## Facts

- A multi-tranche financing funded the 2007 acquisition of Peter Cooper Village/Stuyvesant Town, including senior mortgage debt and multiple mezzanine loans secured by pledged equity interests in the ownership structure.
- The senior and mezzanine lenders entered an amended intercreditor agreement allocating enforcement rights and limiting mezzanine remedies that could interfere with the senior loan.
- The borrower defaulted on the senior mortgage; the senior lenders accelerated the debt and obtained a foreclosure judgment, with the senior debt still unpaid.
- Wachovia transferred interests in three senior-priority mezzanine positions to PSW NYC LLC, making PSW a “Qualified Transferee” subject to the intercreditor agreement.
- PSW noticed a proposed UCC Article 9 public sale of the pledged equity collateral securing the mezzanine loans, which would shift control of the borrower’s ownership chain.
- The senior lenders demanded assurance that PSW would cure/pay the senior mortgage indebtedness before acquiring or transferring the equity collateral; PSW refused based on its contract interpretation.
- The senior lenders sued for declaratory relief and moved for a preliminary injunction to stop the UCC sale and to prevent PSW from causing or facilitating a bankruptcy filing inconsistent with the intercreditor agreement.

## Issues

1. Whether the intercreditor agreement required PSW, as a Qualified Transferee exercising mezzanine remedies, to cure or satisfy the senior mortgage indebtedness before acquiring or selling the pledged equity collateral.
2. Whether the senior lenders satisfied New York’s standards for a preliminary injunction to restrain the UCC sale and bankruptcy-related conduct pending adjudication on the merits.

## Decision

- The court granted the senior lenders’ motion for a preliminary injunction.
- The court interpreted the intercreditor agreement as contractually subordinating mezzanine enforcement to the senior lenders’ rights and as restricting equity-level transfers that would impair senior remedies while the senior loan remained outstanding and in default.
- The court found a likelihood of success on the merits based on the agreement’s text and PSW’s status as a transferee bound by its restrictions.
- The court found irreparable harm because an equity sale and potential bankruptcy activity could alter control, complicate foreclosure, and deprive the senior lenders of bargained-for protections not readily remedied by money damages.
- The court held the balance of equities favored enforcing the negotiated limitations that PSW accepted when acquiring the mezzanine positions.
- The injunction barred PSW from acquiring or selling the mezzanine equity collateral without first satisfying the senior mortgage indebtedness and from causing or facilitating a bankruptcy filing that would contravene the intercreditor agreement while the senior loan remained unpaid.

## Legal Principles

- New York courts enforce intercreditor agreements according to their plain language, particularly in transactions among sophisticated parties allocating priorities and remedies.
- A mezzanine lender or transferee taking under an intercreditor agreement may be enjoined from exercising UCC remedies in a manner that defeats contractual subordination and senior-lender enforcement rights.
- Preliminary injunction standards in New York require: (1) likelihood of success on the merits, (2) irreparable harm absent relief, and (3) a balance of equities favoring the movant.
- Interference with bargained-for control and enforcement protections in a complex collateral structure, including disruption of foreclosure and exposure to bankruptcy delay, can constitute irreparable harm supporting injunctive relief.

## Conclusion

The court preserved the senior lenders’ contractual priority and enforcement framework by preliminarily enjoining a mezzanine lender’s proposed UCC equity sale and bankruptcy-related conduct that, under the intercreditor agreement, could not proceed in a way that impaired the senior mortgage while it remained unpaid and in default.


Bank of Am., N.A. v. PSW NYC LLC, 29 Misc. 3d 1216(A) (Sup. Ct. N.Y. Cnty. 2010)