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Bank of Am., N.A. v Lightstone Holdings, LLC

Supreme Court of New York, New York County

July 14, 2011, Decided

601853/09

Opinion

Melvin L. Schweitzer, J.

Background

The plaintiffs in the present case are Bank of America, N.A., Wachovia Bank, N.C., Merrill Lynch Mortgage Lending, Inc., U.S. Bank National Association, as trustee for Maiden Lane Commercial Mortgage Backed Securities Trust 2008-1, Debt II ESH, L.P., Debt-U ESH, L.P. and Key Bank National Association (plaintiffs). The defendants are David Lichtenstein (Mr. Lichtenstein), a residential and commercial real estate developer and investor, and Lightstone Holdings, LLC (Lightstone), of which Mr. Lichtenstein is the sole managing member (defendants).

In June 2007, Mr. Lichtenstein and Lightstone, along with an investment consortium, purchased ESH, a hotel chain, for approximately $8 billion. A large portion ($1.9 billion) of that sum was raised through five mezzanine loans to various companies that indirectly owned ESH. The plaintiffs have held the notes issued pursuant to these loans since no later than December 16, 2008. The mezzanine loans were secured by the membership interests in each of the ESH entities to which each respective loan was made. While the mezzanine loans are generally non-recourse, they become  [***2] fully recourse under certain conditions.

As additional security, the mezzanine loans were guaranteed by the defendants. Section 1.1 of each Guaranty Agreement (Guaranty Agreements) provides in relevant part that "Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor." In Section 1.2, "Guaranteed Obligations" is defined to include, "the obligations or liabilities of Borrower to Lender under Section 9.4 of the Loan Agreement." Section 9.4(b) of each mezzanine loan agreement provides that if (among others) the Mortgage Borrower, an Operating Lessee, a Mortgage Principal, the Borrower, a Senior Mezzanine Borrower or the Property Owner (as those terms are defined in the mezzanine loan agreements) files a voluntary petition under the Bankruptcy Code, the debt due under the mezzanine loans becomes fully recourse to the Borrower as well as immediately due and payable.

On June 15, 2009, the Borrowers, as well as the Mortgage Borrower and the Property  [****2]  Owner, filed voluntary petitions under the Bankruptcy Code. Although the indebtedness under the mezzanine loan agreements which became fully recourse to the Borrowers  [***3] exceeds $100 million, the obligations due under the Guaranty Agreements are capped thereat.

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32 Misc. 3d 1244(A) *; 938 N.Y.S.2d 225 **; 2011 N.Y. Misc. LEXIS 4412 ***; 2011 NY Slip Op 51702(U) ****

 [****1]  Bank of America, N.A., et al., Plaintiffs, against Lightstone Holdings, LLC, et al., Defendants.

Notice: THIS OPINION IS UNCORRECTED AND WILL NOT BE PUBLISHED IN THE PRINTED OFFICIAL REPORTS.

PUBLISHED IN TABLE FORMAT IN THE NEW YORK SUPPLEMENT.

Subsequent History: Summary judgment granted by Bank of Am., N.A. v. Lightstone Holdings, LLC, 2011 N.Y. Misc. LEXIS 7151 (N.Y. Sup. Ct., July 14, 2011)

Related proceeding at U.S. Bank Natl. Assn. v. Lightstone Holdings LLC, 2011 N.Y. Misc. LEXIS 6834 (N.Y. Sup. Ct., Aug. 25, 2011)

Related proceeding at Matter of Lichtenstein Loan Guar. Litig., 96 A.D.3d 681, 946 N.Y.S.2d 863, 2012 N.Y. App. Div. LEXIS 5119 (N.Y. App. Div. 1st Dep't, 2012)

Prior History: Bank of Am., N.A. v. Lightstone Holdings, LLC (In re Extended Stay, Inc.), 418 B.R. 49, 2009 Bankr. LEXIS 3090 (Bankr. S.D.N.Y., 2009)

CORE TERMS

Guaranty, mezzanine, obligations, Borrower, summary judgment, loan agreement, defendants', loans, payment of money, public policy, disparaging, ambiguity, recourse, trigger, Mortgage, comments, condition precedent, obligation to pay, future event, conditions, breached, damages