Court Grants Motion to Dismiss Because Notice Of Non-Monetary Default Not Required

In a Decision and Order, dated June 14, 2023, in 10 Mountainview LLC v. RREF IV-D SN Portfolio, LLC, 2023 NY Slip Op 32034(U), Justice Melissa A. Crane granted Defendant’s motion to dismiss Plaintiff’s breach of contract action based on the claimed failure by Defendant to provide notice of a non-monetary default. Plaintiff and Defendant both loaned money to a non-party borrower, and agreed that Defendant’s loan would be senior. An event of default occurred in 2020, but Defendant did not give notice, and gave notice only when it intended to accelerate its loan. Plaintiff, who had a purchase option, attempted to exercise that option and received a pay-off letter including default interest going back to the date of the earliest default. Plaintiff claimed it was aggrieved because it could have cured the default years earlier and avoided the default interest. The Court explained:

Section 28(a) of the Subordination Agreement (EDOC 81) states:

(a) Prior to accelerating the Senior Mortgage Loan or commencing any other enforcement action by reason of an event of default under the Senior Mortgage Loan Documents, Senior Creditor shall provide written notice of the default which would permit Senior Creditor to accelerate the Senior Mortgage Loan or commence such enforcement action or the circumstances constituting or giving rise to the event of default, as applicable, to Junior Creditor (each, a "Senior Mortgage Loan Default Notice").

This notice was supposed to provide plaintiff with an opportunity to cure:

(b) Except in connection with Borrower's failure to repay the Senior Mortgage Loan in full in cash on the maturity date thereof, Senior Creditor shall permit Junior Creditor an opportunity to cure such default in accordance with the provisions of this Section 28 and shall not accelerate the Senior Mortgage Loan or commence an enforcement action on account of such default unless and until such cure is not effectuated within the applicable cure period provided for in Section 28(c).

Defendant has moved to dismiss based on this provision arguing primarily that plaintiff did not bargain for notice of non-monetary defaults. It argues that it only had to notify plaintiff prior to acceleration, which it did.

Defendant is correct. Plaintiff, a sophisticated party, certainly could have bargained for notice of nonmonetary defaults, such as that of the MCA Lien (compare 416 W. 25th Street Associates, v 416 W 25^th St. Lender LLC et al, 2021 WL 3513910 at * 5 [unlike here, contract stated "the Mortgagee shall give to Mortgagor notice in writing with respect to any nonmonetary defaults" [emphasis supplied]). Alternatively, plaintiff could have bargained for simply notice at the time of the event of default. Instead, it bargained for notice prior to "[p]rior to accelerating the Senior Mortgage Loan or commencing any other enforcement action." There is no question that plaintiff received that notice prior to defendant's acceleration of the mortgage.

The attorneys at Schlam Stone & Dolan frequently litigate breach of contract matters. As shown by this matter, businesses and other sophisticated parties should carefully review all agreements and ensure any provisions they require are included.. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.