111 West 57th Investment LLC v. 111 W57 Mezz Investor LLC (Steinway Tower "Sole Discretion" Ruling)
New York's highest court reinstated AmBase investment vehicle 111 West 57th Investment LLC's implied-covenant-of-good-faith claim against Apollo-affiliated mezzanine lenders over the 2017 sale of a $25M junior mezzanine loan (secured by the plaintiff's equity in the Steinway Tower project) to Spruce Capital Partners at par value, despite internal models showing roughly $600M in underlying equity value. Spruce initiated a UCC Article 9 strict foreclosure two days after acquiring the loan, wiping out the plaintiff's equity; the Court held Apollo's contractual 'sole discretion' to assign the loan does not exculpate it from good-faith-and-fair-dealing claims and remitted the case to Supreme Court, New York County, while affirming dismissal of related tortious interference claims.
Why it matters
Resolves a split among Appellate Division departments in the lender's favor of accountability, aligning New York with Delaware law: broad 'sole discretion' clauses in loan and pledge agreements no longer categorically foreclose implied-covenant claims when a counterparty alleges the discretion was exercised as part of a bad-faith scheme to strip a joint-venture partner's equity. Mezzanine lenders, sponsors, and equity investors in New York-governed capital stacks should expect a lower pleading bar for bad-faith challenges to loan assignments and strict foreclosures going forward, even where assignment rights are drafted as unqualified.
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