2020 08:43 am

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

ATLAS MF MEZZANINE BORROWER, LLC, a

Delaware limited liability company,

Plaintiff,

-against-

MACQUARIE TEXAS LOAN HOLDER LLC, a

Delaware limited liability company, KKR REPA AIV-2

L.P., a Delaware limited partnership, and KRE LRP

OSPREY VENTURE LLC, a Delaware limited liability

company,

Defendants.

Index No. 651657/2017

Justice Joel M. Cohen

KKR REPA AIV-2 L.P., a Delaware limited partnership;

KRE LRP OSPREY VENTURE LLC, a Delaware

limited liability company,

Counterclaim-Plaintiffs,

-against

ATLAS MF MEZZANINE BORROWER, LLC, a

Delaware limited liability company,

Counterclaim-Defendant.

KKR’S PRE-TRIAL MEMORANDUM

FILED: NEW YORK COUNTY CLERK 01/09/2020 08:43 AM INDEX NO. 651657/2017

NYSCEF DOC. NO. 1065 RECEIVED NYSCEF: 01/09/2020

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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT .....................................................................................................1

I. ATLAS ENGAGED IN A SHAM-BIDDING SCHEME AT THE AUCTION .................3

A. Atlas Defaulted on its Mezzanine Loan and Failed to Obtain Financing ................3

B. Atlas Devised and Implemented a Sham-Bidding Scheme .....................................6

C. Atlas Implemented Its Sham-Bidding Scheme to KKR’s Detriment ......................7

D. KKR Closed the Sale in Good Faith ......................................................................10

E. Atlas Failed to Exercise Its Redemption Right ......................................................11

II. KKR WILL PROVE EACH ELEMENT OF ITS COUNTERCLAIMS ..........................13

A. Unjust Enrichment .................................................................................................13

B. Tortious Interference With a Prospective Economic Advantage ...........................15

III. ATLAS’S ANTICIPATED DEFENSES ARE MERITLESS ...........................................18

A. Trial Will Confirm Atlas’s Collusion Allegations Are False ................................18

B. The First Department’s Decision Does Not Bar KKR’s Claims ...........................21

CONCLUSION ..............................................................................................................................22

CERTIFICATE OF COMPLIANCE .............................................................................................24



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TABLE OF AUTHORITIES

Page

Cases

534 E. 11th St. Hous. Dev. Fund Corp. v. Hendrick,

90 A.D.3d 541 (1st Dep’t 2011) .............................................................................................. 15

Atlas MF Mezz. Borrower, LLC v. Macquarie Tex. Loan Holder LLC,

174 A.D.3d 150 (1st Dep’t June 6, 2019) .................................................................................. 2

Atlas MF Mezzanine Borrower, LLC v. Macquarie Texas Loan Holder LLC,

177 A.D.3d 420 (1st Dep’t Nov. 7, 2019) .......................................................................... 21-22

Atlas MF Mezzanine Borrower, LLC v. Macquarie Texas Loan Holder, LLC,

2017 WL 729128 (S.D.N.Y. Feb. 23, 2017) .............................................................................. 5

Bennett Enters., Inc. v. Domino’s Pizza, Inc.,

794 F. Supp. 434 (D.D.C. 1992) .............................................................................................. 16

Bowman v. McClenahan,

20 A.D. 346 (1st Dep’t 1897) .................................................................................................. 14

Bryce v. Wilde,

39 A.D.2d 291 (3d Dep’t 1972) ............................................................................................... 16

Carvel Corp. v. Noonan,

3 N.Y.3d 182 (2004) .......................................................................................................... 16, 17

Catskill Dev., L.L.C. v. Park Place Entm’t Corp.,

547 F.3d 115 (2d Cir. 2008)..................................................................................................... 16

Citi Mgmt. Ltd. v. Highbridge House Ogden, LLC,

873 N.Y.S.2d 510 (Table), 2007 WL 5674032

(N.Y. Sup. Ct. Bronx Cty. Aug. 3, 2007 .................................................................................. 17

Citi Mgmt. Grp., Ltd. v. Highbridge House Ogden, LLC,

45 A.D.3d 487 (1st Dep’t 2007) .............................................................................................. 18

Green Tree Serv. LLC v. Christodoulakis,

2014 WL 5475514 (E.D.N.Y. Oct. 28, 2014) .......................................................................... 14

Mfrs. Hanover Tr. Co. v. Chem. Bank,

160 A.D.2d 113 (1st Dep’t 1990) ............................................................................................ 14

NBT Bancorp Inc. v. Fleet/Norstar Fin. Grp., Inc.,

87 N.Y.2d 614 (1996) .............................................................................................................. 16

Paramount Film Distrib. Corp. v. New York,

30 N.Y.2d 415 (1972) .............................................................................................................. 13

Philips Int’l Inv., LLC v. Pektor,

117 A.D.3d 1 (1st Dep’t 2014) ................................................................................................ 13



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Randolph Equities LLC v. Carbon Capital, Inc.,

2007 WL 914234 (S.D.N.Y. Mar. 26, 2007) ........................................................................... 17

S & S Hotel Ventures Ltd. P’Ship v. 777 S.H. Corp.,

108 A.D.2d 351 (1st Dep’t 1985) ............................................................................................ 16

Sidney Frank Imp. Co. v. Beam, Inc.,

998 F. Supp. 2d 193 (S.D.N.Y. 2014)...................................................................................... 17

Valeo Engine Cooling, Inc. v. Guy F. Atkinson Co. of Cal.,

240 A.D.2d 176 (1st Dep’t 1997) ............................................................................................ 14

Wedeen v. Cooper,

1998 WL 391117 (S.D.N.Y July 14, 1998) ....................................................................... 15, 17

White Plains Coat & Apron Co. v. Cintas Corp.,

8 N.Y.3d 422 (2007) ................................................................................................................ 18

Williams & Co. v. Collins, Tuttle & Co.,

6 A.D.2d 302 (1st Dep’t 1958) ................................................................................................ 15



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Counterclaim Plaintiffs KKR REPA AIV-2 L.P. (“REPA”) and KRE LRP Osprey Venture

LLC (“KRE”, and together with REPA, “KKR”) respectfully submit this pretrial memorandum

regarding their counterclaims against Plaintiff-Counterclaim Defendant Atlas MF Mezzanine

Borrower LLC (“Atlas”).1

PRELIMINARY STATEMENT

KKR will prove that it suffered at least $3 million in damages as a result of a sham-bidding

scheme devised by Atlas and its manager, Steven Ivankovich, which Ivankovich dubbed “bid to

infinity.” Atlas, a debtor, attended a foreclosure sale at which its collateral, a holding company

called Atlas MF Holdco, LLC (or “Holdco”), was being sold by its lender (Macquarie Texas Loan

Holder LLC, or “Macquarie”), and drove up the price of Holdco by placing sham bids. Each bid

raised the price of Holdco, and each time the price of Holdco increased, Atlas unjustly profited.

As a result, KKR paid $3 million more for Holdco than KKR otherwise would have.

These facts entitle KKR to damages under two well-established legal theories. First, KKR

will prove that Atlas was unjustly enriched at KKR’s expense. Second, KKR will prove Atlas

tortiously interfered with KKR’s prospective economic advantage—the purchase of Holdco—by

artificially inflating the price KKR paid for Holdco. Either counterclaim will allow KKR to

recover $3 million in damages, plus prejudgment interest.

Atlas’s anticipated trial defenses are meritless. Atlas will inevitably assert that KKR and

Macquarie “colluded” at the auction or that KKR acted in “bad faith.” The Court previously

described those allegations as “weak,” and trial will confirm they lack any evidentiary support

1 Throughout this memorandum, “Exhibit _” refers to exhibits attached to the Affirmation of

Andrew J. Rossman filed herewith. The remaining documents and deposition transcripts cited

herein are included in Macquarie and KKR’s jointly-submitted exhibits and deposition

designations.



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whatsoever. Not a single witness at the auction—Atlas’s representatives included—observed any

“collusion.” And a landslide of documentary and testimonial evidence will show there was none.

Atlas will also argue that the First Department’s recent decision affirming the dismissal of

KKR’s fraud counterclaim bars KKR’s counterclaims for unjust enrichment and tortious

interference. But the First Department held only that KKR failed to plead the reasonable reliance

element of its fraud claim. Neither unjust enrichment nor tortious requires a showing of reasonable

reliance, and both counterclaims are supported by evidence that was not before the First

Department when it issued its ruling.

Moreover, the First Department’s earlier decision rejecting Atlas’s claims against KKR

weighs strongly in favor of awarding KKR damages for Atlas’s misdeeds. In rejecting Atlas’s

claim to unwind the sale of Holdco, the First Department noted that such a result “would only

serve to muddy the waters surrounding nonjudicial sales conducted pursuant to article 9 of the

UCC, and to deter potential buyers from bidding in nonjudicial sales, which would, in turn, harm

the debtor and the secured party attempting to collect after a default.” Atlas MF Mezz. Borrower,

LLC v. Macquarie Tex. Loan Holder LLC, 174 A.D.3d 150, 152 (1st Dep’t 2019).

Atlas’s “bid to infinity” scheme risks consequences that are just as severe. Atlas pocketed

millions of dollars at KKR’s expense by breaking the auction’s rules, lying about it, and placing

sham bids. Allowing this outrageous conduct to go unchecked would legitimize Atlas’s deceptive

bidding strategy, with catastrophic results. Every debtor would face strong incentives to pump up

the price of its collateral at foreclosure sales without the ability to back its bids, just as Atlas did.

Good-faith bidders like KKR, recognizing this inherent danger, would be far less likely to

participate in future foreclosure sales. Such a result would not only “muddy the waters

surrounding” foreclosure sales; it would risk running them dry. The Court should hold Atlas liable



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for its misconduct to ensure that “bid to infinity” does not become a routine debtor strategy at

foreclosure sales.

I. ATLAS ENGAGED IN A SHAM-BIDDING SCHEME AT THE AUCTION

Atlas and Macquarie’s pre-trial submissions extensively discuss the February 2017

auction. KKR focuses here on the evidence relevant to KKR’s counterclaims.

A. Atlas Defaulted on its Mezzanine Loan and Failed to Obtain Financing

The evidence at trial will confirm that Atlas defaulted on its mezzanine loan as a result of

its own incompetence and in-fighting with its joint venture partner, the International Investment

Bank of Bahrain (“IIB”). Mere days before the loan maturity date, Ivankovich bluntly informed

IIB that a default was inevitable: “There is no more negotiating and IIB has undermined our efforts

to get the best deal possible . . . . It will be a miracle now if Macquarie actually gives us an

extension.”2

As Ivankovich predicted, Macquarie declared an event of default on January 3, 2017.3

Leslie Andren, Chief Investment Officer of Atlas Residential, an Atlas affiliate, laid out the

consequences to Ravi Malli, Atlas Residential’s Director of Asset Management, in stark terms:

“This is not good. He [Ivankovich] will lose Prop Tex [Atlas’s name for the portfolio of assets].

2 DE24 (December 29, 2016, email from Ivankovich); see also DE8 (Ivankovich complaining to

IIB: “If you recall we sat on my hands for months … and now we are running a fire drill for refi

with stuff going on in background that isn’t making it easier.”); DE11 (Ivankovich expressing

“disappointment in IIB’s board waffling and then complete about face” and stating “[IIB’s]

decision to unilaterally engage JLL [a third-party real estate broker] without involving us in the

process further undermined our [refinancing] efforts”); DE28 (IIB blaming Atlas: “I find it even

more ridiculous that we are about to burn $4mn of fees and expenses due to the fact that this asset

has substantially underperformed vs the projections… and that has led to us being unable to extend

the MBL loan.”); DE9 (December 13, 2016, email from Ivankovich); DE12 (December 30, 2016,

email from R. Malli); DE21 (December 13, 2016, email from Ivankovich with attachments); DE27

(January 3, 2017, email from Ivankovich).

3 DE29 (Notice of Default and Demand for Payment).



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UCC auctions happen fast and that will be it as the buyer will likely remove us from

management.”4

Now in default, Atlas needed over $71 million in cash (the value of its loan) to avoid

“los[ing] Prop Tex.” But Atlas’s bank accounts were nearly empty. By the date of the auction,

Atlas had only $0.42.5 The bank accounts of Atlas’s parent and grandparent companies were

similarly barren, with a little over $2,000 between them.6 And even assuming Atlas could draw

on cash held by any Atlas entity at a moment’s notice, the total cash available barely topped $1

million—well short of the $71 million-plus Atlas needed to pay back its loan.7

Atlas has suggested that it intended to rely on funds held by Ivankovich’s parents to repay

its loan. But there is no evidence such funds were actually available to Atlas or that Ivankovich’s

parents would have used over $71 million of their retirement funds to bail out a failed commercial

real estate investment. Moreover, IIB had to approve any refinancing deal, and there is no evidence

IIB had consented to a deal by which Ivankovich’s parents effectively bought out IIB’s stake in

the joint venture.8

Given these facts, Atlas was forced to seek financing from third-party lenders. But Atlas’s

post-default efforts to obtain financing failed. Lender Timbercreek backed away from a deal with

Atlas after financial conditions imposed by Timbercreek “were not met.”9 Ivankovich similarly

4 DE33 (January 13, 2017, email from Andren).

5 DE75 (February 2017 account statement for Atlas).

6 DE74 (February 2017 account statement for Atlas Multifamily Three LLC); DE76 (February

2017 account statement for Atlas Apartments Holdings LLC).

7 DE83, at ATLAS_049547 (February 2017 account statement for Atlas Apartment Homes LLC).

8 See DE2 (Advisory Agreement between Atlas and IIB, § 2); DE10 (December 15, 2016, email

from Malli stating: “Also need IIB sign off on the term sheet”); DE95 (showing IIB approval was

required for aspects of Walker Dunlop term sheet).

9 DE44 (January 30, 2017, email from Trotter).



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realized that completing a deal with lender iStar before the auction was not feasible.10 At trial,

Ivankovich will confirm that he “never signed a term sheet with iStar.”11

Atlas thus focused on another third-party lender, Walker Dunlop. But Walker Dunlop was

also unprepared to refinance Atlas’s loan. Ivankovich himself realized that completing a deal with

Walker Dunlop before the auction was not feasible.12 By the date of the auction, Atlas had only a

“a non-binding” term sheet with Walker Dunlop.13 Malli confirmed this, and admitted at his

deposition that “prior to the auction, there was no finalized deal for refinancing with Walker

Dunlop.”14 Even months after the auction, Atlas was still in the early stages of negotiations with

Walker Dunlop, confirming Walker Dunlop could not have backed Atlas’s bids.15

Left with no money and no viable financing source, Atlas attempted to enjoin the auction

in the Southern District of New York, but the court (Stanton, J.) denied Atlas’s motion. See Atlas

MF Mezzanine Borrower, LLC v. Macquarie Texas Loan Holder, LLC, 2017 WL 729128, at *3-6

(S.D.N.Y. Feb. 23, 2017). So Atlas hatched a new plan: “bid to infinity.”

10 DE46 (February 14, 2017, email from Ivankovich: “We hope to close on the refinancing loan

with iStar but based on the call yesterday we think completing this before February 27, 2017 will

[sic] difficult).

11 Exhibit A, Ivankovich Dep. Tr. 309:23-25.

12 DE47 (February 14, 2017, email from Ivankovich).

13 Exhibit A, Ivankovich Dep. Tr. 296:2-5 (“Q: And the only document that actually was signed

as of [the auction] date was the non-binding Walker Dunlop term sheet; true? A: Yes.”); Exhibit

B, Ginsburg Dep. 116:14-117:6 (based on Macquarie’s review of financial information provided

by Atlas, Atlas had only a “non-binding” term sheet that did “not require the lender to fund” Atlas’s

bids).

14 Malli Dep. Tr. 166:6-9.

15 DE82 (March 2017 emails between R. Malli and G. Romaniello); DE95 (May 2017 emails

between Ivankovich and IIB); see also Romaniello Dep. Tr. 34:9-18; 56:24-57:20; 81:10-21

(Walker Dunlop was still conducting due diligence two months after the auction).



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B. Atlas Devised and Implemented a Sham-Bidding Scheme

The evidence that Atlas engaged in a sham-bidding scheme is unambiguous. As

Ivankovich put it in an email to Marcus Scott (IIB) two days before the auction: “Remember, any

amount that is bid beyond the debt comes back to us, so MBL bids up to their debt and we can bid

to infinity.”16 In other words, Atlas would attend the auction and bid as long as it possibly could,

driving up the price of Holdco. If Atlas was declared the winning bidder, Atlas’s payment would

effectively be capped at the value of Atlas’s debt (i.e., what Atlas already owed to Macquarie),

because under the UCC the surplus would “come[] back” to Atlas.17 On the other hand, if Atlas

was not declared the winning bidder, Atlas would still profit, because the surplus would increase,

and Atlas would be entitled to those funds under the UCC. See generally UCC 9-615.

For Atlas’s “bid to infinity” scheme to work, Atlas needed to satisfy two requirements in

the auction’s Terms of Public Sale. First, Atlas had to demonstrate to Macquarie’s “satisfaction

in advance of bidding [Atlas’s] financial ability to tender payment for the Collateral.”18 Second,

the Terms of Public Sale stated: “At the public auction the selected bidder will be required to . . .

deposit with a title company or other agent designated by the Secured Party (the ‘Designated

Agent’), by certified or bank check, $4,125,000.00 . . . .”19

Atlas failed to meet either the “financial ability” requirement or the “deposit check”

requirement. Atlas lacked the funds to close on a sale of Holdco, and could not even scrounge

16 DE60 (February 25, 2017, email from Ivankovich) (emphasis added).

17 Id.

18 DE36, at KKR-ATLAS-00023243 (Terms of Public Sale at 4).

19 Id.



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together the money for a deposit check.20 So Atlas misrepresented its way into the auction. Atlas

submitted a bidding certificate representing it had complied with the Terms of Public Sale and had

“sufficient ready funds to consummate the sale of the Collateral,” 21 even though Atlas was

unprepared to close on a purchase of Holdco. And once Atlas arrived at the auction, Atlas

represented that the required deposit check was “on its way.”22 That statement was false. No such

check exists, and none will be introduced into evidence at trial.

C. Atlas Implemented Its Sham-Bidding Scheme to KKR’s Detriment

While Atlas was scheming its way into the auction, KKR, an independent bidder, was

diligently preparing for the sale. The evidence will show that KKR’s joint venture partner, the

Lynd Co. (“Lynd,” now “Kairoi Residential”) received the CBRE notice announcing the auction

on January 12, 2017, and then forwarded the notice to KKR.23 KKR then engaged in due diligence,

and invested significant time and money in preparing for the sale.

Unlike Atlas, KKR met the auction’s requirements. KKR sent Macquarie evidence of its

financial ability to close on a purchase of Holdco24 and arrived at the auction with two deposit

checks totaling $4.125 million.25

20 DE67 (February 27, 2017, JPMorgan Chase letter stating that funds for a deposit check were

not available that day); DE83 at ATLAS_049551 (showing a balance of barely over $1 million in

a JPMorgan Chase account for Atlas Apartment Homes, LLC as of February 27, 2017).

21 DE70 (Atlas Bidding Certificate).

22 DE52 (Auction Tr.) 15:13-21.

23 DE34 (January 12, 2017, email from Marceau to Brudney); DE35 (January 13, 2017, email

from Brudney to Morales).

24 DE57 (KKR Financing Letter); DE58 (REPA un-audited financials for 2016); DE61 (REPA

audited financials for 2015); DE62 (REPA credit facility schedule).

25 DE68 (KKR and Lynd deposit checks).



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KKR witness Roger Morales (Head of Commercial Real Estate Acquisitions Americas at

Kohlberg Kravis Roberts & Co. L.P.) will explain at trial that because the auction required all

bidders to demonstrate their financial ability to close, KKR assumed that all other bidders had

sufficient resources to purchase Holdco. KKR also assumed that other bidders had the resources

to obtain the required deposit check.

Atlas’s two representatives at the auction (Bonnie Rothell and Gary Romaniello) arrived

late, creating confusion.26 KKR placed the first bid for $50.0 million, and Atlas then attempted to

bid $50.25 million.27 Because Atlas had yet to provide a deposit check, there was a dispute about

Atlas’s eligibility to bid.28 Both Atlas representatives represented that the check was “on its

way.”29 Macquarie responded: “you can’t bid until it’s here.”30

Macquarie then placed a credit bid (the amount of Atlas’s debt) for $73.5 million.31 This

was the maximum amount Macquarie was prepared to bid, meaning Macquarie would have ceased

bidding at that point regardless of what happened next.32

KKR then bid $73.75 million, and Atlas attempted to bid $74.0 million.33 There was

another dispute about Atlas’s eligibility to bid, but Rothell (Atlas’s outside counsel) stated: “We

26 DE52 (Auction Tr.) 15:5-12.

27 Id. 14:18-15:12.

28 Id. 15:13-16:4.

29 Id.

30 Id.

31 Id. 16:18-20.

32 Jones Dep. Tr. 132:19-24 (testifying that Macquarie “didn’t want to own the assets, so we only

bid up to the amount of our owed dollars plus penalties, fees, et cetera”).

33 DE52 (Auction Tr.) 17:3-13.



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are qualified to bid.”34 Macquarie then “ma[d]e an exception” and allowed Atlas to bid.35 Because

Atlas had represented it had met the auction’s requirements and Macquarie had allowed Atlas to

bid, KKR assumed Atlas was a legitimate bidder.

True to its plan, Atlas bid up the price of Holdco in $250,000 increments (the minimum

amount allowed by the auction).36 Contemporaneous text messages exchanged by Ivankovich and

Rothell during the auction illustrate “bid to infinity” in real time. Upon learning that Atlas was

bidding above the value of its debt, Ivankovich instructed Rothell: “Good. Keep going.”37

34 Id. 17:14-25.

35 Id. 18:2-3.

36 Id. 18:2-20:10.

37 DE66 (light gray text bubbles by Ivankovich and yellow text bubbles by Rothell) (emphasis

added); Rothell Dep. Tr. 73:3-15.



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Eventually, KKR bid $76.75 million, and Atlas bid $77.0 million.38 Macquarie then briefly

suspended the auction.39 Macquarie’s suspension of the auction was a “red flag” for KKR. KKR

thus declined to top Atlas’s $77.0 million bid when the auction resumed.40

Macquarie declared another brief recess. 41 When the auction resumed, Macquarie

announced that KKR had been declared the winning bidder based on its financial ability to close.42

Without Atlas’s interference, KKR would have been declared the winning bidder after KKR bid

$73.75 million in response to Macquarie’s credit bid.

D. KKR Closed the Sale in Good Faith

After the auction, KKR and Macquarie engaged in arm’s-length negotiations regarding a

purchase and sale agreement (“PSA”) for Holdco. The negotiations were largely conducted via

“shuttle diplomacy” between KKR’s counsel at Kirkland & Ellis LLP and Macquarie’s counsel at

Dechert LLP. The negotiations almost broke down due to good-faith disagreements about certain

provisions of the PSA, but the parties ultimately executed the PSA two days after the auction.43

KKR needed approval from the United States Department of Housing and Urban

Development (“HUD”) to close the sale, because KKR planned to assume HUD mortgage loans

on the underlying investment properties. KKR purchased Holdco (rather than the underlying

properties), so KKR was eligible for an expedited HUD approval process known as a “modified

38 DE52 (Auction Tr.) 20:4-10.

39 Id. 20:11-20.

40 Id. 20:21-21:9.

41 Id. 21:10-12.

42 Id. 20:13-21.

43 See, e.g., DE77 (Marceau reporting at 4:47 am on February 28, 2017: “Just got out. We were

not able to reach a deal.”); DE80 (Macquarie threatening to withdraw from negotiations and

rejecting KKR’s proposal); DE79 (KKR and Macquarie executed the PSA through counsel on

March 1, 2017).



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transfer of physical assets” or “modified TPA” process. KKR requested and received the necessary

HUD approvals, and the sale closed on May 3, 2017.44

E. Atlas Failed to Exercise Its Redemption Right

The evidence will show that Atlas believed it had a right to repay its loan and prevent the

sale of Holdco both before and after the auction, but failed to exercise that right. This is powerful

evidence that Atlas never had the financial ability to cover its bids.

Specifically, under the UCC, Atlas had a right of “redemption,” meaning it could have paid

off its loan and thereby prevented the sale of Holdco from occurring.45 Atlas has never disputed

that it had the right to redeem Holdco before the auction, but has suggested that its redemption

right was cut off by the auction, and that Atlas needed to bid at the auction to protect its rights in

Holdco. The evidence proves otherwise.

Every single Atlas witness stated in contemporaneous writings or at their depositions (or

both) that they believed Atlas had the right to redeem Holdco even after the auction, and that Atlas

retained that right until the sale to KKR closed.46 This is because HUD needed to approve the

sale, which effectively allowed Atlas to redeem until HUD granted approval. 47 As Malli

explained: “We had the right to redeem until the approval happened.”48

44 DE85 (April 11, 2017, HUD Preliminary Approvals); DE88 (May 3, 2017, email from KKR

counsel to Atlas counsel); DE89 (May 4, 2017, Notice of Settlement of Disposition to Atlas);

DE94 (May 9, 2017, HUD Final Approvals).

45 UCC 9-623 (Right to Redeem Collateral); Exhibit B, Ginsburg Dep. Tr. 113:9-14 (“Pursuant

to the Uniform Commercial Code, the Debtor can redeem the debt at any time.”).

46 Malli Dep. Tr. 111:11-15; Romaniello Dep. Tr. 57:9-20; Willis Dep. Tr. 98:2-15; Rothell Dep.

Tr. 100:7-10; DE40 (Ivankovich writing: “During that time [of the HUD approval process] we

have the right to pay-off the loan[.]”); DE41 (same); DE86 (May 3, 2017, email from Rothell to

HUD stating: “Atlas has a right of redemption”).

47 See, e.g., DE40 (January 15, 2017, email from Ivankovich to Timbercreek).

48 Malli Dep. Tr. 111:11-15.



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Atlas’s own admissions that it had a post-auction redemption right will be corroborated by

evidence from KKR and Macquarie. Morales will testify that KKR was painfully aware Atlas

could blow up the sale of Holdco at any point simply by paying off its loan. As Morales put it,

“The risk is if Borrower repays the mezz in its entirety before HUD assumption we are SOL.”49

The PSA between KKR and Macquarie accounted for this risk. The PSA provided that, if Atlas

repaid its debt before closing, KKR could terminate the agreement and Macquarie would return

KKR’s deposit.50 This provision thus allowed KKR to exit the deal if Atlas repaid its debt.

Despite the mountain of evidence that Atlas had (and was aware of) this post-auction

redemption right, Atlas never even attempted to exercise that right. This is powerful evidence that

Atlas engaged in a sham-bidding scheme. Because Atlas believed it could redeem Holdco even

after the auction simply by paying off its loan, there was no need for Atlas to bid at the auction at

all, much less “bid to infinity.” Moreover, the fact that Atlas never attempted to exercise its

redemption right confirms Atlas could not cover its bids at the auction, because those bids

exceeded Atlas’s debt by millions of dollars. If Atlas actually had the money, Atlas simply would

have redeemed Holdco.51

49 DE72 (February 27, 2017, emails between Morales and another KKR executive) (emphasis

added); see also DE78 (February 28, 2017, email in which a KKR investment committee member

asks: “Can’t they [Atlas] pay of[f] the loan up until we close?” and Morales responds: “Yes.”).

50 DE73, PSA § 8.2(d) (stating that KKR’s obligation to consummate the sale shall be subject to

conditions precedent including “(d) The Indebtedness shall not be have been repaid in full.”); see

also Exhibit B, Ginsburg Dep. Tr. 127:16-24 (“Q. Is it your understanding that after the execution

of the Purchase and Sale Agreement between Macquarie and KKR, Atlas had the right to redeem

its collateral up to the sale [to] KKR closed? A. That’s what our contract provided. Q. Did Atlas

ever redeem its collateral before the sale to KKR closed? A. It did not.”)

51 Jones Dep. Tr. 142:12:17 (“[T]hey were bidding above their right of redemption price. In other

words, they could come with a check and pay us off for 73-and-a-half million dollars, and they bid

77, which makes absolutely no sense to us.”).



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II. KKR WILL PROVE EACH ELEMENT OF ITS COUNTERCLAIMS

KKR will prove that it is entitled to recover at least $3 million in damages for Atlas’s sham-

bidding scheme under two legal theories: (i) unjust enrichment; and (ii) tortious interference with

a prospective economic advantage.

A. Unjust Enrichment

To prevail on its unjust enrichment counterclaim, KKR must show: (i) Atlas was enriched;

(ii) at KKR’s expense; and (iii) that it is against equity and good conscience to permit Atlas “to

retain what is sought to be recovered.” Philips Int’l Inv., LLC v. Pektor, 117 A.D.3d 1, 7 (1st Dep’t

2014). A claim for unjust enrichment “is undoubtedly equitable and depends upon broad

considerations of equity and justice.” Id. (quoting Paramount Film Distrib. Corp. v. New York,

30 N.Y.2d 415, 421 (1972)) (emphasis in original).

KKR will prove each element of its unjust enrichment counterclaim at trial. Atlas was

enriched at KKR’s expense, because KKR paid $3 million more than it otherwise would have for

Holdco as a result of Atlas’s sham bids. Atlas itself has asserted that it is entitled to this surplus,

confirming Atlas’s sham bids benefited Atlas.52

It would be against equity and good conscience to allow Atlas to profit by defaulting on its

loan and then placing sham bids at the auction in order to drive up the price KKR paid for Holdco.

Atlas had (and knew it had) a full and fair opportunity to redeem Holdco both before and after the

auction; instead of utilizing that right, Atlas engaged in a deceptive scheme to inflate the price of

Holdco for its own benefit. If this behavior were allowed, it would create the incentive for every

debtor to do the same thing when faced with a foreclosure sale, undermining the Article 9

foreclosure process by encouraging rampant sham bidding. The concerns Atlas’s “bid-to-infinity”

52 DE60 (Ivankovich stating: “any amount that is bid beyond the debt comes back to us[.]”).



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scheme implicates are not new—New York law has recognized the grave dangers posed by sham

bidders for over a century. Bowman v. McClenahan, 20 A.D. 346, 348 (1st Dep’t 1897) (false bids

“operate as a fraud upon” genuine bidders). Consistent with this well-established principle, it

would be manifestly unjust to allow Atlas to reap the profits of its wrongdoing here. See Valeo

Engine Cooling, Inc. v. Guy F. Atkinson Co. of Cal., 240 A.D.2d 176, 177 (1st Dep’t 1997) (in

case involving auction, plaintiffs stated unjust enrichment claim by alleging they were induced

“into spending approximately $300,000” as part of defendants’ scheme to use plaintiffs as a “foil”

for the auction).

Atlas may claim it has not received any “benefit” because Atlas has a dispute with

Macquarie over whether Atlas is entitled to the surplus from the auction. Any such argument fails.

Under Atlas’s mezzanine loan agreement with Macquarie, Atlas was liable for Macquarie’s

attorney’s fees and other auction-related expenses; the surplus reduced that debt.53 Because Atlas

had its debt reduced by the surplus, Atlas was unjustly enriched. See Mfrs. Hanover Tr. Co. v.

Chem. Bank, 160 A.D.2d 113, 117-18 (1st Dep’t 1990) (“A person may be unjustly enriched not

only where he receives money or property, but also where he otherwise receives a benefit. He

receives a benefit where his debt is satisfied or where he is saved expense or loss.”) (citation

omitted); Green Tree Serv. LLC v. Christodoulakis, 2014 WL 5475514, at *7 (E.D.N.Y. Oct. 28,

2014) (plaintiff stated claim for unjust enrichment where defendants’ indebtedness was satisfied,

which defendants “otherwise would have been obligated to pay themselves, or which would have

encumbered” their property).

53 DE3 (Mezzanine Loan Agreement) §§ 17.6 & 17.7.



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B. Tortious Interference With a Prospective Economic Advantage

To establish its claim for tortious interference with a prospective business relationship,

KKR must show: (i) Atlas’s knowledge of a business relationship between KKR and Macquarie;

(ii) Atlas’s intentional interference with the relationship; (iii) that Atlas acted by the use of

wrongful means or with the sole purpose of malice; and (iv) resulting injury to the business

relationship. 534 E. 11th St. Hous. Dev. Fund Corp. v. Hendrick, 90 A.D.3d 541, 542 (1st Dep’t

2011) (defendant stated tortious interference counterclaim by alleging that plaintiff interfered with

sale of apartment).

KKR will prove each of these elements at trial.

Business Relationship: As a bidder at the auction, KKR had a business relationship with

Macquarie based on the Terms of Public Sale. Such prospective business relationships can ground

a tortious interference claim. Wedeen v. Cooper, 1998 WL 391117, at *3 (S.D.N.Y July 14, 1998)

(fledgling business relationship to provide funding was an actionable basis for tortious interference

claim; “Just because the agreement had a condition does not render the relation here

unprotectible.”); see also Williams & Co. v. Collins, Tuttle & Co., 6 A.D.2d 302, 306 (1st Dep’t

1958) (“it is a distortion of the rule to require that the negotiations for the prospective contract

reach the conclusive stage” to establish a tortious interference claim).

Interference: Atlas was plainly aware of the business relationship between KKR and

Macquarie, because Atlas participated in the auction. Atlas interfered with that relationship by

placing sham bids that drove up the purchase price of Holdco and demanding that Macquarie

accept those bids. Atlas’s conduct was thus directed at Macquarie (the party conducting the

auction) and was designed to interfere with KKR’s purchase of Holdco.

Atlas may argue that KKR cannot establish “interference”, because KKR was ultimately

declared the winning bidder at the auction. However, KKR paid $3 million more for Holdco than



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it would have absent Atlas’s sham bids, and completing a sale on less-advantageous terms can

ground a tortious interference claim. See S & S Hotel Ventures Ltd. P’Ship v. 777 S.H. Corp., 108

A.D.2d 351, 353-55 (1st Dep’t 1985) (plaintiff stated claim for tortious interference with contract

where defendant interfered with contract by withholding consent to sell property, resulting in

property being sold on less-favorable terms). Cf. Bryce v. Wilde, 39 A.D.2d 291, 293 (3d Dep’t

1972) (upholding verdict on tortious interference claim; finding “sufficient evidence in the record

to support” the finding that plaintiff would have obtained commission at a specified price absent

defendant’s interference); Bennett Enters., Inc. v. Domino’s Pizza, Inc., 794 F. Supp. 434, 436

(D.D.C. 1992) (allegations that defendants interfered with sale of pizza franchise, resulting in sale

for a less “advantageous price,” stated tortious interference claim).

Wrongful Means: “[A]s a general rule, the defendant’s conduct must amount to a crime

or an independent tort … to create liability for interference with prospective contracts or other

nonbinding economic relations.” Carvel Corp. v. Noonan, 3 N.Y.3d 182, 190 (2004). However,

“such acts are not essential to find wrongful means.” Catskill Dev., L.L.C. v. Park Place Entm’t

Corp., 547 F.3d 115, 132 (2d Cir. 2008). Rather, the Court of Appeals has explained that tortious

interference “can take many forms” and encompasses a “wide range of possibilities.” NBT

Bancorp Inc. v. Fleet/Norstar Fin. Grp., Inc., 87 N.Y.2d 614, 621 (1996). The Court of Appeals

has also noted that “egregious conduct” falling short of a crime or independent tort may establish

a tortious interference claim. Carvel, 3 N.Y.3d at 190-91. And it is well settled that

“misrepresentation” may ground a tortious interference claim. NBT Bancorp., 87 N.Y.2d at 624.

Here, KKR will show that Atlas engaged in “wrongful means” in at least two ways.

First, Atlas misrepresented that it had met the auction’s requirements, both by

misrepresenting that the check was “on its way” and by placing sham bids. These



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misrepresentations can ground a tortious interference claim, even absent a showing that KKR

justifiably relied on them. See Sidney Frank Imp. Co. v. Beam, Inc., 998 F. Supp. 2d 193, 213

(S.D.N.Y. 2014) (misrepresentation was “sufficient to satisfy the wrongful means element,” even

without allegations of reliance); see also Randolph Equities LLC v. Carbon Capital, Inc., 2007

WL 914234, at *5 (S.D.N.Y. Mar. 26, 2007) (finding wrongful means element satisfied where

“Plaintiffs have sufficiently alleged that Defendants misrepresented their intention to follow

through with financing of the deal, despite knowing” sale might not be completed); Wedeen, 1998

WL 391117, at *3 (explaining that “[d]ishonesty or unfair means will also be deemed improper in

certain circumstances” and concluding plaintiff stated tortious interference claim by alleging that

defendant made false accusations).

Second, Atlas’s conduct is so “egregious” that it amounts to “wrongful means.” Carvel, 3

N.Y.2d at 191. As explained above, Atlas’s sham-bidding scheme reflects a brazen attempt by

Atlas to profit at the expense of other bidders and threatens the very foundation of Article 9

foreclosure sales. Courts have found conduct far less egregious than this sufficient to establish a

tortious interference claim. See Citi Mgmt. Ltd. v. Highbridge House Ogden, LLC, 873 N.Y.S.2d

510 (Table), 2007 WL 5674032, at *3 (N.Y. Sup. Ct. Bronx Cty. Aug. 3, 2007) (in commercial

real estate dispute, failure to vacate parking garage was sufficiently wrongful to ground tortious

interference claim).

Atlas may argue that its sham bids did not amount to “wrongful means” because Atlas and

KKR were competitors at the auction and Atlas was only acting in its self-interest by bidding at

the auction. However, Atlas could have adequately and legitimately protected its interests by

redeeming Holdco. Instead, Atlas lied and tried to “bid to infinity.” Moreover, Atlas’s status as a

“competitor” to KKR cannot shield Atlas from liability, as Atlas’s sham-bidding scheme fell so



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far below “a minimum level of ethical behavior in the marketplace” as to warrant imposing

liability. White Plains Coat & Apron Co. v. Cintas Corp., 8 N.Y.3d 422, 426-27 (2007) (“mere

status as plaintiff’s competitor” is insufficient to ward off liability for tortious interference;

relevant inquiry is whether party’s conduct fell below “a minimum level of ethical behavior”).

Injury: As detailed above, KKR suffered at least $3 million in damages as a result of

Atlas’s conduct. Atlas may argue that KKR was not injured because it executed the PSA,

notwithstanding Atlas’s interference. However, losing money is an actionable economic loss, even

if KKR ultimately closed the deal with Macquarie. Citi Mgmt. Grp., Ltd. v. Highbridge House

Ogden, LLC, 45 A.D.3d 487, 488 (1st Dep’t 2007) (defendant stated claim for tortious interference

where defendant was “losing rent” as a result of alleged tortious interference).

III. ATLAS’S ANTICIPATED DEFENSES ARE MERITLESS

Atlas has suggested it will focus on two defenses at trial: (i) a factual defense that KKR

acted improperly at the auction and thus cannot hold Atlas liable for KKR’s losses; and (ii) a legal

defense that KKR’s claims are barred by the First Department’s decision affirming the dismissal

of KKR’s fraud counterclaim. Both defenses fail.

A. Trial Will Confirm Atlas’s Collusion Allegations Are False

Atlas will undoubtedly trot out its meritless “collusion” allegations again at trial. But trial

will only confirm that this Court was correct when it previously described those allegations as

“weak.” (NYSCEF No. 822, October 8, 2019 Hearing Tr. 99:21-22.) Every single witness who

attended the auction will testify that no “collusion” occurred. And all of the KKR and Macquarie

witnesses will credibly and unequivocally deny it at trial, just as they did in their depositions.54

54 Exhibit B, Ginsburg (Macquarie) Dep. Tr. 120:18-25; Exhibit C, Hamilton (Macquarie) Dep.

Tr. 155:18-156:2, 156:9-16; Jones (Macquarie) Dep. Tr. 141:2-19; Exhibit D, Wang (Macquarie)



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Atlas may argue there is somehow still an “inference” of collusion. That tactic may have

worked at the pleading stage, but it will not hold up at trial. Atlas now needs evidence to back up

its ludicrous “collusion” claims, and none exists. As tacit confirmation of this, Atlas has made the

astonishing decision not to call any of its own witnesses who attended the auction to testify at trial,

likely because those same witnesses testified at their depositions that they did not observe any

“collusion.”55

Although there will be no evidence of “collusion” at trial, there will be ample evidence that

KKR was a good-faith, independent bidder. The evidence will show that:

KKR began preparing for the sale after receiving the CBRE notice, just like other potential

bidders;56

All of the substantive information KKR received prior to the auction was from CBRE and

the “data room,” which every potential bidder could access simply by executing a

confidentiality agreement (as KKR did);57

KKR did not discuss deal terms with Macquarie before the auction, and in fact was

informed by CBRE that Macquarie was “NOT LOOKING TO NEGOTIATE” the PSA

ahead of the auction;58

After the auction, KKR and Macquarie’s negotiations almost broke down over good-faith

disagreements regarding the PSA. KKR and Macquarie initially were “not able to reach a

Dep. Tr. 112:11-113:3; Exhibit E, Brudney (KKR) Dep. Tr. 127:16-130:2, 139:19-23; Lynd

(Lynd) Dep. Tr. 79:7-21; Marceau (Lynd) Dep. Tr. 122:19-23.

55 Romaniello (Atlas representative) Dep. Tr. 51:14-21, 84:2-5 (“Q. Do you have any personal

knowledge of anything you would consider to be collusive behavior by KKR and Macquarie? A.

No.”); Rothell (Atlas lawyer) Dep. Tr. 77:6-10 (“Did you see anyone that you knew to be

representing KKR speak to anybody you knew to be representing Macquarie in the auction room?

A. No. And, again, I don’t know who those individuals are.”);

56 DE34 (KKR receiving CBRE notice from Lynd); DE35 (same).

57 DE37 (January 14, 2017, emails between KKR and Lynd); DE39 (Lynd receiving access to the

virtual data room on January 16, 2017); DE53 (KKR sending bidding certificate to CBRE); DE54

(CBRE sending additional bidder instructions to KKR); DE57 (KKR sending proof of financial

ability to CBRE); DE58 (same); DE61 (same); DE62 (same); DE63 (Macquarie confirming KKR

as a bidder through CBRE).

58 DE50 (CBRE forwarding Macquarie’s response to Lynd on February 22, 2017).



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deal” 59 and Macquarie threatened to “cut bait” shortly before KKR and Macquarie

executed the final PSA.60

Atlas has suggested that, short of collusion, KKR acted in “bad faith” by negotiating tweaks

to the PSA after KKR was declared the winning bidder. Atlas has largely focused on a provision

of the PSA regarding the timeline for HUD approval of the deal. Atlas has noted that while the

draft PSA required a bidder to secure HUD approval within 96 days, KKR and Macquarie

ultimately modified that provision to allow KKR to secure more time for HUD approval if KKR

placed additional deposits at later points in time.61 In prior filings, Atlas has asserted this is

evidence of “bad faith.”

This argument is hard to take seriously. There is no dispute that KKR obtained HUD

approval weeks ahead of the original 96-day deadline, confirming any modifications to that

deadline were irrelevant.62 Moreover, the evidence at trial will show that the tweaks to the final

PSA were the result of arm’s-length and heavily-counseled negotiations that are typical of any

commercial real estate deal. Atlas’s own expert, David Heymann, agreed at his deposition that

“there was nothing wrong with KKR seeking to negotiate the PSA following the auction.”63

Trial will also confirm that Atlas has consistently taken innocuous documents grossly out

of context in an attempt to bolster its “collusion” theory. For example, Atlas has repeatedly

suggested that KKR engaged in nefarious, secretive property tours in violation of the auction’s

rules. But the rules did not forbid potential bidders from looking at the properties, as any member

59 DE77 (February 28, 2017, email from Marceau).

60 DE80 at KKR-ATLAS-00064499 (February 28, 2017, email from Jones).

61 DE73 (Executed PSA).

62 DE85 (April 11, 2017 HUD Preliminary Approvals); DE90 (KKR’s counsel sending over HUD

approval documents to Atlas counsel on May 4, 2017).

63 Exhibit F, Heymann Dep. Tr. at 88:18-21.



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of the public could do. The rules just stated that no tours would be conducted.64 KKR thus visited

some of the properties as part of its preparation for the auction, with no involvement from CBRE

or Macquarie.65 As KKR witness Benjamin Brudney will explain at trial, this was standard due

diligence, not part of a “conspiracy.”

Similarly, Atlas has asserted that KKR had advance knowledge of the foreclosure sale

based on a calendar entry from Brudney entitled “Project Osprey” (KKR’s internal name for the

transaction) that appears to date back to November 2016, before the CBRE notice went out. As

Atlas is fully aware, this calendar entry is the result of a technical glitch. Brudney will explain at

trial that he initially blocked off time for an unrelated event, and later updated his calendar once

Project Osprey began in January 2017, overwriting the prior entry. Confirming that the November

2016 calendar entry is a technical fluke, there are zero emails or other documents mentioning

Project Osprey before the date of the CBRE notice.66 It is thus wholly implausible that Mr.

Brudney was somehow tipped off months earlier, as Atlas has suggested. For this reason, KKR

has filed a motion in limine to exclude this document.

B. The First Department’s Decision Does Not Bar KKR’s Claims

Atlas will also argue that the First Department’s decision affirming the dismissal of KKR’s

fraud counterclaim bars KKR’s counterclaims for tortious interference and unjust enrichment. The

First Department held that KKR failed to allege it reasonably relied on Atlas’s bids at the auction,

because KKR “had all the information necessary to determine that [Atlas] likely did not have the

ability to close.” Atlas MF Mezzanine Borrower, LLC v. Macquarie Texas Loan Holder LLC, 177

64 DE31 at ATLAS_032286 (CBRE notice).

65 Marceau Dep. Tr. at 19:25-20:11.

66 DE34 (KKR receiving CBRE notice from Lynd).



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A.D.3d 420, at 421 (1st Dep’t Nov. 7, 2019). The First Department thus affirmed the dismissal of

KKR’s fraud counterclaim on the sole ground that KKR failed to allege the element of “reasonable

reliance.” Id. at 420-21. This narrow, pleading-stage decision does not preclude KKR’s other

counterclaims.

First, neither KKR’s unjust enrichment nor its tortious interference claims require a

showing of reasonable reliance. The relevant inquiry for KKR’s unjust enrichment counterclaim

is whether Atlas acted unjustly and benefited at KKR’s expense, not whether KKR reasonably

relied on Atlas’s bids. As for tortious interference, KKR will show that Atlas engaged in “wrongful

means” by making misrepresentations and committing “egregious conduct,” neither of which

require a showing of reasonable reliance.

Second, the First Department’s opinion bolsters KKR’s current counterclaims. The First

Department concluded that the pleadings showed that “[Atlas’s] statement that its required deposit

check was ‘on its way’ was an actionable statement of present fact” and Atlas “likely did not have

the ability to close” on its bids. Id. That conclusion is correct, and it confirms that Atlas was

bidding to drive up the purchase price and not for any legitimate purpose. KKR will prove those

facts at trial.

Thus, to the extent Atlas reads the First Department’s fraud decision as barring KKR from

seeking any recover from Atlas for Atlas’s sham-bidding scheme, Atlas is wrong. KKR suffered

millions in dollars of damages from Atlas’s misconduct, and should be afforded a remedy.

CONCLUSION

KKR will prove at trial that Atlas engaged in a sham-bidding scheme, and that KKR

suffered at least $3 million in damages as a result, entitling KKR to a verdict in its favor on both

of its counterclaims, as well as to damages and prejudgment interest at the statutory rate.



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Respectfully submitted,

Dated: December 27, 2019

New York, New York

By: /s/ Andrew J. Rossman

Andrew J. Rossman

[email protected]

Tyler Whitmer

[email protected]

Renita Sharma

[email protected]

Will Sears

[email protected]

QUINN EMANUEL URQUHART &

SULLIVAN LLP

51 Madison Avenue, 22nd Floor

New York, New York 10010

Telephone: (212) 849-7000

Facsimile: (212) 849-7100



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CERTIFICATE OF COMPLIANCE

The length of the foregoing memorandum of law, inclusive of headings and footnotes and

exclusive of the caption, table of contents, table of authorities, and signature block, is 22 pages

and in compliance with Rule 31(a) of the Rules of the Commercial Division of the Supreme Court.

Dated: December 27, 2019

New York, New York

/s/ Andrew J. Rossman

Andrew J. Rossman



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