URP Maiden Lane LLC v. Valley National Bank, et al.
Attorneys and Parties
Brief Summary
Real estate finance and loan trading involving the purchase and enforcement of mortgage loans secured by a Manhattan property.
Denied defendants' motion to dismiss and granted plaintiff a preliminary injunction.
The unjust enrichment claim was dismissed, and the preliminary injunction was conditioned on an undertaking.
A valid contract (the Loan Purchase and Sale Agreement) governed the dispute, barring unjust enrichment, and an undertaking is required when granting a preliminary injunction.
Background
Defendants were prosecuting multiple borrower lawsuits to enforce a set of five mortgage loans secured by 161 Maiden Lane in Manhattan. Plaintiff entered a Loan Purchase and Sale Agreement (LPSA) to buy the loans, anticipating substitution as plaintiff in those actions. The LPSA required defendants to prosecute pending suits with reasonable diligence. Plaintiff alleged defendants breached the LPSA and the implied covenant by, during a mediation, stating plaintiff intended to quickly settle on unfavorable terms and by misrepresenting the buyer’s identity to suggest deep settlement resources, thereby undermining plaintiff’s position and expectations. Plaintiff had paid $6 million in nonrefundable deposits to extend closing under the LPSA.
Lower Court Decision
The Supreme Court, New York County, denied defendants' motion to dismiss the complaint and granted plaintiff's motion for a preliminary injunction.
Appellate Division Reversal
Modified: dismissed the unjust enrichment cause of action because the LPSA governed the subject matter; remanded to set an undertaking for the preliminary injunction; otherwise affirmed denial of the motion to dismiss as to breach of contract and implied covenant and affirmed the grant of preliminary injunctive relief.
Legal Significance
The decision reinforces that: (1) communications and conduct during borrower mediation can support claims for breach of a loan sale agreement and breach of the implied covenant when they undermine the buyer’s contractual expectations; (2) unjust enrichment is unavailable where an express contract governs the dispute; (3) implied covenant claims may proceed when based on conduct distinct from the express breach and pleaded in the alternative; and (4) courts must require an undertaking when issuing a preliminary injunction.
Where a loan purchase agreement governs, unjust enrichment cannot be used to recoup bargained-for, nonrefundable deposits; however, alleged bad-faith mediation conduct can sustain contract and implied covenant claims, and preliminary injunctions must be secured by an undertaking.