On September 29, 2025, the U.S. District Court for the Southern District of New York applied the Colorado River abstention doctrine to dismiss a lender liability action against Computershare Trust Company, National Association, the trustee of a series of commercial mortgage pass-through certificates.
In March 2023, the original lender made a $54.5 million loan to Fort Lee Office LLC secured by a mortgage on a mixed-use commercial and residential property in Fort Lee, New Jersey. The borrower and its principal also invested $40 million of their own capital to purchase and improve the property. In April 2023, the loan was assigned to Computershare.
In 2024, the lender filed a foreclosure action in New Jersey Chancery Court against the borrower, the principal, and other interest holders, including entities holding construction liens. The lender alleged numerous monetary and non-monetary events of default, including the failure to make certain monthly payments, the existence of construction liens, and the failure to make repairs. The borrower failed to timely answer, and the court entered a default judgment of foreclosure and later denied the defendants’ motion to vacate.
Soon thereafter, the borrower and its principal filed an action against the lender in New York. In it, they alleged the lender was engaged in an ongoing scheme to manufacture events of default and the lender failed to fund hundreds of thousands of dollars required by the loan agreement, which led to contractors filing mechanics’ liens. The plaintiffs also alleged that, for months leading up to the New Jersey foreclosure action, they were denied access to a portal and servicing information for the loan, which prevented them from paying monthly bills and reviewing rental income and other financial information. The plaintiffs asserted claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment and breach of fiduciary duty.
The Lender moved to dismiss under the Colorado River abstention doctrine based on its pending foreclosure action. The court first concluded that the actions were parallel. The parties in the New Jersey foreclosure and the New York lender liability actions were substantially the same, and although the cases involved different claims, the court noted that the plaintiffs’ unjust enrichment claim alleged that their performance of the loan agreement was excused by the lender’s alleged breach, so that they “have legal ownership over the Subject Property and an immediate right to possession.” The court therefore held that “Resolution of the Foreclosure Action would resolve Plaintiffs’ claims insofar as they seek ownership of the Subject Property.”
The court next analyzed the six Colorado River factors and concluded they favored abstention. On the first factor—whether the dispute involves a res over which one of the courts has assumed jurisdiction—the court held that “where, as here, the federal action is in personam and the state action is in rem regarding the same property, the first factor strongly favors abstention.” The court also found that the third factor—avoiding piecemeal litigation—favored abstention because the plaintiffs in the New York action were seeking possession and control of the property that was the subject of the New Jersey action. The fourth factor also favored abstention because the foreclosure action was nearly complete, while the lender liability action was still at the motion to dismiss stage. The court held the sixth factor favored abstention because there was no reason to believe the foreclosure action would not completely and promptly resolve the issues between the parties.
Finally, the court applied an additional factor—the vexatious or reactive nature of the federal or state litigation. The court observed that in their proposed answer in the foreclosure action, the borrower and its principal failed to provide a legitimate basis for contesting the validity or priority of the mortgage or the lender’s right to foreclosure, beyond boilerplate defenses. In addition, they filed the lender liability action one week after losing their motion to vacate the default in the foreclosure action. Stating that “[t]he Court does not think it prudent to open a federal flank for parties who are losing state-court foreclosure actions,” the court granted the lender’s motion to dismiss under the Colorado River doctrine.
The case is Fort Lee Office LLC v. Computershare Tr. Co., No. 24-cv-9979 (S.D.N.Y. Sept. 29, 2025). A copy of the opinion and order may be found here.
