On May 28, 2010, Simpson Thacher obtained the dismissal of all claims brought by two groups of Term Lenders and their assignees against the firm’s clients, Barclays Bank PLC, Deutsche Bank Trust Company Americas, JPMorgan Chase Bank, N.A., and The Royal Bank of Scotland plc. The decision and order dismissing the claims was issued by Judge Alan S. Gold of the Southern District of Florida in cases captioned Avenue CLO Fund, Ltd., et al. v. Bank of America, N.A., et al., No.: 09-CV-23835-ASG, and ACP Master, Ltd., et al. v. Bank of America, N.A., et al., No.: 10-CV-20236-ASG. The ruling disposed of claims seeking in excess of $700 million in damages against the four Simpson Thacher clients and the other Revolving Lenders under a Credit Agreement pertaining to the Fontainebleau resort and casino project on the Las Vegas strip.
The Term Lenders’ lawsuits arose out of a March 2009 borrowing requests which the Revolving Lenders declined to fund. The March requests sought to borrow all of the available Delay Draw Term Loan funds and all of the available Revolving Loan commitments simultaneously. The Revolving Lenders contended that the requests did not comply with the Credit Agreement, which prohibited Fontainebleau from borrowing more than $150 million from them unless and until the Delay Draw commitments were “fully drawn.” In April 2009, the Revolving Lenders terminated their obligations under the Credit Agreement based on Defaults and Events of Default by Fontainebleau. Fontainebleau filed for Chapter 11 bankruptcy in June 2009 and immediately filed an adversary proceeding against the Revolving Lenders for breach of contract and a motion for summary judgment, along with a request for expedited consideration of the motion. Shortly thereafter, two groups of Term Lender Plaintiffs sued the Revolving Lenders, filing actions in Nevada and New York which alleged that the Revolving Lenders’ failure to lend money to Fontainebleau breached an obligation owed by the Revolving Lenders to the Term Lenders under the Credit Agreement. In August 2009, following the Revolving Lenders’ successful motion to withdraw the reference, Judge Gold issued a decision denying Fontainebleau’s motion for summary judgment, holding, inter alia, that the Revolving Lenders’ interpretation of the Credit Agreement was correct, that “fully drawn” as used in the Credit Agreement meant “fully funded,” not “fully requested,” and that, as a result, Fontainebleau’s March 2009 Notice of Borrowing did not comply with the Credit Agreement. The Revolving Lenders thereafter sought and obtained an Order from the Panel on Multi-District Litigation, which centralized the Term Lender suits and the Fontainebleau action for coordinated pre-trial proceedings before Judge Gold.
Earlier this year, the Term Lenders filed amended pleadings which, they asserted, contained allegations and contentions that had not been considered by Judge Gold when he ruled on Fontainebleau’s summary judgment motion and which they claimed would dictate a different result. Last week, however, Judge Gold dismissed all of the Term Lenders’ claims, holding that the Term Lender Plaintiffs lack standing to sue the Revolving Lenders for failure to fund, since the promise to make loans to Fontainebleau in accordance with the Credit Agreement did not establish a duty to Term Lender Plaintiffs or evidence an intent to permit enforcement by the Term Lenders as intended beneficiaries. Judge Gold further held that even if Plaintiffs had standing, the Revolving Lenders were not obligated to fund the March borrowing requests because the Delay Draw Term Loans had not been “fully drawn” at the time of the requests. Judge Gold also dismissed a breach of the implied covenant of good faith and fair dealing claim against the Defendants as inconsistent with the terms of the Credit Agreement. The Judge upheld a separate breach of contract claim against Bank of America as administrative agent under the Credit and Disbursement Agreements.
The STB litigation team includes Tom Rice (who jointly argued the motion to dismiss on behalf of all defendants), David Woll, Steve Fitzgerald, Lisa Rubin, Don Conklin, and Peri Zelig.