Sumitomo Mitsui Banking Corp. v. Credit Suisse

• Decision Date: 17 November 2011
• Citation: 2011 N.Y. Slip Op. 08288,933 N.Y.S.2d 234,89 A.D.3d 561
• Parties: SUMITOMO MITSUI BANKING CORPORATION., Plaintiff–Appellant–Respondent, v. CREDIT SUISSE, et al., Defendants–Respondents–Appellants.
• Court: New York Supreme Court — Appellate Division

2011 N.Y. Slip Op. 08288

89 A.D.3d 561

933 N.Y.S.2d 234

SUMITOMO MITSUI BANKING CORPORATION., Plaintiff–Appellant–Respondent,

v.CREDIT SUISSE, et al., Defendants–Respondents–Appellants.

Supreme Court, Appellate Division, First Department, New York.

Nov. 17, 2011.

Miller & Wrubel, P.C., New York (Martin D. Edel of counsel), for appellant-respondent.

Lankler Siffert & Wohl, LLP, New York (Charles T. Spada of counsel), for respondents-appellants.

ANDRIAS, J.P., SWEENY, CATTERSON, RENWICK, MANZANET–DANIELS, JJ.

Order, Supreme Court, New York County (James A. Yates, J.), entered October 15, 2010, which denied plaintiff's motion for summary judgment and to dismiss defendants' counterclaim and affirmative defenses, and denied defendants' cross motion for summary judgment, affirmed, without costs.

In 2006, Credit Suisse and other lenders, including plaintiff, entered into a $5.5 billion unsecured credit agreement (the 2006 Credit Agreement) with nonparty Capmark Financial Group, Inc. (Capmark). Credit Suisse and other lenders also entered a $5.25 billion unsecured bridge loan agreement (the Bridge Loan) with Capmark. Plaintiff was not a Bridge Loan lender, but purchased a $200 million participation interest therein from Credit Suisse.

The participation agreement provides that upon receipt by Credit Suisse of any “cash Distribution,” Credit Suisse shall pay plaintiff its pro rata share, and that upon receipt of a “non-cash Distribution,” Credit Suisse shall transfer to plaintiff, at plaintiff's expense, its share of “the beneficial and record ownership of such ... non-cash Distribution.” The participation agreement defines “Distribution” as “any payment or other distribution (whether received by set-off or otherwise) of cash (including interest), notes, securities or other property (including collateral) or proceeds under or in respect of the Seller's Interest.”

In 2009, facing an increasingly challenging financial situation, Capmark commenced negotiations to restructure its debt, including the $833 million principal balance of the Bridge Loan, which was due March 23, 2009. Towards this end, in May 2009, Capmark and the 2006 Credit Agreement lenders, the Bridge Loan lenders and several new lenders executed a secured $1.5 billion Term Facility Credit and Guaranty Agreement (the 2009 Credit Agreement), the proceeds of which were be used “solely to make an Existing Bridge Loan Agreement Repayment and an Existing [2006] Credit Agreement Repayment.” Existing Bridge Loan Agreement Repayment” was defined as “any ratable repayment or prepayment in cash of outstanding Existing Bridge Loans.” Existing Credit Agreement Repayment was defined as “any ratable repayment or prepayment of outstanding ‘loans' under and as defined in the [2006 Credit Agreement] in cash (accompanied, in the case of any repaid Revolving Credit Loans, with a permanent reduction in the corresponding Revolving Credit Commitments).” Capmark and the lenders also executed “Amendment No. 3 and Waiver to the [2006] Credit Agreement” and “Amendment No. 9 and Waiver to the Bridge Loan Agreement” which provided that Capmark would make repayments “in cash.”

As a condition precedent to the closing, the 2009 Credit Agreement provided that “substantially contemporaneously” with the borrowing under the 2009 Credit Agreement, not less than $984,375,000 of an Existing Credit Agreement Repayment and $590,625,000 of an Existing Bridge Loan Repayment “shall occur.” The $984,375,000 was comprised of $937,500,000 in loan proceeds and $46,875,000 of Capmark's own funds. The $590,625,000 was comprised of $562,500,000 in loan proceeds and $28,125,000 of Capmark's own funds. The payments did not extinguish the Bridge Loan; rather, the loan's maturity date was extended to March 23, 2011 and the 2009 Credit Agreement provided that the outstanding balance was “to be updated after finalization of funds flow.”

When Credit Suisse received its share of the $28,125,000 payment that Capmark made towards the Bridge Loan from its own funds, it gave plaintiff its pro rata share in cash. However, characterizing the $562,500,000 in loan proceeds applied to the Bridge Loan from the 2009 Credit Agreement as a reallocation of debt, Credit Suisse took the position that it was a non-cash distribution under the participation agreement and offered to transfer to plaintiff its share of Capmark's new secured debt.

Plaintiff rejected the offer, taking the position that the $562,500,000 was a cash distribution under the participation agreement, entitling plaintiff to $21,640,589.14 in cash. Plaintiff maintains that because the participation agreement defines “Distribution” to include amounts received “by setoff or otherwise,” physical movement of the 2009 loan proceeds back and forth between plaintiff and Credit Suisse was not required, the salient point being that Capmark used the loan proceeds to pay down the Bridge Loan and Credit Suisse did not have the right to convert plaintiff's participation in the Bridge Loan into participation in the 2009 Credit Agreement.

To mitigate damages, the parties sold $21,640,589.14 of Capmark's secured debt to a third party, of which plaintiff received $14,356,171.32. In this action, plaintiff seeks to recover the $7,284,687.82 balance, plus interest, based on defendants' alleged breach of the participation agreement. Defendants counterclaim for a declaratory judgment that plaintiff is not entitled to its pro rata share in cash because defendants received secured debt, not cash, from Capmark.

The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case ( see Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986] ). Plaintiff satisfied this burden by submitting the 2009 Credit Agreement and amendment to the Bridge Loan Agreement, which stated that Capmark would make repayments in cash, and Capmark's quarterly financial statement for June 30, 2009 to September 2009, which reflected that the balance of the Bridge Loan had been reduced from $833,000,000 as of December 31, 2008 to $234,204,000 as of June 30, 2009.¹ This shifted the burden to defendants to present evidentiary facts in admissible form sufficient to raise a genuine, triable issue of fact ( see Zuckerman v. City of New York, 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ).

In opposition to plaintiff's motion, defendants submitted an affidavit from Didier Siffer, who had overseen Credit Suisse's relationship with Capmark since February 2009. Siffer stated that the 2009 transaction restructured the Bridge Loan and 2006 Credit Agreement, extending the maturity of the loans in exchange for receiving a security interest and small cash payment from Capmark. Siffer further stated that defendants “did not receive a cash payment for the $562,500,000 principal portion of the Bridge Loan that was restructured.” In support, Siffer annexed a May 28, 2009 letter from Capmark to Citibank, the administrative agent for the Bridge Loan, concerning the “ Repayment of USD Bridge Loan Agreement Dated As of March 23, 2006 (As Amended Supplemented Or Otherwise Modified, The ‘Loan Agreement’) ...,” which states,

“The undersigned hereby requests the following Loan continuation:

+-------------------------------------------------------------------+
                ¦1.¦Repayment will occur on:       ¦May 29, 2009 (a business day)   ¦
                +--+-------------------------------+--------------------------------¦
                ¦2.¦Repayment amount:              ¦USD $28,125,000.00              ¦
                +--+-------------------------------+--------------------------------¦
                ¦3.¦Reallocation amount:           ¦USD $562,500,000.00             ¦
                +--+-------------------------------+--------------------------------¦
                ¦4.¦Under the:                     ¦USD Bridge Loan Agreement       ¦
                +--+-------------------------------+--------------------------------¦
                ¦5.¦Loans denominated in USD:      ¦Eurocurrency Loans              ¦
                +--+-------------------------------+--------------------------------¦
                ¦6.¦Borrower:                      ¦Capmark Financial Group Inc.”   ¦
                +-------------------------------------------------------------------+
                

Siffer's affidavit and the Capmark letter raise an issue of fact as to whether there was a cash payment to satisfy the Bridge Loan or a reallocation of debt. Although the documents in connection with the 2009 transaction brand the $562,500,000 as a cash repayment, it is the economic...