On March 27, 2025, the U.S. District Court for the Southern District of New York largely denied a motion to dismiss fraudulent transfer and tortious interference claims arising out of a dispute over the financing and restructuring of the American Dream Mall project in New Jersey, one of the largest retail and entertainment complexes in the United States.
The project had three tiers: the Senior Loan of $1.195 billion from JPMorgan; the Mezzanine Loan of $475 million from AB American Dream Mall Syndicate Joint Venture; and the Junior Loan of $300 million from Plaintiff SOL-MM III LLC to the Ghermezian family, the owners of the American Dream Mall. In its complaint, Plaintiff alleges two groups of defendants, the JPMorgan Defendants and the American Dream Defendants, through various entities, secretly engaged in a series of convoluted contract maneuvers and collateral transfers to avoid repayment on the Junior Loan. Among other claims, the plaintiff alleged the loans were restructured to: (1) transfer valuable collateral (equity in other malls) from the guarantors (Ghermezian-affiliated entities) to the JPMorgan Defendants for far less than fair market value; (2) strip away the guarantors’ assets thereby limiting the plaintiff’s ability to recover funds; and (3) create a “phantom” mezzanine loan under an intercreditor agreement that delayed the plaintiff’s ability to sue the guarantors.
In their motion to dismiss, the defendants contended that the plaintiff, as a junior lender, lacked standing to challenge the alleged fraudulent transfers and other actions taken by senior lenders. Specifically, the defendants argued that the plaintiff’s subordinate position in the financing hierarchy precluded it from asserting claims related to certain restructuring transactions to which the plaintiff was not a party.
The court rejected the defendants’ argument that the plaintiff’s status as a junior lender alone precluded standing but agreed that a party “is not entitled to a declaration of rights under a contract to which it was not a party.” Based on this reasoning, the court held the plaintiff had standing to challenge the agreements that led to equity transfers from the guarantors, since those assets could have been used to repay the Junior Loan, and the plaintiff’s allegations that those agreements hindered repayment prospects constituted a “classic pocketbook injury” for purposes of Article III. However, where the plaintiff sought a declaration of its rights under third-party agreements, the court held that the claims must be dismissed under New York law.
The defendants also argued for dismissal of the fraudulent transfer claims on grounds that a fully encumbered property is immune from such claims; the guarantors were not insolvent; and the claims were time-barred. Applying Alberta and Minnesota law, the court denied each of these arguments in turn. It found the plaintiff’s claims that equity was transferred for below fair market value (a $50 million transfer despite of an alleged value of nearly $1.045 billion) and rendered the guarantors insolvent sufficiently plead a concrete financial injury. The court also credited the plaintiff’s allegations that it did not discover the transfer until much later as adequate to defeat a motion to dismiss. Finally, the court found that the defendants’ arguments regarding fully encumbered property lacked support in the case law.
The case is SOL-MM III LLC v. JPMorgan Chase Bank, N.A., No. 23-cv-6479 (S.D.N.Y. Mar. 27, 2025). The plaintiff is represented by Quinn Emanuel Urquhart & Sullivan, LLP and Wollmuth Maher & Deutsch LLP. The JPMorgan Defendants are represented by Fried, Frank, Harris, Shriver & Jacobson LLP and Kramer Levin Naftalis & Frankel LLP. The American Dream Defendants are represented by Kasowitz Benson Torres LLP. The order is available here.
