Corporate v. BDC Fin., LLC

Decision Date23 February 2017
Docket NumberINDEX NO. 651989/2010
Citation2017 NY Slip Op 30347 (U)
PartiesCREDIT AGRICOLE CORPORATE and INVESTMENT BANK NEW YORK BRANCH, f/k/a CALYON NEW YORK BRANCH, et al., Plaintiffs, v. BDC FINANCE, LLC, et al., Defendants. UBS AG, STAMFORD BRANCH AND UBS LOAN FINANCE LLC, Plaintiffs, v. BDC FINANCE, LLC, et al., Defendants. AND RELATED COUNTERCLAIMS
CourtNew York Supreme Court

NYSCEF DOC. NO. 1094

DECISION and ORDER

BARBARA JAFFE, JSC:

Based on defendants' conduct in a bankruptcy proceeding auction (see Credit Agricole Corporate v BDC Fin., LLC, 135 AD3d 561, 561 [1st Dept 2016]), and thereafter, plaintiffs assert contract and other claims against them. Defendant Black Diamond Commercial Finance LLC (agent) moves, pursuant to CPLR 3212, for an order granting it a summary dismissal of counts I, II, III, IV, V, and IX of the amended complaint (NYSCEF 83) and counts I, II, III and IV of the complaint in intervention (NYSCEF 153) (together, the complaint).

I. BACKGROUND

The facts of this case have been discussed in prior decisions, including for motion sequence numbers 24 and 26, familiarity with which is presumed. Black Diamond Capital Management, LLC (BDCM), BDC Finance, LLC and Black Diamond CLO 2006-1 (Cayman), Ltd. (together with BDCM, BDC Lenders), and some plaintiffs held interests in a syndicated loan and were parties to the related loan agreement (credit agreement). The loan was made to a nonparty borrower, GSCP (NJ), LP (together with certain of its affiliates, GSC).

Through a security agreement (with the credit agreement, the credit documents), GSC pledged almost all of its assets as security for the repayment of the loan. The security agreement is referenced in the related credit agreement (see eg credit agreement §§ 10.13, 10.14, 11 [definitions]). BDC Lenders became the holder of approximately 51 percent of the loan interests, assuming the role of required banks under the credit documents. Plaintiffs claim, collectively, about 30 percent of the loan interests.

BDC Lenders appointed the agent, its affiliate, as the administrative agent under the credit agreement and the collateral agent under the security agreement, to which the agent is a party, on behalf of the secured creditors, which includes BDC Lenders and plaintiffs or their assignees. Under the security agreement, the agent could exercise remedies in order to obtain the collateral in the event of certain types of borrower defaults, such as occurred. GSC received bankruptcy court authorization to sell the loan collateral in an auction (see 11 USC § 363). BDC Lenders and the agent won the auction, with a joint bid in which the agent bid the debt owed by GSC.

Thereafter, plaintiffs proposed an alternate reorganization plan. In December 2010, GSC terminated the sale, and the bankruptcy court then appointed a trustee for the GSC estate. In May 2011, the trustee agreed to enter into a sales transaction with BDC Lenders and sought approval of the sale of the substantial majority of GSC's assets, which the bankruptcy court granted. Two asset purchase agreements executed for the sale reflect a credit bid of the entirety of GSC's debt obligations. With the July 26, 2011 closing, the agent delivered a payoff letter deeming GSC's loan obligations paid and satisfied. GSC's assets were transferred to defendant GSC Acquisition Holdings, LLC (GSCAH). The parties rely on the credit documents; there is no separate intercreditor agreement.

A. The agent's affidavit

In an affidavit, Hugo H. Gravenhorst, the agent's managing director, states that the agent: (1) submitted a credit bid to acquire some, or all, lots of assets offered at the bankruptcy auction and declined to join its credit bid, other than with BDC Lenders, at the required banks' instruction; (2) received a direction letter from the required banks instructing the agent to credit bid on October 31, 2010 and May 23, 2011; and (3) signed the payoff letter with the July 26, 2011 closing. Gravenhorst also states that the agent was represented by separate counsel at the auction, and recalls that GSC's financial advisor announced that the bidding procedures had been modified to allow joint bidding, but learned after the auction that the minority lenders' consent to a joint bid included a reservation of rights to claims against the agent and BDC Lenders. Having failed to set forth a basis for stating that the reservation of rights was not disclosed to BDC Lenders, that statement is inadmissible.

According to Gravenhorst, he received, as proceeds from the GSC sale, $5 million fromGSC in partial payment of GSC's loan obligations at the July 2011 closing, which he deposited into the agent's bank account, applying approximately $3.72 million of the amount to reimburse sales expenses in accordance with the credit agreement, and holding the balance as a reserve against future expenses. At an unspecified time, he maintains, the agent was assigned a $6.7 million promissory note from GSC, in partial payment of the loan obligations, through an assignment/assumption agreement, dated as of the closing, and continues to hold the $6.7 million note, which has not matured, on behalf of the former lenders. Gravenhorst states that in connection with the July 2010 closing, the agent received 100 percent of the class A membership interests in GSCAH, pursuant to an instruction letter from the required banks directing the agent to accept these interests as consideration for the credit bid in the asset purchase agreements, to be held by the agent in its capacity as collateral agent and treated in accordance with the credit document terms. He also alleges that, on April 28, 2012, nine months after the closing, the agent distributed these interests to each of the former lenders, based on their pro rata interest in the loan, and that the agent's compensation for its role was pursuant to a fee agreement entered into with GSC prior to the bankruptcy filing.

B. The agent's contentions concerning the credit bid, sale to GSCAH and distribution

In a memorandum of law, the agent contends that it offset the balance of the GSC loan against the amount it credit bid, pursuant to 11 USC § 363(m), as a result of which the loan was repaid in full, and GSC's obligations were deemed satisfied. Thus, it executed the payoff letter. It also contends that the GSCAH LLC agreement was amended to reflect the sales transaction, allotting the class A membership interests to the class A members, which included only assets that GSCAH acquired pursuant to the agent's credit bid.

The agent states that credit agreement § 10.14 contains the principal methods for distributing proceeds it received from the sale, as security agreement § 6.5 concerns only moneys the agent received or collected. It maintains that, under either credit agreement § 10.14 (a), or security agreement § 6.5(a)(1), it was first to receive its reasonable costs and expenses, and indemnification, after which, under credit agreement § 10.14(b), certain expenses of others are to be paid. The agent then asserts that credit agreement § 10.14©, (d), and security agreement § 6.5(a)(ii) require the payment, in cash, pro rata, of interest, principal and other miscellaneous sums for amounts constituting obligations under the contracts, and in a footnote, that these provisions were inoperative after the GSC sale closed, because no obligations remained due as of then, due to the exchange of the payoff letter deeming them satisfied upon the credit bid. The agent notes that plaintiffs admit in the complaint that the loan was extinguished .

The agent contends that it received the GSCAH LLC class A membership interests due to the exercise of the credit bid, on behalf of all lenders, making the former lenders "lawfully entitled" to these interests (credit agreement § 10.14 [e]; security agreement § 6.5 [a] [iii]), and distributed the interests based on the lenders' pro rata interest in the loan. The agent explains that it holds the balance of the $5 million cash in reserve for future expenses or indemnification, but otherwise on behalf of the secured creditors under security agreement § 6.1(d), which permits it to hold proceeds pending application under security agreement § 6.5. Until the note matures, it maintains, there is no way to distribute it under the credit documents.

II. DISCUSSION

The proponent of a summary judgment motion must demonstrate, prima facie, entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate anymaterial issues of fact from the case." (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]) "Failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers." (Id.). When the moving party has demonstrated entitlement to summary judgment, the burden of proof shifts to the opposing party which must demonstrate by admissible evidence the existence of a factual issue requiring trial. (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]).

A. Contract interpretation

"When the terms of a contract are clear and unambiguous, the intent of the parties must be found within the four corners of the document . . ." (ABS Partnership v AirTran Airways, 1 AD3d 24, 29 [1st Dept 2003]), and the court should enforce the writing according to its terms (see Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 474 [2004]; W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162 [1990]). The court should strive to give a fair and reasonable meaning to the language, in light of the purpose and intent of the agreement as a whole (Abiele Contr. v New York City School Constr. Auth., 91 NY2d 1, 9-10 [1997]), and "every part [of the contract] will be interpreted with reference to the whole; and if possible it will be so interpreted as to give effect to its general purpose" (Beal Sav. Bank v Sommer, 8 NY3d 318, 324-325 [2007] [internal quotation marks and citation...

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