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NYLJ “Proposed Settlement of Claims Arising from Sale of Stuyvesant Town Property Approved as ‘Fair and Reasonable’”

By Thomas E.L. Dewey and Christopher DeNicola

In 2010, the former owners of the Peter Cooper Village and Stuyvesant Town (Stuy Town) property defaulted on their mortgage. Five years later, that property was sold at a profit that paid off outstanding principal and interest. Litigation then ensued over the allocation and distribution of certain excess proceeds from the sale.

In In re Trusts Established under Pooling and Servicing Agreements Related to Wachovia Bank Commercial Mortgage Trust Pass-Through Certificates, Appaloosa Investment LP and Palomino Master Ltd. (collectively, Appaloosa), an investor in the Stuy Town property, brought claims against CWCapital Asset Management LLC (CWC), the servicer of the trusts in which Appaloosa had invested. Appaloosa asserted that, under the pooling and servicing agreement (PSA), the excess funds should be provided to investors. CWC asserted that those funds should instead be used to pay “penalty interest” and “yield maintenance”, which CWC was required to pay under the PSA.

After more than six years of hard-fought litigation, Appaloosa and CWC submitted a proposed settlement to the court. In the court’s decision, Judge Failla evaluated the proposed settlement under New York law applicable to the settlement of shareholder derivative actions and class actions. The court held that the proposed settlement was “fair and reasonable” because it arose from extensive negotiations between highly sophisticated parties and counsel and would provide a significant benefit to investors, the remaining issues were complex, and further protracted litigation would likely follow absent approval.

Appaloosa also sought full reimbursement of its attorneys’ fees and expenses from the settlement payment. After analyzing New York law on the recovery of fees and expenses from common funds, the court held that full reimbursement was not warranted because many of Appaloosa’s arguments had been rejected and several of its expert witnesses were “unhelpful.”

This article first appeared in the New York Law Journal on April, 12 2024. Thomas E.L. Dewey is a partner at Dewey Pegno & Kramarsky. Christopher DeNicola, counsel at the firm, assisted in the preparation of the article.


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