April 30, 2025
We’re excited to share the news that our partner Holly Chamberlain has been named the Head of Cadwalader’s Real Estate Finance practice.
Holly, who also serves on the firm’s Management Committee, is a two-time recipient of Law360’s Real Estate MVP award since 2022. She has earned a reputation as a leading lender’s counsel, having advised a who’s who of financial institutions in the financing of a range of properties, including office, retail, hotel, multi-family, industrial and skilled nursing facilities through single asset, as well as multi-state and multi-property, transactions. Holly represented the originating lenders on the $3 billion securitized financing of New York City skyscraper One Vanderbilt, the largest-ever fixed-rate securitization secured by a single building, which was cited by the Financial Times in its North American Innovative Lawyers report; and one of the financings necessary to effectuate the Commercial Observer 2023 Deal of the Year – Blackstone’s acquisition of American Campus Communities.
We’re also proud to announce that our colleague Sulie Arias has been elected partner.
As an associate and a special counsel, Sulie has been a critical member of the Real Estate Finance team on complex and large real estate transactions. She has closed multiples of billions of dollar of loans over the past five years. Sulie’s practice includes balance sheet (single-lender and agented), construction and bridge loans, CMBS, mortgage and mezzanine financings, as well as loan-on-loan and leverage financings across all major asset classes. Her leading work for clients has earned trade press recognition, with Sulie being named one of the Best Lawyers: Ones to Watch in America in the publication’s Real Estate Law category in 2024 and 2025. Her recent work includes advising clients in matters involving a diverse array of U.S. properties, including a lender in the origination of a $187 million construction loan to the borrower in connection with the construction of a residential complex in Miami, Florida; a lender in the origination of a $125 million construction loan to Brookfield in connection with the construction of industrial warehouse buildings in Stoughton, Pennsylvania; and a money center bank in the origination of a loan-on-loan financing in the principal amount of $330 million to the underlying lender, which underlying loan was secured by 13 underlying mortgage loans of various asset classes, including retail, multifamily, office and hotels.
Our team has advised clients on many of the most notable recent transactions in the market. We have experience with virtually every type of collateral and represent a variety of clients in originating all types of financings, including balance sheet, bridge and construction lending, mezzanine and preferred equity finance, loan-on-loan financings and CMBS lending.
We also regularly represent clients in workout, foreclosure and bankruptcy situations, often involving multi-tiered debt structures and UCC foreclosures of mezzanine loans, and understand the unique concerns of large financial institutions, funds and other “non-bank” lenders, securitization trustees and special servicers, owner/operators, developers and government agencies alike.
We’re grateful to have strong relationships with a wide range of clients and will continue to help them achieve their goals. We look forward to sharing highlights of our work, and our insights into the issues impacting the commercial real estate industry, in future editions of REF News and Views.
In the meantime, thank you for your support of Cadwalader.
Congratulations to the many Cadwalader clients and friends who have earned a place in the Commercial Observer’s 2025 Power Finance list.
Published annually, the Power Finance list recognizes those key figures who, as the publication notes, shine at “guiding borrowers through the market highs and lows, the expected and unexpected, and finding ways to push deals over the finish line.”
We’re incredibly grateful to work closely with so many of those on this year’s list, and look forward to achieving continued success together.
View the list here (subscription required).
In a recent decision by the Supreme Court of the State of New York in Kings County (the Court)[1], HSBC Bank USA, N.A. (the Plaintiff) initiated a mortgage foreclosure action against Jack and Sabah Srugo (collectively, the Defendant). The Plaintiff moved for summary judgment, and the Defendant cross-moved to dismiss, arguing that the action was barred by the statute of limitations. The Court denied the Plaintiff’s summary judgment motion, concluding that the Plaintiff did not have standing to commence the action because it did not prove that the allonge was firmly affixed to the note as required by statute. The Court also held that the action was timely commenced and thus rejected the Defendant’s claim that the statute of limitations had expired under the Foreclosure Abuse Protection Act (FAPA).
Standing in a Foreclosure Action:
In a foreclosure action, the plaintiff must establish its prima facie case through the production of the mortgage, the unpaid note and evidence of default.[2] Further, the plaintiff must demonstrate standing by evidencing possession of the subject note, either endorsed in blank or with a firmly affixed allonge endorsed in blank at the commencement of the action. If the endorsement is on an allonge, the plaintiff must show that the allonge is so firmly affixed to the note “as to become a part thereof,” as required by UCC 3-202(2).
The original holder of the note was HSBC Mortgage Corporation (USA), a different entity than the Plaintiff, so an allonge was required to show the transfer to the current lender. The note in question contained an endorsement in blank, but the Plaintiff failed to submit evidence demonstrating the allonge was firmly affixed to the note. Since, without evidence that the allonge was firmly affixed to the note, the Plaintiff failed to demonstrate it had a stake in the note and standing in the foreclosure action, the Court denied its summary judgment motion.
FAPA Statute of Limitations:
The Defendant cross-moved to dismiss the complaint as time barred on the ground that the statute of limitations had expired, relying on FAPA. FAPA acts as a protective measure in foreclosure actions (typically for borrowers), warranting that there will be no “unilateral extension of the limitations period” by the lenders or other parties and sticking to a strict limitations period.[3] A foreclosure action is subject to a six-year statute of limitations period, which begins running upon acceleration of the entire amount due when such mortgage is payable in installments[4], and such acceleration occurs when the plaintiff files the summons and complaint with the clerk of the court.[5]
Here, the Plaintiff brought another action to foreclose the same mortgage on November 3, 2014 (Index No. 510266/2014), which was dismissed for failure to prosecute. The current action commenced on November 3, 2020, exactly six years after the original action was brought. The Court denied the Defendant’s reliance on the FAPA, since the action was commenced within the six-year statute of limitations.
[1] HSBC Bank USA, N.A. v. Srugo, 2025 NY Slip Op 50144(U) (Sup Ct, Kings County 2025).
[2] Deutsche Bank Natl. Tr. Co. v. Bowens, 181 A.D.3d 871, 873 (2d Dep’t 2020).
[3] New York Laws, Civil Practice Laws and Rules, § 203(h).
[4] Deutsche Bank Trust Co. Ams. v. Marous, 186 A.D.3d 669, 670 (2d Dep’t 2020).
[5] U.S. Bank Trust, N.A. v. Aorta, 167 A.D.3d 807 (2d Dep’t 2018); see CPLR 213(4).
Executive Summary
The recent decision In re 301 W N. Ave., LLC, 666 B.R. 583 (Bankr. N.D. Ill. 2025) represents a significant development at the intersection of corporate governance, commercial real estate, and bankruptcy law. At the core of this case was the enforceability of provisions requiring the independent manager’s consent prior to the borrower filing for bankruptcy. The ruling upheld the enforceability of these provisions, reinforcing the role of structured corporate governance mechanisms in protecting lenders from undesired bankruptcy filings.
Background
301 W North Avenue, LLC, a Delaware limited liability company (the Debtor), owns North Park Pointe Apartments, a mixed-use development at 301 West North Avenue in Chicago, Illinois (the Property). On September 23, 2020, BDS III Mortgage Capital G, LLC (the Lender) provided a $26 million loan to the Debtor secured by the Property. Martin Paris, Jr. (Paris), acting as president of the Debtor’s manager, executed these loan documents.
Prior to making the loan, the Lender required the Debtor to be a bankruptcy-remote entity and to have one acceptable independent manager. To meet these requirements, the Debtor entered into an agreement (the CTCS Agreement) with CT Corporation Staffing, Inc. (CTCS), which specializes in providing independent managers. Lisa M. Pierro (Pierro), an independent manager for over 500 corporate entities, was designated as the independent manager for the Debtor “unless and until she is removed, resigns or is replaced” in accordance with the Debtor’s LLC Agreement (the LLCA).
Under the CTCS Agreement, Pierro would be given reasonable time to investigate matters before the board and may engage independent legal counsel if necessary. Pierro’s appointment would be automatically renewed unless either party provided 30 days’ notice to terminate. The CTCS Agreement also provided that both CTCS and Pierro would be indemnified against claims, except in cases of willful misconduct.
The loan agreement further reinforced Pierro’s role and required that the Debtor could not file for bankruptcy without Pierro’s approval. It also required that there must be at least one independent manager who is reasonably satisfactory to the Lender at all times. Any removal or replacement of the independent manager required at least two business days’ prior written notice to the Lender, along with evidence that the replacement independent manager satisfied the Debtor’s organizational documents.
On October 1, 2023, the Debtor defaulted on the loan, and in response, the Lender initiated foreclosure proceedings. On February 27, 2024, just before a scheduled foreclosure hearing, the Debtor filed for bankruptcy. The Debtor, its members and the Debtor’s manager executed a Consent in Lieu of Meeting of the Members and Manager of 301 W North Avenue, LLC (the Consent in Lieu) to authorize the bankruptcy filing and Paris, acting on behalf of the Debtor’s manager, signed the bankruptcy petition, declaring under penalty of perjury that he was authorized to do so. The bankruptcy petition was filed without Pierro’s consent, and the Consent in Lieu did not include a signature block for Pierro. During a creditors’ meeting on March 27, 2024, Paris testified that: (1) he was unaware of any independent manager’s consent requirement; (2) he did not recall any individual needing to approve the bankruptcy filing; and (3) he did not recognize Pierro’s name. However, Pierro was listed as the manager in the Debtor’s annual filings with the Illinois Secretary of State from 2020 to 2023, further evidencing her role as the Debtor’s independent manager.
In April, 2024, Pierro resigned, citing concerns over unpaid invoices from CTCS and the bankruptcy filing. However, she backdated her resignation to August 31, 2022 – the last date CTCS received payment. The Court found no evidence that the Debtor was aware of Pierro’s resignation before the bankruptcy filing, noting Paris’s testimony that he did not even recognize the name Lisa Pierro. Furthermore, the Debtor failed to notify the Lender of Pierro’s resignation or appoint a replacement independent manager, as required under the loan documents.
The Lender subsequently filed a motion to dismiss the bankruptcy case and to bar the Debtor from refiling (the Motion to Dismiss).
Legal Discussion and Ruling
Under 11 U.S.C. § 1112(b), a bankruptcy court must dismiss a bankruptcy case if there is “cause” to do so. One such cause is when an entity lacks the legal authority to file for bankruptcy. The U.S. Supreme Court has ruled that if those acting on behalf of an entity are not legally authorized to file for bankruptcy, the court has no choice but to dismiss the case. Federal bankruptcy courts have previously upheld this principle, holding that a case must be dismissed if the individuals filing on behalf of an entity lack proper authority.
The Motion to Dismiss raised two key questions:
- Was the Debtor properly authorized to file for bankruptcy?
- If not, did the Debtor’s LLCA unlawfully restrict its ability to do so?
Was the Debtor Properly Authorized to File for Bankruptcy?
The Debtor is governed by Delaware law and its LLCA, which required the unanimous written consent from its members and managers (including the independent manager) for the Debtor to file for bankruptcy. Therefore, the consent of Pierro was required to authorize the Debtor’s bankruptcy filing.
Paris previously testified that he did not confer with Pierro to obtain her consent to the filing and that he did not “believe there was an independent manager”. Paris further testified that he did not even recognize the name “Lisa Pierro”. Additionally, the Consent in Lieu did not have a signature block for Pierro to sign. In light of this evidence, the Court found that the LLCA clearly designated Pierro in this role, and that the Debtor failed to obtain Pierro’s consent to authorize the filing.
In response, the Debtor argued that Paris believed that Pierro had resigned prior to the filing, and therefore, her consent would not have been required to authorize the filing. The Debtor also argued that Pierro’s resignation amounted to ratification of the bankruptcy filing.
The Court recognized the confusion surrounding the timing of Pierro’s resignation but found it evident that she signed and submitted her resignation on April 30, 2024 – two months after the Debtor filed for bankruptcy. Pierro testified that her resignation was prompted not only by the Debtor’s failure to pay the CTCS, but also by the bankruptcy filing itself, which she first learned about in April, 2024 when contacted by the Lender’s counsel regarding a subpoena. Based on this, the Court found that Pierro was still the independent manager at the time of the bankruptcy filing, and her consent was required to authorize the filing.
The next question was whether Pierro’s resignation amounted to a ratification of the bankruptcy filing. Under Delaware law, implied ratification requires that a party, with full knowledge of the relevant facts, either remains inactive for a significant period, takes actions that acknowledge the disputed act, or behaves in a way that implies approval. However, the evidence showed that Pierro only became aware of the bankruptcy in April – more than a month after the petition was filed –and resigned shortly thereafter. The Court found that this did not demonstrate that Pierro had prior knowledge of the filing or took any steps to affirm it, but instead that Pierro’s prompt resignation suggests that she rejected the bankruptcy. The Court concluded that the Debtor failed to prove that Pierro ratified the filing and therefore, the filing was unauthorized.
Did the Debtor’s LLCA Unlawfully Restrict Its Ability to Do So?
Even though the Debtor was not authorized to file for bankruptcy, the question remained whether the LLCA imposed impermissible restrictions on the Debtor’s ability to access bankruptcy relief. Typically, corporate governance provisions that overly restrict an entity’s ability to file for bankruptcy are void as against public policy. Here, the Debtor argued that the provisions requiring Pierro’s consent fall into this category. If this was the case, then even if the LLCA required Pierro’s consent, the bankruptcy petition would have been properly filed, because the provisions requiring Pierro’s consent were unenforceable. However, provisions requiring an independent manager to participate in key decisions, including bankruptcy filings, are not inherently void as long as they create a structure where fiduciary duties are respected and the provisions otherwise comply with applicable law.
Court decisions from In re Lake Michigan Beach Pottawattamie Resort LLC and In re Intervention Energy Holdings, LLC set important precedents, establishing that corporate governance provisions which overly restrict a debtor’s ability to exercise its bankruptcy rights are unenforceable. In Lake Michigan Beach, the court ruled that provisions requiring the lender’s consent as a “Special Member” before the borrower could file for bankruptcy were invalid because they eliminated the Special Member’s fiduciary duties to the borrower. Similarly, in Intervention Energy Holdings, the court found that creditor consent provisions, often referred to as a “golden share” or “creditor blocking vote” effectively eliminated the debtor’s right to seek federal bankruptcy relief, describing them as an “absolute waiver” of that right and therefore contrary to public policy.
Here, the Court reviewed specific provisions in the LLCA, noting that the LLCA imposed upon Pierro fiduciary duties to the Debtor as well as its creditors, ensuring that bankruptcy decisions were made with appropriate due diligence. The Debtor argued that Pierro’s role served only the Lender’s interests since the position remained in place for the duration of the loan. However, the Court found that this arrangement was a reasonable and logical requirement, rather than an overly restrictive limitation on the Debtor’s access to bankruptcy relief. The Debtor also claimed that Pierro owed no duties to the LLC’s members, but the Court emphasized that the primary concern is whether Pierro’s role unlawfully restricted the Debtor’s right to file for bankruptcy, which it found was not the case here.
Furthermore, the Debtor argued that limiting the interests that Pierro must consider to the Debtor’s economic interests allowed her to avoid liability for a breach of fiduciary duties. However, the Court found it appropriate for an independent manager to assess economic implications when authorizing a bankruptcy filing.
Lastly, the Debtor challenged indemnification provisions in the CTCS Agreement, arguing that they unlawfully shielded Pierro from liability, even for bad faith actions. However, the Court noted that the LLCA was the key document at issue – not the CTCS Agreement – and the LLCA explicitly prohibited indemnification in cases of bad faith or willful misconduct, which aligned with Delaware law.
Ultimately, the Court determined that the Debtor’s LLCA did not unlawfully restrict its right to seek bankruptcy relief and the provisions were therefore valid. Since the provisions of the LLCA were enforceable and Pierro did not consent to the filing, the Court found the Debtor lacked the necessary authorization to file the petition. As a result, the Motion to Dismiss was granted. The Court did, however, deny the Lender’s request to bar Debtor’s refiling, stating that to do so would effectively prohibit the Debtor from properly deciding – in compliance with its LLCA – whether it should file for bankruptcy.
Looking Ahead
The ruling in In re 301 W N. Ave., LLC has significant implications for commercial real estate transactions, particularly in reinforcing the use of bankruptcy-remote structures, which are widely used in real estate financing to protect lenders by isolating a property’s financial obligations from the broader business operations of its owners.
A common mechanism for achieving bankruptcy remoteness is the use of Special Purpose Entities (SPEs), which are designed to limit the risk of insolvency by maintaining strict separateness from affiliated entities. Lenders often impose restrictions, such as independent director or manager provisions, to prevent SPEs from filing for bankruptcy without prior approval. Historically, courts have scrutinized such provisions, particularly when they effectively eliminate a borrower’s ability to seek bankruptcy relief. However, this ruling affirms that provisions requiring an independent manager’s consent remain enforceable, so long as they do not constitute an outright prohibition on bankruptcy, but rather serve a legitimate governance function.
This decision follows in the wake of the General Growth Properties (GGP) bankruptcy, which raised concerns over the effectiveness of SPE structures. In 2009, GGP, a publicly-traded real estate investment trust, filed for bankruptcy along with numerous subsidiary SPEs that were traditionally considered bankruptcy-remote. The lenders to the SPEs had required independent managers who were not insiders of GGP, but they did not have the more robust removal requirements and fiduciary duty provisions that were included in the 301 W N. Ave. LLCA. On the eve of its bankruptcy filing, GGP removed the independent managers at the SPEs and replaced them with restructuring professionals. Those restructuring professionals took into account the interests of the entire GGP enterprise as a whole and voted to file each of the SPEs for bankruptcy, including those that were solvent and whose properties were performing. Various lenders filed motions to dismiss the SPE bankruptcies as bad faith filings, arguing that they were premature and sought to restructure the debt of solvent SPEs for the benefit of GGP’s equity holders. However, the court allowed the SPEs to proceed with bankruptcy filings, finding that the inclusion of the solvent SPEs in GGP’s bankruptcy filing was legitimate because those SPEs were integral to GGP’s reorganization. In contrast to 301 W N. Ave., the restructuring professionals then serving as independent managers had voted to file the SPEs for bankruptcy, and there was no prohibition on considering the interests of GGP in determining whether to file the SPEs for bankruptcy. The GGP ruling suggested that financial entanglement and operational integration with the parent company could override certain structural safeguards previously relied on by lenders to mitigate the future risk of bankruptcy.
The GGP case weakened the assumption that SPEs could remain insulated from a parent company’s financial distress. In response, lenders have since sought to bolster SPE structures through more stringent separateness covenants and the enhanced independent manager provisions that were included in the 301 W N. Ave LLCA, which are the current market standard.
Following GGP, cases such as Lake Michigan and Intervention Energy had provided practitioners with guidance as to the types of bankruptcy voting provisions that would not be enforceable. The 301 W N. Ave. decision, however, provides concrete confirmation that the standard independent manager provisions are enforceable and effective. By upholding the enforceability of independent manager consent provisions, this decision strengthens lenders’ ability to protect their financial interests, while also establishing clear legal boundaries around governance structures. As the commercial real estate market continues to evolve, this case will serve as a critical benchmark in structuring bankruptcy-remote entities and balancing the power dynamics between borrowers and lenders in distressed financial situations.