New York Supreme Court Upholds Accelerated Enforceability of “Bad Boy” Guaranty in CMBS Case

On March 8, 2011, Justice Melvin L. Schweitzer of the New York State Supreme Court granted a motion for summary judgment in lieu of complaint filed by UBS Commercial Mortgage Trust 2007-FL1, Commercial Mortgage Pass-through Certificates, Series 2007-FL1 (“UBS”), and Normandy Reston Office LLC (“Normandy,” together with UBS, collectively, “Plaintiffs”), enforcing the obligation of Garrison Special Opportunities Fund LP (“Garrison”), the guarantor under a “bad boy” guaranty, to pay the full amount of the outstanding loan after Borrowers filed for bankruptcy protection. Summary judgment in lieu of complaint is an accelerated procedure available in New York that allows a plaintiff to seek summary judgment without the delays caused by filing a complaint as long as the underlying contract at issue is an instrument for the payment of money only. Relying in part on the express terms of the guaranty and the relative sophistication of Garrison, the Court held in pertinent part that (1) a summary judgment motion may be granted to enforce the “bad boy” guaranty even though the guaranty contains provisions that are not directly related to the payment of money, (2) “bad boy” guaranties are not “unenforceable penalties” and (3) enforcing “bad boy” guaranties is not against public policy.