho loan, requesting that the trustee take action and “explicitly notified the trustee that this same conduct constituted an enumerated event of default” under the PSA, as reported.
The original case spotlighted the special servicers’ use of the controversial fair value purchase option in CMBS deals and the remedies that bondholders can use to recoup value from distressed securitizations.
The suit, filed in 2016, alleged a scheme by C-III to sell loans out of the CSMC trust at artificially low prices, as reported. The two credits highlighted in the original suit are a USD 190.8m loan on the Gulf Coast Town Center mall in Fort Myers, Florida, and a USD 165m loan that backed a Long Island office complex in Jericho, New York.
The case is M.H. Davidson vs. C-III Asset Management, 652571-2016, in New York Supreme Court’s Appellate Division.
by Maura Webber Sadovi