On June 12, 2024, the U.S. Bankruptcy Court for the Southern District of New York granted a loan buyer’s motion to recover against a supersedeas appeal bond, finding that, as result of the appeal, the loan buyer suffered damages that exceeded the $5 million bond. The underlying case involved a jointly-administered bankruptcy with three debtors that purchased a mixed-use property with a hotel and residential component. To purchase the property, the debtors took out a senior loan (secured by a mortgage in the property) and a mezzanine loan (secured by a pledge of the borrowers’ interests in the debtors). After the debtors defaulted on their senior loan payments, a loan buyer purchased the senior loan subject to the terms of the intercreditor agreement between the senior and mezzanine lenders.

During the bankruptcy cases, the loan buyer proposed its own chapter 11 plan, seeking to acquire the property by a credit bid of $94 million. The bankruptcy court confirmed that plan, and, following confirmation, the debtors and mezzanine lender appealed the confirmation order. The mezzanine lender sought a stay pending appeal, which the court granted conditioned on the filing of a bond in the amount of $5 million. The district court later affirmed the confirmation of the loan buyer’s chapter 11 plan, terminating the stay pending appeal and allowing the loan buyer to close on its credit bid for the property. After the closing, the loan buyer requested that the mezzanine lender perform under the appeal bond, but the mezzanine lender contested the claim on the bond in its entirety. The bankruptcy court found that the loan buyer had suffered losses exceeding $10 million as a result of the appeal stay, including (1) default interest in the amount of $5.6 million (applying the “contract rate” to make its calculation); (2) lost hotel and residential profits in the amount of $4.1 million (based on the appeal delaying the loan buyer’s ability to operate and profit off the property over the lifetime of its ownership of the property); and (3) legal fees and expenses of $631,056.15. As that sum established the loan buyer’s entitlement to the $5 million bond “almost twice over,” the court did not consider other remaining damages and granted the motion for full recovery of the bond.

The case is In re 85 Flatbush RHO Mezz LLC, No. 20-23280 (Bankr. S.D.N.Y. June 12, 2024). The Debtors are represented by Leech Tishman Robinson Brog PLLC. The mezzanine lender is represented by Goldberg Weprin Finkel Goldstein LLP. The loan buyer is represented by Fried, Frank, Harris, Shriver & Jacobson, LLP and Dentons US LLP. The order is available here.