Chase Manhattan Bank v. Motorola, Inc.

Decision Date29 March 2001
Docket NumberNo. 00 CIV 4838 AKH.,00 CIV 4838 AKH.
PartiesTHE CHASE MANHATTAN BANK, Plaintiff, v. MOTOROLA, INC., Defendant.
CourtU.S. District Court — Southern District of New York

Barry R. Ostrager, David J. Woll, Mary Kay Vyskocil, Michelle A. Kisloff, Simpson, Thacher & Bartlett, New York City, for Plaintiff.

Joseph Serino, Jr., Kimberly Ziev Niehaus, Kirkland & Ellis, New York City, for Defendant.

MEMORANDUM AND ORDER DENYING PLAINTIFF'S MOTION TO REMAND

HELLERSTEIN, District Judge.

Plaintiff Chase Manhattan Bank ("Chase") moves to remand this removed case to the New York Supreme Court, alleging that the district court lacks subject matter jurisdiction. Chase argues that since its lawsuit to require defendant Motorola, Inc. ("Motorola") to honor a $300 million Guarantee was brought for the benefit of a 24-bank consortium, the citizenship of each bank must be considered in a determination of jurisdiction. Because not every bank in the consortium is diverse with Motorola, Chase argues for remand. Motorola disagrees, contending that under the agreements at issue only the citizenship of Chase is material.

I deny Chase's motion. The relevant agreements give only Chase the right to require Motorola to honor its Guarantee, and a judgment for or against Chase would bind the entire bank consortium. The federal courts are a constitutionally appropriate forum to hear and resolve such suits between parties of diverse citizenship. See 28 U.S.C. § 1332.

Facts

In December 1998, Chase and twenty-three other banks lent approximately $800 million to Iridium Operating LLC, a satellite telecommunications company that was developing a first-of-its-kind worldwide wireless satellite telecommunications service. Motorola originated the project in the mid-1980's. In 1991, Motorola formed Iridium, Inc., a wholly owned subsidiary. After others invested, Iridium, Inc. was merged in 1996 into a newly created Delaware limited liability company, Iridium LLC., and, in December 1997, Iridium LLC's assets were transferred to Iridium Operating LLC ["Iridium"],1 a Delaware limited liability company wholly owned by Iridium LLC. In August 1999, involuntary petitions of bankruptcy were filed against Iridium Operating and Iridium LLC in the Bankruptcy Court of the Southern District of New York. The entities then filed voluntary petitions in the Bankruptcy Court of the District of Delaware. The proceedings are pending, apparently in both courts but perhaps more actively in the Delaware court. A suit is also pending in the District of Delaware, The Chase Manhattan Bank v. Iridium Africa Corp. et al., Civ. Action No. 00-564, and there may perhaps be other suits as well.

In the action before me, Chase brought suit as administrative and collateral agent for the syndicate, to enforce Motorola's agreement to execute and deliver its Guarantee. In its complaint, filed in the New York Supreme Court June 9, 2000, Chase alleged that the action arose from Motorola's breach of an unconditional and irrevocable commitment to provide a $300 million loan guarantee to Chase. Specifically, the complaint alleges, after detailing the set of agreements, that numerous triggering events occurred, spawning the right of Chase to seek the Guarantee. Upon the occurrence of these triggers, Chase maintains that it demanded from Motorola, in July 1999, performance of the Guarantee Obligation. Chase alleged that Motorola breached the terms of the Loan Agreements, which provided specifically that "at any time after the occurrence and during the continuation of any Trigger Event, Chase could exercise all the rights, powers and remedies of Iridium [], specifically including the right to require" delivery of the Guarantee by Motorola for the benefit of the Lenders.

The Agreements

The loan underlying the disputed guarantee in question was made pursuant to a package of agreements. Simplified, each of the 24 banks agreed to lend a portion of the total $800 million commitment to Iridium, and Iridium agreed to repay each lender and to execute a note in favor of any lender so requesting. Motorola's Guarantee of $300 million was collateral for the $800 million loan to Iridium by the bank consortium. Motorola agreed to execute and deliver its Guarantee, initially to Iridium and then, by assignment, to Chase as collateral agent and administrative agent on behalf of the consortium. The Guarantee was deliverable upon demand by Chase following the occurrence of a triggering Event of Default, and guaranteed each lender prompt payment of principal and interest in full, proportionally to the extent of the Guarantee. See Credit Agreement § 8.09; Guarantee Agreement § 2.01; Security Agreement, Article III(e)(vii); Motorola Consent § 3.08(a). The Agreements thus gave Chase the right to sue Motorola if, notwithstanding Chase's demand, Motorola refused to execute and deliver its Guarantee as required by the operative agreements. Once the Guarantee was executed and delivered, any lender, Chase included, was given the right thereafter to sue Motorola for repayment of remaining load indebtedness, and to utilize the Accelerated Judgment procedure in lieu of complaint, as provided by New York C.P.L.R. § 3213.

The Senior Secured Credit Agreement provides the terms and conditions of the loan to Iridium: the commitments of the lending banks, the conditions of funding, the terms of repayment, Iridium's representations and warranties, etc. Section 8.09 of the agreement provides for Motorola, upon Iridium's demand following a Trigger Event (i.e., an event of default), to execute and deliver its Guarantee Obligation in favor of Chase for the benefit of the lending banks. Section 8.09 provides:

Not later than seven Business Days after the occurrence of any Trigger Event, [Iridium] will require Motorola to perform the Motorola Guarantee Obligation (to the extent of a maximum amount of $300,000,000), such performance to include the execution and delivery by Motorola of its guarantee, ... in favor of the Administrative Agent [Chase] for the benefit of the Lenders in respect of the Borrower's obligations under this Agreement in a maximum amount of $300,000,000....

Credit Agreement § 8.09(a). Article VIII then provides when and under what conditions the obligation terminates or Motorola is otherwise released from its commitments pursuant to the Guarantee. The specific events of default are provided in Article IX.

Chase's powers and duties as administrative agent are provided in Article X. The lending banks each appoint Chase administrative agent and collateral agent and authorize and empower Chase to take actions and exercise powers on their behaves, except that Chase may not, without the prior consent of the lenders, modify the terms of the Motorola Guarantee. Furthermore, pursuant to Article X, each lender, "independently and without reliance upon the Agents," reserves the right "to make its own decisions in taking or not taking action under or based upon this Agreement, any other Credit Document or any related agreement...."2

The terms of Motorola's Guaranty are also set out in a Pledge and Security Agreement ("Security Agreement") among Iridium, various Iridium affiliates (referred to as the Subsidiary Guarantors), and Chase as collateral agent for the lenders. Like the Credit Agreement, the Security Agreement provides that Chase as collateral agent has the right, upon a triggering event, to demand execution and delivery by Motorola of its $300 million Guarantee as security for the lending banks' $800 million loan. Further to confirm and implement the Security Agreement, Motorola executed a Consent Agreement in favor of Iridium and Chase as administrative agent and collateral agent, pursuant to which it consented to Iridium's assignment to Chase of Motorola's Guaranty Obligation and acknowledged that Chase as collateral agent had the right "to exercise any and all rights of Iridium," that Motorola would "comply in all respects with such exercise" by Chase, and that Chase had "full right and power" to enforce Motorola's obligations "directly against Motorola." Consent Agreement §§ 3.01-3.02.

Discussion

Motorola timely removed the action to this court, alleging that since only Chase was given the right to demand that Motorola execute and deliver its Guarantee and bring suit to compel Motorola to do so, complete diversity existed between it and Chase.3 Chase followed by moving to remand to New York Supreme Court. Since the court's jurisdiction to act should precede consideration of the merits, see Curley v. Brignoli, Curley & Roberts Assocs., 915 F.2d 81, 83 (2d Cir.1990) ("subject matter jurisdiction is an unwaivable sine qua non for the exercise of federal judicial power"), and with the parties' consent, I address only the motion to remand at this time.

The jurisdiction of the United States district courts is limited by Constitution and statute. Where the diverse citizenship of the parties is the basis of jurisdiction, the citizenship of all plaintiffs must be diverse from those of all defendants. See E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160 F.3d 925, 930 (2d Cir.1998) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806)). It is not clear, however, what should be the rule when a party to a lawsuit, invested with the power to act alone and which has sued individually, has filed its suit also to carry out its contractual duties to others. Should the citizenship of only the parties, or also of the non-parties, be considered for purposes of diversity?

The question is not without nuanced answers, supplied by the various courts to have considered the issue in varying contexts. In Navarro Savings Ass'n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), the Supreme Court held that where the trustees of a Massachusetts business trust brought suit, diversity depended on the citizenship of the trustees, not the beneficiaries, even though the trustees were acting...

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