Vornado PS, L.L.C. v. Primestone Investment Partners, L.P.

Primestone Investment Partners, L.P. (Primestone) (defendant) owed Vornado PS, L.L.C. (Vornado) (plaintiff) over $100 million under two loans. The debts were secured by limited-partnership units of Prime Group Realty, L.P. (PGRLP). The units were exchangeable into shares of the publicly traded company Prime Group Realty Trust (PGE). Primestone defaulted on the loans, and Vornado sought to sell the PGLRP units pursuant to Article 9 of New York’s statutory Uniform Commercial Code (UCC). Vornado hired Goldman, Sachs & Co. to develop a marketing strategy and identify potential purchasers. However, Vornado also was interested in purchasing the units and believed itself to be the most willing and able purchaser. Under UCC § 9-610(c), the secured party could purchase the collateral through a private disposition only if the collateral was of a kind that was customarily sold privately on a recognized market; otherwise, the secured party had to purchase the collateral through a public disposition. Because no recognized market existed for limited-partnership units like the PGRLP units, the units needed to be sold publicly for Vornado to bid. Vornado set a public auction for November 20, 2001, obtained a licensed auctioneer, and advertised the foreclosure sale in major national newspapers. In early November, Vornado and Goldman Sachs contacted nearly 60 potential buyers and sent 33 potential buyers an informational memorandum. Primestone filed for bankruptcy on November 19, 2001, which halted the sale. Primestone’s bankruptcy case was ultimately dismissed for bad faith, and Vornado rescheduled the sale for April 30, 2002. Vornado again published notice of the sale, hired a licensed auctioneer, and contacted potential purchasers. At the foreclosure sale, Vornado was the only bidder and purchased the units for $8.35 each, which was the closing price of PGE’s shares on April 30. After subtracting the purchase price from the total owed by Primestone, a roughly $50 million deficiency remained. Vornado sought to recover the deficiency from Primestone in the Delaware Court of Chancery. Among other things, Vornado sought a declaration that the foreclosure auction was commercially reasonable and that Vornado had won the auction. Primestone asserted that the sale price was unreasonably low and argued that a private sale should have been conducted because private sales typically resulted in higher prices.