## Facts

- Primestone Investment Partners, L.P. owed Vornado PS, L.L.C. more than $100 million under two loans, supported by guarantees from related entities.
- The loans were secured by 7,944,893 limited-partnership units of Prime Group Realty, L.P. (PGRLP), which were exchangeable one-for-one into shares of Prime Group Realty Trust (PGE), a publicly traded REIT.
- After Primestone defaulted, Vornado elected to foreclose on the pledged units under Article 9 of New York’s Uniform Commercial Code (UCC), which governed the security interest.
- Vornado retained Goldman, Sachs & Co. to devise a marketing plan and identify potential purchasers for the PGRLP units.
- Vornado also wanted the ability to bid for and purchase the collateral. Under UCC § 9-610(c), that meant Vornado could purchase only through a public disposition unless the collateral was of a kind customarily sold on a recognized market.
- Because there was no recognized market for limited-partnership units like the PGRLP units, Vornado scheduled an open outcry public auction for November 20, 2001, hired a licensed auctioneer, and published notice in major national newspapers.
- In early November 2001, Vornado and Goldman Sachs contacted nearly 60 potential buyers and sent 33 potential buyers an informational memorandum.
- On November 19, 2001, Primestone filed for bankruptcy, halting the planned sale; the bankruptcy case was later dismissed as a bad-faith filing.
- Vornado rescheduled the public auction for April 30, 2002, again published notice, used a licensed auctioneer, and contacted potential purchasers.
- At the April 30 sale, Vornado was the only bidder and purchased the units for $8.35 per unit, which matched the closing price of PGE shares that day.
- After crediting the sale proceeds, a deficiency of roughly $50 million remained.
- Vornado filed an action in the Delaware Court of Chancery seeking (i) enforcement of the loan obligations and recovery of the deficiency and (ii) declarations that the foreclosure sale was commercially reasonable and that Vornado was the winning bidder.
- Primestone resisted and asserted counterclaims (including breach of contract, fraud-based theories, tortious interference, and breach of fiduciary duty), arguing in part that the auction price was too low and that a private sale should have been used because private sales allegedly yield higher prices.

## Issues

1. Whether Vornado’s public disposition of the pledged PGRLP units under New York UCC Article 9, at which Vornado was the only bidder, was commercially reasonable.
2. Whether Vornado was entitled to enforce the loan documents and recover the post-sale deficiency from Primestone.
3. Whether Primestone’s counterclaims for lender-liability theories (including fraud, tortious interference, and fiduciary duty) survived given the loan documentation and the court’s conclusions about the foreclosure sale.

## Decision

- The Court of Chancery granted Vornado’s motion for summary judgment.
- The court held there were no genuine disputes of material fact about Vornado’s right to enforce the loans and pursue the deficiency.
- The court declared the Article 9 foreclosure auction commercially reasonable.
- The court declared Vornado the winning bidder at the foreclosure sale.
- The court dismissed Primestone’s counterclaims, including its claims for fraud-based relief, tortious interference, and breach of fiduciary duty.

## Legal Principles

- Under UCC Article 9, a secured party’s disposition of collateral must be commercially reasonable in method, manner, time, place, and terms; the analysis focuses on the process as a whole, not solely on whether the highest possible price was obtained.
- Under UCC § 9-610(c), a secured party may purchase collateral at a private sale only if the collateral is of a kind customarily sold on a recognized market (or otherwise fits the statutory exception); if not, the secured party must use a public disposition to bid.
- A public, open outcry auction supported by substantial marketing efforts (including use of a financial advisor, broad outreach to potential bidders, and published notice) can satisfy commercial reasonableness even if the secured party is the only bidder.
- A sale price tied to an observable market reference (here, the trading price of exchangeable public shares) may support a finding of commercial reasonableness where the collateral itself lacks a recognized trading market.
- Contractual integration and waiver provisions in negotiated lending agreements can bar claims premised on alleged extra-contract representations and may defeat fraud-based counterclaims.
- A lender in an arm’s-length lending relationship generally owes no fiduciary duties to the borrower absent a special relationship beyond the loan documents.
- Tortious interference claims require more than a borrower’s hope of a deal; the claimant must show a legally protected relationship or a reasonable probability of a business opportunity and improper interference.

## Conclusion

The Delaware Court of Chancery held that Vornado’s New York UCC Article 9 public auction of Primestone’s pledged PGRLP units was commercially reasonable and that Vornado validly purchased the collateral as the winning bidder, leaving a recoverable deficiency; the court enforced the loan obligations and dismissed Primestone’s counterclaims because the foreclosure process complied with Article 9 and the asserted lender-liability theories failed under the governing contracts and applicable law.


Vornado PS, L.L.C. v. Primestone Investment Partners, L.P., 821 A.2d 296 (2002)