Key Points

  • The Appellate Division, Fourth Department, unanimously affirmed an Erie County amended order and judgment in a commercial mortgage foreclosure brought by a CMBS trustee acting through special servicer LNR Partners.
  • The panel held the trustee was not entitled to $120,882.59 in note-rate interest on top of $583,938.25 in default-rate interest, because the default rate was five percent above the note rate and the trustee did not document how its default interest was calculated.
  • The panel held the trial court did not abuse its discretion in awarding $250,000 of the roughly $588,000 in attorneys' fees sought, given expert evidence that customary Western New York rates were $350 to $450 an hour against the $650 to $800 partner rates LNR paid.
  • The panel reiterated that contractual fee awards are enforceable only to the extent reasonable and that foreclosure is an equitable action in which the court's power is as broad as equity and justice require.

A New York appeals court on Oct. 9 upheld a trial judge's decision to award the trustee of a commercial mortgage securitization $250,000 in attorneys' fees, well under half of the roughly $588,000 it sought after foreclosing on a $3.6 million commercial loan. The court also refused to let the trustee collect two layers of interest on the same debt.

The Appellate Division, Fourth Department, ruled unanimously for the borrower, Stradtman Park, LLC, in an unsigned memorandum decision. The five-justice panel affirmed an Erie County judgment that denied the trustee $120,882.59 in interest at the note rate on top of $583,938.25 in default-rate interest.

The ruling leaves the trustee about $338,000 short of its fee request and rests on the principle that a contractual right to fees does not fix their amount. Even when a contract permits fees, the panel held, an award "may only be enforced to the extent that the amount is reasonable and warranted for the services actually rendered." The panel also wrote that "[a] foreclosure action is equitable in nature and triggers the equitable powers of the court," and that "the court's power is as broad as equity and justice require."

The dispute began in July 2014, when Stradtman Park borrowed $3.6 million from KeyBank National Association against a commercial property valued at about $7 million. The loan documents allowed KeyBank to reassign the loan and to securitize it through a commercial mortgage-backed security, or CMBS.

In October 2014, KeyBank assigned the loan to Wilmington Trust, National Association, as trustee for JPMBB Commercial Mortgage Securities Trust 2014-C24. The trustee placed the loan into a CMBS under a pooling and servicing agreement. Stradtman Park did not sign that agreement and says it did not receive a copy until after the litigation began. Under the agreement, LNR Partners, LLC was to serve as special servicer, the company that handles a loan if it becomes distressed or falls into default.

From 2014 through early 2020, Stradtman Park paid everything the loan documents required: $18,779.30 a month in principal and interest and $20,300.39 a month into reserve accounts for taxes, insurance, maintenance and repairs.

In 2019, the borrower sought approval for lease renewals, expansions, contractor repair payments and other relief to be paid from the reserves. Although the loan was neither distressed nor in default, LNR became the contact for those requests. In the panel's summary of Stradtman Park's position, LNR "was dilatory and obstructionist with all of defendant's legitimate requests," forcing the borrower to pay some costs itself despite ample reserve funds.

In May 2020, Stradtman Park began paying only principal and interest and withheld the reserve payments. The trustee or LNR instead spread those payments across principal, interest and reserves, which put the loan in default. In November 2020, the borrower stopped remitting rental proceeds the loan documents required it to turn over, and the trustee later sued to foreclose.

State Supreme Court in Erie County (Emilio Colaiacovo, J.) granted the trustee partial summary judgment on its foreclosure and rent claims, a ruling not challenged on appeal. "Questioning many of the fees sought to be recovered by plaintiff," the panel wrote, the court ordered a hearing on damages. An amended order and judgment was entered on May 21, 2025, and the trustee appealed the damages and fee rulings.

The panel applied a deferential standard. Quoting its own 2025 precedent, it wrote that a fact-finding court's decision "should not be disturbed upon appeal unless it is obvious that the court's conclusions could not be reached under any fair interpretation of the evidence."

On interest, the panel held that the trustee "was not entitled to both note rate interest and default rate interest inasmuch as the default rate was set at five percent above the note rate." The trial court had awarded the exact default-rate amount the trustee requested. Because the trustee "did not establish with documentary evidence how the default rate interest it requested was calculated," the panel concluded, the finding that both awards would be duplicative was supported by the evidence.

The fee fight turned on hourly rates. Stradtman Park did not dispute that the trustee and LNR were entitled to fees but contested the amount. Its expert testified that a "customary, reasonable" rate for an experienced commercial foreclosure lawyer in Western New York ranged from $350 to $450 an hour. The trustee's sole witness testified that LNR was paying $650 to $800 an hour for law firm partners and $350 to $575 for associates.

None of the trustee's attorney invoices stated the rate for each charge. The trial court found the requested rates unreasonable and numerous charges "duplicative and exaggerated." It also said the trustee had come "perilously close" to having the entire judgment vacated, which the panel attributed to the trustee's "exorbitant request for attorneys' fees."

A fee determination weighs the hours spent, the rate charged and the customary fees of local lawyers with similar experience and reputation, the panel explained. It concluded that the $250,000 award "was not an abuse of discretion and should not be disturbed," and it rejected the trustee's remaining challenges to the damages and fee awards.

Justice Lindley presided over the panel, which also included Justices Curran, Ogden, Delconte and Hannah.

The trustee was represented by Gregory J. Mascitti of McCarter & English, LLP. Stradtman Park was represented by Kathryn Friedman of The Sage Law Firm Group PLLC.

The panel affirmed the amended order and judgment without costs, leaving the trial court's damages and fee awards in place. The decision is uncorrected and subject to revision before publication in the Official Reports.