Prudential Sec. Cred. Corp. v. Teevee Toons

Full title: PRUDENTIAL SECURITIES CREDIT CORP., LLC, INC., Plaintiff, v. TEEVEE TOONS…

Court: Supreme Court of the State of New York, New York County

Date published: Jun 7, 2004

2004 N.Y. Slip Op. 30198 (N.Y. Sup. Ct. 2004)

Opinion

0603112/2002.

June 7, 2004.

[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] HERMAN CAHN, Judge.

Plaintiff Prudential Securities Credit Corp., LLC, Inc. ("Prudential") moves for a declaration (CPLR 3001) that (1) Prudential is entitled under the parties' agreements and applicable law to retain a manager to exploit and rehabilitate certain collateral (the "Collateral") and is not. restricted to an immediate sale, (2) any such management transaction entered into between Prudential and a third party would not be subject to defendant TeeVee Catalog Enterprises' ("Catalog") matching right under the Parties' Security Agreement, and (3) should Prudential elect to dispose of the Collateral at a public auction, Prudential may exercise its right to credit bid at any such auction, without liability or accountability to Catalog or any of the defendants.

The background of this action has been set forth in prior decisions of this court, familiarity with which is presumed. As is relevant here, by order dated September-23, 2003, the court. granted Prudential's motion for summary judgment to foreclose on certain collateral — consisting of music titles arid publishing rights — pledged by TeeVee as security for a $23.5 million loan.¹ In November, 2003, TeeVee advised Prudential by letter of its position that "a prompt public or private sale of the Collateral is the only commercially reasonable method of disposition."

1 The Appellate Division, First Department, affirmed on March 16, 2004 (see, Prudential Securities Credit Corp. v TeeVee Tunes, 5 AD3d 226 [1^st Dept 2004]).

In the letter, TeeVee also expressed its concern that Prudential was contacting licensees of the rights related to the collateral and wrongfully representing to them that. it "owned" the Collateral. Additionally, TeeVee requested that. Prudential advise it of any "interim actions" it planned to take with respect. to the Collateral. Shortly thereaf Ler, TeeVee filed an amended complaint in a companion action seeking a declaration that Prudential was required to effect a prompt disposition of the Collateral. Concerned that its ability to maximize recovery from the Collateral would be impaired by TeeVee's potential demands regarding the timing of the disposition arid its right. to participate in the management of the assets, Prudential brought the instant motion.

The motion is granted to the limited extent of declaring that pending a final disposition of the Collateral (1) Prudential is entitled to retain a manager-to exploit the Collateral without. requiring approval or participation of TeeVee, and (2) that such right to retain a manager shall not be subject to any matching right by TeeVee. "A court may in its discretion render a declaratory judgment t.o stabilize Lhe rights and legal relations of the parties to a justiciable controversy that involves substantial legal interests. when . . . the judgment. will have some practical effect" (In Re New York City Asbestos Litigation, 194 Misc2d 214, 221 [Sup Ct NY Co 2002]). Although a court. ordinarily will not render an advisory opinion regarding the parties' rights with respect, to future occurrences which may or may not come to pass, a declaration is appropriate where the probability of a contingent event. is great or where the declaration will have the immediate effect of influencing the parties' conduct (Id.; M A Oasis, Inc. v MTM Assocs., L.P., 307 AD2d 87% [1^st Dept 20031; Remsen Apartments, Inc v Nayman, 89 AD2d 1014 [2nd Dept 1982], aff'd, 58 NY2d 1083). Here, a declaration regarding TeeVee's claimed matchinq rights is essential to free Prudential to negotiate a binding agreement with an interim manager without the threat of disruptive litigation.

As a secured lender, Prudential. is entitled under U.C.C. § 9-610(a), to "sell, lease, license, or otherwise dispose of any or all. of the collateral in its present. condition or following any commercially reasonable preparation or processing." Section 8.2 of the parties' Security Agreement. mirrors this provision, stating Lhat the collateral "may be sold, leased, or otherwise disposed of . . . after any overhaul or repair which the Lender shall determine to be commercially reasonable." Although neither the statute nor the case law provide guidance on what might cnnstitute the commercially reasonable rehabilitation of intangible collateral such as intellectual property rights, the official comment to section 9-610 provides some limited, genera] guidance. Comment 3 suggests that "[i]t may . . . he prudent not. to dispose of goods when the market has collapsed" and Comment 4 notes that "[a] secured party may not dispose of collateral 'in its then condition' when, taking into account: the costs arid probable benefits of preparation or processing and the fact. that the secured party would be advancing the costs at its risk, it. would be commercially unreasonable to dispose of the collateral in that condition."

Thus, although TeeVee is correct that Prudential must. ultimately make either a final disposition of the Collateral or retain it. in full satisfaction of the debt (see, Warnaco, Inc. v Farkas, 872 F2d 539 [2nd Cir 19891); U.C.C. § 9-620, Prudential is entitled to undertake commercially reasonable measures to maximize the marketability of the assets (see, Bankers Trust. v J.V. Dowler Cn., Inc., 47 NY2d 138). Nothing In the language of the statute or the parties' agreement precludes the retention of an interim manager.

Teevee's argument that Prudential forfeited the right to appoint a Back-Up Manager upon termination of the Management Agreement: is misquided. While appointment of a contractually-defined Rack-Up Manager was specifically enumerated as one of Prudential's pre-termination options, that provision did not impose any limitations upon Prudential's post-termination remedies. Plaintiff may appoint a manager with what ever powers are necessary to effect a commercially reasonable rehabilitation of the collateral. The fact that such powers might have been granted to a Back-Up Manager while the Manaqement Agreement was in effect. does not. mean that plaintiff is powerless to grant. them now that the agreement has been terminated. Furthermore, the right to appoint. a manager is not subject to participation by TeeVee. Section 8.2 of the Security Agreement, upon which TeeVee relies to assert its matching right, provides as follows:

Any such disposition which shall be a private sale or other private proceeding permitted by such requirements [of applicable law] shall be made upon not less than 10 days' written notice to [TeeVee] specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of [TeeVee] or any nominee of the Borrower to acquire the Collateral involved at a price or for such other consideration at least. equal to the intended sale price or other consideration so specified.

This provision by its terms applies only to a private sale resulting in the acquisition of title to the Collateral. Prudential is merely seeking to retain a manager to exploit. the assets on an interim basis pending a final disposition. Although TeeVee may ultimately challenge the commercial reasonability of such efforts, it has no right to block or usurp such efforts at. the outset by asserting a match right.²

2 It is noted that section 8.2 of the Security Agreement (quoted in part above) permits "overhaul or repairs which the lender shall determine to be commercially reasonable."

That. branch of Prudential's motion relating to a potential public sale of the Collateral, and seeking a declaration that it has the right. to credit bid at such an auction — a right TeeVee does not dispute — is also granted.

Accordingly, it is

ORDERED, that the motion is granted to the extent. of declaring that pending a final disposition of the Collateral (1) Prudential is entitled to retain a manager to exploit the Collateral without any approval, participation or interference by TeeVee; (2) that such right shall not be subject 'to any matching right by TeeVee; and (3) that at. any public sale of the Collateral, Prudential may bid the balance of the amount due to it, or any other amount it seeks to bid.

The foregoing constitutes the decision and order of the court.