On September 9, 2025, Justice Cohen of the New York County Commercial Division issued a decision in Arel Funding I LP v Feldman, 2025 NY Slip Op. 33392(U), dismissing a fraudulent conveyance claim based on the foreclosure on collateral, explaining:
Sponsor argues there can be no claim for voidable transfer under a constructive fraud theory because the secured lender (not any of the defendants here) conducted a commercially reasonable UCC sale of the equity collateral securing the defaulted mezzanine loan encumbering the OHL Project. In their Amended Complaint, Plaintiffs allege that the public UCC foreclosure sale was not made in the usual manner or in conformity with reasonable commercial practices, as required as required under N.Y. U.C.C. § 9-610(b) and § 9-627(b).
DCL 277 provides a safe harbor for UCC sales on claims based on constructive rather than actua” intent to defraud creditors. It provides, in relevant part: “A transfer is not voidable [under DCL 273[a][2] or 274 – the “constructive fraud” statutes] . . . if the transfer results from:
(2) enforcement of a security interest in compliance with article nine of the uniform commercial code, other than acceptance of collateral in full or partial satisfaction of the obligation it secures.” Under article 9 of the UCC,
A disposition of collateral is made in a commercially reasonable manner if the disposition is made, 1) in the usual manner on any recognized market; 2) at the price current in any recognized market at the time of the disposition; or 3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.
Under the UCC, the possibility that a greater amount could have been obtained under different circumstances is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition, or acceptance was made in a commercially reasonable manner.
While it is true, as Plaintiff argues, that commercial reasonableness is typically an issue of fact, here, Plaintiffs’ allegations in the Amended Complaint fail to raise any issues of fact regarding the commercial reasonableness of the sale.
Plaintiffs’ primary evidence of commercial unreasonableness is that the prearranged agreement between Defendant Monroe and Talos to purchase Talos’ promissory notes at a substantial discount as well as an agreement with Ziel Feldman not to object to the sale were concealed from the public. Plaintiffs fail to allege how or why the non- disclosure of the settlements and discounted loan sale rendered the sale commercially unreasonable.
(Internal quotations and citations omitted).