Stonehill Capital Mgmt. LLC v. Bank of the W.

• Citation: 2016 N.Y. Slip Op. 08481,68 N.E.3d 683,28 N.Y.3d 439,45 N.Y.S.3d 864
• Parties: STONEHILL CAPITAL MANAGEMENT LLC et al., Appellants, v. BANK OF THE WEST et al., Respondents.
• Decision Date: 20 December 2016
• Court: New York Court of Appeals

28 N.Y.3d 439

68 N.E.3d 683

45 N.Y.S.3d 864

2016 N.Y. Slip Op. 08481

STONEHILL CAPITAL MANAGEMENT LLC et al., Appellants,

v.BANK OF THE WEST et al., Respondents.

Court of Appeals of New York.

Dec. 20, 2016.

Law Offices of Martin Eisenberg, New York City (Martin Eisenberg of counsel), for appellants.

Katten Muchin Rosenman LLP, New York City (David A. Crichlow and Gregory C. Johnson of counsel), for Bank of the West, respondent.

Hoguet Newman Regal & Kenney, LLP, New York City (Damian R. Cavaleri, Laura B. Hoguet and Jeffrey A. Miller of counsel), for Mission Capital Advisors, LLC, respondent.

Richard Kibbe & Orbe LLP, New York City (Brian S. Fraser, Robyn H. Frumkin, Katherine Kern Harrington and Rachel S. Mechanic of counsel), for Loan Syndications and Trading Association, amicus curiae.

OPINION OF THE COURT

RIVERA, J.

Plaintiffs Stonehill Capital Management LLC, Stonehill Institutional Partners, L.P. and Stonehill Master Fund Ltd. (collectively Stonehill) are affiliated commercial entities that seek to enforce the auction sale of a syndicated loan against defendant Bank of the West (BOTW). BOTW concedes that it accepted Stonehill's bid and then refused to transfer the loan, but claims it had no legal obligation to do so because the parties never executed a written sales agreement and Stonehill failed to submit a timely cash deposit. However, these prerequisites are not conditions precedent to formation of the parties' contract and do not render their agreement unenforceable. Therefore, Stonehill has established its entitlement to summary judgment.

I.

BOTW, a lender of various nonperforming mortgage loans, retained codefendant Mission Capital Advisors, LLC to manage a competitive online sealed-bid auction of several of these loans. As part of the bid process, in March 2012 Mission issued an Offering Memorandum (Memorandum), which announced its solicitation of indicative bids for the purchase of the loans, individually or in any combination, and invited non-contingent final offers. The auction portfolio included a syndicated loan—with an aggregate principal value of $8,787,141—known to the parties as the "Goett Loan." The Goett Loan is the underlying subject of the parties' dispute.

The Memorandum set forth information about the loan portfolio and the asset pools contained therein. In the description of the "Loan Sale Process," the Memorandum informed interested parties that

"[a]fter receipt of [the] indicative bids, Mission, in conjunction with the Seller, will select Final Bidders to complete final due diligence before submitting non-contingent offers on the Final Bid Date (the acceptance of which by Seller will require immediate execution of pre-negotiated Asset Sale Agreement (s) by Prospective Bidder accompanied by a 10% non-refundable wire funds deposit)."

The asset sale agreement would be made available for review to final bidders. The Memorandum also included the following disclaimer:

"The seller reserves the right, at their sole and absolute discretion, to withdraw any or all of the assets from the loan sale, at any time.... Only those representations and warranties that are made by the seller to a prospective bidder in a definitive, executed loan sale agreement shall have any legal effect" (capitalization modified).

After Stonehill expressed an interest in the Goett Loan, Mission forwarded a proposed asset sale agreement, referred to as the "Loan Sale Agreement" (LSA). Two days later, on April 18, Stonehill submitted to Mission a $2,363,142 final bid on the Goett Loan. The same day, by separate correspondence, Stone-hill informed Mission that the LSA was not the proper document to effectuate a syndicated loan transfer, and offered to "either make the minor modifications required to that document to account for the agent's approval process, etc, or use an LSTA syndicated loan document, whichever the Seller prefers."¹

Mission notified Stonehill by telephone on April 20 that it had submitted the winning bid for the Goett Loan. On April 23, Stonehill sent Mission a modified redlined version of the proposed LSA, purportedly at Mission's request, containing what Stonehill considered to be the necessary technical changes that would enable the LSA to effectuate the sale and assignment of the Goett syndicated loan. Mission's representative replied that it was "a substantially larger markup than I was expecting to see. I can't actually say that our lawyer is going to use it." Then, on April 24, BOTW's counsel sent Mission an email stating that if the Goett Loan was a syndicated credit "the LSTA form agreement is actually pretty good," to which Mission's representative responded that he was "99.9% certain that [Stonehill is] right about this being a syndicated credit."

On Friday, April 27, Mission emailed Stonehill written confirmation that BOTW agreed to the Stonehill bid. The correspondence stated:

"Subject to mutual execution of an acceptable [LSA], [BOTW] has agreed to the Stonehill ... bid of:

"Mixed Portfolio—$8,787,141 UPB

"Purchase Price—$2,363,142

"As discussed, counsel representing [BOTW] ... will be sending you an executable [LSA] ... by Tuesday, May 1st. An executed signature page and 10% non-refundable deposit is expected no later than 2:00 pm EDT on Wednesday, May 2nd" (emphasis omitted).

The email also included wiring instructions for the deposit and closing.

That same day, BOTW's counsel sent Stonehill an email in which counsel explained that he was previously unaware that the Goett Loan was syndicated and that he "prefer[red] to use LSTA documentation for syndicated credits." He pushed for an early May closing on the loan transfer because "[m]ost trade agents won't approve trades at the end of the month" and said that he would send the trade agreements the following week.

On Friday, May 4, BOTW's counsel was still preparing the documents and initiated a series of email exchanges to move the deal ahead. Counsel first informed Stonehill that he was working on sending the documents by Monday and requested that, "[i]n the meantime," Stonehill send him the term sheet from a previous trade specified by counsel. Stonehill wrote back that the requested term sheet was confidential but that Stonehill would provide an LSTA form reflecting the terms of the Goett Loan transaction, stressing, "[w]e hope that this arrangement will be acceptable to you and will enable us to move forward to close quickly." BOTW's counsel responded that he "assumed as much" and it was "fine to proceed as [Stonehill] indicated."

As promised, two days later Stonehill sent the LSTA form to BOTW's counsel with the terms for the loan transaction and related documents. In this same correspondence, Stonehill informed counsel that it was forwarding the credit agreement transfer forms to Wells Fargo, the credit agreement agent, and this was a necessary step to complete and record the transfer of the Goett Loan to Stonehill.

On May 8, Stonehill informed BOTW's counsel that Wells Fargo approved the credit transfer forms. Under the credit agreement, Stonehill needed the promissory note endorsed in order to close on the Goett Loan, so Stonehill also sent counsel a standard allonge form for the promissory note on the Goett Loan issued to BOTW.

Around this time, BOTW learned that Stonehill was refinancing the Goett Loan. This would apparently increase the value of the loan, which led BOTW to consider its options with respect to the loan sale. An internal BOTW memorandum circulated on May 10 detailed both the refinancing and the auction sale to Stonehill. The memorandum explained that

"there is a question as to the direction [BOTW] should take; sale or not to sale [sic], given that no formal written commitments are executed between [BOTW]/Mission Capital and Stonehill that would obligate [BOTW] to sale [sic] the Goett Note. Fact remains that [BOTW] acted in good faith and has verbally committed to the Goett Note sale to Stonehill."

It further stated that Stonehill had proceeded with various steps to finalize the refinancing and Stonehill funding was highly likely.

On May 14, Stonehill contacted BOTW's counsel for an update. Counsel, apparently surprised by Stonehill's inquiry, forwarded the email to Mission. Then on May 16, Mission informed Stonehill by telephone that BOTW would not proceed with the trade. Over a week later, on May 25, Mission forwarded to Stonehill a May 18 email from BOTW to Mission declaring that it would not sell to Stonehill:

"[BOTW] will not proceed with this trade because it has no obligation to do so. There are no agreements (oral or written) between [BOTW] and Stonehill Capital. The Offering Memorandum specifically permits [BOTW] to withdraw any loan from the auction at any time. Specifically, it states ‘The Seller reserve[s] the right, at their sole and absolute discretion, to withdraw any or all of the assets from the loan sale, at any time.’ In addition, Mission Capital's bid response e-mail to Stonehill conditioned [BOTW's] response upon the execution of a definitive loan sale agreement."

As a consequence of the refinancing and the cancellation of the sale to Stonehill, on June 21 BOTW received $4,197,441 on the Goett Loan, an excess of approximately $1.8 million over Stonehill's bid.²

Stonehill commenced the present action against BOTW and Mission, alleging breach of contract and breach of the implied covenant of good faith and fair dealing, and seeking indemnification. In its amended complaint, Stonehill added a cause of action for unjust enrichment and demanded $1.5 million in damages.

Supreme Court denied BOTW's motion to dismiss and cross motion for summary judgment, and granted Stonehill's motion for summary judgment on the breach of contract cause of action (Stonehill Capital Mgt., LLC v. Bank of the W., 2014 N.Y. Slip Op. 30751[U], 2014 WL 1219093 [Sup.Ct., N.Y.County 2014] ). Supreme Court held that because the purchase and sale agreement was pre-negotiated, BOTW's acceptance of Stonehill's bid created a binding contract. BOTW appealed...