Beal Sav. Bank v. Sommer

• Citation: 8 N.Y.3d 318,865 N.E.2d 1210
• Decision Date: 22 March 2007
• Docket Number: No. 26.,26.
• Parties: BEAL SAVINGS BANK, Appellant, v. Viola SOMMER et al., as Trustees of a Trust Under the Will of Sigmund Sommer, Deceased, Respondents.
• Court: New York Court of Appeals Court of Appeals

865 N.E.2d 1210

8 N.Y.3d 318

BEAL SAVINGS BANK, Appellant, v. Viola SOMMER et al., as Trustees of a Trust Under the Will of Sigmund Sommer, Deceased, Respondents.

No. 26.

Court of Appeals of New York.

March 22, 2007.

Hawkins, Parnell & Thackston, LLP (Robert B. Gilbreath, of the Texas bar, admitted pro hac vice, of counsel), Schulte Roth & Zabel LLP, New York City (Michael L. Cook and Curtis J. Weidler of counsel), and Jenkens & Gilchrist, Dallas, Texas (Theodore W. Daniel of counsel), for appellant.

Skadden, Arps, Slate, Meagher & Flom LLP, New York City (Scott D. Musoff, Preeta D. Bansal and Jay B. Kasner of counsel), for respondents.

OPINION OF THE COURT

KAYE, Chief Judge.

We are asked to determine whether one lender in a syndicated loan arrangement has standing to sue for breach of contract, contrary to the will of the other 36 lenders to forbear from taking action. The specific, unambiguous language of several provisions, read in the context of the agreements as a whole, convinces us that, in this instance, the lenders intended to act collectively in the event of the borrower's default and to preclude an individual lender from disrupting the scheme of the agreements at issue.

Facts

On February 26, 1998, a lending syndicate, originally comprised of 13 institutions (the Lenders), invested in the construction of Aladdin Gaming, LLC (the Borrower), to develop the Aladdin Resort and Casino in Las Vegas, Nevada. The Lenders advanced 410 million dollars through the Bank of Nova Scotia (succeeded by BNY Asset Solutions, LLC), the Administrative Agent. A Credit Agreement was the primary loan document governing the loan. A Keep-Well Agreement, which plaintiff-appellant Beal Savings Bank alleges was breached, was one of the many ancillary instruments evidencing the loan.¹ Both the Credit Agreement and the Keep-Well were dated February 26, 1998.

The Credit Agreement

The title page of the Credit Agreement shows Aladdin Gaming, LLC, as the Borrower, "Various Financial Institutions" as the Lenders, the Bank of Nova Scotia as the Administrative Agent and two other institutions, the syndication agent and the documentation agent. The Lenders are not individually named.

Under section 9.1 of the Credit Agreement, the Lenders authorize the Administrative Agent to act on their behalf pursuant to the Loan Documents and, "in the absence of other written instructions from the Required Lenders . . . to exercise such powers . . . as are specifically delegated to or required of the Administrative Agent by the terms [of the Loan Documents] together with such powers as may be reasonably incidental thereto." The term "Required Lenders" is defined as those holding at least 66 2/3% of the outstanding principal and the participation interests in the outstanding Letters of Credit (Credit Agreement § 1.1). Among those powers delegated to the Administrative Agent are that it set the Base Rate of interest and the London Interbank Offer (LIBO) Rate (Credit Agreement §§ 1.1, 3.2), collect payments from the Borrower for the pro rata account of the Lenders (§ 4.7), and review financial statements of the Borrower and other Aladdin Parties (§§ 5.1.4, 6.5).

Article 8 of the Credit Agreement addresses Events of Default. Section 8.1.4 provides that the Borrower defaults if, after the Administrative Agent gives notice, the nonperformance continues for 30 days. Section 8.3 states that the Administrative Agent, at the direction of the Required Lenders, may "exercise any or all rights and remedies at law or in equity," including the right to recover judgment on the Keep-Well. The Credit Agreement includes a section providing that if a Lender receives any payment, such as by setoff, it must share any excess of its pro rata share of payments with the other Lenders (§ 4.8). Section 10.20 is a cumulative remedies provision that "[n]o right or remedy conferred upon the Administrative Agent or the Lenders in this Agreement is intended to be exclusive" and "every such right and remedy shall be cumulative ... to every other right or remedy contained in the other Loan Documents...."

The Keep-Well Agreement

The Keep-Well Agreement was made, as the title pages state, "in favor of each of the Administrative Agent and the Lenders and their respective successors, transferees and assigns." The Sponsors agreed in section 2 of the Keep-Well to make Equity Contributions to the Borrower if the financial ratio fell below a certain minimum. Section 4 states that in the event of acceleration under section 8.2 and section 8.3 of the Credit Agreement the Sponsors guarantee payment of the accelerated amount to the Administrative Agent for the benefit of the Lenders.

The Keep-Well is not a stand-alone document but is to be read in accordance with the Credit Agreement. Section 18, "Miscellaneous Provisions," provides in subsection (a) that the Keep-Well is a "Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof." The next subsection, 18(b), states that the Keep-Well is binding upon the Sponsors and their successors and shall "be enforceable by the Administrative Agent and each Lender" and their assigns. Section 18(e), like section 10.20 of the Credit Agreement, is a cumulative remedies provision.

Enter the Plaintiff

In July 2000, the Borrower obtained a 50 million dollar increase in loan funds, and the Sommer Trust, one of the Borrower's parent companies, agreed to become a Sponsor along with other organizations under the Keep-Well Agreement. The Aladdin casino began operations, but just after September 11, 2001, the Borrower sought bankruptcy protection. Neither plaintiff-appellant Beal nor its assignor, BFC Capital, Inc., was an original Lender, and neither held any interest in the loan when the Borrower petitioned for bankruptcy protection. BFC acquired a 4.5% interest in the bank debt after the Borrower filed for bankruptcy.

On September 30, 2002, the Administrative Agent and all of the Lenders—holding 95.5% of the outstanding principal amount—except BFC entered into a Settlement Agreement with the Sommer Trust and two other sponsors. The Settlement Agreement directed the Administrative Agent to forbear from enforcing any obligations that the Trust had under the Keep-Well. In addition, the Lenders would turn over to the Trust any amounts they collected from BFC under a sharing clause in the Credit Agreement. As consideration, the Trust transferred "to the Administrative Agent for the benefit of the Prepetition Lenders and BFC" (Settlement Agreement § 1) the Trust's interest in a shopping mall and the benefit of the Trust's facilitating the sale of the Borrower's property. BFC, Beal's predecessor, received its pro rata share from this consideration. The Settlement Agreement also provided for the distribution of 6.5 million dollars to the Prepetition Lenders, not including BFC.

At the time of the execution of the Settlement, 37 Lenders were members of the syndicate. Thirty-six Lenders (all but BFC, Beal's assignor) agreed that the terms of the settlement were of greater benefit to the consortium than an attempt to recover under the Keep-Well.

The Litigation

On April 6, 2005, Beal filed a claim under section 4 of the Keep-Well and sought 90 million dollars to share with the other Lenders or, in the alternative, Beal's pro rata share.² The Trust, moving to dismiss, contended that Beal lacked standing, for no individual member of the consortium was empowered to enforce the agreements in the event of default, and only the Administrative Agent, at the behest of a supermajority of Lenders, could do so. Beal argued that while the agreements authorized the Agent to act administratively, no provision in the agreements precluded a Lender from otherwise proceeding individually. The Supreme Court granted the Trust's motion under CPLR 3211(a)(1) and (7) to dismiss the complaint on the grounds that the Loan Documents explicitly and implicitly precluded Beal from recovering a judgment under the Keep-Well. Affirming, the Appellate Division concluded that the Keep-Well is to be administered in accordance with the terms of the Credit Agreement, which sets forth the procedures in the event of default, and that those procedures provide for collective action. We agree with the trial court and Appellate Division, and now affirm.

Analysis

The governing principles are familiar. On a motion to dismiss pursuant to CPLR 3211, the court may grant dismissal when "`documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law'" (Goldman v. Metropolitan Life Ins. Co., 5 N.Y.3d 561, 571, 807 N.Y.S.2d 583, 841 N.E.2d 742 [2005], quoting Held v. Kaufman, 91 N.Y.2d 425, 430-431, 671 N.Y.S.2d 429, 694 N.E.2d 430 [1998]). Construction of an unambiguous contract is a matter of law, and the intention of the parties may be gathered from the four corners of the instrument and should be enforced according to its terms (see Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765, 807 N.E.2d 876 [2004]; W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 566 N.E.2d 639 [1990]). The court should "construe the agreements so as to give full meaning and effect to the material provisions" (Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 3 N.Y.3d 577, 582, 789 N.Y.S.2d 461, 822 N.E.2d 768 [2004]). A reading of the contract should not render any portion meaningless (see God's Battalion of Prayer Pentecostal Church, Inc. v. Miele Assoc., LLP, 6 N.Y.3d 371, 374, 812 N.Y.S.2d 435, 845 N.E.2d 1265 [2006]; Excess Ins. Co., 3 N.Y.3d at 582, 789 N.Y.S.2d 461, 822 N.E.2d 768). Further, a contract should be "read as a whole, and every part will be interpreted with reference to the whole and if possible it will be so interpreted as to give effect to its general purpose" (...