CityPlace Retail, L.L.C. v. CSMC 2007-C1 South Rosemary, LLC, 9:18-cv-81689

Background

CityPlace (borrower) entered a 2011 modification agreement with a December 11, 2018 maturity date; Wells Fargo was the trustee and Berkadia the mortgage servicer.
Section 4.9 of the Agreement sets a multi-step refinancing appraisal process: borrower notifies intent, borrower appoints an appraiser and provides its report, lender must appoint and disclose a lender appraiser within specified timeframes, and if either side fails to appoint a Qualified Appraiser in time the sole MAI appraisal provided controls payoff calculations.
CityPlace initiated refinancing in Sept. 2018 and delivered its MAI appraisal; CityPlace says Berkadia/Wells Fargo missed its appointment/notice deadlines and never provided a competing appraisal in time.
Wells Fargo (through Berkadia) contends CityPlace delayed cooperating, withheld requested information, and that CityPlace’s appraisal ignored a pending rezoning application that materially increased value (rezoning approved Nov. 5, 2018).
The parties resolved an emergency injunction dispute so CityPlace could close and refinance subject to a later determination of the proper payoff amount; CityPlace moved for summary judgment that its appraisal controls. The Court denied summary judgment.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether lender lost right to challenge borrower appraisal by failing to timely appoint/disclose appraiser under §4.9	CityPlace: it timely complied and Berkadia/Wells Fargo failed to appoint/notify, so §4.9(g) makes CityPlace's MAI appraisal the sole appraisal for payoff.	Wells Fargo: CityPlace had actual knowledge of Berkadia’s appraiser (repeated prior use of same appraiser) and/or CityPlace hindered Berkadia’s ability to produce an appraisal.	Denied — question of fact exists as to actual notice and prejudice; summary judgment improper.
Whether lender’s failure to timely produce an appraisal was caused by lender or by borrower’s conduct	CityPlace: Berkadia/Wells Fargo delayed and thus forfeited right to a lender appraisal.	Wells Fargo: CityPlace refused to provide requested information in October and thus delayed Berkadia’s appraisal; covenant of good faith prevents CityPlace from profiting from its own obstruction.	Denied — disputed material facts regarding causation and blame require trial.
Applicability of doctrine of disproportionate forfeiture (equitable relief excusing strict compliance)	CityPlace: contractual forfeiture clause should be enforced; term is material so doctrine shouldn't apply.	Wells Fargo: even if clause exists, excusing a minor notice defect may be appropriate to avoid an extreme forfeiture (a $35M valuation gap).	Denied — factual dispute whether delay was de minimis or prejudicial; disproportionate forfeiture is a triable issue.
Validity of CityPlace’s appraisal under professional standards (USPAP/FIRREA)	CityPlace: its appraisal is proper and controls under Agreement.	Wells Fargo: CityPlace’s appraiser failed to consider the pending rezoning (which was approved before closing), raising a question whether the appraisal complied with USPAP/FIRREA and thus the Agreement.	Denied — material factual question whether the appraisal properly accounted for the rezoning; summary judgment inappropriate.

Key Cases Cited

Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment / genuine issue of material fact standard)
J.C. Studios, LLC v. Telenext Media, Inc., 932 N.Y.S.2d 760 (actual notice can cure failure of strict contractual notice provision)
Danco Elec. Contractors v. Dormitory Auth., 75 N.Y.S.3d 28 (disproportionate forfeiture may excuse strict compliance with condition precedent when noncompliance is de minimis and no prejudice shown)
Pramco III, LLC v. Partners Tr. Bank, 842 N.Y.S.2d 174 (discusses analysis under the disproportionate forfeiture doctrine)
Oppenheimer & Co. v. Oppenheim, 86 N.Y.2d 685 (addresses limits on applying disproportionate forfeiture and relevance of materiality)