Court Opinion

ID: 9723351
Source: CourtListenerOpinion
Date Created: 2023-08-26 10:12:19.782473+00
Date Added: 2024-06-11T18:24:47.449280
License: Public Domain

Smith, J.
(dissenting). A bank that lends money to a borrower and is not repaid is entitled to sue to get its money back. That is, at least, the assumption that most banks surely make when they enter into loan agreements. A bank that is part of a lending group can, of course, agree that no suit will be brought unless a majority or supermajority of the lenders agree to take action, but if that agreement is made, it should be stated in plain language in the document. It is not hard to say: “No suit shall be brought except by the Administrative Agent, acting upon the written instructions of the Required Lenders.” No such language, or anything that can fairly be read as its equivalent, *333appears in this Credit Agreement or Keep-Well Agreement, and I dissent from the majority’s decision to read it in.
This transaction was a number of separate loans, on identical terms, made by lenders including Beal’s predecessor directly to the borrower. Section 2.1, the first substantive term of the Credit Agreement, says so: “each Lender severally agrees to make Loans . . . .” (§ 2.1 [a] [emphasis added].) The normal expectation of the parties to such a transaction is that each lender may sue separately to recover its loan, if the agreement does not say otherwise (see Commercial Bank of Kuwait v Rafidain Bank, 15 F3d 238, 243 [2d Cir 1994]; New Bank of New England, N.A. v Toronto-Dominion Bank, 768 F Supp 1017, 1023 [SD NY 1991]).
The majority holds that this Credit Agreement does say otherwise, relying on “[t]he specific, unambiguous language of several provisions” (majority op at 321), but it never identifies any “specific, unambiguous” surrender of individual lenders’ rights to sue. The majority gives primary importance to section 8.3 of the Credit Agreement {id. at 326-327), but nothing in that section says or implies that a single lender may not bring suit. The section says that “the Administrative Agent upon direction of the Required Lenders may . . . exercise any or all rights and remedies at law or in equity,” including the right to recover under the Keep-Well Agreement; but it does not say that no lender may exercise its own rights. A statement that an agent may act on a principal’s behalf does not mean that the principal has disabled itself from acting on its own.
The majority is incorrect in saying that Beal’s interpretation of section 8.3 would “render [it] meaningless” (majority op at 328). Section 8.3 means what it says — that certain powers may be exercised by the Administrative Agent at the direction of a supermajority, not that those powers are surrendered by the lenders. Indeed, the majority’s reading of section 8.3 to say that only the Administrative Agent, and not an individual lender, may act is impossible when applied to some of that section’s subdivisions, notably section 8.3 (c), authorizing the Administrative Agent to “commence, appear in and/or defend any action . . . brought by or against the Borrower or the Lenders.”
Similarly, section 9.1 of the Credit Agreement, saying that “[e]ach Lender authorizes the Administrative Agent to act on behalf of such Lender,” means just what it says: it is an authorization, not an exclusion. If the authors of the document meant the authorization to be exclusive, the words with which to say *334so were readily available. Nor is it significant that, in an obvious attempt to avoid reciting a lengthy list, the Credit Agreement “names the Administrative Agent but refers to the Lenders as ‘Various Financial Institutions’ without naming them” (majority op at 329).
In short, I think it clear that nothing in these agreements deprives the lenders of their rights to sue separately. I would reach this conclusion even if the Credit Agreement did not say, as it does in section 10.20: “No right or remedy conferred upon the Administrative Agent ... in this Agreement is intended to be exclusive of any other right or remedy contained in the other Loan Documents or at law and equity.” Surely this language should remove all doubt about the matter.
The Commercial Bank and New Bank cases, cited above, show that a provision in a loan agreement authorizing an agent to act upon direction of a specified number of lenders does not defeat the rights of lenders to act for themselves to collect their loans. The Second Circuit Court of Appeals said in Commercial Bank: “While the participation agreement . . . authorizes the ‘Confirming Bank’ to sue ‘only if requested to do so by the Majority Banks,’ this provision does not abrogate the rights of participating banks to sue on their own” (15 F3d at 243). That observation is squarely applicable here; the majority has identified no important distinction between the language at issue in Commercial Bank and the language it relies on.
The majority mistakenly cites New Bank as supporting its position (majority op at 326), because New Bank held that a right under a loan agreement to accelerate loan payments was enforceable only by collective action; but that issue is not the one we have in this case. A right of acceleration, unlike the basic right to sue for money that is already due, does not exist except to the extent that a contract provides for it. The New Bank court itself pointed out this distinction: “although acceleration and foreclosure are contractual remedies which may not be exercised without a majority vote of the Lenders, NBNE is free to pursue its own remedies at law by suing Noble to collect on its debt to NBNE” (768 F Supp at 1023). Beal should be no less free to pursue its own collection remedy here.
The majority relies on two decisions by trial-level courts, Credit Francais Intl. v Sociedad Fin. de Comercio (128 Misc 2d 564 [Sup Ct, NY County 1985]) and In re Enron Corp. (302 BR 463 [Bankr Ct SD NY 2003], affd 2005 WL 356985, 2005 US *335Dist T.FXTfi 2134 [SD NY 2005]). To the extent these decisions are relevant to our case, I do not find either convincing; I agree with Justice Klein’s, rather than Justice Greenfield’s, interpretation of the contract in Credit Francais (see 128 Misc 2d at 575), and I think Judge Gonzalez’s conclusion in Enron is more strongly supported by his alternative holding (see 302 BR at 476). (Indeed, the successful parties in Enron conceded on appeal that the lenders in that case retained some rights to sue under their loan agreement, and Judge Gonzalez’s ruling was affirmed on grounds not relevant here [see 2005 WL 356985 at *7-8 and n 36, 2005 US Dist LEXIS 2134 at *30-33 and n 36].) But even if both Justice Greenfield and Judge Gonzalez were correct, that would not mean Beal cannot sue in this case. Both judges relied on contractual language giving rights to the agent that is stronger than any language we have here (see 128 Misc 2d at 578 [“Each Depositor . . . irrevocably authorizes the Agent . . .”]; 302 BR at 471-472 [referring to several instances in which the agent was “irrevocably authorized” to act]).
The majority’s reading of the Credit Agreement here is less plausible than those given to the agreements in Credit Francais and Enron for another reason: while the agreements in those cases permitted the agent to act with the approval of a majority in interest of the lenders, the Credit Agreement here requires two thirds. Thus if, as the majority holds, the Credit Agreement and the Keep-Well Agreement are enforceable only by the Administrative Agent, dissenting lenders holding 33.4% of the loan can render those agreements unenforceable. It is most unlikely that the lenders who signed the Credit Agreement thought that they would be powerless to recover their loans if a minority of lenders were unwilling to take action.
Of course, in this case, the lenders unwilling to sue are not a dissident faction. They hold, as the majority mentions repeatedly, 95.5% of the debt, and have made an arrangement that every lender except Beal is willing to go along with. It is this fact that makes the result the majority reaches attractive: intuitively, it seems that if 36 out of 37 lenders are satisfied with a deal, the 37th should not be allowed to upset the applecart.
But Beal would fare no better under the majority’s reasoning if it were one of a group with a 66.6% interest. There is no possible distinction, under the agreements in suit, between Beal and any other holder or holders who have less than two thirds of the loan. Thus the majority’s decision, while reaching a *336pragmatically appealing result, essentially reads into the loan documents language that would compel results far less appealing. These agreements are complex, and were no doubt negotiated by experienced counsel. Fairness to these parties, and the confidence with which future parties enter similar transactions, would be better served by reading the agreements as they are written.
Judges Ciparick, Graffeo and Pigott concur with Chief Judge Kaye; Judge Smith dissents in a separate opinion; Judges Read and Jones taking no part.
Order affirmed, with costs.