Court Denies Motions For Summary Judgment In Derivative Action

Posted: October 8, 2025 / Written by: Jeffrey M. Eilender, Channing J. Turner, Joshua Wurtzel, Thomas A. Kissane, Samuel L. Butt / Categories Commercial, Breach of Contract, Summary Judgment

Court Denies Motions For Summary Judgment In Derivative Action

On September 9, 2025, in 111 West 57^th Investment LLC v. 111 W57 Mezz Investor LLC, Index No. 655031/2017, Justice Joel M. Cohen denied defendant’s motion for summary judgment and also denied plaintiff’s motion for partial summary judgment as to liability. The Court explained:

Plaintiff argues that Defendant violated the Pledge Agreement’s implied covenant of good faith and fair dealing through the purportedly sham strict foreclosure by arbitrarily exercising its discretion under the Pledge Agreement to notice a UCC strict foreclosure for the sole purpose of stealing the value of 111 West 57th Mezz 1 LLC’s equity by suborning its managers, Michael Stern and Kevin Maloney. Plaintiff argues that this breach is demonstrated by the fact that Sponsor refused to object to a proposed Strict Foreclosure, and that after the Strict Foreclosure was consummated Plaintiff’s equity was removed from the capital structure, all other equity investors had their equity “carried over,” and therefore the existing equity owners, including Defendant, were able to raise capital needed to cure significant shortfalls for the project by selling off Plaintiff’s equity. Plaintiff also point[s] to the fact that Stern and Maloney reentered the ownership structure of the Project through entities that they owned and/or controlled and became permanent construction managers and/or developers of the Project.

In response, Defendant argues that Stern and Maloney only declined to object to the Strict Foreclosure proposal because they feared that a UCC auction would result in a deficiency, and because by objecting without a good faith basis to believe they could either cure the default or that a sale would generate a surplus, they would be held personally liable for the deficiency under their guaranty. However, Defendant has not eliminated issues of material fact.

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It may be true, as Defendant argues, that these facts in insolation are not sufficient to prove a breach of the implied covenant. However, when taken together, the evidence demonstrates at the very least an issue of fact as to whether Defendant suborned Stern and Maloney not to object to the strict foreclosure. Thus, the parties’ motions for summary judgment are denied.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning the implied covenant of good faith and fair dealing or summary judgment.