Avenue CLO Fund, Ltd. et al v. Bank of America, N.A., et al
Filing
79
CERTIFIED REMAND ORDER. MDL No. 2106. Signed by MDL (FLSD) on 1/14/14. (Attachments: # 1 Transmittal from FLSD, # 2 1 09-md-02106 Designation of Record, # 3 1 09-md-02106 Dkt. Sheet - flsd, # 4 09-MD-2106 DE 1, 2, 4-30, # 5 0 9-MD-2106 DE 32-36, # 6 09-MD-2106 DE 37 part 1 of 3, # 7 09-MD-2106 DE 37 part 2 of 3, # 8 09-MD-2106 DE 37 part 3 of 3, # 9 09-MD-2106 DE 38, 39, 41-47, 49, 50, # 10 09-MD-2106 DE 51, # 11 09-MD-2106 DE 52-59, 61-65, 68, 70, 72-76, # (1 2) 09-MD-2106 DE 78-84, 86-91, # 13 09-MD-2106 DE 93, 95-103, 106-108, # 14 09-MD-2106 DE 110-115, # 15 09-MD-2106 DE 116-125, 127-129, 132-134, # 16 09-MD-2106 DE 136-140, 142-158, # 17 09-MD-2106 DE 160-162, 164-167, 170-175, 177-190, # ( 18) 09-MD-2106 DE 191-199, 201-215, # 19 09-MD-2106 DE 217-229, 232-247, # 20 09-MD-2106 DE 248, # 21 09-MD-2106 DE 249 part 1 of 2, # 22 09-MD-2106 DE 249 part 2 of 2, # 23 09-MD-2106 DE 251-253, 262-266, 284-287, 300, 301, 310, 319, 326-3 31, # 24 09-MD-2106 DE 335, 336, 338-344, 346-349, # 25 09-MD-2106 DE 350, # 26 09-MD-2106 DE 351-358, # 27 09-MD-2106 DE 360-366, 368-374, # 28 09-MD-2106 DE 375 part 1 of 3, # 29 09-MD-2106 DE 375 part 2 of 3, # 30 09-MD-2106 DE 375 p art 3 of 3, # 31 09-MD-2106 DE 376 part 1, # 32 09-MD-2106 DE 376 part 2, # 33 09-MD-2106 DE 376 part 3, # 34 09-MD-2106 DE 376 part 4, # 35 09-MD-2106 DE 376 part 5, # 36 09-MD-2106 DE 376 part 6, # 37 09-MD-2106 DE 376 part 7, # 38 09-MD-2106 DE 376 part 8, # 39 09-MD-2106 DE 376 part 9, # 40 09-MD-2106 DE 377 part 1, # 41 09-MD-2106 DE 377 part 2, # 42 09-MD-2106 DE 378, # 43 09-MD-2106 DE 379, # 44 09-MD-2106 DE 380, # 45 09-MD-2106 DE 381 part 1, # 46 09-MD-2 106 DE 381 part 2, # 47 09-MD-2106 DE 382 part 1, # 48 09-MD-2106 DE 382 part 2, # 49 09-MD-2106 DE 382 part 3, # 50 09-MD-2106 DE 382 part 4, # 51 09-MD-2106 DE 383 part 1, # 52 09-MD-2106 DE 383 part 2, # 53 09-MD-2106 DE 383 part 3, # 54 09-MD-2106 DE 383 part 4, # 55 09-MD-2106 DE 383 part 5, # 56 09-MD-2106 DE 383 part 6, # 57 09-MD-2106 DE 383 part 7, # 58 09-MD-2106 DE 383 part 8, # 59 09-MD-2106 DE 383 part 9, # 60 09-MD-2106 DE 383 part 10, # 61 09-MD-2106 DE 383 part 11, # 62 09-MD-2106 DE 384 part 1, # 63 09-MD-2106 DE 384 part 2, # 64 09-MD-2106 DE 384 part 3, # 65 09-MD-2106 DE 384 part 4, # 66 09-MD-2106 DE 384 part 5, # 67 09-MD-2106 DE 384 part 6, # 68 09-MD-2106 DE 384 part 7, # ( 69) 09-MD-2106 DE 384 part 8, # 70 09-MD-2106 DE 384 part 9, # 71 09-MD-2106 DE 384 part 10, # 72 09-MD-2106 DE 384 part 11, # 73 09-MD-2106 DE 385 part 1, # 74 09-MD-2106 DE 385 part 2, # 75 09-MD-2106 DE 386 part 1, # 76 09-MD-2106 DE 386 part 2, # 77 09-MD-2106 DE 386 part 3, # 78 09-MD-2106 DE 386 part 4, # 79 09-MD-2106 DE 386 part 5, # 80 09-MD-2106 DE 386 part 6, # 81 09-MD-2106 DE 386 part 7, # 82 09-MD-2106 DE 387 part 1, # 83 09-MD-2106 DE 387 part 2, # 84 09-MD-2106 DE 388, # 85 09-MD-2106 DE 389 part 1, # 86 09-MD-2106 DE 389 part 2, # 87 09-MD-2106 DE 389 part 3, # 88 09-MD-2106 DE 389 part 4, # 89 09-MD-2106 DE 390, 392-394, # 90 1 10-cv-20236 Dkt. Sheet - flsd, # 91 10cv20236 DE #1-27, 29-31, 45, 53, 60-65, 67-70, 73, # 92 1 09-cv-23835 Dkt. Sheet - flsd, # 93 09cv23835 DE 112, 115-126, # 94 09cv23835 DE 130, 134, 135 and 145)(Copies have been distributed pursuant to the NEF - MMM)
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Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 1 of 113
1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
Case 09-MD-02106
IN RE:
FONTAINEBLEAU LAS VEGAS HOLDINGS, LLC,
et al.,
Debtors.
FONTAINEBLEAU LAS VEGAS
HOLDINGS, LLC, et al.,
Plaintiffs,
vs.
COURTROOM 11-1
MIAMI, FLORIDA
NOVEMBER 18, 2011
BANK OF AMERICA, N.A., et al.,
(Pages 1 - 113)
Defendants.
__________________________________________________________________
TRANSCRIPT OF ORAL ARGUMENT
BEFORE THE HONORABLE ALAN S. GOLD
SENIOR UNITED STATES DISTRICT JUDGE
__________________________________________________________________
APPEARANCES:
FOR THE PLAINTIFFS:
J. MICHAEL HENNIGAN, ESQ.
KIRK D. DILLMAN, ESQ.
McKool Smith Hennigan
865 South Figueroa Street, Suite 2900
Los Angeles, CA 90017
213.694.1002
(Fax) 213.694.1234
hennigan@mckoolsmithhennigan.com
kdillman@mckoolsmithhennigan.com
TOTAL ACCESS NETWORK COURTROOM REALTIME TRANSCRIPTION
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 2 of 113
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1
FOR THE DEFENDANTS:
2
3
Bank of America
Merrill Lynch Capital
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DANIEL L. CANTOR, ESQ.
KEN MURATA, ESQ.
O'Melveny & Myers LLP
Times Square Tower, Times Square
New York, NY 10036
212.408.2483
dcantor@omm.com
kmurata@omm.com
6
JAMIE ZYSK ISANI, ESQ.
Hunton & Williams LLP
1111 Brickell Avenue, Suite 2500
Miami, FL 33131
305.536.2724
(Fax) 305.810.1675
jisani@hunton.com
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REPORTED BY:
JOSEPH A. MILLIKAN, RPR-CM-NSC-FCRR
Official United States Court Reporter
Federally Certified Realtime Reporter
400 North Miami Avenue, Suite 11-1
Miami, FL 33128
305.523.5588
(Fax) 305.523.5589
josephamillikan@gmail.com
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TABLE OF CONTENTS
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Page
25
Reporter's Certificate ..................................... 104
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 3 of 113
Oral Argument
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MR. HASBUN: All rise.
The Honorable Alan S. Gold
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09:00:26
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THE COURT:
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MR. HENNIGAN:
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MR. CANTOR:
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THE COURT:
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please.
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your family a very happy holiday to come.
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9
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MR. CANTOR:
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THE COURT:
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Case 09-MD-02106, and let me start with appearances, please, on
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that side.
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don't mind, since I can only hear and Mr. Millikan can only
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hear, to speak directly in a microphone.
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MR. HENNIGAN:
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MR. DILLMAN:
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on behalf of the plaintiffs.
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THE COURT:
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presiding.
This Court is in session.
Good morning.
Good morning, Your Honor.
Good morning, Your Honor.
Please be seated.
I need just one moment,
So, let me begin by welcoming everyone.
MR. HENNIGAN:
I wish you and
Thank you.
Thank you, Your Honor.
And at this time I will call
MR. HENNIGAN:
Good morning, Your Honor.
Michael
Hennigan on behalf of the plaintiffs.
THE COURT:
I'm only going to ask everybody, if you
I forgot.
Good morning.
Good morning, Your Honor.
All right.
Thank you.
Kirk Dillman
Would you like to
introduce who else is present today?
MR. CANTOR:
Good morning, Your Honor.
O'Melveny & Myers on behalf of Bank of America.
November 18, 2011
Dan Cantor from
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 4 of 113
Oral Argument
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Ken Murata also from O'Melveny & Myers for
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2
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THE COURT:
09:02:11
4
MS. ISANI:
09:02:16
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of Bank of America.
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THE COURT:
09:02:20
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I know you've prepared PowerPoints® and I'll listen to them -- by
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the way, I do have others who are listening by telephone.
09:02:33
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me get the calls transferred in now, although they're muted,
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has now transferred in on the telephone.
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from counsel, and I understand that your participation is muted.
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It would help me, before I hear your specific arguments
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and get into the PowerPoint®, to walk through some of the matters
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that I'm trying to figure out and, if you don't mind, have more
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of a conversation about these matters where I can engage both
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sides, rather than start with the formal presentations, counter,
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then, you know, the rest of it.
09:03:39
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09:03:45
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frame the issues.
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stay seated and you'll have your papers in front of you -- that
09:03:54
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will be helpful -- and you may consult with each other as you
MR. MURATA:
Bank of America.
Thank you.
Jamie Isani of Hunton & Williams on behalf
All right.
What I would like to do -- and
Let
right?
MR. HASBUN:
They should be, but let me go inside,
Judge.
THE COURT:
Okay.
Let me welcome everybody else who
I've had appearances
Often this gives me more clarity on positions and helps
So I'm going to invite you for the moment to
November 18, 2011
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Oral Argument
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09:03:57
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need in addressing some of these questions.
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Fair enough?
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MR. CANTOR:
09:04:03
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THE COURT:
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in the following way:
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to focus on the key agreement which is before me in this aspect
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of the litigation and that's the Master Disbursement Agreement,
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correct?
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MR. CANTOR:
09:04:33
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THE COURT:
09:04:41
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questions are not trying to lead one side or another down a
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rabbit hole and into admissions or a trap, so please understand
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I don't have an agenda for that purpose in starting to ask these
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questions.
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09:05:06
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to, starting with the plaintiffs' summary judgment motions, that
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the motions are directed against Bank of America solely in its
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capacity as Disbursement Agent under the Master Disbursement
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Agreement?
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Would you agree to that or not?
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MR. HENNIGAN:
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THE COURT:
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MR. HENNIGAN:
09:05:37
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09:05:43
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Yes, Your Honor.
All right.
So let's go through the matter
What I would like to try to start with is
Correct, Your Honor.
Okay.
And let me preface this:
My
It's really to help me clarify everybody's position.
But is it a correct statement of position with regard
And as Administrative Agent, Your Honor.
And as what?
Administrative agent under the Credit
Agreement.
THE COURT:
Okay.
But that's a different phase of the
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 6 of 113
Oral Argument
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09:05:45
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case, isn't it?
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In terms of what we're here for today, aren't we
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focusing on what Bank of America did or did not do as the
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administrating agent under the Master Disbursement Agreement?
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Their role as Administrative Agent becomes relevant in
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terms of their knowledge of the Credit Agreement and aspects of
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the Credit Agreement, but their conduct, actions and inactions
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THE COURT:
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MR. CANTOR:
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thought it was more simple and straightforward than that; that
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this is about whether Bank of America complied with its duties
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as Disbursement Agent full stop.
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09:06:53
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this, so help me understand a little bit more about how their
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role as Administrative Agent under the Credit Agreement
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interplays here.
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09:07:14
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there are interlocking agreements, that one agreement refers to
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the other agreement; but I agree with counsel that the conduct
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at question in these motions is conduct as Disbursement Agent.
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MR. HENNIGAN:
Your Honor, absolutely what we're
focusing on is the conduct of BofA as Disbursement Agent.
absolutely as Disbursement Agent.
THE COURT:
Any comments?
My only comment would be that I just
I really do want to hear your position on
MR. HENNIGAN:
THE COURT:
Only to the extent, Your Honor, that
Okay.
That's what I'm trying to focus on
and see if my understanding of the matters before me were just
November 18, 2011
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Oral Argument
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that and, yet, I do want further to ask questions about the
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interrelationships of agreements because there are times when
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Bank of America refers to the Credit Agreement, such as on
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notice requirements, and there are no comparable requirements
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that I saw written in the same way in the Disbursement
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Agreement.
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MR. HENNIGAN:
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THE COURT:
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MR. DILLMAN:
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THE COURT:
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me know when you get there.
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MR. HENNIGAN:
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THE COURT:
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moment, let me rephrase that.
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how I am supposed to read the Disbursement Agreement in
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relationship to the Credit Agreement?
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the Credit Agreement that are referred to in Bank of America's
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briefs, from the plaintiffs' standpoint, do those notice
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provisions apply and sort of fill in a gap with regard to how
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notice is given in the Disbursement Agreement?
So let me ask both sides about some of these matters.
Do you have the Disbursement Agreement in front of you?
I do, Your Honor.
MR. CANTOR:
Page 80?
About to.
Yes.
If you don't mind, can you turn to
Take a moment.
Sorry for the delay, Your Honor.
No.
That's all right.
Take a moment.
Let
We're there.
All right.
Before I focus on 9.1 for a
What is each side's position on
In other words, where there are notice provisions in
November 18, 2011
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Oral Argument
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Do both sides agree that these agreements are one and
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that they are one and the same.
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they are intertwined.
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points in each of the agreements they are referred to as the
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loan agreements or other terms that make it clear that this was
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a complete set of documents that was meant to be referred to in
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That said, Your Honor, you know, I will --
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THE COURT:
09:10:46
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to refer to the Disbursement Agreement, § 11.5, which talks
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about the entire agreement.
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instrument attached hereto, or referred to herein,
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integrate all the terms and conditions mentioned herein, or
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incidental hereto, and supersede all oral negotiations,
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prior writings," et cetera.
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So what am I to make of that?
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MR. HENNIGAN:
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that regard need to be read, from the disbursement agreement's
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perspective, as integrated documents, remembering that the
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lenders that we represent are not signatories to the
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Disbursement Agreement.
the same and intertwined?
Your Honor, I don't know that I would say
MR. CANTOR:
I certainly would agree that
They were all executed at the same time.
At various
an integrated fashion.
Well, let me not mislead anybody.
I want
It says:
"This agreement, and any agreement, document or
Your Honor, I believe the agreements in
They're signatories to the Credit
November 18, 2011
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Oral Argument
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Agreement only.
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THE COURT:
09:11:53
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me turn to Bank of America.
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the Disbursement Agent, has responsibilities to the Term
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Lenders --
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MR. CANTOR:
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THE COURT:
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Agent for the process of disbursing funds and in that sense they
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have obligation -- let me put a finer point on it.
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09:12:28
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Term Lenders are not signatories to the Disbursement Agent that
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they don't have the right to sue Bank of America for breaching
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its duties as Disbursement Agent.
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argument.
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an authorized Disbursement Agent to act on its behalf
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hereunder and under the control agreements."
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the record.
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summary judgment motions that we've missed here?
Okay.
But there's no argument -- well, let
Under the Disbursement Agreement, Bank of America, as
Yes, Your Honor.
-- independent, even if they're not
signatories to it.
MR. CANTOR:
Well, they are appointed as Disbursement
We have never contended, Your Honor, that because the
THE COURT:
All right.
We've never raised that
So let's go back to 9.1 for a
minute and just the beginning of that section:
"Each of the funding agents hereby irrevocably appoints
I've never seen anything called "control agreements" in
Did anybody put any control agreements in their
November 18, 2011
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Oral Argument
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The control agreements -- that's
09:13:22
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interesting.
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seem to be defined.
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09:13:37
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agreements included, among other things, the Credit Agreement,
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and this would be one place where there's an interplay.
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THE COURT:
09:13:47
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MR. CANTOR:
09:13:48
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THE COURT:
09:13:50
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09:13:52
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believe "control agreement" is a defined term referring to other
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agreements.
09:13:59
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09:14:04
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Is there something independent that was signed called "control
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agreement?"
09:14:15
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that in a moment.
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MR. CANTOR:
I'm looking at the definitions, and it doesn't
I think everyone had always understood that the control
My question is very narrow.
Okay.
Is there a document called "control
agreement"?
I do not believe so, Your Honor.
MR. CANTOR:
THE COURT:
I
What about from the plaintiffs' standpoint?
I'll give you something specific in reference to
What's your understanding of that?
Doesn't that have
some significance to that clause which is an issue in this case?
MR. HENNIGAN:
Your Honor, we've never focused on that
issue.
THE COURT:
Well, if you turn to your appendix of
definitions on Page 9, it says:
"'Control agreements' means the control agreements of
even date herewith, executed by the project entities, in
November 18, 2011
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respect of the accounts in favor of the Disbursement
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Agent," et cetera, et cetera.
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09:15:08
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definitions, a document which was executed at the time of the
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Disbursement Agreement called the control agreement which is
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referenced in 9.1 and seems to have perhaps some significance
09:15:25
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and, yet, I can't find it in the materials referenced by either
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party.
09:15:32
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09:15:36
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slightly imperfect answer but in the definition there, it refers
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to § 2.2.
09:15:44
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09:15:50
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agreement, I think what you will see is that the control
09:15:53
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agreements seem to refer to agreements that essentially allow
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the Disbursement Agent to move funds from bank accounts which
09:16:04
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are in the name of the project entities.
09:16:09
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09:16:14
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example of one of the problems that I'm having trying to
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understand the document that is at issue here.
09:16:24
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09:16:34
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notices, and look at subpart 2, it refers to the controlling
09:16:47
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person notifying the Disbursement Agent that a default or Event
09:16:51
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of Default has occurred.
09:16:53
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Isn't "controlling person" and all of its
09:16:59
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responsibilities defined in the control agreement?
So I beg to differ.
MR. CANTOR:
There is, according to the
Your Honor, I think this is going to be a
If you turn to § 2.2, which is Pages 3, 4, and 5 of the
THE COURT:
Okay.
But let me give you a specific
If you turn to Page 10 under § 2.5.1, the stop funding
November 18, 2011
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No, Your Honor.
It is defined in this
09:17:01
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09:17:03
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agreement as until the exhaustion of the second mortgage
09:17:09
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proceeds -- I am looking at Page 10 of the appendix -- as until
09:17:13
4
the exhaustion of the second mortgage proceeds account, the
09:17:18
5
trustee and thereafter the Bank Agent.
09:17:25
6
09:17:30
7
here, Bank of America, I get back to which hat is Bank of
09:17:35
8
America wearing where it is being sued?
09:17:43
9
the Disbursement Agent?
09:17:46
10
09:17:48
11
09:17:50
12
09:17:53
13
well, although the Bank Agent is the Bank of America under
09:17:59
14
2.2 -- 2.5.1, subpart 2.
09:18:05
15
09:18:12
16
into a discussion about is some of the later language under
09:18:18
17
Article 9 where Bank of America is wearing one hat other than
09:18:27
18
Disbursement Agent and gains certain information, and then under
09:18:36
19
certain language it's not obligated to recognize that
09:18:41
20
information under the other half as Disbursement Agent.
09:18:46
21
09:18:57
22
is Bank of America acting at any particular point in time
09:19:01
23
factually, but I don't want to get there quite yet.
09:19:04
24
09:19:09
25
MR. CANTOR:
THE COURT:
So when we're discussing who is being sued
Is it only its hat as
That's my understanding, Your Honor, and
MR. CANTOR:
that's how we've approached the case.
MR. HENNIGAN:
THE COURT:
I think that's the way we look at it as
Okay.
So one of the things we will get
I'm trying to sort all that out as to in which capacity
So let's continue our discussion of the structure of
the agreement itself.
Now, is it the parties' position that in
November 18, 2011
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Oral Argument
13
09:19:28
1
interpreting this language in 9.1, I don't need to worry about
09:19:38
2
or look at anything called control agreements?
09:19:42
3
09:19:43
4
09:19:43
5
MR. HENNIGAN:
09:19:45
6
THE COURT:
09:19:47
7
MR. CANTOR:
09:19:48
8
THE COURT:
09:19:54
9
Does either party contend that the Disbursement
09:20:00
10
09:20:04
11
MR. CANTOR:
09:20:04
12
THE COURT:
09:20:06
13
MR. CANTOR:
09:20:16
14
MR. HENNIGAN:
09:20:19
15
09:20:19
16
THE COURT:
09:20:21
17
MR. HENNIGAN:
09:20:24
18
THE COURT:
09:20:29
19
09:20:32
20
So let me give you a question about that.
09:20:48
21
sentence -- let's see -- of 9.1 talks about the Disbursement
09:20:55
22
Agent accepts such appointments and agrees to exercise
09:21:01
23
commercially reasonable efforts and utilize commercially prudent
09:21:05
24
practices in the performance of its duties hereunder, consistent
09:21:10
25
with those of similar institutions holding collateral,
Yes, Your Honor, that would be our
MR. CANTOR:
position.
That's our position as well.
Okay.
So I should ignore all that --
Yes, sir.
-- right?
That's your mutual position.
Agreement contains an ambiguity -Defendants --- under New York law?
Defendants do not, Your Honor.
There is a potential ambiguity, Your
Honor.
Well, how did you argue it in your briefs?
We have argued no ambiguity.
Okay.
Thank you.
That's what I'm trying
to find out, everybody's position.
November 18, 2011
The second
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 14 of 113
Oral Argument
14
09:21:15
1
et cetera, and disbursing control funds.
09:21:22
2
09:21:30
3
How do I know what that standard is?
09:21:36
4
agreement as a specific definition.
09:21:40
5
09:21:44
6
comes time to apply that definition to specific conduct, it's a
09:21:53
7
determination that one, you know, will make.
09:21:59
8
09:22:01
9
09:22:05
10
to whether something is or is not commercially reasonable,
09:22:10
11
recognizing, Your Honor, our position that § 9.1 is just sort of
09:22:16
12
a general introductory provision.
09:22:19
13
THE COURT:
09:22:20
14
MR. CANTOR:
09:22:20
15
THE COURT:
09:22:22
16
MR. CANTOR:
09:22:23
17
THE COURT:
09:22:29
18
09:22:34
19
09:22:36
20
check-the-box provision.
09:22:40
21
commercially reasonable or was it not commercially reasonable.
09:22:43
22
09:22:46
23
ambiguity under New York law that invites extrinsic evidence as
09:22:52
24
to what that is, to the extent it's material?
09:22:58
25
Doesn't that refer necessarily to extrinsic evidence?
MR. CANTOR:
It is not defined in the
Well, I think, Your Honor, that when it
Obviously, it has to be based on the evidence before
you, and the trier of fact is entitled to apply its judgment as
We will talk about that.
Correct.
I am only talking about 9.1.
Okay.
It references something outside of the four
corners of the agreement as a standard, does it not?
MR. CANTOR:
THE COURT:
MR. CANTOR:
It does in the sense that it is not a
Okay.
You need to say was something
So as to that section, is there an
To the extent it's material and leaving
November 18, 2011
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Oral Argument
15
09:23:03
1
that question aside, I think I am struggling with how to answer
09:23:07
2
it because it is an odd provision in the sense that it is
09:23:10
3
essentially imposing a tort standard into a contract.
09:23:16
4
09:23:20
5
sense that it's a contract interpretation point and thus it is
09:23:25
6
an ambiguous contract provision.
09:23:29
7
09:23:32
8
acting commercially reasonable is necessarily going to be a
09:23:37
9
judgment that's committed to the trier of fact.
09:23:45
10
09:23:59
11
Bank of America says, well, you know, that shouldn't be
09:24:02
12
considered, but it raised the question of extrinsic evidence in
09:24:11
13
terms of this motion for summary judgment.
09:24:20
14
09:24:24
15
discloses, is different than Florida law in terms of when
09:24:29
16
extrinsic evidence is permitted and how it determines ambiguity.
09:24:37
17
09:24:41
18
York law as I understand it.
09:24:42
19
MR. CANTOR:
09:24:47
20
THE COURT:
09:24:51
21
law that in the face of ambiguity, recourse to extrinsic
09:24:56
22
evidence is permissible insofar as that evidence tends to
09:25:00
23
clarify the meaning of the language employed by the parties.
09:25:03
24
So here the parties employed language which by its very
09:25:12
25
nature refers to a standard that is not defined in the agreement
I don't know that it requires extrinsic evidence in the
The determination as to whether someone is or is not
THE COURT:
Well, I have this expert submission which
New York law, as best as my independent research
There's no latent versus patent distinction under New
Right.
There seems to be some language in the case
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 16 of 113
Oral Argument
16
09:25:17
1
itself and adds somewhat to the confusion here as to what that
09:25:23
2
actually is and means.
09:25:26
3
MR. CANTOR:
09:25:28
4
I guess my point from a contract interpretation
09:25:31
5
perspective would be that -- and you are right, New York law
09:25:36
6
does not allow the Court to consider extrinsic evidence for the
09:25:39
7
purpose of proving that there is an ambiguity in the first
09:25:42
8
place.
09:25:45
9
09:25:51
10
what the contract sets up as its standard under 9.1, to the
09:25:57
11
extent that 9.1 applies in any given situation.
09:26:03
12
09:26:07
13
party has complied with that standard, I think, like any other
09:26:13
14
contract determination, that's going to be based on the evidence
09:26:16
15
and that will be within the province of the finder of fact.
09:26:21
16
09:26:24
17
correctly, Your Honor, I don't believe that that makes the
09:26:26
18
agreement ambiguous or requires a reference to extrinsic
09:26:34
19
evidence in the way that one normally talks about it in the
09:26:38
20
contract interpretation context if I'm understanding you.
09:26:42
21
THE COURT:
09:26:45
22
MR. HENNIGAN:
09:26:50
23
09:26:51
24
09:26:55
25
Yeah, I see your point, Your Honor.
There is no ambiguity as to what the contract says and
When the time comes for someone to determine whether a
But I don't think, if I am understanding your question
Any comments from plaintiffs' side?
If I followed Mr. Cantor along, I think
I agree with him.
THE COURT:
So let's talk -- I know there is a lot of
discussion about this in the briefing, but I'd like to talk
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 17 of 113
Oral Argument
17
09:27:01
1
about 9.1 and then the other parameters under 9.2 and 9.3.
But
09:27:11
2
before getting into that discussion, I'd like to go back into
09:27:16
3
structure again.
09:27:19
4
09:27:29
5
and please help me with your own thoughts on this -- is the
09:27:39
6
borrowers make an advance request, along with retail affiliates,
09:27:52
7
in the form specified in Exhibit C-1, and this is in accordance
09:27:55
8
with § 2.4 of the agreement and that's what kicks off the
09:28:02
9
process, correct?
09:28:03
10
MR. HENNIGAN:
09:28:04
11
MR. CANTOR:
09:28:06
12
THE COURT:
09:28:16
13
09:28:23
14
09:28:33
15
09:28:35
16
MR. CANTOR:
09:28:36
17
THE COURT:
09:28:42
18
MR. HENNIGAN:
09:28:44
19
09:28:45
20
THE COURT:
09:28:46
21
MR. HENNIGAN:
09:28:48
22
THE COURT:
09:28:54
23
excuse me, a drafted document incorporated into the Disbursement
09:28:57
24
Agreement.
09:28:58
25
So the way the agreement works as I understand it --
Yes.
Yes, Your Honor.
Let me see if I can impose upon my staff to
bring in some water.
Oh, thank you very much.
C-1 is pretty much a complete document in and of itself
drafted by the parties -Yes, Your Honor.
-- correct?
Drafted by the parties to the
Disbursement Agreement.
Right.
BofA and the borrowers.
Yes.
MR. HENNIGAN:
I mean, it is a drafted agreement,
Correct.
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 18 of 113
Oral Argument
18
It contains all of these affirmative
09:29:03
1
09:29:07
2
statements and representations and the like so that the request
09:29:18
3
is made in accordance with this C-1 document and in the C-1
09:29:26
4
document on all these representations --
09:29:29
5
MR. CANTOR:
09:29:31
6
THE COURT:
09:29:35
7
09:29:37
8
MR. CANTOR:
09:29:38
9
THE COURT:
09:29:54
10
submitted, under 2.4.4, the Disbursement Agent and the
09:30:00
11
construction consultant have to review and determine whether all
09:30:08
12
the documentation was provided.
09:30:13
13
09:30:17
14
reasonable efforts to notify project entities of any
09:30:21
15
deficiency."
09:30:23
16
So that's the next step in this process, correct?
09:30:30
17
MR. CANTOR:
09:30:36
18
THE COURT:
09:30:40
19
and ask about it because in regard to Bank of America's role
09:30:52
20
wearing the hat of Disbursement Agent, of course Bank of America
09:30:57
21
says, "Look, our job here is ministerial.
09:31:04
22
going through the checklist," right?
09:31:07
23
MR. CANTOR:
09:31:08
24
THE COURT:
09:31:13
25
THE COURT:
Yes, Your Honor.
-- there are blanks to be filled in, date,
amount, signatures, things like that.
Right.
Okay.
So after the request, C-1, is
Then here are these words again, "and use commercially
Yes, Your Honor.
I wanted to note one thing in this process
We are, in effect,
Yes, Your Honor.
"We're doing this and, by the way, we're
only paid a relatively small amount of money for this function."
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 19 of 113
Oral Argument
19
Yes, Your Honor.
09:31:20
1
MR. CANTOR:
09:31:21
2
THE COURT:
09:31:27
3
obligation or the like for Bank of America to carry some type of
09:31:35
4
insurance for its function.
09:31:41
5
There wasn't any insurance criteria, right?
09:31:44
6
MR. CANTOR:
Not that I'm aware of, Your Honor, no.
09:31:47
7
THE COURT:
In fact, did it have sort of malpractice
09:31:50
8
09:31:50
9
09:31:53
10
somewhere within the organization there would be a policy that
09:31:58
11
might cover this, but there was no insurance specifically
09:32:01
12
obtained for this role.
09:32:03
13
09:32:07
14
09:32:08
15
MR. CANTOR:
09:32:09
16
THE COURT:
09:32:10
17
So turn to Page 9 for a moment.
09:32:19
18
debt service notifications, do you see that paragraph that
09:32:24
19
begins with "the Disbursement Agent shall"?
09:32:26
20
MR. CANTOR:
09:32:35
21
THE COURT:
09:32:38
22
agreement where there is an affirmative obligation on the
09:32:42
23
Disbursement Agent to do more than just ministerial acts.
09:32:47
24
has to use reasonable diligence to assure the construction
09:32:53
25
consultant performs its review of the materials required,
I didn't see anywhere in the agreements any
insurance?
MR. CANTOR:
THE COURT:
Not specifically.
I don't know whether
It probably wouldn't cover gross negligence
anyway, right?
Probably not.
All right.
In the paragraph below
Uh-huh.
Here is an example of one place in the
November 18, 2011
It
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 20 of 113
Oral Argument
20
09:33:02
1
et cetera.
09:33:02
2
09:33:10
3
09:33:12
4
Would you agree from Bank of America's side?
09:33:15
5
MR. CANTOR:
09:33:20
6
09:33:22
7
09:33:25
8
the way, this would be an instance where the commercial
09:33:27
9
reasonableness requirement would apply.
09:33:29
10
09:33:32
11
the construction consultant performs its review of the
09:33:35
12
materials, I don't think that it is a terribly high standard.
09:33:38
13
09:33:42
14
09:33:44
15
09:33:48
16
09:33:50
17
MR. CANTOR:
09:33:51
18
THE COURT:
09:33:56
19
09:34:00
20
MR. CANTOR:
09:34:01
21
THE COURT:
09:34:04
22
MR. CANTOR:
09:34:05
23
THE COURT:
09:34:12
24
09:34:13
25
I noted this as a higher standard of obligation than
just ministerial checklists.
It certainly is more than just a
checklist.
I think, though, that using reasonable diligence -- by
But I think using reasonable diligence to assure that
It's not checking a box; it's making sure that the
construction consultant is doing its job.
THE COURT:
Let me back up.
The construction
consultant files its own piece of paper -Right.
-- Saying, "We looked at everything and the
advance is within the projected budget" -Right.
-- "and the projected construction cost."
Right.
So it files its piece of paper and it
certifies that.
MR. CANTOR:
Right.
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 21 of 113
Oral Argument
21
Now, you have all your Article 9 things
09:34:14
1
09:34:20
2
which you point out and argue.
09:34:22
3
don't have to do anything more than accept representations.
09:34:29
4
MR. CANTOR:
09:34:30
5
THE COURT:
09:34:32
6
agreement that seemed to me to impose, trying to read these
09:34:38
7
things together, a higher standard on Bank of America to do
09:34:44
8
reasonable diligence.
09:34:45
9
09:34:47
10
way.
09:34:51
11
is use reasonable diligence to make sure that the construction
09:34:55
12
consultant is doing the work and is doing it in a way that will
09:34:59
13
allow the advance request ultimately to be processed in a timely
09:35:04
14
fashion.
09:35:04
15
09:35:09
16
construction consultant performs, that's where § 9.3.2 would
09:35:15
17
kick in and says that Bank of America is entitled to rely on the
09:35:21
18
certification that the construction consultant provides in
09:35:26
19
determining that the things that the construction consultant is
09:35:29
20
responsible for have been satisfied.
09:35:31
21
09:35:34
22
reviews as required by § 2.4 is just to make sure that the
09:35:40
23
process is moving forward and is moving forward in a timely
09:35:43
24
fashion.
09:35:45
25
THE COURT:
MR. CANTOR:
You say, we, Bank of America,
Right.
I'm pointing out one other part of the
I think, Your Honor, it works the other
What Bank of America is required to do in this provision
When it comes to the substance of the review that the
The reasonable diligence to assure that it performs its
THE COURT:
All right.
Well, let me hold on that for a
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 22 of 113
Oral Argument
22
09:35:47
1
second and turn to the plaintiffs' side.
09:35:52
2
09:36:00
3
there, by this provision -- and I know this isn't the issue
09:36:04
4
which is on summary judgment.
09:36:10
5
costs per se.
09:36:15
6
09:36:18
7
your position with regard to this aspect?
09:36:25
8
Agent have a higher standard with regard to reviewing the
09:36:34
9
construction consultant's performance, et cetera, than it does
09:36:42
10
09:36:47
11
09:36:48
12
come back and catch something that was part of the colloquy on
09:36:52
13
the other side.
09:36:52
14
THE COURT:
09:36:53
15
MR. HENNIGAN:
09:36:56
16
the same, which is commercially reasonable, and I believe that
09:37:00
17
this articulation of reasonable diligence, I don't read it
09:37:05
18
different from commercially reasonable efforts to make sure the
09:37:08
19
construction consultant is doing his job.
09:37:10
20
THE COURT:
09:37:10
21
MR. HENNIGAN:
09:37:13
22
say, plenary obligations throughout the agreement that Bank of
09:37:19
23
America use commercially reasonable diligence, efforts,
09:37:22
24
whatever, to make sure that the conditions are fulfilled.
09:37:27
25
I'd like to have your comments on the question.
Is
It is not about the construction
In terms of the structure of the agreement, what is
Does the Disbursement
with regard to other obligations?
MR. HENNIGAN:
Let me answer that and I would like to
Go ahead.
I think their standard remains roughly
Okay.
So I think there are, you know, I would
The part I wanted to bounce back to, Your Honor, was
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 23 of 113
Oral Argument
23
09:37:32
1
the point that you referred to, the relatively modest fee that
09:37:37
2
Bank of America was earning for this.
09:37:41
3
underwriter of these loans, Your Honor.
09:37:45
4
tens of millions of dollars in putting this package together.
09:37:50
5
This Disbursement Agreement was an essential part of
09:37:56
6
the comfort assurances that lenders look to in order to put
09:38:01
7
their money into the deal and so, yeah, they may have only made
09:38:04
8
$40,000 on this one, but it was an integral part of the overall
09:38:10
9
financing package.
09:38:13
10
09:38:15
11
09:38:18
12
some debate on this issue but in terms of the Disbursement Agent
09:38:24
13
hat and function, there is no dispute that Bank of America was
09:38:31
14
being paid a limited amount of money for that job.
09:38:37
15
09:38:40
16
earmarked specifically for that job, it was a very modest amount
09:38:44
17
of money.
09:38:46
18
THE COURT:
09:38:47
19
MR. HENNIGAN:
09:38:49
20
THE COURT:
09:38:54
21
relations to this deal other than Disbursement Agent, but I
09:39:00
22
don't want to go there yet.
09:39:02
23
09:39:12
24
to understand the general introductory language in 9.1 on
09:39:19
25
commercial reasonableness with regard to other aspects of the
Bank of America was the
Bank of America earned
It had to be here and it had to be performed
by somebody that people trusted.
THE COURT:
All right.
MR. HENNIGAN:
I knew I was going to invite
I would say in terms of funds that were
Yes.
That was my only point.
It was part of the overall deal.
I understand that Bank of America has other
My main point in trying to address this issue is to try
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 24 of 113
Oral Argument
24
09:39:23
1
agreement.
09:39:25
2
09:39:33
3
diligence has to be done with regard to the construction
09:39:39
4
consultant's obligations.
09:39:42
5
09:39:48
6
the Disbursement Agent and the construction consultant shall
09:39:52
7
review the advance requests and attachments thereto to determine
09:39:56
8
whether all required documentation has been provided and shall
09:39:59
9
use commercially reasonable efforts, et cetera.
09:40:02
10
09:40:08
11
integrate the whole, one of the points that is of concern to me
09:40:18
12
is how do you apply that introductory language in 9.1 with
09:40:27
13
regard to the other parts of the agreement where there is
09:40:29
14
specific reference then to the commercial diligence or
09:40:32
15
equivalent and then the rest of Article 9 that seems to limit
09:40:41
16
how that is exercised or the conditions under which it is
09:40:46
17
exercised.
09:40:47
18
09:40:49
19
about this is if you start with Article 9 as a whole.
09:40:56
20
essentially a contract within a contract.
09:41:04
21
most part, the rest of the Disbursement Agreement deals with
09:41:09
22
mechanics for disbursing funds, but Article 9 is specifically
09:41:14
23
limited to the retention, the rights, the responsibilities of
09:41:16
24
the Disbursement Agent.
09:41:19
25
I pointed out to you this one matter where reasonable
Also, under 2.4.4(A) under general review, here again
So when I am looking at the document and trying to
MR. CANTOR:
Your Honor, I think the best way to think
It is
You know, for the
So you can look at 9.1, I think, as like a whereas
November 18, 2011
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Oral Argument
25
09:41:23
1
09:41:26
2
It sets forth the general purpose of the agreement for
09:41:33
3
retaining the Disbursement Agent, and it leaves the details for
09:41:38
4
the paragraphs that follow.
09:41:40
5
09:41:42
6
of America is going generally to perform its duties in a manner
09:41:47
7
that is consistent with similarly situated institutions like
09:41:52
8
indenture trustees and the like, and it provides a general
09:41:56
9
standard of care for those Disbursement Agent obligations that
09:42:01
10
09:42:06
11
09:42:10
12
this question, and I want to get back to the plaintiffs'
09:42:13
13
response, what you said in a second, but let me take one step
09:42:19
14
further in our discussion and set up the question and then get
09:42:24
15
back to what we're talking about.
09:42:27
16
09:42:29
17
Disbursement Agreement on 2.5.1?
09:42:46
18
important aspect of the flow of obligations under this
09:42:56
19
Disbursement Agreement, so let's go over this together.
09:43:05
20
"In the event that:
09:43:07
21
"1.
22
clause for this agreement within an agreement.
So what it says is it is an acknowledgement that Bank
are not otherwise subject to more specific provisions.
THE COURT:
But I have a specific purpose in asking
Could you turn your attention to Page 10 of the
This is, to me, a very
The conditions precedent to an advance have not
been satisfied; or,
09:43:11
23
"2.
The controlling person notifies the Disbursement
09:43:13
24
Agent that a default or an Event of Default has occurred
09:43:18
25
and is continuing, then the Disbursement Agent shall notify
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26
09:43:24
1
the project entities, and each funding agent thereof as
09:43:29
2
soon as reasonably possible, a stop funding notice,"
09:43:33
3
et cetera, et cetera.
09:43:34
4
09:43:41
5
of that, the controlling person, whoever that is -- and I assume
09:43:47
6
that has to be somebody defined under the control agreement.
So let's go back and break that down.
Under subpart 2
7
No?
09:43:53
8
MR. CANTOR:
09:43:55
9
09:44:00
10
09:44:02
11
THE COURT:
09:44:06
12
MR. CANTOR:
09:44:06
13
THE COURT:
09:44:13
14
09:44:21
15
09:44:26
16
a formal demand to Bank of America as the Disbursement Agent
09:44:33
17
that there's a notice of default?
09:44:35
18
09:44:36
19
agreement contemplates for purposes of making sure that
09:44:40
20
everything is papered in case there is a later litigation and,
09:44:44
21
by the way, Your Honor, this --
09:44:45
22
THE COURT:
09:44:50
23
MR. CANTOR:
09:44:55
24
performing the agent functions at Bank of America were all part
09:44:59
25
of the same specific group, the credit debt products group in
No, Your Honor.
The controlling person is
defined in this agreement as, for purposes of our discussion,
the Bank Agent.
get to.
Well, the Bank Agent being Bank of America?
Yes, Your Honor.
Okay.
Okay.
How does this work?
So this is what I'm trying to
Bank of America notifies itself?
Bank of America, as the controlling person, then writes
MR. CANTOR:
That would be the process that the
Which portion of Bank of America does this?
Your Honor, the individuals who were
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27
09:45:09
1
Dallas, and, yes, Your Honor, it is a formulistic requirement.
09:45:16
2
09:45:19
3
who are the controlling person at Bank of America are also the
09:45:20
4
same people who are disbursement agents?
09:45:22
5
09:45:27
6
specific individuals who actually press the button and move the
09:45:32
7
money, but the people who are performing this function and
09:45:34
8
making the decisions are the same group of people.
09:45:36
9
09:45:39
10
Somebody under the definition of controlling person has to make
09:45:44
11
a decision to pull the trigger --
09:45:46
12
MR. CANTOR:
09:45:47
13
THE COURT:
09:45:51
14
09:45:56
15
MR. CANTOR:
09:45:57
16
THE COURT:
09:46:01
17
today about how Bank of America is being sued here, is it sued
09:46:10
18
as only Disbursement Agent, or is it sued as controlling agent
09:46:20
19
or controlling person, and how do you divide up the knowledge
09:46:26
20
that Bank of America has as controlling person from that which
09:46:30
21
it has as Disbursement Agent?
09:46:33
22
MR. CANTOR:
09:46:37
23
09:46:40
24
09:46:43
25
THE COURT:
MR. CANTOR:
THE COURT:
Let me narrow this down.
The same people
Yes, Your Honor, with the exception of the
I'm talking about the decision-makers.
Yes, Your Honor.
-- and then notifies itself, wearing a
different hat, that such a decision has been made.
Right, Your Honor.
Okay.
So when I started our discussion
Well, Your Honor, let me answer that
somewhat obliquely, but I think you'll see where I'm going.
This actually goes back to one of your original
questions about what is the relevance of the Credit Agreement
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28
09:46:46
1
here because the Credit Agreement which governs the Bank Agent,
09:46:53
2
which is synonymous with Administrative Agent, that is where you
09:46:57
3
get the provision that Your Honor alluded to earlier this
09:47:00
4
morning about knowing whether there has been a default or an
09:47:04
5
Event of Default.
09:47:05
6
09:47:08
7
specifically provides that Bank of America is not deemed to have
09:47:10
8
notice of an Event of Default or a default unless it receives an
09:47:13
9
actual notice to that effect.
09:47:16
10
09:47:21
11
America as Bank Agent is not required to notify the Disbursement
09:47:26
12
Agent under this provision here and so therefore you --
09:47:31
13
09:47:39
14
does controlling person, namely Bank of America wearing a
09:47:43
15
different hat, have an independent duty and responsibility to
09:47:51
16
review whether there has been a default and pull the trigger?
09:47:54
17
09:47:58
18
09:48:02
19
09:48:07
20
09:48:13
21
09:48:18
22
plaintiffs in this discussion -- but let me stick with them for
09:48:21
23
a second because I'd like to hear their response before
09:48:25
24
plaintiffs' response.
09:48:28
25
There is a provision in the Credit Agreement that
So until it receives that actual notice, Bank of
THE COURT:
But my question is:
Controlling person,
I'm not sure what you mean by "review."
MR. CANTOR:
think that -- I'm sorry --
THE COURT:
Well, here's where I'm having difficulty
with the agreement before we get into the facts.
Your position -- and I am not trying to exclude
Your position is that Bank of America as Disbursement
November 18, 2011
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09:48:34
1
Agent has certain protections?
09:48:39
2
MR. CANTOR:
09:48:41
3
THE COURT:
09:48:43
4
controlling person, under some authority, seems to me to have
09:48:55
5
more obligation, if you will, to monitor what's going on in this
09:49:02
6
deal.
09:49:03
7
MR. CANTOR:
09:49:05
8
THE COURT:
09:49:09
9
MR. CANTOR:
09:49:15
10
Agreement which mirror the provisions in the Disbursement
09:49:18
11
Agreement about the Bank Agent or the Administrative Agent,
09:49:23
12
which again is synonymous, being allowed to rely on the same
09:49:28
13
types of certifications, representations and warranties that the
09:49:33
14
Disbursement Agent relies upon.
09:49:36
15
09:49:43
16
09:49:45
17
09:49:50
18
issue about controlling person notifying the Disbursement Agent
09:49:54
19
that there has been a default or an Event of Default, the Credit
09:49:58
20
Agreement specifically provides that Bank of America doesn't
09:50:01
21
have knowledge of an Event of Default or a Default, capital D
09:50:06
22
default, unless it has received notice from someone of that
09:50:10
23
event.
09:50:10
24
So what you get is, if you focus specifically on 2.5.1,
09:50:17
25
it is undisputed that Bank of America never received a notice of
Yes.
All right.
But Bank of America as
I would disagree with that, Your Honor.
Okay.
Tell me why you disagree with that.
Okay.
There are provisions in the Credit
That would be § 9.4 of the Credit Agreement, and § 9.3
of the Credit Agreement all deal with that.
When you get specific to 2.5.1, Your Honor, and the
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30
09:50:21
1
default here, and so therefore this second portion of 2.5.1
09:50:28
2
which focuses on the controlling person as opposed to the
09:50:32
3
Disbursement Agent is not part of our discussion here this
09:50:34
4
morning, Your Honor.
09:50:35
5
THE COURT:
09:50:38
6
MR. CANTOR:
09:50:39
7
THE COURT:
09:50:42
8
One of the issues raised by plaintiffs is, well, they
09:50:46
9
09:50:56
10
09:51:00
11
09:51:02
12
They received an email from one of the Term Lenders who is not a
09:51:07
13
party here that expressed their views as to whether the Lehman
09:51:14
14
bankruptcy had certain consequences, but what it didn't do was
09:51:17
15
say this is an event of -- we hereby declare an Event of
09:51:20
16
Default.
09:51:21
17
09:51:23
18
09:51:25
19
09:51:29
20
provisions on notice as to what is formal notice, leaving aside
09:51:36
21
who has to give it for a moment, does the Credit Agreement
09:51:43
22
notice requirements apply here?
09:51:46
23
09:51:53
24
given in a written, certified way that creates a triggering
09:52:00
25
event, or is it enough that it be electronically transmitted?
Well, you are saying a lot of things.
Okay.
So let me go back to what you just said.
did receive notice from one of the Term Lenders that the Lehman
bankruptcy was a triggering Event of Default.
MR. CANTOR:
THE COURT:
I would say that is a mischaracterization.
Let me interrupt for a second and turn to
plaintiffs.
Since the Disbursement Agreement does not itself have
Is there a formal process where that notice has to be
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31
If I am tracking it, Your Honor, it
09:52:08
1
09:52:09
2
seems to me that the unity of control agent and -- I am using
09:52:14
3
the right word, right, control agent?
MR. HENNIGAN:
Control person.
4
THE COURT:
09:52:19
5
MR. HENNIGAN:
09:52:20
6
being the Bank Agent and that same person being the disbursing
09:52:25
7
agent makes notice under that circumstance self-executing.
09:52:29
8
Notice to one is notice to the other automatically.
09:52:32
9
THE COURT:
09:52:34
10
The unity of the controlling person
Yes.
But let's say one of the Term
Lenders, like in this situation -Gotcha.
11
MR. HENNIGAN:
09:52:37
12
THE COURT:
09:52:43
13
notice in this formal sense under the Credit Agreement which
09:52:50
14
then is notice of appropriate communication for purposes of the
09:52:54
15
Disbursement Agreement?
09:52:55
16
MR. HENNIGAN:
09:52:59
17
MR. CANTOR:
09:53:01
18
09:53:05
19
09:53:09
20
09:53:13
21
09:53:16
22
09:53:21
23
09:53:27
24
09:53:28
25
-- sends an email.
Does that qualify as
It is absolutely a notice of default.
Your Honor, the issue is not the means of
transmission; the issue is the content of the transmission.
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32
So let me get back to 2.5.1.
We talked
09:53:30
1
09:53:37
2
about controlling person notifies, which is a triggering event
09:53:43
3
if that provision was met, but it wasn't met here.
09:53:47
4
MR. CANTOR:
09:53:48
5
THE COURT:
09:53:51
6
09:53:52
7
MR. CANTOR:
09:53:55
8
THE COURT:
09:53:57
9
09:54:02
10
person to Disbursement Agent that would meet that requirement,
09:54:09
11
is there?
09:54:09
12
09:54:11
13
since they are the same entity, notice to one is by definition
09:54:17
14
notice to the other.
09:54:17
15
THE COURT:
09:54:19
16
MR. CANTOR:
09:54:21
17
The contract specifically requires -- and, again, it
09:54:24
18
might seem overly formalistic as you sit here today, but you can
09:54:29
19
imagine a litigation situation where the failure to have all of
09:54:34
20
these specified boxes checked could be important.
09:54:37
21
09:54:41
22
notifying the disbursing agent, and there is no evidence in the
09:54:45
23
record that that ever happened.
09:54:48
24
09:54:51
25
THE COURT:
Correct.
So I don't have to pay any attention to
that subpart 2, right?
different?
That's my position, Your Honor.
And I don't know.
Do you have a position
There isn't any formal notice from controlling
MR. HENNIGAN:
As I said, Your Honor, I believe that
What do you say about that?
That is not what the contract says.
What 2.5.1 talks about is the controlling person
THE COURT:
All right.
But let's go back to Part 1:
In the event, 1, the conditions precedent to an advance have not
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Oral Argument
33
09:54:56
1
been satisfied.
09:55:06
2
09:55:10
3
this Disbursement Agreement to see who triggers that, who says
09:55:17
4
that.
Well, one thing I know is that Fontainebleau can say
09:55:24
5
that.
Fontainebleau can give notice and eventually later in the
09:55:28
6
deal did give notice that the conditions precedent were not
09:55:37
7
satisfied.
09:55:37
8
MR. CANTOR:
09:55:38
9
THE COURT:
09:55:40
10
09:55:50
11
as Disbursement Agent is doing its checklist and it
09:55:56
12
determines -- and I'm going to use something which is really not
09:55:59
13
our situation here -- but it determines that the construction
09:56:06
14
consultant has not adequately, reasonably been diligent in the
09:56:15
15
project costs and that condition has not been satisfied, or
09:56:18
16
something of that nature, that would be an event where the
09:56:28
17
Disbursement Agent is required to notify the project entities,
09:56:34
18
right?
09:56:34
19
09:56:38
20
put them might not work, but let me tie it to something that
09:56:41
21
happened here.
09:56:42
22
09:56:48
23
consultant, initially reviewed the advance request, it was
09:56:50
24
unwilling to sign off on the advance request.
09:56:53
25
Now, what I have tried very hard to do is look through
Right.
So that is one situation.
Another situation seems to me to be if Bank of America
MR. CANTOR:
Yeah.
I think the facts as you actually
For example, in March 2009, when IVI, the construction
Ultimately that got resolved, but if it had not, then
November 18, 2011
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Oral Argument
34
09:56:56
1
Bank of America would not have been allowed --
09:56:59
2
THE COURT:
09:57:01
3
MR. CANTOR:
09:57:02
4
THE COURT:
09:57:05
5
under your ministerial checklist theory, the construction
09:57:08
6
consultant refuses to sign the document.
09:57:11
7
MR. CANTOR:
09:57:12
8
THE COURT:
09:57:19
9
paperwork, the Disbursement Agent would determine that a
09:57:26
10
condition precedent to an advance has not been satisfied.
09:57:30
11
Would you agree?
09:57:32
12
MR. CANTOR:
09:57:32
13
THE COURT:
09:57:42
14
Disbursement Agent has an obligation, "shall" -- mandatory --
09:57:47
15
notify the project entities, et cetera.
09:57:50
16
MR. CANTOR:
09:57:51
17
THE COURT:
09:57:57
18
to me -- and I want to have more argument from both sides on
09:58:01
19
this -- and I'm going to have more questions to you as you go
09:58:07
20
through this -- is another type of situation, and that has to do
09:58:23
21
where it is not a matter of determining whether C-1 has been
09:58:31
22
submitted correctly with all certifications.
09:58:35
23
09:58:40
24
the other conditions precedent have been met and what I'm trying
09:58:53
25
to get at is the structure of the agreement as to various
I'm trying to use a simple example.
Yeah.
I'm trying to use a simple example where
Yes, Your Honor.
Then in the ministerial review of the
Yes, Your Honor.
Okay.
And in that event, under 2.5.1, the
Right.
Okay.
Now, where this does get confusing
It's a more subjective determination of whether or not
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35
09:59:01
1
alternative circumstances.
09:59:04
2
09:59:13
3
Disbursement Agent shall use reasonable diligence to make sure
09:59:17
4
that each condition precedent to an advance has been satisfied,
09:59:24
5
the way it has been with the construction side, is there an
09:59:29
6
affirmative duty in any way on the part -- under the
09:59:33
7
agreement -- on the part of Bank of America to do that?
09:59:37
8
MR. CANTOR:
09:59:38
9
THE COURT:
09:59:42
10
09:59:49
11
09:59:55
12
through, you know, all the Article 9 limitations that would be
10:00:02
13
consistent with.
10:00:07
14
checklisting.
10:00:09
15
MR. CANTOR:
10:00:12
16
THE COURT:
10:00:19
17
10:00:20
18
MR. CANTOR:
10:00:23
19
THE COURT:
10:00:30
20
which is, I think, the subject of this summary judgment, as to
10:00:39
21
if Bank of America knew or should have known in the course of
10:00:47
22
its dealings with the loan as controlling person or Disbursement
10:00:56
23
Agent that a condition precedent has not been satisfied, okay,
10:01:08
24
and it -- not that it is imputed knowledge.
10:01:11
25
Number 1, since there is no specific language saying
No, Your Honor.
Okay.
I know your position is no, but let
me just phrase these things and then we will get back to them.
Okay.
In support of your position, you would go
We don't have the obligation.
Okay.
We are just
I understand that.
Yeah, in particular 9.3.2.
And you would also rely on 9.2.5, no
imputed knowledge.
Yes, Your Honor.
So now we get to the much harder question
I mean, under the best of circumstances, let's say it
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36
10:01:13
1
is a clean-cut advance.
You are doing your checklist.
10:01:17
2
don't know anything.
10:01:21
3
approved.
10:01:25
4
agreement.
10:01:27
5
10:01:36
6
and Lehman's bankruptcy, and then the question is, well, what
10:01:43
7
did Bank of America know or what should it have known?
10:01:50
8
If it either should have known or knew, did it have an
10:01:54
9
affirmative duty at that point, under commercial reasonableness
10:02:03
10
language, to do more and, in fact, didn't it do more by looking
10:02:10
11
into the question, having its lawyer look into the question or
10:02:14
12
other thing?
10:02:15
13
10:02:19
14
that Bank of America did more, that's not the way that you
10:02:25
15
define the standard, the minimum standard of what they were
10:02:28
16
required to do.
10:02:31
17
things, shows that they weren't grossly negligent here.
10:02:35
18
10:02:37
19
think you need to split "knew or should have known" into two
10:02:44
20
parts.
10:02:44
21
10:02:50
22
and unambiguous language of 9.3.2 says, Bank of America is
10:02:58
23
entitled to rely without further investigation on
10:02:59
24
Fontainebleau's certifications that conditions precedent had
10:03:02
25
been met.
There is nothing at issue.
Off it goes.
You
You stamp it
You are covered by everything in this
But here you have this issue with the retail facility
MR. CANTOR:
Well, let me start by saying to the extent
The fact that they did more, among other
But in determining what it is that they need to do, I
The premise of our argument here is that, as the clear
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Oral Argument
37
10:03:02
1
If Bank of America actually knew that a condition
10:03:08
2
precedent had not been satisfied, then it would not be relying
10:03:12
3
on Fontainebleau's certifications at that point, and we would
10:03:17
4
concede that they had an obligation to not allow the funding to
10:03:22
5
go forward but actually knew.
10:03:25
6
THE COURT:
10:03:29
7
So for purposes of the summary judgment, your position
10:03:34
8
is if Bank of America had actual knowledge that a condition
10:03:38
9
precedent had not been met -- in this case, I guess that
10:03:44
10
translates to the equivalent of actual knowledge that Lehman was
10:03:52
11
not funding the retail facility, right?
10:03:54
12
MR. CANTOR:
10:03:55
13
THE COURT:
10:03:58
14
MR. CANTOR:
10:04:01
15
because there are other people that could have funded that it
10:04:05
16
would have been permissible.
10:04:05
17
THE COURT:
10:04:07
18
MR. CANTOR:
10:04:08
19
THE COURT:
10:04:14
20
that Lehman did not fund and none of the other lenders within
10:04:22
21
the retail structure funded and that Fontainebleau funded, that
10:04:30
22
is a different situation and then Bank of America did have,
10:04:35
23
notwithstanding Article 9, an affirmative duty to initiate a
10:04:43
24
default notice.
10:04:44
25
MR. CANTOR:
Hold right there.
Right.
Okay.
If it knew that --
Well, that Fontainebleau Resorts was,
Let me rephrase that.
Yeah.
If Bank of America had actual knowledge
Right.
Bank of America in that instance
November 18, 2011
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would know that the conditions precedent have not been satisfied
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and, thus, it would be required under 2.5.1 to issue a stop
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3
funding notice.
10:04:54
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like more discussion -- is there a material issue of fact about
10:05:14
8
actual knowledge?
10:05:28
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no action taken.
10:05:30
10
Wouldn't that be gross negligence under New York law?
10:05:33
11
MR. CANTOR:
10:05:36
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15
MR. CANTOR:
10:05:44
16
THE COURT:
10:05:49
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received some new information, other discovery, is there a
10:05:55
18
material issue of fact on actual knowledge?
10:05:57
19
10:06:00
20
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21
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issue of fact that Bank of America had actual knowledge.
10:06:08
23
Plaintiffs have not submitted sufficient evidence in admissible
10:06:14
24
form to establish actual knowledge by Bank of America.
10:06:17
25
So let's hold on that for a second and
THE COURT:
switch back to the factual issues here.
Is there from the plaintiffs' standpoint -- and I would
Let's assume there was actual knowledge, but
It would not, Your Honor, under these
circumstances.
THE COURT:
Okay.
So let's divide the two up.
Let's
start with Question 1, actual knowledge.
MR. CANTOR:
Yes, Your Honor.
Based upon all these emails, and I've now
Let me make sure I phrase it correctly,
Your Honor.
Your Honor, we don't believe that there is a material
When you add up all of the emails, many of which, I
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believe, they have mischaracterized -- a lot of the evidence
10:06:25
2
that they rely on they both mischaracterized and it is
10:06:30
3
inadmissible.
10:06:32
4
When you add all that up, Your Honor, all that adds up
10:06:35
5
to is, at best, a finding that Bank of America should have been
10:06:38
6
suspicious, that Bank of America should have asked more
10:06:41
7
questions.
10:06:44
8
THE COURT:
10:06:46
9
Does plaintiff contend that Bank of America had actual
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MR. HENNIGAN:
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12
THE COURT:
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That's not actual knowledge.
Let me hold up for a second.
knowledge?
Yes.
What evidence are you relying on that
creates at least a material issue of fact of actual knowledge?
MR. HENNIGAN:
The evidence that I am relying on, Your
Honor, that I think disposes of the question is
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THE COURT:
What was the actual date of the
Fontainebleau certification which included that all conditions
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were met?
25
MR. HENNIGAN:
request.
They made it with the original advance
I'll get to that in a second.
November 18, 2011
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there is not a jury or a court anywhere in the country that
10:14:24
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wouldn't understand in that context that he was saying it was
10:14:28
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made in a way that violates the condition.
10:14:33
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that point.
10:14:36
25
In other words, when you answer the question that way,
Everyone knew it at
What they were doing was looking for cover.
So we think it is not that it raises a triable issue of
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fact.
We think there is no credible evidence on this record
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2
that Bank of America did not know that that funding was made by
10:14:49
3
Fontainebleau and not by Lehman Brothers and now let's look at
10:14:53
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whether or not they have denied it.
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story.
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interpretation of the evidence.
10:15:56
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evidence will show.
10:15:58
25
The answer is they have mealy-mouthed their way through
this thing.
They never squarely say.
Instead,
THE COURT:
Okay.
So, let me ask for responses on
that.
MR. CANTOR:
Sure, Your Honor.
That was a really nice
It would sound great at closing, but it is an
It is not, in fact, what the
What the evidence does show is that the conversations
November 18, 2011
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that were held between Bank of America and Fontainebleau --
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2
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3
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MR. CANTOR:
10:16:11
5
THE COURT:
10:16:14
6
MR. CANTOR:
10:16:15
7
THE COURT:
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8
10:16:21
9
MR. CANTOR:
10:16:22
10
THE COURT:
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11
10:16:28
12
MR. CANTOR:
10:16:28
13
THE COURT:
10:16:33
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to your motion, before I get to their motion -- the question is
10:16:37
15
whether they have generated enough through these emails to
10:16:42
16
trigger a material issue of fact of actual knowledge.
10:16:45
17
10:16:47
18
emails themselves don't show actual knowledge.
10:16:50
19
Mr. Hennigan gets a chance to spin them that he even gets close.
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20
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22
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10:17:14
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THE COURT:
Let me ask you to rephrase this in a
different way.
Okay.
We're not here on closing argument either.
Right.
The issues have to be addressed in terms of
the standards for summary judgment -Uh-huh.
-- and whether or not there is a material
issue of fact on this.
MR. CANTOR:
Right.
So the question is -- at least in response
They have not, Your Honor, because the
November 18, 2011
It is only when
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told Bank of America, If Lehman doesn't fund, we are going to
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fund for them.
10:17:57
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no --
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14
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15
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bank in the United States and among its thousands and thousands
10:18:14
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of clients is Fontainebleau Las Vegas.
10:18:18
19
Just as if when Jeff Soffer goes to the ATM machine,
10:18:23
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there is a record generated somewhere in Bank of America that
10:18:25
21
that happens.
10:18:26
22
10:18:31
23
10:18:34
24
10:18:35
25
There is no testimony in the record that Fontainebleau
That conversation never happened.
There is
THE COURT:
I don't understand quite the mechanics of what
happened there.
MR. CANTOR:
Basically, Bank of America is the largest
But there is absolutely no evidence in the record that
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anyone with any connection to the Fontainebleau Las Vegas
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2
project had any knowledge that this wire transfer took place nor
10:18:45
3
would there have been any reason for them to know about that.
10:18:47
4
THE COURT:
10:18:49
5
Your response to that?
10:18:52
6
plaintiffs are relying on that shows that anyone within the Bank
10:18:59
7
of America controlling person, disbursing agent side, knew of
10:19:07
8
that wire transfer, knew of the wire transfer?
10:19:13
9
10:19:18
10
conceptual issues about the different hats that want to be worn
10:19:23
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here.
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12
10:19:26
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able to determine in any manner, and where is it, that someone
10:19:32
14
within the structure, a controlling person, Administrative
10:19:36
15
Agent, somewhere in that pecking order of who pulls the trigger
10:19:43
16
down to who is working on the account had actual knowledge of
10:19:48
17
that transfer?
10:19:50
18
MR. HENNIGAN:
10:19:54
19
THE COURT:
Tell me specifically.
10:19:56
20
10:20:00
21
10:20:05
22
10:20:07
23
THE COURT:
I am not talking about
10:20:09
24
MR. HENNIGAN:
10:20:12
25
Okay.
MR. HENNIGAN:
THE COURT:
Hold on that.
Is there anything of record
Your Honor, I always have these
My question is very specific.
Were you
The answer is yes.
I am talking about what his testimony
is.
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THE COURT:
Okay.
Go ahead.
THE COURT:
Well, you know, that's not quite going to
10:20:12
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cut it.
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there was an objection --
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MR. CANTOR:
10:20:34
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THE COURT:
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MR. HENNIGAN:
10:20:48
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THE COURT:
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MR. HENNIGAN:
10:20:53
15
THE COURT:
10:20:55
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that somebody from Trimont actually remembered directly telling
10:21:04
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someone in the structure that that funding occurred, is there?
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I mean, that sounds like, at best, speculative.
If
There was.
-- made to that, I would grant it because
it's an assumption unless established as something in terms of
habit and course of practice and all that.
That is exactly what it is.
But I don't think that is what I am asking
you.
THE COURT:
Well, --
There is nothing in the record that said
Okay.
That's not the question I asked.
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Okay.
But that doesn't mean others didn't,
10:21:38
1
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2
so that's Bank of America's point in terms of other lenders.
10:21:46
3
is different than Fontainebleau made it.
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is that if I were Bank of America and I wanted to know really
10:22:45
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whether Fontainebleau funded,
10:22:50
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18
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20
category of studied ignorance.
10:23:05
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point.
10:23:11
22
evidence in the record that, in fact, they had induced this
10:23:16
23
default and therefore were in error for having disbursed the
10:23:20
24
funds.
10:23:21
25
THE COURT:
MR. HENNIGAN:
It
That's true.
What occurs to us as we are preparing for this argument
So, the fact they don't puts them, I think, into the
They didn't want to know at that
They wanted to cover their tracks.
THE COURT:
Okay.
November 18, 2011
They did not want
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I don't think there is another
10:23:21
1
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2
explanation for it.
10:23:23
3
THE COURT:
10:23:25
4
MR. CANTOR:
10:23:26
5
THE COURT:
10:23:28
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is equivalent to the criminal concept of deliberate ignorance,
10:23:45
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that Bank of America, in analyzing this question which it was
10:23:51
12
discussing and asking for affirmations or explanations from
10:23:58
13
Fontainebleau about, deliberately did not verify the answer
10:24:09
14
within the confines of records it controlled.
10:24:12
15
10:24:14
16
go and check the records.
10:24:17
17
when Mr. Hennigan says that Bank of America induced
10:24:21
18
Fontainebleau Resorts to fund, that's just false and not based
10:24:25
19
on any testimony or documents that are in the record.
10:24:29
20
10:24:32
21
considering a variety of options in the event that Lehman didn't
10:24:37
22
fund.
10:24:38
23
10:24:41
24
10:24:46
25
MR. HENNIGAN:
But let's turn back -Okay.
-- and then we will take a break in a
minute.
MR. CANTOR:
There has been so much thrown out that I
am not sure I am going to be able to hit all of it.
THE COURT:
MR. CANTOR:
What is being argued, as I understand it,
Your Honor, it didn't have any reason to
As I was starting to explain before,
What Bank of America knew is that Fontainebleau was
November 18, 2011
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Fontainebleau that if Fontainebleau wanted to do that, it would
10:25:02
5
be okay.
10:25:06
6
There is no evidence in the record of that, no testimony by Jim
10:25:09
7
Freeman, no testimony by anyone from Bank of America that that
10:25:13
8
happened.
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There is no evidence that they ever communicated to
That's an assumption that Mr. Hennigan has made.
November 18, 2011
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that is a criminal concept that I don't think applies when
10:26:52
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you've got a contract that specifically says you can rely
10:26:53
13
without investigation, but there just was no reason for Bank of
10:26:57
14
America to have to do that.
10:26:59
15
THE COURT:
10:27:07
16
we'll take a break.
17
18
19
10:27:07
25
THE COURT:
Yes
24
10:27:22
sentences?
23
10:27:18
Could I respond in just a couple of
22
10:27:16
MR. HENNIGAN:
21
10:27:13
Let me toss out two more matters and then
20
10:27:10
So there is no studied ignorance here and, as you say,
Number 2, they didn't have to know what the exact
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amount was.
They just needed to ask one question:
10:27:29
2
of September 2008, did Fontainebleau transfer funds to Trimont?
10:27:38
3
10:27:40
4
Your Honor, when they don't have a contractual obligation to do
10:27:42
5
so?
10:27:43
6
10:27:47
7
few minutes, but let me pose a couple of questions to you to
10:27:50
8
consider during our break.
10:27:55
9
10:28:03
10
Lehman did fund in October and November?
10:28:10
11
fact by and between the parties that that funding occurred from
10:28:14
12
Lehman.
10:28:29
13
how I should hear the evidence on summary judgment?
10:28:39
14
10:28:48
15
picture issue which is troubling to me so I'll mention it -- the
10:28:55
16
Term Lenders are wearing different hats, too, it seems to me.
10:29:02
17
10:29:13
18
funded their share of the deal, when is it, in March?
10:29:17
19
should have funded it all.
10:29:21
20
funded, and why is that?
10:29:27
21
continue in order to protect our investment.
10:29:33
22
10:29:36
23
10:29:37
24
10:29:39
25
Why would they have asked that question,
MR. CANTOR:
THE COURT:
On the 26th
Well, we're going to discuss this more in a
What significance does it have that as a matter of fact
There is no dispute of
How is that put into this factual equation in terms of
The second thing is -- and this is like a bigger
One hat is, Ahhh, look at this, revolvers should have
They
Because we funded, you should have
Because we wanted this project to
Right?
Isn't that a fair way of looking at your first
position?
MR. HENNIGAN:
Our first position on that subject, Your
Honor, is we absolutely, categorically wanted their money into
November 18, 2011
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the bank proceeds account because we have a lien on it and we're
10:29:49
2
going to thereby share the pain with them as was contemplated by
10:29:53
3
the overall funding agreements.
10:29:55
4
10:30:01
5
10:30:07
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7
been a default all and there would have been a stoppage, if you
10:30:16
8
would, of the project for every lender back in September, right,
10:30:32
9
'08?
10:30:34
10
10:30:37
11
have pulled the plug on the whole project because of this retail
10:30:47
12
issue involving Lehman.
10:30:51
13
something.
10:30:52
14
10:30:55
15
10:30:59
16
10:31:03
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10:31:03
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19
remember what the whole requested that month.
10:31:08
20
like $100 million or something.
10:31:16
21
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22
10:31:25
23
10:31:31
24
doesn't really make sense to me for the Term Lenders to take a
10:31:37
25
position that the Revolvers were obligated to fund in March if,
We did not want this money, ours and theirs, to go down
this rat hole.
We wanted them to fund.
THE COURT:
But if there was a default, it would have
If your theory is correct, then Bank of America would
MR. CANTOR:
What did you say?
It was one point
The amount of the issue for Lehman in that
September advance was $4 million total, 2.5 from Lehman.
THE COURT:
2.5 for Lehman and the whole advance was
for?
MR. CANTOR:
THE COURT:
The whole retail advance was 4.
Okay.
I don't
It was probably
What bothers me is two-fold looking
at this from a broader perspective.
One is, notwithstanding your statement to me, it
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1
in fact, your position is that none of the lenders should have
10:31:50
2
been obligated to fund anything and Bank of America shouldn't
10:31:55
3
have advanced anything, sorry, back in September.
10:32:00
4
Number 1.
10:32:00
5
10:32:16
6
every effort being made to try to make it work to protect
10:32:23
7
everybody's money.
10:32:27
8
10:32:33
9
back retroactively to a situation in September where there is no
10:32:39
10
question that money was coming forward to do the retail part and
10:32:49
11
that was moving forward and, in fact, Lehman did continue after
10:32:56
12
that.
10:32:56
13
10:33:00
14
money was being protected, at least up to that point in time,
10:33:07
15
until it was discovered about all these cost overruns which
10:33:14
16
nobody here claims anybody knew at the time.
10:33:19
17
10:33:28
18
could see, is in a bit of a dilemma.
10:33:32
19
plug on the whole project, based upon what you are arguing from
10:33:36
20
the Term Lenders looking in retrospect, would it have had a
10:33:44
21
massive lawsuit from Fontainebleau as well as potentially others
10:33:53
22
who were dependent upon this project going forward?
10:33:57
23
10:34:03
24
standard, what was done, was that commercially unreasonable to
10:34:08
25
allow that project go forward and maybe not look at the question
That's
Number 2, this project was well underway and there was
So what is being done here, it seems to me, is to look
So the project was being protected and everybody's
So here you have an Administrative Agent that really, I
I mean, if it pulled the
So even if I applied a commercial reasonableness
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1
too closely?
Those are a couple of things that are of concern
10:34:21
2
to me on this issue.
10:34:24
3
10:34:35
4
November and the like, where Lehman didn't fund and there were
10:34:42
5
continuing questions and whatever, it would be a tougher call
10:34:46
6
here but, I mean, we are dealing with one month which is
10:34:51
7
squirrelly, followed by two months where no one contests that
10:34:56
8
Lehman actually did fund.
10:34:59
9
10:35:09
10
but I also think that in the real world sense it is necessary to
10:35:16
11
take a look at what was going on in this project at that time in
10:35:25
12
terms of the Term Lenders' argument on commercial reasonableness
10:35:27
13
and gross negligence.
10:35:31
14
time to all respond to this.
10:35:34
15
10:35:39
16
summary judgment that there may have been this funding, they
10:35:48
17
knew or should have known or deliberately ignorant in not
10:35:54
18
knowing that Fontainebleau actually directly or indirectly
10:35:57
19
funded, is that, under the standard of the agreement, gross
10:36:11
20
negligence as a matter of law?
10:36:14
21
10:36:21
22
10:36:25
23
MR. CANTOR:
10:36:26
24
THE COURT:
10:36:31
25
You know, if the situation repeated itself in October,
So I know I'm looking at this in terms of this record,
I am going to take a break and give you
Then, even if you accept as true for purposes of
When we return, can we deal with some of these issues?
I'll give both sides an opportunity to address it.
Thank you.
Let's take fifteen minutes.
In fact, I
have to break by no later than noon, so let's reconvene at 10 of
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1
11:00.
10:36:44
2
10:36:48
3
much as you want to make them.
10:36:51
4
detailed slides and all, but I think we have covered a lot and
10:36:54
5
I'm trying to get as close to the heart of the controversy as I
10:37:00
6
can.
10:37:00
7
10:37:03
8
10:37:06
9
MR. CANTOR:
10:37:08
10
THE COURT:
10:37:11
11
have posed to you.
10:37:15
12
Thank you.
10:37:16
13
10:37:18
14
will reconvene because we're not going to call everybody or have
10:37:22
15
people call in again.
10:37:24
16
I want to hear your arguments from this point on, as
I know you have prepared
So whatever you want to do in the remaining time, I'm
going to be quiet and let you do your thing.
Thank you, Your Honor.
But keep in mind some of these questions I
All right.
10 of 11:00 we will be back.
Those on the phone, please remain on the phone and we
[There was a short recess taken at 10:37 a.m.]
17
AFTER RECESS
10:54:10
18
[The proceedings in this cause resumed at 10:54 a.m.]
10:55:11
19
THE COURT:
10:55:15
20
Just so everybody knows, during the interim there was a
10:55:21
21
problem with the call-in.
10:55:29
22
which created a necessity to hang up and require everybody to
10:55:35
23
call in again, so you may hear about that later from those who
10:55:41
24
are interested, but I don't want to delay the proceedings
10:55:45
25
waiting for everybody to come in.
All right.
Are we back on the record, Joe?
Someone on the line did something
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So let me open the argument again to some of the
10:55:58
2
issues.
10:56:05
3
would argue in point and counterpoint.
10:56:08
4
10:56:10
5
any kind of a formal presentation because so much of what I
10:56:14
6
would have done has been covered earlier today, but I do want to
10:56:21
7
try and address some of the issues that have been raised this
10:56:25
8
morning as well as the questions that you left us with.
10:56:30
9
I think, Your Honor, what I will do as to the more
10:56:34
10
specific factual issues that opposing counsel has raised, I
10:56:39
11
think I'm going to leave them either for the end or for further
10:56:43
12
rebuttal because where the argument has taken us, I have got
10:56:48
13
lots to say about the factual issues and, in particular, the
10:56:53
14
inability of plaintiffs to create a triable issue of fact on
10:56:57
15
actual knowledge.
10:56:59
16
10:57:01
17
discussed has been mischaracterized and is inadmissible, but
10:57:07
18
unless Your Honor wants me to, I think that may be something
10:57:10
19
that I'll come to a little later on.
10:57:14
20
10:57:17
21
just briefly on the basic issue of breach of contract because we
10:57:21
22
have covered so much of it.
10:57:23
23
10:57:26
24
a very simple case, that the obligations of Bank of America as
10:57:33
25
Disbursement Agent are limited.
Why don't you start and then I would appreciate if you
MR. CANTOR:
Sure, Your Honor.
I am not going to do
I think a lot of the factual material that they have
What I would like to focus on, Your Honor, first is
Just to reiterate, Your Honor, our position is this is
Your Honor pointed out the two
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1
obligations essentially:
determining that the required
10:57:40
2
documentation has been submitted with each advance request and
10:57:43
3
confirming that all of the conditions precedent to disbursement
10:57:48
4
have been met.
10:57:48
5
From our perspective, in performing the obligation to
10:57:52
6
ensure that the conditions precedent to disbursement have been
10:57:56
7
met, the key provision is obviously 9.3.2 which in relevant part
10:58:03
8
provides, notwithstanding anything else in this agreement to the
10:58:07
9
contrary, in performing its duties hereunder, including
10:58:11
10
approving advance requests or making other determinations or
10:58:14
11
taking other actions hereunder, the Disbursement Agent shall be
10:58:18
12
entitled to rely on certifications from the project entities as
10:58:23
13
to the satisfaction of any requirements and/or conditions
10:58:26
14
imposed by this agreement.
10:58:28
15
10:58:35
16
entitled to rely without further investigation on the
10:58:38
17
representations that it received from Fontainebleau.
10:58:42
18
10:58:44
19
correctly pointed out that the record at that point was
10:58:46
20
incomplete because plaintiffs' complaint had not alleged whether
10:58:50
21
or not Fontainebleau had submitted all of the necessary
10:58:52
22
certifications.
10:58:55
23
10:58:59
24
that's at issue in this case, Bank of America received all of
10:59:02
25
the required certifications, representations and warranties from
So it's clear, Your Honor, that Bank of America was
At the motion to dismiss hearing, Your Honor, you
That's no longer an issue here, Your Honor.
It is undisputed that for every single advance request
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1
Fontainebleau; and from our perspective, Your Honor, that should
10:59:10
2
be the end of the case.
10:59:11
3
Bank of America has done everything that the
10:59:15
4
Disbursement Agreement expressly required it to do and § 9.10
10:59:19
5
leaves no doubt that unless the agreement specifically says that
10:59:23
6
Bank of America has to do something, it does not have any
10:59:27
7
additional duties.
10:59:28
8
10:59:32
9
10:59:36
10
obligations hereunder except as expressly set forth herein,
10:59:40
11
shall be responsible only for the performance of such duties and
10:59:43
12
obligations and shall not be required to take any action
10:59:46
13
otherwise in accordance with the terms hereof.
10:59:49
14
10:59:54
15
contract argument, Your Honor, is that their entire case is
10:59:56
16
premised on ignoring 9.3.2 and 9.10 and imposing additional
11:00:02
17
unwritten obligations on Bank of America.
11:00:05
18
11:00:08
19
America is entitled to summary judgment here, Your Honor, and I
11:00:12
20
think it ties into some of the issues that you raised just
11:00:16
21
before the break.
11:00:17
22
11:00:22
23
contract limits Bank of America's liability to gross negligence
11:00:26
24
or worse.
11:00:27
25
9.10, as Your Honor probably knows, in relevant part
provides that the Disbursement Agent shall have no duties or
That is the fundamental flaw with plaintiffs' breach of
There is a second independent reason why Bank of
It is undisputed, as Your Honor mentioned, that the
There is no dispute between the parties that such
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1
clauses are fully enforceable under New York law, and plaintiffs
11:00:35
2
have acknowledged in their papers that gross negligence is a
11:00:37
3
very high standard requiring either reckless disregard for the
11:00:41
4
rights of others or conduct that smacks of intentional
11:00:44
5
wrongdoing or, as the one that they cite in their papers, as
11:00:47
6
that case put it, an absence of even slight diligence.
11:00:51
7
11:00:55
8
culpable conduct here, especially when Bank of America's actions
11:00:59
9
are considered in context and without hindsight and that is, I
11:01:02
10
11:01:07
11
11:01:11
12
against asking too much and giving you a chance, but I asked you
11:01:17
13
before if it is assumed there is a material issue of fact on
11:01:41
14
actual knowledge, is there a further question that if there was
11:01:47
15
actual knowledge, that that would equate to gross negligence and
11:01:52
16
not following through with the terms of the agreement.
11:01:55
17
11:02:00
18
knowledge of what we are talking about is the Lehman issue, for
11:02:04
19
example.
11:02:05
20
11:02:09
21
11:02:13
22
MR. CANTOR:
11:02:14
23
THE COURT:
11:02:15
24
11:02:17
25
There is nothing even approaching that level of
think, what Your Honor was alluding to just before the break.
THE COURT:
MR. CANTOR:
THE COURT:
Well, I am violating my own prohibition
In these circumstances, Your Honor, actual
Right.
was doing the funding.
Yes, that Fontainebleau actually
If there were actual knowledge --
Yeah.
-- I think you have conceded that would
have been a default.
Would it then be gross -- would it necessarily follow
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1
that as -- it is at least a jury question at that point on
11:02:29
2
whether or not Bank of America was grossly negligent in not
11:02:37
3
declaring the default.
11:02:37
4
11:02:39
5
think what you have got, as you have alluded to, is a situation
11:02:43
6
where you have got, you know, Bank of America was the
11:02:44
7
Disbursement Agent for all of the different lenders to the
11:02:48
8
Senior Credit Facility, the initial Term Loan Lenders who had
11:02:52
9
money already in the project, the Delay Draw Term Lenders who
11:02:56
10
were going to be the next ones asked to fund and the Revolving
11:02:58
11
Lenders.
11:02:59
12
11:03:02
13
determination as to whether the September funding should go
11:03:08
14
forward in light of the fact that there was no failure of
11:03:13
15
funding here -- as Your Honor pointed out, the money showed up.
11:03:16
16
11:03:19
17
supposed to get X dollars and it ended up getting X minus $2.5
11:03:26
18
million.
11:03:27
19
11:03:31
20
level of a question of fact to say that Bank of America was
11:03:37
21
recklessly disregarding the rights of all of the lenders if it
11:03:43
22
had actual knowledge, which we say they did not, of
11:03:49
23
Fontainebleau Resorts funding for Lehman, given everything else
11:03:54
24
that was going on with the project, given the amount of money
11:03:58
25
that was involved, given that there were undoubtedly numerous
MR. CANTOR:
I don't think it is, Your Honor, because I
So when Bank of America was asked to make a
This is not a situation where Fontainebleau was
The money was there.
I don't think, Your Honor, that it even rises to the
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1
lenders who would have wanted to see the project go forward
11:04:05
2
especially since the money actually showed up.
11:04:06
3
11:04:11
4
reckless to pull the plug in terms of all the lenders'
11:04:17
5
investment up to that point --
11:04:19
6
MR. CANTOR:
11:04:21
7
THE COURT:
11:04:22
8
MR. CANTOR:
11:04:23
9
You can imagine what Fontainebleau's reaction would
11:04:27
10
have been.
11:04:31
11
knew this, but the facts are that an affiliate of the borrower
11:04:35
12
put in money as equity, in other words, it wanted the project to
11:04:40
13
go forward and it was willing to put its money where its mouth
11:04:43
14
is.
11:04:43
15
11:04:45
16
have been if Bank of America had come to it and said that $2.5
11:04:50
17
million came from the wrong place.
11:04:55
18
that it showed up, but it came from the wrong place and
11:04:57
19
therefore we are pulling the plug on this project and you don't
11:05:01
20
get the $100 some odd million in Term Lender money that you
11:05:06
21
otherwise requested and that you need to pay ongoing
11:05:09
22
construction costs.
11:05:11
23
11:05:16
24
Revolving Lenders for closing down the Revolver facility after
11:05:22
25
Fontainebleau admitted publicly that there were hundreds of
THE COURT:
Well, in effect, would it have been
I would say --- when, in fact, the money was there?
Absolutely, Your Honor.
Remember, again, we dispute that Bank of America
You can imagine what the reaction of the borrower would
I am glad -- it is great
Fontainebleau sued Bank of America and the other
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11:05:25
1
millions of dollars of undisclosed costs.
11:05:27
2
11:05:29
3
can being sure that if Bank of America had stopped the funding
11:05:32
4
to this project in September 2008, because $4 million didn't
11:05:37
5
come from the right place, that there would have been a lawsuit.
11:05:40
6
11:05:42
7
lawsuit from any lender that decided that they wanted the
11:05:48
8
project to continue, or any lender that decided, Gee,
11:05:51
9
Fontainebleau is suing us.
11:05:55
10
Fontainebleau suing us is for us to claim over against Bank of
11:05:59
11
America.
11:05:59
12
I think that when you are talking about a payment of
11:06:02
13
this magnitude that it absolutely would have been reckless in
11:06:10
14
the other direction for Bank of America to simply shut down the
11:06:15
15
project at that point.
11:06:17
16
11:06:19
17
11:06:22
18
11:06:28
19
their -- I want to say -- I can't remember whether it was $700
11:06:31
20
or $800 million at closing, and so it was sitting in the bank
11:06:38
21
proceeds account and a couple of hundred million of it had
11:06:41
22
already been disbursed to Fontainebleau for project costs.
11:06:46
23
11:06:51
24
in an account that was under the control of Bank of America.
11:06:55
25
Some of it had been spent on project costs; some of it had not.
If they were going to sue someone at that point, you
Bank of America would have also been in the middle of a
THE COURT:
How much did the Term Lenders have in the
deal by September '08?
MR. CANTOR:
One way for us to get out from
Do you remember?
Well, the initial Term Lenders had put up
So the money was out of their pocket.
November 18, 2011
It was sitting
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65
11:06:59
1
I can get you the exact figures.
I don't have them at
11:07:01
2
11:07:06
3
11:07:08
4
11:07:12
5
11:07:17
6
working off of the Disbursement Agreement as it was written,
11:07:22
7
okay, which has, as we have discussed, multiple different
11:07:26
8
provisions telling it that it can rely on representations and
11:07:32
9
warranties from Fontainebleau and that it doesn't need to
11:07:36
10
11:07:38
11
11:07:41
12
this part of the argument, that as a matter of law that it would
11:07:45
13
not be sufficient for Bank of America to allow funding if it had
11:07:49
14
actual knowledge, but that's not what Bank of America's state of
11:07:54
15
mind was at the time.
11:07:57
16
consideration in determining whether Bank of America was
11:08:00
17
recklessly disregarding the rights of others.
11:08:04
18
11:08:06
19
that shutting down the project as soon as possible was going to
11:08:09
20
be consistent with all of the lenders' rights and interests.
11:08:13
21
11:08:15
22
extent that Bank of America is taking all of these different
11:08:19
23
views into account, I don't think you can say that they were
11:08:23
24
recklessly disregarding anybody's rights even if at the end of
11:08:27
25
the day someone's rights were handled in a way that that party
the tip of my fingers at the moment, Your Honor.
This all goes back to the point I am making, Your
Honor, that you need to view all of this in context.
Okay.
Bank of America, you have to remember, was
investigate them further.
We are going here on the assumption, for purposes of
I think that has to be an important
In addition, as we have just discussed, it wasn't clear
They could have had different views on this and to the
November 18, 2011
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66
11:08:31
1
doesn't agree with.
11:08:32
2
In addition, Your Honor, and, again, you sort of
11:08:35
3
alluded to this prior to the break, in evaluating Bank of
11:08:39
4
America's conduct here, it is important to consider what the
11:08:42
5
Term Lenders were doing or, more importantly, what the Term
11:08:45
6
Lenders were not doing.
11:08:47
7
11:08:50
8
even a party here, not a single Term Lender ever demanded that
11:08:55
9
Bank of America take any kind of action here, much less did any
11:09:01
10
of these Term Lenders actually stick their neck out and put
11:09:05
11
themselves on the line by issuing a Notice of Default which
11:09:09
12
would have left them in the position of potentially being sued
11:09:13
13
by Fontainebleau.
11:09:14
14
Obviously, Your Honor, the events that we're all
11:09:16
15
talking about here that resulted in the failed conditions
11:09:19
16
precedent, particularly Lehman, but really everything else that
11:09:23
17
is a part of the parties' papers, these are facts that were
11:09:26
18
well-known to all of the Term Lenders and yet the Term Lenders,
11:09:30
19
for whatever reasons, chose not to act.
11:09:33
20
had the right to act, but they chose not to.
11:09:36
21
11:09:39
22
Bank of America to have recklessly disregarded plaintiffs'
11:09:43
23
rights when they were unwilling to assert those rights
11:09:47
24
themselves.
11:09:47
25
With the sole exception of
who is not
They could have.
They
So you have to consider whether it is even possible for
I think one of the most telling incidents here, Your
November 18, 2011
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67
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1
Honor, is from March 2009, but it certainly illustrates the
11:09:57
2
position that Bank of America was in and which you, yourself,
11:09:59
3
alluded to earlier this morning.
11:10:02
4
11:10:05
5
11:10:09
6
11:10:12
7
11:10:18
8
11:10:21
9
11:10:25
10
11:10:28
11
11:10:29
12
figuring out what made the most sense, made the decision that
11:10:32
13
they were going to go ahead and allow funding that month; that
11:10:36
14
they were going to continue to include those entities' money in
11:10:42
15
the in balance test because they had had conversations with
11:10:45
16
these entities and,
11:10:49
17
11:10:52
18
these entities were ultimately going to fund and one of them
11:10:54
19
ultimately did.
11:10:55
20
11:10:59
21
11:11:03
22
11:11:06
23
11:11:09
24
11:11:12
25
Bank of America, after studying the situation and
, it was unclear whether, in fact,
Here
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1
11:11:18
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3
forward any kind of an objection whatsoever to what Bank of
11:11:27
4
America --
11:11:28
5
THE COURT:
11:11:35
6
MR. CANTOR:
11:11:37
7
Not a single one of the Term Lenders put forward any
11:11:39
8
11:11:41
9
11:11:43
10
11:11:45
11
11:11:48
12
11:11:49
13
11:11:52
14
just in March but throughout.
11:11:56
15
Lenders out there.
11:11:59
16
out there.
11:12:02
17
there, and they all conceivably have differing views on what the
11:12:07
18
right thing to do is.
11:12:08
19
11:12:10
20
been more public, but all of the events that are at issue here
11:12:13
21
are either public or were available to the lenders through the
11:12:16
22
interlinks system and none of the lenders ever come forward to
11:12:20
23
Bank of America and say Do this, don't do that, with the one
11:12:24
24
exception being
11:12:26
25
Your Honor, not a single one of the Term Lenders put
I'm sorry.
'09.
March 23, '08?
Excuse me.
kind of an objection.
So this is what Bank of America is dealing with not
It's got all of these Term
It's got all of these Delayed Term Lenders
It's got all of these Revolver Term Lenders out
All of these events are public.
Lehman couldn't have
.
So how could it be that Bank of America is recklessly
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disregarding these lenders' rights when these lenders aren't
11:12:33
2
even standing up for their rights on their own, as they had the
11:12:37
3
right to do and certainly they had knowledge of what was going
11:12:39
4
on.
11:12:40
5
11:12:43
6
diligence, it is clear that Bank of America's actions here were
11:12:47
7
much more than slight diligence.
11:12:49
8
11:12:52
9
11:12:55
10
answers to questions that they raised, that it pressed
11:12:58
11
Fontainebleau for additional information when the lenders had
11:13:02
12
questions, that it facilitated direct communications between the
11:13:05
13
lenders and Fontainebleau.
11:13:07
14
11:13:11
15
11:13:14
16
11:13:17
17
11:13:22
18
11:13:25
19
thinking through these issues, vetting them, discussing them
11:13:28
20
internally, including discussing them with counsel, and that all
11:13:32
21
of their actions here are the result of careful and
11:13:36
22
contemplative deliberation before they take an action.
11:13:40
23
11:13:43
24
that Bank of America was not in any way acting with ill will
11:13:47
25
towards the Term Lenders.
If you look at gross negligence in terms of slight
The record is clear that Bank of America was responsive
to questions that were raised by the lenders, attempted to get
On an internal basis Bank of America, it is clear, is
There can be no legitimate dispute here, Your Honor,
November 18, 2011
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Bank of America wanted to do the right thing here.
We
11:13:53
2
can argue about whether they ultimately did the right thing or
11:13:55
3
not, but the bottom line is they wanted to try to do the right
11:13:59
4
thing and that, of course, is the complete antithesis of
11:14:03
5
recklessly disregarding the lenders' rights.
11:14:06
6
11:14:11
7
negligence.
11:14:15
8
have come forward showing that Bank of America acted properly,
11:14:19
9
they are going to have to come forward with evidence sufficient
11:14:23
10
to establish gross negligence, their own evidence, and for the
11:14:26
11
most part they have not bothered to do that.
11:14:29
12
11:14:33
13
breach of contract argument and argue that Bank of America
11:14:36
14
ignored facts and ignored warnings but, Your Honor, those are
11:14:41
15
negligence arguments.
11:14:41
16
11:14:44
17
didn't act as a reasonable Disbursement Agent should have acted.
11:14:50
18
Even if such arguments aren't foreclosed by § 9.3.2, as we say
11:14:55
19
they are, they are insufficient without more to establish this
11:15:00
20
added degree of culpability that you have to have here to find
11:15:04
21
Bank of America liable.
11:15:06
22
The bottom line is that the Term Lenders have
11:15:10
23
completely failed to satisfy their burden on summary judgment of
11:15:14
24
creating a triable issue of fact on the issue of gross
11:15:20
25
negligence, Your Honor.
The plaintiffs here bear the burden of proof on gross
They have to not only refute the evidence that we
Their briefs -- essentially all they do is repeat their
Those are arguments that say that Bank of America
November 18, 2011
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All right.
Thank you.
11:15:21
1
THE COURT:
11:15:23
2
MR. HENNIGAN:
11:15:26
3
I think I'm -- I was inclined to start, I think I am
11:15:30
4
still going to start with Your Honor's questions prior to the
11:15:35
5
break.
11:15:36
6
THE COURT:
11:15:39
7
MR. CANTOR:
11:15:42
8
11:15:45
9
11:15:46
10
11:15:48
11
11:15:52
12
that something that plays a part in this equation; and, if so,
11:15:56
13
how?
11:15:56
14
11:15:58
15
equation, Your Honor, in a couple of ways.
11:16:02
16
thing, to the extent that reasonableness somehow comes into this
11:16:06
17
on the breach issue -- and again our position is that all you
11:16:09
18
need to know is 9.3.2 and that 9.1 does not in any way limit our
11:16:16
19
rights under that agreement -- but to the extent that
11:16:19
20
reasonableness comes into it,
11:16:23
21
11:16:30
22
what I was discussing earlier this morning, which is that it was
11:16:34
23
not clear to anybody in September that Lehman was not going to
11:16:39
24
fund.
11:16:43
25
discussions that everyone was having was about options if Lehman
Thank you, Your Honor.
Nobody mentioned the Lehman funding.
I don't want to cut Mike off.
If you'd
like me to, I could do it in two seconds.
THE COURT:
Let him mention that because I would like
you to respond to that.
What is your position?
MR. CANTOR:
Should I consider that?
Is
Well, I think it plays a part in the
I think for one
demonstrates the reasonableness of
That was not a forgone conclusion and thus, all of the
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didn't fund, but maybe Lehman will fund.
11:16:52
2
11:16:54
3
11:16:58
4
11:17:03
5
11:17:05
6
11:17:08
7
11:17:12
8
11:17:17
9
11:17:19
10
11:17:22
11
11:17:24
12
11:17:25
13
11:17:25
14
MR. CANTOR:
11:17:29
15
negligence point, Your Honor.
11:17:30
16
11:17:33
17
and, again, let's start with the assumption that I don't accept,
11:17:36
18
that Bank of America knew that Fontainebleau was going to fund
11:17:40
19
for Lehman in September.
11:17:42
20
11:17:44
21
be a one-time occurrence because it was still possible that
11:17:48
22
Lehman was going to step back in -- remember, this is all
11:17:51
23
happening within ten days of, you know, one of the most
11:17:56
24
monumental bankruptcy filings in American business history.
11:18:00
25
were
other loans where it was not going to be stepping up.
THE COURT:
Does that play into the gross negligence
issue?
I think it absolutely plays into the gross
Again, if Bank of America believed that at worst --
But if Bank of America believed that this was going to
IF Bank of America believed that it was still a
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possibility that as we go forward and as things calm down that
11:18:07
2
Lehman was going to continue to fund here,
11:18:11
3
11:18:13
4
11:18:17
5
11:18:20
6
11:18:23
7
11:18:28
8
11:18:32
9
11:18:36
10
11:18:40
11
bankruptcy filings and uncertain business situations of all
11:18:43
12
time.
11:18:43
13
11:18:45
14
ended up that you would say that it is grossly negligent for
11:18:51
15
Bank of America to allow the borrower essentially to put up more
11:18:55
16
of its own money to close that gap if it was going to be a
11:18:59
17
one-time gap.
11:19:00
18
11:19:01
19
11:19:04
20
MR. CANTOR:
11:19:05
21
THE COURT:
11:19:06
22
MR. HENNIGAN:
11:19:09
23
that they were assured by Lehman Brothers that they were going
11:19:12
24
to continue funding.
11:19:16
25
record at all.
in the face of one of the most monumental
It is only with hindsight and knowing where this case
THE COURT:
All right.
Thank you.
I want to make sure
I have plenty of time on the plaintiffs' side.
Sure.
Go ahead, sir.
I thought I just heard Mr. Cantor say
I do not believe that that is in this
November 18, 2011
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That is not what I said, actually.
11:19:17
1
MR. CANTOR:
11:19:19
2
MR. HENNIGAN:
11:19:20
3
THE COURT:
11:19:22
4
MR. CANTOR:
11:19:25
5
11:19:28
6
MR. HENNIGAN:
11:19:29
7
THE COURT:
11:19:29
8
MR. HENNIGAN:
11:19:32
9
11:19:35
10
11:19:35
11
11:19:39
12
11:19:43
13
11:19:46
14
11:19:51
15
11:19:56
16
pick that date because that is the date of the Lehman Brothers
11:19:59
17
bankruptcy filing.
11:20:01
18
11:20:03
19
filing on the 14th, because there were emails that were circling
11:20:07
20
throughout the Bank of America team about the magnitude of that
11:20:14
21
funding early, 1:00 a.m. in the morning on September 15th.
11:20:16
22
11:20:23
23
11:20:27
24
11:20:34
25
That's what you said.
Okay.
Well, let's continue.
If it is what I said, I apologize because
it is not what I meant.
I want to put a point on that.
Go ahead.
There is a lot of discussion as though
this was a two-and-a-half million dollar issue on a multibillion
dollar project.
This was not a two-and-a-half million dollar issue on a
multibillion dollar project.
Let's put it in context.
I am going to focus on the time period between
September 15, 2008 and the middle of October 2008.
Here is what had happened.
On September 15, 2008 -- I
It actually probably happened late with an electronic
November 18, 2011
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1
11:20:42
2
11:20:50
3
11:20:54
4
11:20:58
5
11:21:00
6
11:21:03
7
11:21:08
8
11:21:13
9
11:21:18
10
files for bankruptcy.
11:21:22
11
bankruptcy in American history.
11:21:24
12
11:21:26
13
$2.5 million payment per se.
11:21:31
14
count on them for their substantial portion of the $190 million
11:21:36
15
that was still left to be funded on the retail facility.
11:21:39
16
11:21:45
17
The filing of bankruptcy -- let us make no mistake about it --
11:21:49
18
put that $190 million piece in question.
11:21:53
19
11:21:57
20
precedent, which is that there has been no Material Adverse
11:22:01
21
Effect.
11:22:07
22
come to Bank of America's attention that could reasonably be
11:22:11
23
expected to have a Material Adverse Effect.
11:22:14
24
11:22:20
25
Now, we move toward September 15th.
Lehman Brothers
We have just heard it was the largest
The issue wasn't whether they were going to make their
The issue was whether we could
Lehman Brothers had over $65 million committed to that.
Let me read you the operative phrase from the condition
The requirement is nothing has happened, nothing has
So when Lehman Brothers files on the 15th, everybody
knows that it could reasonably be expected to have a Material
November 18, 2011
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Adverse Effect.
The issue isn't whether they are going to make
11:22:27
2
the $2.5 million payment; it is whether they are going to remain
11:22:31
3
committed to their share of the retail portion of this lending
11:22:34
4
facility because without it there is hole that is unlikely to be
11:22:40
5
filled.
11:22:40
6
11:22:46
7
11:22:50
8
11:22:52
9
11:22:56
10
11:23:00
11
11:23:02
12
two months they did make the required draws and indeed they did.
11:23:06
13
They never made up the draw from September and they never made
11:23:11
14
another payment.
11:23:13
15
11:23:17
16
11:23:22
17
11:23:26
18
11:23:30
19
11:23:38
20
11:23:42
21
11:23:45
22
11:23:50
23
11:23:51
24
11:23:53
25
Now, Your Honor referenced the fact that in the next
So by the time we get to the March draw, they are out
of the picture.
Well, we have looked at that.
That is perfectly all
right to keep those funding commitments in the in balance test
November 18, 2011
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so long as there is a reasonable expectation that they are going
11:24:01
2
to be made in the future.
11:24:03
3
of the ledger.
11:24:04
4
11:24:08
5
continue to fund this project despite the fact that there are
11:24:13
6
enormous numbers of mounting breaches.
11:24:15
7
11:24:19
8
argument that the Lehman bankruptcy was well known to everybody,
11:24:25
9
including the Term Lenders, and if the Term Lenders believed, or
11:24:31
10
any of them, that there was a default as a result, the Term
11:24:37
11
Lenders could have given formal notification to Bank of America
11:24:47
12
as the Administrative Agent to initiate the proceedings under
11:24:54
13
the stop order.
11:24:58
14
11:25:01
15
signatures to the Disbursement Agreement and most of our clients
11:25:05
16
didn't have access to it.
11:25:09
17
what we call public side and private side where information was
11:25:14
18
made available through an Internet access to people who were
11:25:18
19
willing to receive confidential information, but the public side
11:25:22
20
lenders were not.
11:25:26
21
made public.
11:25:26
22
11:25:32
23
11:25:34
24
11:25:36
25
So it is okay to put it on that side
He didn't say is it okay with you that we are going to
THE COURT:
Well, let me ask you to respond to the
MR. HENNIGAN:
Recalling that we didn't -- we were not
There was a division here between
They only got information that was generally
So what we do have here is we have
on
September -- right in this time period --
THE COURT:
trying to clarify.
Let me go back because this is what I am
The Term Lenders under the Credit Agreement
November 18, 2011
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1
made payments.
11:25:43
2
MR. HENNIGAN:
11:25:44
3
THE COURT:
11:25:54
4
11:25:57
5
MR. HENNIGAN:
11:25:57
6
THE COURT:
11:26:04
7
question that the Term Lenders themselves, if concerned that
11:26:12
8
there was a default, could have sufficiently made a demand on
11:26:19
9
Bank of America as the Administrative Agent under the
11:26:28
10
Disbursement Agreement or Bank Agent under the Credit Agreement
11:26:34
11
not to fund because of the default, but didn't.
11:26:38
12
11:26:41
13
of my clients are not privy to the information that would have
11:26:46
14
demonstrated the magnitude of the problem.
11:26:49
15
11:26:53
16
Bank of America claims it didn't know how much Lehman Brothers
11:26:56
17
was committed to on the retail facility, but my clients
11:26:59
18
certainly didn't know how much Lehman Brothers was committed to
11:27:04
19
under the retail facility.
11:27:05
20
11:27:09
21
11:27:13
22
11:27:15
23
11:27:19
24
11:27:22
25
Yes.
And the issue, if I understand it, was
whether the payments that were made should have been disbursed.
Correct.
Okay.
MR. HENNIGAN:
So Bank of America is raising the
Again remembering, Your Honor, that most
For example, not knowing what the retail lending --
November 18, 2011
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1
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2
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3
11:27:37
4
MR. HENNIGAN:
11:27:38
5
THE COURT:
11:27:41
6
11:27:47
7
11:27:50
8
11:27:50
9
11:27:53
10
11:27:54
11
11:27:57
12
11:28:02
13
11:28:06
14
11:28:14
15
MR. HENNIGAN:
11:28:16
16
THE COURT:
11:28:17
17
MR. HENNIGAN:
11:28:19
18
protocol in the Credit Agreement.
11:28:23
19
but I don't think there is a protocol to do that.
11:28:26
20
Agreement contemplated that we would make our funding
11:28:30
21
commitments.
11:28:31
22
11:28:35
23
at the time of closing.
11:28:38
24
proceeds account.
11:28:41
25
authority to disburse it unless all of the conditions precedent
THE COURT:
Can your clients rely on that when Highland
is not even a party here?
agree.
We demand.
Well --
And your clients then join in and said we
Can you do that after the fact?
MR. HENNIGAN:
There is no protocol for us to do that,
Your Honor.
THE COURT:
Well, what about the notice provisions that
we have discussed?
MR. HENNIGAN:
The notice provision, that BofA is
required to give notice to itself to stop funding?
THE COURT:
Under the credit agreements, notice to Bank
of America of default by any of the Term Lenders.
Other than
, it would --
Well, yeah.
I don't think there is actually a
I could be misremembering it,
The Credit
We made $700 million worth of commitments, or funding,
That money was sitting in the bank
It could not be disbursed.
November 18, 2011
There was no
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Oral Argument
80
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1
were met.
11:28:45
2
11:28:50
3
record that would suggest that anybody was sitting on their
11:28:54
4
rights there.
11:28:59
5
fulfilling its responsibilities.
11:29:00
6
THE COURT:
11:29:02
7
MR. HENNIGAN:
11:29:06
8
spent a lot of time, because I do like that issue, about the
11:29:13
9
Fontainebleau funding for Lehman Brothers.
11:29:15
10
11:29:18
11
going to be a fun issue to try, but I also like that issue
11:29:22
12
because I think they can't hide from the fact that they looked
11:29:26
13
squarely at that default and ignored it and then tried to cover
11:29:30
14
it up.
11:29:31
15
11:29:37
16
11:29:41
17
11:29:47
18
It is also --
11:29:49
19
THE COURT:
11:29:50
20
MR. HENNIGAN:
11:29:52
21
THE COURT:
11:29:53
22
11:30:01
23
11:30:05
24
11:30:09
25
I am not aware of either a protocol or anything in the
They were relying upon the Disbursement Agent
Go ahead, sir.
Okay.
So in the earlier session we
I like that issue because, Number 1, I think it is
Aware of when?
In June.
Of when?
November 18, 2011
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1
11:30:14
2
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3
11:30:19
4
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5
11:30:28
6
11:30:31
7
11:30:34
8
11:30:37
9
11:30:42
10
borrower on subjects like budgeting, is itself a default.
11:30:47
11
not receiving information that it has requested is itself a
11:30:52
12
default.
11:30:55
13
We have talked about this Lehman Brothers funding issue
11:30:59
14
as though it is okay for a retail lender to make the payment for
11:31:05
15
it, and there is indeed an interpretation of one of the
11:31:10
16
conditions precedent that might make it okay for another retail
11:31:14
17
lender to cover for it, but it is still a default as defined in
11:31:17
18
the agreement for any lender, retail or otherwise, to miss
11:31:25
19
payments.
11:31:25
20
11:31:28
21
Fontainebleau funds and therefore doesn't default on those
11:31:30
22
payments, but then defaults on every other payment after that,
11:31:33
23
so we've got mounting numbers of defaults.
11:31:36
24
11:31:41
25
BofA, being aware of misinformation coming from the
BofA
So, we have got, yes, October and November
Now, I am still sort of marching -- I realize I am
being a little discursive, but I am marching through the early
November 18, 2011
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1
days of September.
11:31:46
2
11:31:52
3
Poor's downgrades the Fontainebleau facility to B minus with an
11:32:00
4
indication that further downgrades are probable.
11:32:04
5
11:32:11
6
the Las Vegas market for gaming was collapsing; that they could
11:32:16
7
no longer expect repayment to come from cash flow the way they
11:32:20
8
had originally budgeted, and they were concerned about that
11:32:22
9
requiring further degradation; that $700 million of these loans
11:32:28
10
was going to be repaid from sales of condominiums and that
11:32:32
11
market was drying up and looked like it was going to be bleak
11:32:36
12
going into the future; and oh, by the way, Fontainebleau
11:32:42
13
declared bankruptcy -- I'm sorry -- Lehman Brothers declared
11:32:46
14
bankruptcy and that piece is substantially in jeopardy.
11:32:50
15
11:32:53
16
other than the fact that it downgraded it, that BofA didn't
11:32:58
17
already know.
11:32:59
18
11:33:03
19
11:33:08
20
11:33:12
21
11:33:16
22
11:33:18
23
So the context in which this occurs is a nightmare of
11:33:24
24
negative information, all of which is known to the BofA at the
11:33:28
25
time it is making this decision about is the Fontainebleau
On September 18th, I may be off a day, Standard &
What it points to is what BofA also knew, which is that
There's nothing in the Standard & Poor's downgrade,
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Oral Argument
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11:33:37
1
bankruptcy an MAE?
11:33:38
2
11:33:42
3
budgets itself a default?
11:33:46
4
missed a payment strong evidence that our fears are going to
11:33:50
5
come to fruition, that indeed we can't count on that piece?
11:33:54
6
11:34:00
7
inability to make payments itself mounting?
11:34:04
8
about condominium sales?
11:34:07
9
11:34:11
10
adverse information that, taken as a whole -- I am kind of
11:34:16
11
remembering what it says -- taken as a whole, places in doubt
11:34:19
12
the other information that it has from the lender.
11:34:22
13
11:34:24
14
get a response.
11:34:31
15
argument that puts a duty on Bank of America to determine
11:34:38
16
default.
11:34:39
17
What's your response?
11:34:40
18
MR. CANTOR:
11:34:46
19
downgrade that Mr. Hennigan just talked about is evidence of
11:34:49
20
what we were talking about earlier, that all this information
11:34:52
21
was out there in the public.
11:34:54
22
11:34:56
23
went through all of these points that Mr. Hennigan considers so
11:34:59
24
significant, they were out there for all the lenders to see.
11:35:04
25
Is the fact that they have been distorting their
Isn't the fact that Lehman Brothers
Isn't the failure of other banks and their refusal or
By the way, what
So it is itself a default if Bank of America has
THE COURT:
Let me stop that part of the argument and
It is like a cumulative set of circumstances
Well, first of all, the Standard & Poor's
So to the extent that the Standard & Poor's downgrade
The idea that Bank of America was the one responsible
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Oral Argument
84
11:35:10
1
for determining whether there was an MAE or not is just not
11:35:15
2
consistent with the --
11:35:16
3
THE COURT:
11:35:17
4
MR. CANTOR:
11:35:23
5
THE COURT:
11:35:25
6
MR. CANTOR:
11:35:28
7
What you got in the contract is a condition that says
11:35:32
8
that there shall have been no Material Adverse Event.
11:35:38
9
Fontainebleau that is required to rep that all of the conditions
11:35:43
10
precedent are met.
11:35:46
11
that all of its other representations and warranties are met.
11:35:50
12
11:35:57
13
is going to be the one determining whether there has been an MAE
11:36:01
14
or not.
11:36:06
15
certainly under these circumstances, is one of the most
11:36:10
16
subjective and speculative determinations that one can make.
11:36:16
17
11:36:19
18
11:36:23
19
11:36:28
20
risen to the level of an MAE is always going to be a subjective
11:36:33
21
determination.
11:36:34
22
11:36:38
23
America had actual knowledge that there was an MAE because there
11:36:42
24
is always going to be some difference of opinion as to whether
11:36:46
25
those facts as they stood at that time constituted an MAE.
MAE?
A Material Adverse Event.
I'm sorry.
It is not consistent with what?
With the contract, Your Honor.
It is
It is Fontainebleau that is required to rep
So Fontainebleau is the one that in the first instance
Declaring an MAE, okay, under most circumstances, and
If a meteor had hit the project, yes, that would have
been an MAE, and I don't think anyone could disagree with that.
But to determine that a set of economic factors has
You are never going to be able to say that Bank of
November 18, 2011
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Oral Argument
85
11:36:51
1
Therefore, under the way the contract works, Bank of
11:36:59
2
America was allowed to rely without further investigation on
11:37:04
3
Fontainebleau's representation that, in fact, this amalgam of
11:37:08
4
events was not an MAE.
11:37:11
5
11:37:13
6
inconsistent with their role under the contract as it is
11:37:17
7
written, for them to be the one to make that determination and
11:37:21
8
say, yes, there has been an MAE here as a result of all these
11:37:26
9
occurrences.
11:37:27
10
11:37:30
11
11:37:33
12
THE COURT:
11:37:35
13
MR. CANTOR:
11:37:38
14
THE COURT:
11:37:44
15
under the Credit Agreement or the Disbursement Agreement are you
11:37:49
16
relying on that would allow the lenders, as compared to the
11:37:54
17
controlling person, to trigger a default notice?
11:38:00
18
11:38:02
19
I'll get it for you before we are done here this morning, Your
11:38:05
20
Honor, but the lenders obviously had the right to declare two --
11:38:08
21
THE COURT:
11:38:10
22
MR. CANTOR:
11:38:12
23
have got the provisions that provide that if Bank of America has
11:38:16
24
been notified of an Event of Default, it is required to take
11:38:20
25
certain action.
Bank of America was not required, and it would be
You know who could?
The lenders.
Again, the lenders
never did that.
MR. CANTOR:
How could the lenders do that?
The lenders, according to Mr. -Let me be more specific.
What provisions
I don't have the specific number for you.
Well, it is not so obvious to me.
Well, because what you have got is you
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Oral Argument
86
11:38:20
1
So, therefore that allows the lenders --
11:38:23
2
THE COURT:
11:38:28
3
saw, that we discussed, was notification by the controlling
11:38:35
4
person of the Event of Default.
11:38:37
5
11:38:44
6
11:38:48
7
11:38:50
8
Honor, it provides that -- and we have argued the other side of
11:38:56
9
this, but it addresses the same issue -- the agreement provides
11:39:00
10
that the Administrative Agent shall be deemed not to have
11:39:02
11
knowledge of any Default, capital D default, unless and until
11:39:07
12
notice describing such default is given to the Administrative
11:39:10
13
Agent by borrowers, a lender or the Issuing Lender.
11:39:14
14
11:39:18
15
give notice of an Event of Default to Bank of America as
11:39:24
16
Administrative Agent and then Bank of America, as Administrative
11:39:27
17
Agent, would have knowledge of it and would have to act.
11:39:29
18
11:39:34
19
11:39:37
20
11:39:40
21
11:39:40
22
11:39:42
23
11:39:45
24
11:39:48
25
But the only notification provision that I
Where does it say that any of the lenders, Revolvers,
Term Lenders, could trigger --
MR. CANTOR:
In 9.3 of the Credit Agreement, Your
So that is the provision that allows the lenders to
THE COURT:
But here's my question.
Plaintiffs argue
that they are not parties to the Disbursement Agreement.
MR. CANTOR:
But they are parties to the Credit
Agreement, Your Honor.
THE COURT:
They are parties to the Credit Agreement,
but they are not parties as such to the Disbursement Agreement.
MR. CANTOR:
Right.
But the point is the provision I
just read to you is from the Credit Agreement.
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Oral Argument
87
So your point is that where they are
11:39:51
1
11:39:56
2
11:39:58
3
MR. CANTOR:
11:39:59
4
THE COURT:
11:40:02
5
11:40:03
6
11:40:08
7
11:40:11
8
THE COURT:
11:40:12
9
MR. CANTOR:
11:40:13
10
THE COURT:
11:40:16
11
to initiate a default process under the Credit Agreement,
11:40:20
12
correct?
11:40:20
13
MR. CANTOR:
11:40:21
14
THE COURT:
11:40:22
15
MR. CANTOR:
11:40:23
16
THE COURT:
11:40:27
17
MR. CANTOR:
11:40:28
18
THE COURT:
11:40:35
19
11:40:36
20
MR. CANTOR:
11:40:37
21
THE COURT:
11:40:42
22
Agreement then tie into the responsibilities and the protections
11:40:46
23
under the Disbursement Agreement?
11:40:46
24
11:40:56
25
THE COURT:
parties --
Yeah.
-- they have an express right to initiate a
default process.
MR. CANTOR:
Right, and the contract defines that if
Bank of America knows it, it has to act on it.
Let me finish.
Sorry.
Let me finish.
They have an express right
Yes.
And give notice.
Right.
Now, the money is sitting in the account.
Right.
Then Bank of America has to deal with the
Credit Agreement and Disbursement Agreement.
MR. CANTOR:
Right.
So how does that notice under Credit
You go to 2.5.1, Your Honor, and you have
the provision that says that if the controlling agent gives
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Oral Argument
88
11:41:03
1
notice of an Event of Default or notice of default, the stop
11:41:09
2
funding notice is going to be issued.
11:41:11
3
11:41:19
4
provides that if the Disbursement Agent is notified of an Event
11:41:21
5
of Default or a Default has occurred, is continuing, that the
11:41:27
6
Disbursement Agent shall promptly, and in any event within five
11:41:31
7
banking days, provide notices to each of the funding agents of
11:41:37
8
the same.
11:41:37
9
11:41:39
10
if the lenders, which they clearly had the right to do, gave
11:41:42
11
Bank of America a formal notice of an Event of Default, Bank of
11:41:46
12
America, both in its Disbursement Agent and Bank Agent capacity
11:41:53
13
had obligations to act.
11:41:58
14
11:42:04
15
11:42:06
16
MR. CANTOR:
11:42:07
17
THE COURT:
11:42:11
18
an Event of Default -- which is capitalized, so that means that
11:42:15
19
is a defined term?
11:42:16
20
MR. CANTOR:
11:42:17
21
THE COURT:
11:42:20
22
continuing.
11:42:27
23
Agreement?
11:42:30
24
Is that notification only by the controlling person?
11:42:34
25
MR. CANTOR:
There is also 9.2.3 of the Disbursement Agreement which
So the bottom line is, Your Honor, one way or another
THE COURT:
Okay.
So let me get back to 9.2.3 for a
moment.
Okay.
If the Disbursement Agent is notified that
Right.
-- or a default has occurred and is
So, how do I read that in terms of the Disbursement
No, I don't believe so, Your Honor.
November 18, 2011
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Oral Argument
89
Or if you read the two agreements together
11:42:36
1
11:42:39
2
the way we started our discussion, is that notification by
11:42:42
3
lenders, other lenders?
11:42:44
4
11:42:46
5
if the Disbursement Agent is notified, Your Honor.
11:42:49
6
how I can credibly argue to you that that notice has to come
11:42:52
7
from --
11:42:53
8
11:42:58
9
11:43:05
10
where there are provisions for Term Lenders, among others, to
11:43:08
11
give formal notice of default to Bank of America and then that
11:43:16
12
would be sufficient under 9.2.3 to trigger those provisions?
11:43:22
13
11:43:23
14
referred to in the Credit Agreement where lenders have the
11:43:27
15
opportunity to give notice is a capital D default under the
11:43:30
16
Credit Agreement.
11:43:31
17
11:43:33
18
defaults under the Credit Agreement.
11:43:36
19
conditions or failures of conditions under the Disbursement
11:43:40
20
Agreement.
11:43:44
21
11:43:50
22
default hole in the Credit Agreement and come back over here to
11:43:55
23
the Disbursement Agreement and say, you know, this is a question
11:43:59
24
of knowledge and information that is flowing toward BofA from
11:44:03
25
whatever source.
THE COURT:
I would read that -- I mean, it just says
MR. CANTOR:
THE COURT:
I don't see
So let me ask from the plaintiffs' side:
In reading that, do I not go back to the Credit Agreement itself
MR. HENNIGAN:
Your Honor, the Default that was
We are not talking about any of these things being
These are defaults of
So we don't -- you kind of fall into the capital D
November 18, 2011
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Oral Argument
90
You are saying that once the Term Lenders
11:44:04
1
11:44:10
2
put their money up, that there was no right on the part of the
11:44:14
3
Term Lenders to notify Bank of America that, in the opinion of
11:44:21
4
the Term Lenders, there was a formal Default and to say to Bank
11:44:28
5
of America, "Don't disburse"?
11:44:33
6
11:44:34
7
a defined term called "Required Lenders."
11:44:37
8
talked about earlier today the fact that BofA considered at one
11:44:41
9
point going and getting consents from the lenders for the
11:44:47
10
11:44:49
11
11:44:54
12
lenders, if that procedure is invoked by Bank of America, gives
11:44:58
13
the required -- the quote-unquote Required Lenders authority to
11:45:03
14
take action.
11:45:10
15
lender democracy never happened.
11:45:12
16
11:45:17
17
of $700 million sitting in a bank proceeds account subject to
11:45:24
18
the diligence of our Disbursement Agent making sure that at each
11:45:29
19
level of disbursement the right conditions have been satisfied.
11:45:32
20
11:45:34
21
11:45:36
22
The position is that Bank of America can't rely on that
11:45:43
23
argument because the default at issue would have to be a Default
11:45:49
24
under the Credit Agreement, which means that the Term Lender
11:45:53
25
wouldn't have had to fund into the account that was subject to
THE COURT:
MR. HENNIGAN:
I am going to say two things.
There is
You will recall we
Fontainebleau disbursement.
If there is -- that protocol does give the required
That was never invoked so that sort of issue of
So, what we're dealing with in September is almost all
THE COURT:
Okay.
So let me turn back to Bank of
America on this.
November 18, 2011
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Oral Argument
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11:45:58
1
the Disbursement Agreement.
11:46:01
2
11:46:02
3
here, Your Honor, is an Event of Default, both under the
11:46:06
4
Disbursement Agreement and under the Credit Agreement.
11:46:09
5
11:46:13
6
9.2.3 or 2.5.1 in any way says that only certain events of
11:46:25
7
default give rise to a stop funding notice.
11:46:28
8
11:46:31
9
11:46:34
10
they wanted to make sure that the money that they had funded
11:46:37
11
into the bank proceeds account didn't find its way into the
11:46:40
12
project.
11:46:40
13
11:46:43
14
have the right somehow to stop that by issuing a notice of an
11:46:47
15
Event of Default or a Notice of Default, all of these things
11:46:51
16
that they are claiming, all of these things that they had equal
11:46:55
17
knowledge with Bank of America, are all things that are defaults
11:47:02
18
under all of the loan documents, both the Credit Agreement and
11:47:07
19
the Disbursement Agreement.
11:47:08
20
THE COURT:
11:47:13
21
minutes to complete your argument on the plaintiffs' side
11:47:16
22
because there is another issue I have to discuss before we
11:47:19
23
adjourn.
11:47:21
24
11:47:27
25
MR. CANTOR:
Everything that they are talking about
If there are events of default -- nothing in either
Indeed, it is completely inconsistent with what their
practical business position has been all along, which is that
So the idea that it is their position that they didn't
Let me do this.
Let me give you a few more
Any other points you want me to note that address
issues that were raised here during oral argument or from the
November 18, 2011
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Oral Argument
92
11:47:32
1
papers?
11:47:35
2
MR. HENNIGAN:
11:47:39
3
I've got a short list but I want to get to it.
11:47:44
4
to read for you -- I realize that there is a lot of information
11:47:48
5
here.
11:47:50
6
you the condition for disbursement that is 3.3.21.
11:47:57
7
THE COURT:
11:47:59
8
MR. HENNIGAN:
11:48:01
9
THE COURT:
11:48:08
10
11:48:10
11
MR. HENNIGAN:
11:48:11
12
THE COURT:
11:48:12
13
MR. HENNIGAN:
11:48:14
14
Basically, you know, nobody could be certifying to BofA
11:48:22
15
that this condition was complied with because it has to do with
11:48:27
16
BofA subjectively being unaware of information or other matter
11:48:32
17
affecting the project or transactions in an adverse manner
11:48:37
18
inconsistent with the other information.
11:48:41
19
11:48:46
20
to rely upon the representations of the borrower.
11:48:54
21
have any credible information in front of you in which they
11:48:57
22
attempt to say that, in fact, they did rely.
11:49:01
23
11:49:03
24
never said it.
11:49:07
25
representation from the borrower that they didn't have adverse
Okay.
Yes, Your Honor.
Thank you.
It is hard to keep it all straight.
I want
I want to read to
Now we are in the Disbursement Agreement.
The Disbursement Agreement.
3.3.21.
Let me just catch up with you.
The adverse information?
Yes.
Yeah, I've read that.
Okay.
You know what it says.
We've heard BofA now repeatedly say they were entitled
It would have been easy enough to say it.
You don't
They have
They have never said that they relied upon a
November 18, 2011
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Oral Argument
93
11:49:11
1
information, that no Material Adverse Effect had occurred, that
11:49:14
2
Lehman Brothers had funded.
11:49:18
3
THE COURT:
11:49:21
4
MR. CANTOR:
11:49:24
5
contract as written allows us to rely on all of the
11:49:29
6
representations and warranties that are made.
11:49:33
7
11:49:36
8
11:49:45
9
11:49:47
10
about the Bank Agent, so again you have got this dichotomy
11:49:52
11
between the two roles of Bank of America.
11:49:56
12
But the bottom line is under the contract, this is a
11:50:01
13
contract set up by sophisticated parties that is specifically
11:50:04
14
intended to limit the liability of the Disbursement Agent.
11:50:08
15
one is hiding behind that fact.
11:50:10
16
11:50:12
17
11:50:14
18
11:50:17
19
11:50:18
20
MR. CANTOR:
11:50:20
21
THE COURT:
11:50:24
22
Agent for violation of 3.3.21, would it have to be sued under
11:50:32
23
the Credit Agreement where it was the Bank Agent?
11:50:41
24
MR. CANTOR:
11:50:42
25
THE COURT:
THE COURT:
Okay.
Quick response on that?
Your Honor, the bottom line is that the
Right.
But how do I reconcile the language
in 3.3.21 with Bank Agent with the other language?
MR. CANTOR:
First of all, again, you are talking there
No
This contract was designed to limit the liability of
the Disbursement Agent.
THE COURT:
Let me interrupt.
This is where it gets
confusing.
Yeah.
If Bank of America was to be sued as Bank
I -Where was Bank of America a Bank Agent?
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Oral Argument
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11:50:45
1
Wasn't it under the Credit Agreement?
11:50:47
2
11:50:49
3
technically -- and I realize how complicated and sometimes
11:50:53
4
counterintuitive this seems -- Bank of America was actually the
11:50:55
5
Administrative Agent under the Credit Agreement.
11:50:59
6
Bank Agent under the Disbursement Agreement.
11:51:03
7
11:51:12
8
11:51:15
9
MR. CANTOR:
11:51:17
10
THE COURT:
11:51:21
11
11:51:21
12
11:51:24
13
term that is used only in the Disbursement Agreement.
11:51:28
14
that is used to describe Bank of America in the Credit Agreement
11:51:32
15
is the Administrative Agent.
11:51:33
16
THE COURT:
11:51:39
17
MR. CANTOR:
11:51:39
18
THE COURT:
11:51:44
19
11:51:47
20
11:51:50
21
of America, as Disbursement Agent, is relying on all of the
11:51:54
22
certifications by Fontainebleau that all of the conditions
11:51:57
23
precedent are satisfied.
11:52:00
24
11:52:05
25
MR. CANTOR:
THE COURT:
No.
Actually, I believe that
I'm sorry.
It was the
Bank of America was the
Disbursement Agent under the Disbursement Agreement.
Yes.
Was it not the Bank Agent under the Credit
Agreement?
MR. CANTOR:
"Bank Agent," Your Honor, is a defined
Okay.
The term
This is where we started.
Right.
Is Bank of America being sued as
Disbursement Agent or Bank Agent?
MR. CANTOR:
Disbursement Agent, Your Honor.
So Bank
9.2.5, Your Honor, which you talked about a little bit
earlier -November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 95 of 113
Oral Argument
95
So where does 3.3.21 come in?
11:52:06
1
THE COURT:
11:52:13
2
MR. CANTOR:
11:52:15
3
11:52:15
4
THE COURT:
11:52:22
5
terms of Article 9?
11:52:25
6
MR. CANTOR:
11:52:26
7
have got both 9.3.2, which allows us to rely without
11:52:31
8
investigation on the certification from Fontainebleau that every
11:52:35
9
single one of the conditions precedent, regardless of who, if
11:52:39
10
you will, is the action person under that condition precedent,
11:52:44
11
Fontainebleau certifies that every single one of those
11:52:46
12
conditions precedent is satisfied as of the disbursement date
11:52:53
13
and Bank of America, as Disbursement Agent, is entitled to rely
11:52:57
14
on that certification without further investigation.
11:53:00
15
11:53:06
16
specifically provides that the Disbursement Agent shall not be
11:53:09
17
deemed to have knowledge of any fact known to it in any capacity
11:53:13
18
other than the capacity of Disbursement Agent or by reason of
11:53:16
19
the fact that the Disbursement Agent --
11:53:18
20
THE COURT:
11:53:18
21
MR. CANTOR:
11:53:21
22
-- is also a funding agent.
11:53:22
23
THE COURT:
11:53:26
24
Agent is a defined term in the Disbursement Agreement that says
11:53:31
25
the Bank Agent is Bank of America in its capacity as
I'm not sure I am following your question,
Your Honor.
Okay.
How do I read this paragraph in
In terms of Article 9, Your Honor, you
9.2.5, which is entitled no imputed knowledge,
But -I need to finish this, I apologize.
Pardon me.
Pardon me.
November 18, 2011
Pardon me.
Bank
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 96 of 113
Oral Argument
96
11:53:34
1
Administrative Agent under the Credit Agreement.
11:53:36
2
MR. CANTOR:
Yes, Your Honor.
11:53:37
3
THE COURT:
So my question is:
11:53:40
4
of 3.3.21 as to Bank of America as Bank Agent, wouldn't it have
11:53:50
5
to be a suit under the Credit Agreement against Bank of America?
11:53:54
6
11:53:58
7
phrased, yes, I would say you're right, Your Honor, but to be
11:54:01
8
fair, that is not how the claim is phrased.
11:54:04
9
11:54:05
10
Agent, shouldn't have allowed the funding to go forward because,
11:54:09
11
among other things, this condition precedent was not satisfied.
11:54:12
12
11:54:15
13
condition precedent was not satisfied or that Bank of America
11:54:18
14
was not entitled to rely on the certification by Fontainebleau
11:54:23
15
that it was satisfied.
11:54:26
16
11:54:28
17
that both parties have, but we have been at it for almost three
11:54:32
18
hours, so let me get to one other issue which is important that
11:54:38
19
we discuss and, that is, I had entered back in January 2010,
11:54:49
20
which seems like a long time ago, MDL order number 3 which set
11:54:56
21
dates, among other thing, for a pretrial conference in January
11:55:00
22
2012.
11:55:06
23
11:55:16
24
role as an MDL Judge and what my options are here depending on
11:55:22
25
what I do on these motions.
MR. CANTOR:
If there is a violation
If that is how the claim was going to be
The claim is that Bank of America, as Disbursement
The problem is that they can't establish that this
THE COURT:
All right.
I know there is so much more
That seemed like a very long time back in 2010.
But let's talk about the posture of the case and my
November 18, 2011
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Oral Argument
97
11:55:24
1
Right now there is before the Eleventh Circuit -- and I
11:55:28
2
think the briefing is done.
11:55:31
3
Circuit has set oral argument yet.
11:55:33
4
11:55:35
5
11:55:35
6
11:55:38
7
11:55:42
8
MR. CANTOR:
Yes.
11:55:43
9
THE COURT:
Okay.
11:55:48
10
11:55:51
11
MR. CANTOR:
11:55:52
12
THE COURT:
11:55:55
13
11:56:00
14
11:56:11
15
the Eleventh Circuit affirms on fully funded.
11:56:18
16
disappears in terms of what I have in this district.
11:56:24
17
leaves, if there is a trial on what we are discussing today, the
11:56:31
18
cases in Las Vegas and New York, right?
11:56:34
19
11:56:37
20
to tell you -- I think the New York case no longer exists
11:56:41
21
because -- and you signed some orders to this effect -- but
11:56:44
22
effectively all of the Term Lenders that were plaintiffs in the
11:56:48
23
New York case had sold their interests to Term Lenders who are
11:56:51
24
plaintiffs in the Nevada case and I think -- it has never been
11:56:56
25
actually dismissed, I don't think.
MR. CANTOR:
I don't know if the Eleventh
There has been no argument date yet, Your
Honor.
THE COURT:
But the briefing has been done before the
Eleventh Circuit on the fully funded questions, right?
The only case that I actually had
was the one that Fontainebleau brought -Right.
-- which deals with the fully funded
aspect, although Term Lenders raise this in this suit.
So let's assume for the sake of just a discussion that
MR. CANTOR:
My case
That
Well, I think -- and these guys will have
November 18, 2011
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Oral Argument
98
11:56:59
1
MR. DILLMAN:
Actually, it has.
11:57:00
2
MR. CANTOR:
Has it been dismissed?
11:57:02
3
MR. DILLMAN:
I believe so.
11:57:02
4
THE COURT:
11:57:05
5
11:57:06
6
MR. CANTOR:
11:57:07
7
THE COURT:
11:57:15
8
issues, it is going to be in Las Vegas because, as an MDL Judge,
11:57:22
9
I have to send this bank to the federal court there.
11:57:29
10
11:57:31
11
sure my worthy adversary will chime in momentarily -- that is
11:57:38
12
correct.
11:57:40
13
the parties agreed, for Your Honor to keep it here.
11:57:44
14
But I don't think -- I think that is a moot point.
11:57:47
15
THE COURT:
11:57:51
16
interpretation, I, as the MDL Judge, have to stop my work and
11:57:58
17
send it back to the original court once I complete this phase of
11:58:06
18
it.
11:58:06
19
Now, whether the parties can convince the Court in Las
11:58:13
20
Vegas that I ought to try this thing and transfer it back to me
11:58:16
21
for some reason, whether I accept it, because I don't have a
11:58:19
22
case here, is a whole other issue.
11:58:23
23
MR. CANTOR:
11:58:23
24
THE COURT:
11:58:29
25
Well, let's assume it has.
That leaves the
Las Vegas case --
MR. CANTOR:
Right.
-- right?
So, if there is a trial on the
I think as a practical matter -- and I am
I believe that it is permissible for Your Honor, if
Under the MDL statute and all and
Right.
But it appears to me that my obligation, if
I determine that there are material issues of fact and a trial
November 18, 2011
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Oral Argument
99
11:58:34
1
is necessary -- and, by the way, it has to be a nonjury trial
11:58:40
2
according to the papers, right?
11:58:42
3
MR. HENNIGAN:
11:58:43
4
THE COURT:
11:58:47
5
So then I have to say, Well, wait a minute.
11:58:52
6
have to wait to see what the Eleventh Circuit does on the fully
11:58:57
7
funded questions to see whether I have a case that goes forward
11:59:03
8
with Fontainebleau because if I do have that case and all these
11:59:09
9
other matters are related, then, you know, should I, you know,
11:59:16
10
11:59:18
11
11:59:20
12
if -- and obviously, you know, we hope and believe that it won't
11:59:24
13
happen, but if the fully funded case were to come back as to
11:59:29
14
both entities, there is going to be further discovery on that
11:59:32
15
issue.
11:59:33
16
11:59:38
17
that and Fontainebleau has an issue in that, in the fully funded
11:59:43
18
side.
11:59:43
19
MR. CANTOR:
11:59:44
20
THE COURT:
11:59:51
21
all of these issues then also relate, plus there are going to be
11:59:57
22
all kinds of other claims, I assume, against Fontainebleau based
12:00:01
23
on the discovery that has come out here.
12:00:05
24
12:00:07
25
Correct, Your Honor.
That goes back to Las Vegas.
Don't I
integrate everything if the parties want that?
MR. CANTOR:
THE COURT:
MR. CANTOR:
Well, I think so, Your Honor, because
Right.
The Term Lenders have an issue in
Right.
Okay.
So then I still have a case to which
I will let them speak.
There are
litigations pending against Fontainebleau that these folks have
November 18, 2011
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100
12:00:11
1
filed.
There is still stuff going on in the bankruptcy, Your
12:00:14
2
Honor, litigations relating to lien priority and things like
12:00:18
3
that.
12:00:19
4
THE COURT:
12:00:21
5
MR. CANTOR:
12:00:24
6
fraud claim against Fontainebleau and the Soffer entities in
12:00:29
7
bankruptcy court here.
12:00:32
8
12:00:36
9
12:00:43
10
in abeyance, at least at the moment, until I determine the
12:00:50
11
issues on this case that are before me and hear further from the
12:00:55
12
Eleventh Circuit because I can't take you to trial in any event?
12:01:00
13
12:01:02
14
at a minimum, it makes sense for us to wait until you rule on
12:01:05
15
these motions.
12:01:07
16
12:01:13
17
a pretrial stipulation which will take you a lot of time when
12:01:17
18
you don't know all the issues that would be going to trial?
12:01:24
19
12:01:27
20
12:01:31
21
THE COURT:
12:01:34
22
MR. HENNIGAN:
12:01:38
23
think Your Honor needs to decide these motions.
12:01:42
24
is a sufficient overlap with the Eleventh Circuit case and this
12:01:46
25
one, I think there's not.
THE COURT:
Well, I haven't begun to -The trustee actually has filed its own
Okay.
So the bottom line is that in terms
of the MDL order that I have issued, should I not hold anything
I would say, Your Honor, that certainly,
MR. CANTOR:
THE COURT:
Why should I require everybody to file here
MR. HENNIGAN:
Your Honor, first of all, I need two
more minutes on the substance of this argument.
Let me get my answer first.
The answer is I don't know.
November 18, 2011
Certainly I
Whether there
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101
12:01:50
1
I think once we're done with these motions, this case
12:01:52
2
ought to be liberated to go to Vegas for its trial and I think
12:01:59
3
at that point the case that is pending before Your Honor will
12:02:03
4
probably be a stand-alone version here.
12:02:07
5
But, honestly, I hadn't really thought it through.
12:02:13
6
THE COURT:
12:02:13
7
MR. CANTOR:
12:02:14
8
could be.
12:02:19
9
counts.
12:02:24
10
that went up to the Eleventh Circuit.
12:02:27
11
case.
12:02:27
12
THE COURT:
12:02:30
13
MR. HENNIGAN:
12:02:30
14
THE COURT:
12:02:32
15
MR. HENNIGAN:
12:02:34
16
THE COURT:
12:02:39
17
MR. HENNIGAN:
12:02:41
18
First of all, Your Honor before the break suggested
12:02:44
19
that, you know, why would they pull the plug, quote-unquote, for
12:02:48
20
a two-and-a-half million shortfall.
12:02:52
21
one of their options.
12:02:54
22
12:02:57
23
order, perhaps call the lenders together to discuss it and have
12:03:02
24
lender clarification on some of these issues, but stop funding
12:03:06
25
doesn't mean stop the project.
All right.
Your Honor, I don't understand how that
Essentially, they filed a complaint with multiple
We won on the fully drawn counts.
Over our objection,
It is still part of this
I think I heard -That's right.
You have got two minutes.
I forgot.
That's true.
Use them wisely.
I will talk fast.
Pulling the plug was not
What they needed to do was to issue a stop funding
It means that once the
November 18, 2011
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 102 of
113 Argument
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102
12:03:10
1
conditions can be resolved, they can be resolved and move
12:03:15
2
forward largely consensually.
12:03:17
3
My second point was on the --
12:03:19
4
THE COURT:
12:03:22
5
12:03:24
6
12:03:28
7
moment and certainly the project in terms of a funding sense
12:03:31
8
stops at that moment until these issues can be resolved and
12:03:34
9
perhaps consensually.
12:03:37
10
12:03:40
11
order was issued, that this project wouldn't have imploded at
12:03:47
12
that point?
12:03:47
13
12:03:50
14
was doomed at that moment, Your Honor.
12:03:54
15
matter --
12:03:55
16
THE COURT:
12:03:57
17
Are you trying to tell me that if a stop funding order
12:04:01
18
was issued, the project would not have imploded at that point
12:04:06
19
because of the contractors not getting paid and all the rest of
12:04:10
20
this thing given the Lehman bankruptcy and all the other --
12:04:13
21
12:04:16
22
believe that had the democracy protocols taken effect, it would
12:04:21
23
have ultimately -- look, make no mistake about it.
12:04:25
24
the right thing been done in September, this project would have
12:04:28
25
ended on that date.
Well, what do you mean?
In reality, if you
are not paying the contractors, the project stops.
MR. HENNIGAN:
THE COURT:
You stop paying the contractors at that
Are you trying to tell me that if a stop
MR. HENNIGAN:
I think without any doubt this project
Just as a technical
That is not my question.
MR. HENNIGAN:
I am saying not at that moment.
I
I think had
The $700 million would still be in the bank
November 18, 2011
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103
12:04:33
1
account and people would have been much better off than they
12:04:39
2
ultimately became.
12:04:41
3
12:04:44
4
on the cases with respect to gross negligence, it occurred to me
12:04:47
5
reviewing them on the way here that we need to put them into
12:04:50
6
three categories in the group contract cases that have gross
12:04:56
7
negligent provisions.
12:04:57
8
12:05:01
9
12:05:06
10
breached as long as there is payment of direct damages.
12:05:09
11
are what I call the efficient breach cases.
12:05:14
12
example, Global Crossing.
12:05:20
13
12:05:23
14
property, which is banks with conditions on funding and alarm
12:05:28
15
companies that, under certain conditions, are required to take
12:05:31
16
action to protect properties, in those cases where the
12:05:35
17
conditions have occurred that require affirmative action, the
12:05:39
18
courts have routinely held that gross negligence is a triable
12:05:44
19
fact.
12:05:45
20
In the one case that we cited, which is DRS, when the
12:05:50
21
bank has actively participated in the loss of property, it was
12:05:55
22
held to be gross negligence as a matter of law.
12:06:04
23
12:06:07
24
Your Honor, at this point I am not going to belabor why DRS is
12:06:12
25
completely factually inapposite here.
Now, the last point -- I am trying to speak quickly --
Category Number 1 are contracts for the provision of
goods and services.
Those contracts can be intentionally
Those
That is, for
In the case of contracts that provide for protection of
MR. CANTOR:
For the most part it is in our papers.
November 18, 2011
I think the showing in
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 104 of
113
12:06:16
1
12:06:18
2
12:06:20
3
morning.
12:06:25
4
you and hear your input.
12:06:27
5
MR. HENNIGAN:
12:06:28
6
MR. CANTOR:
12:06:32
7
104
our paper on gross negligence is sufficient.
THE COURT:
I found it very helpful to discuss these issues with
10
I always enjoy being here, Your Honor.
Thank you, Your Honor.
[The proceedings conclude at 12:06 p.m., 11/18/11.]
CERTIFICATE
8
9
Thank you for your participation this
I hereby certify that the foregoing is an accurate transcription of the
proceedings in the above-entitled matter.
11
12
13
14
15
________________
12.18.11
DATE
______________________________________
JOSEPH A. MILLIKAN, RPR-CM-NSC-FCRR
Official United States Court Reporter
Federally Certified Realtime Reporter
400 North Miami Avenue, Suite 11-1
Miami, FL 33128
305.523.5588
(Fax) 305.523.5589
josephamillikan@gmail.com
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Quality Assurance by Proximity Linguibase Technologies
November 18, 2011
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A
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19:23 22:8 23:12,21 24:6,24 25:3,9
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86:10,13,16,1 7 87:25 88:4,6,12,12
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15:25 16:18 17:4,8,19,22,2 4 19:22
21:6 22:6,22 23:5 24:1,13,21 25:1,1
25:2,17,19 26:6,9,19 27:25 28:1,6
28:20 29:10,11,15,16,2 0 30:19,21
31:13,15 33:3 34:25 35:7 36:4
42:11 56:19 59:8,14 60:4,5 61:16
65:6 71:19 77:15,25 78:10,10 79:18
79:20 81:18 85:15,15 86:7,9,19,21
86:22,23,25 87:11,19,19,22,2 3 88:3
88:23 89:9,14,16,18,20,22,2 3 90:24
91:1,4,4,18,1 9 92:7,8 93:23 94:1,5
94:6,8,11,13,1 4 95:24 96:1,5
agreements 6:21 7:2 8:1,7,8,21 9:22
9:23,24 10:1,5,13,24,2 4 11:14,14
13:2 19:2 31:24 54:3 79:13 89:1
agreement's 8:22
agrees 13:22
ahead 22:14 48:1 67:13 73:21 74:7
80:6
Ahhh 53:17
al 1:6,9,12
Alan 1:15 3:2
alarm 103:14
alleged 59:20
allow 11:14 16:6 21:13 37:4 55:25
65:13 67:13 73:8,9,15 85:16
allowed 29:12 34:1 85:2 96:10
allows 86:1,14 93:5 95:7
alluded 28:3 62:5 66:3 67:3
alluding 61:10
almost 90:16 96:17
along 16:22 17:6 91:9
already 42:18 62:9 64:22 76:17 82:17
alternative 35:1
although 4:9 12:13 97:13
always 10:4 47:9 84:20,24 104:5
amalgam 85:3
ambiguity 13:10,14,17 14:23 15:16,21
16:7,9
ambiguous 15:6 16:18
America 1:12 2:2 3:25 4:2,5 5:17 6:3
6:14 7:3 9:3,4,15 12:7,8,13,17,22
15:11 18:20 19:3 21:2,7,10,17
22:23 23:2,2,3,13,2 0 25:6 26:11,14
26:15,16,22,2 4 27:3,17,20 28:7,11
28:14,25 29:3,20,25 33:10 34:1
35:7,21 36:7,14,22 37:1,8,19,22,25
38:22,24 39:5,6,9,17,1 7 41:3,11,13
41:16,22 42:14,23 44:2,18 45:1,23
46:4,10,14,16,20,23,2 4 47:7 48:19
49:15 50:11,17,20 51:7,9,14,19
52:4,14 54:10 55:2 58:24 59:15,24
60:3,6,17,19 62:2,6,12,20 63:10,16
63:23 64:3,6,11,14,2 4 65:5,13,16,22
66:9,22 67:2,11 68:4,9,13,23,25
69:8,18,24 70:1,8,13,16,2 1 72:3,8
72:16,18,20,2 5 73:4,8,9,15 74:20,22
77:11 78:6,9,16,23 79:14 83:9,15
83:25 84:23 85:2,5,23 86:15,16
87:7,18 88:11,12 89:11 90:3,5,12
90:21,22 91:17 93:11,21,25 94:4,7
94:14,18,21 95:13,25 96:4,5,9,13
American 72:24 75:11
America's 7:22 18:19 20:4 44:7 49:2
50:24 60:23 61:8 65:14 66:4 69:6
75:22
among 10:5 36:16 46:17 52:8 89:10
96:11,21
amount 18:7,25 23:14,16 41:14 51:22
52:6 53:1 54:14 62:24 67:7 75:4
81:7
ample 69:14
analysis 76:22
analyzing 50:11
and/or 59:13
Angeles 1:22
another 5:11 33:10 34:20 42:22 50:1
76:14 81:16 88:9 91:22
answer 11:10 15:1 22:11 27:22 43:12
43:17,20 44:5 47:18 50:13 100:21
100:22
answers 69:10
antithesis 70:4
anybody 8:12 9:24 55:16 71:23 80:3
anybody's 65:24
anyone 47:1,6 51:7 84:18
anything 9:23 13:2 21:3 36:2 47:5
55:2,3 59:8 80:2 100:9
anyway 19:14
anywhere 19:2 43:21
apologize 74:4 95:21
apparent 75:3 81:6
appearances 1:19 3:12 4:14
appears 98:24
appendix 10:22 12:3
applied 55:23
applies 16:11 52:11
apply 7:24 14:6,9 20:9 24:12 30:22
appointed 9:10
appointments 13:22
appoints 9:20
appreciate 58:2
approached 12:11
approaching 61:7
appropriate 31:14
approved 36:3
approving 59:10
argue 13:16 21:2 58:3 70:2,13 86:18
89:6
argued 13:17 50:9 86:8
arguing 55:19
argument 1:15 9:2,17 34:18 36:21
45:5 49:14 56:12 58:1,12 60:15
65:12 70:13 77:8 83:13,15 90:23
91:21,25 97:3,4 100:20
arguments 4:16 57:2 70:15,16,18
around 44:17
Article 12:17 21:1 24:15,19,22 35:12
37:23 95:5,6
articulation 22:17
aside 15:1 30:20
asked 39:6 41:3 48:21 51:14 53:3
61:12 62:10,12 69:16
asking 25:11 48:12 49:11 50:12 61:12
aspect 5:6 22:7 25:18 97:13
aspects 6:8 23:25
assert 66:23
assume 26:5 38:8 97:14 98:4 99:22
assumed 61:13
assuming 73:8
assumption 48:9 51:5 65:11 72:17
assurances 23:6
assure 19:24 20:10 21:21
assured 73:23
ATM 46:19
attached 8:16
attachments 24:7
attempt 92:22
attempted 69:9
attention 25:16 32:5 75:22
authority 29:4 79:25 90:13
authorized 9:21
automatic 78:24
automatically 31:8
available 68:21 77:18
November 18, 2011
Avenue 2:8,12 104:14
aware 19:6 74:23,23 80:2,17,19 81:9
a.m 57:16,18 74:21
B
B 82:3
back 9:18 12:7 17:2 20:15 22:12,25
25:12,15 26:4 27:24 30:7 32:1,24
35:10 38:5 50:3 54:8 55:3,9 57:11
57:19 65:3 68:9 72:22 75:6 77:24
78:23 88:14 89:9,22 90:20 96:19,22
98:17,20 99:4,13
balance 40:6,11 67:15 76:22,25
bank 1:12 2:2 3:25 4:2,5 5:17 6:3,14
7:3,22 9:3,4,15 11:15 12:5,7,7,13
12:13,17,22 15:11 18:19,20 19:3
20:4 21:2,7,10,17 22:22 23:2,2,3,13
23:20 25:5 26:10,11,11,14,15,16,22
26:24 27:3,17,20 28:1,7,10,11,14,25
29:3,11,20,2 5 31:6 33:10 34:1 35:7
35:21 36:7,14,22 37:1,8,19,22,25
38:22,24 39:5,6,9,17,1 7 40:17 41:3
41:11,13,16,2 2 42:14,23 44:2,6,18
45:1,23 46:3,10,13,16,17,20,22,24
47:6 48:18 49:2,15,17 50:11,17,20
50:24 51:7,9,13,19 52:4,13 54:1,10
55:2 58:24 59:15,24 60:3,6,17,18
60:23 61:8 62:2,6,12,20 63:10,16
63:23 64:3,6,10,14,20,2 4 65:5,13,14
65:16,22 66:3,9,22 67:2,11,16 68:3
68:9,13,23,2 5 69:6,8,18,24 70:1,8
70:13,16,21 72:3,4,8,16,18,20,25
73:4,7,9,15 74:20,22 75:22 76:17
77:11 78:6,9,10,16,2 3 79:13,23
80:15 83:9,15,25 84:22 85:1,5,23
86:15,16 87:7,18 88:11,11,12 89:11
90:3,4,12,17,20,2 2 91:11,17 93:8,10
93:11,21,21,23,25,2 5 94:4,6,7,10,12
94:14,18,19,2 0 95:13,23,25,25 96:4
96:4,5,9,13 98:9 102:25 103:21
banked 46:22
banking 88:7
bankruptcy 30:10,14 36:6 45:22
72:24 73:11 74:17 75:10,11,17 77:8
78:21,24 82:13,14 83:1 100:1,7
102:20
banks 83:6 103:14
barely 81:4
based 14:8 16:14 38:16 50:18 55:19
99:22
basic 58:21
Basically 31:25 46:16 92:14
basis 69:18
bear 70:6
became 103:2
becomes 6:7
before 1:15 4:16 5:6 6:25 7:17 14:8
17:2 28:20,23 45:14 50:16 60:21
61:10,13 69:22 85:19 91:22 97:1,6
100:11 101:3,18
beg 11:3
begin 3:7 39:16
beginning 9:19 50:24
begins 19:19
begun 100:4
behalf 3:15,21,25 4:4 9:21 41:14,16
42:25 44:7,18 51:11
behind 93:15
being 12:6,8 23:14 26:11 27:17 29:12
31:6,6,22 42:23 49:9 50:9 52:23
55:6,8,13,14 64:3 66:12 68:8,24
81:9,25 89:17 92:16 94:18 104:5
belabor 103:24
believe 8:21 10:11,12 16:17 22:16
31:20 32:12 38:21 39:1 44:9 73:24
88:25 94:2 98:3,12 99:12 102:22
believed 44:7,8,14,15 72:16,20,25
77:9
believing 72:9
below 19:17
best 15:14 24:18 35:25 39:5 48:5
better 103:1
between 41:18 45:1,23 53:11 60:25
69:12 74:13 77:16 93:11
bigger 53:14
billion 51:24
bit 6:17 55:18 94:24
105
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blanks 18:6
bleak 82:11
BofA 6:6 17:21 48:3 49:6,18 78:21
79:11 81:9,10 82:5,16,18,2 4 89:24
90:8 92:14,16,19
Bolio's 48:23
borrower 63:11,15 73:15 81:10 92:20
92:25
borrowers 17:6,21 86:13
both 4:19 7:7 8:1 31:25 34:18 39:2
56:22 88:12 91:3,18 95:7 96:17
99:14
bothered 70:11
bothers 54:21
bottom 67:9 70:3,22 88:9 93:4,12
100:8
bounce 22:25
box 20:13
boxes 32:20
breach 58:21 60:14 70:13 71:17
103:11
breached 103:10
breaches 77:6
breaching 9:15
break 26:4 50:5 52:16 53:8 56:13,25
60:21 61:10 66:3 71:5 101:18
Brickell 2:8
bridge 73:10
briefing 16:25 97:2,6
briefly 58:21
briefs 7:23 13:16 70:12
bring 17:13 42:3
broader 54:22
Brothers 39:18 41:15 43:1,11 44:3,7
52:22 73:23 74:16 75:9,16,24 76:9
78:16,18,21 80:9 81:13 82:13 83:3
93:2
brought 81:1 97:10
Brown's 48:18
budget 20:19
budgeted 82:8
budgeting 81:10
budgets 74:25 83:3
burden 70:6,23
business 72:24 73:11 91:9
button 27:6
C
C 104:8,8
CA 1:22
call 3:11 40:18 56:5 57:14,15,23 77:17
101:23 103:11
called 9:23 10:9,15 11:5 13:2 90:7
calls 4:9
call-in 57:21
calm 73:1
came 41:13 46:23 51:12 52:1 63:17,18
Cantor 2:2 3:5,10,24,24 5:3,9 6:12 7:9
8:3 9:7,10 10:1,8,11 11:9 12:1,10
13:3,7,11,13 14:5,14,16,19,2 5 15:19
16:3,22 17:11,16 18:5,8,17,23 19:1
19:6,9,15,20 20:5,17,20,22,2 5 21:4
21:9 24:18 26:8,12,18,2 3 27:5,12
27:15,22 28:17 29:2,7,9 30:6,11
31:17 32:4,7,16 33:8,19 34:3,7,12
34:16 35:8,15,18 36:13 37:12,14,18
37:25 38:11,15,19 44:21 45:4,6,9
45:12,17 46:16 48:7 50:4,7,15
52:20 53:3 54:14,18 56:23 57:9
58:4 61:17,22 62:4 63:6,8 64:18
68:6 71:7,14 72:14 73:20,22 74:1,4
83:18 84:4,6 85:13,18,22 86:7,20
86:24 87:3,6,9,13,15,17,20,2 4 88:16
88:20,25 89:4 91:2 93:4,9,20,24
94:2,9,12,17,2 0 95:2,6,21 96:2,6
97:4,8,11,19 98:2,6,10,23 99:11,19
99:24 100:5,13 101:7 103:23 104:6
capacity 5:18 12:21 88:12 95:17,18,25
capital 2:3 29:21 66:7 67:9 74:24
77:22 78:20,25 86:11 89:15,21
capitalized 88:18
care 25:9
careful 69:21
carry 19:3
case 1:3 3:12 6:1 10:19 12:11 15:20
26:20 31:19 37:9 58:24 59:24 60:2
60:15 61:6 73:13 96:23 97:9,15,20
97:23,24 98:5,22 99:7,8,13,20
100:11,24 101:1,3,11 103:13,20
cases 97:18 103:4,6,11,16
cash 82:7
catch 22:12 92:9
categorically 40:21 53:25
categories 103:6
category 49:20 82:21 103:8
cause 57:18
certain 12:18,19 29:1 30:14 85:25
91:6 103:15
certainly 8:4 20:5 67:1 69:3 78:18
84:15 100:13,22 102:7
Certificate 2:25
certification 21:18 40:25 95:8,14
96:14
certifications 29:13 34:22 36:24 37:3
59:12,22,25 94:22
certified 2:12 30:24 104:13
certifies 20:24 95:11
certify 104:9
certifying 92:14
cetera 8:19 11:2,2 14:1 20:1 22:9 24:9
26:3,3 34:15
chance 45:19 61:12
change 40:10
changed 41:22 42:14 51:9
charade 49:11,12
check 31:21 50:16
checked 32:20
checking 20:13
checklist 18:22 20:6 33:11 34:5 36:1
checklisting 35:14
checklists 20:3
check-the-box 14:20
chime 98:11
choose 50:25
chose 66:19,20
circle 48:24
circling 74:19
Circuit 97:1,3,7,15 99:6 100:12,24
101:10
circumstance 31:7
circumstances 35:1,25 38:12 61:17
83:14 84:14,15
cite 61:5
cited 50:23 103:20
claim 64:10 96:6,8,9 100:6
claiming 91:16
claims 55:16 78:16 99:22
clarification 101:24
clarify 5:14 15:23 77:25
clarity 4:22
clause 10:19 25:1
clauses 61:1
clean-cut 36:1
clear 8:8 36:21 39:16 40:13 45:21
59:15 65:18 69:6,8,18 71:23
clearly 43:6 73:7 88:10
clients 46:18 77:15 78:13,17 79:2,5
close 45:19 48:22 57:5 73:16
closely 56:1
closing 44:22 45:5 63:24 64:20 79:23
collapsing 82:6
collateral 13:25
colloquy 22:12 43:14
come 3:8 22:12 51:20 57:25 58:19
63:16 64:5 68:22 70:8,9 75:22 81:5
82:7 83:5 89:6,22 95:1 99:13,23
comes 14:6 16:12 21:15 42:22 71:16
71:20 72:10
comfort 23:6
coming 55:10 81:9
comment 6:12
comments 6:11 16:21 22:2
commercial 20:8 23:25 24:14 36:9
55:23 56:12
commercially 13:23,23 14:10,21,21
15:8 18:13 22:16,18,23 24:9 55:24
commitment 67:6,7,17
commitments 76:17,22,25 79:21,22
committed 15:9 75:16 76:3,9 78:17,18
communicated 51:3
communication 31:14
communications 41:21 69:12
companies 42:4 103:15
company's 40:11
comparable 7:4
compared 85:16
complaint 59:20 101:8
complete 8:9 17:14 70:4 80:17 91:21
98:17
completely 70:23 91:8 103:25
complicated 94:3
complied 6:14 16:13 92:15
concede 37:4
conceded 41:12 61:23
conceivably 68:17
concept 50:10 52:11
conceptual 47:10
concern 24:11 56:1
concerned 76:8 78:7 82:8
conclude 104:7
conclusion 71:24
conclusively 49:6
condition 33:15 34:10 35:4,23 37:1,8
41:23,24 42:13 43:23 75:19 84:7
92:6,15 95:10 96:11,13
conditions 8:17 22:24 24:16 25:21
32:25 33:6 34:24 36:24 38:1 40:25
59:3,6,13 66:15 79:25 81:16 84:9
89:19,19 90:19 94:22 95:9,12 102:1
103:14,15,17
condominium 83:8
condominiums 82:10
conduct 6:6,9,22,23 14:6 61:4,8 66:4
conference 96:21
confidential 77:19
confines 50:14
confirm 51:15
confirmation 42:5
confirming 59:3
confusing 34:17 93:19
confusion 16:1
connection 47:1
consensually 102:2,9
consent 40:20
consents 90:9
consequences 30:14 67:24
consider 16:6 53:8 66:4,21 71:11
consideration 65:16
considered 15:12 61:9 90:8
considering 45:25 50:21
considers 83:23
consistent 13:24 25:7 35:13 65:20
84:2,5
constituted 84:25
construction 18:11 19:24 20:11,14,15
20:21 21:11,16,18,1 9 22:4,9,19
24:3,6 33:13,22 34:5 35:5 63:22
consult 4:25
consultant 18:11 19:25 20:11,14,16
21:12,16,18,1 9 22:19 24:6 33:14,23
34:6 75:2
consultant's 22:9 24:4
contains 13:10 18:1
contemplated 54:2 79:20
contemplates 26:19
contemplating 82:19
contemplative 69:22
contend 13:9 39:9
contended 9:13
content 31:18
CONTENTS 2:23
contests 56:7
context 16:20 42:10 43:22 44:13
51:12 61:9 65:4 74:12 82:23
continue 12:24 53:21 55:11 64:8
67:14 73:2,6,24 74:3 77:5
continuing 25:25 56:5 88:5,22
contract 15:3,5,6 16:4,9,10,14,20
24:20,20 32:16,17 52:12 58:21
60:15,23 70:13 84:6,7 85:1,6 87:6
93:5,12,13,1 6 103:6
contractors 102:5,6,19
contracts 103:8,9,13
contractual 53:4
contrary 59:9
contribution 43:1 73:9
control 9:22,23,24 10:1,4,9,12,15,24
10:24 11:5,13,25 13:2 14:1 26:6
31:2,3,4 49:17 64:24
controlled 50:14
controlling 11:21,24 25:23 26:5,8,15
27:3,10,18,19,2 0 28:13,14 29:4,18
30:2 31:5 32:2,9,21 35:22 47:7,14
November 18, 2011
85:17 86:3 87:25 88:24
controversy 43:5 57:5
conversation 4:19 42:24 43:4,6 46:11
conversations 42:22 44:25 67:15
69:15
convince 98:19
corners 14:18
correct 5:8,9,15 14:14 17:9,17,25
18:16 32:4 54:10 78:5 87:12 98:12
99:3
correctly 16:17 34:22 38:19 59:19
cost 20:21 55:15 74:23 75:3,6,8 80:17
81:7
costs 22:5 33:15 39:24 51:25 63:22
64:1,22,25 80:25
counsel 4:15 6:22 43:6 58:10 69:20
count 75:14 83:5
counter 4:20
counterintuitive 94:4
counterpoint 58:3
country 43:21
counts 101:9,9
couple 52:17 53:7 56:1 64:21 71:15
81:2
course 18:20 35:21 42:18 48:10 70:4
court 1:1 2:11 3:2,3,6,11,16,2 2 4:3,6
4:13 5:4,10,22,25 6:11,16,24 7:11
7:14,17 8:12 9:2,8,18 10:7,9,14,22
11:17 12:6,15 13:6,8,12,16,18
14:13,15,17,2 2 15:10,20 16:6,21,24
17:12,17,20,2 2 18:1,6,9,18,24 19:2
19:7,13,16,2 1 20:15,18,21,2 3 21:1,5
21:25 22:14,20 23:11,18,20 25:11
26:11,13,22 27:2,9,13,16 28:13,19
29:3,8 30:5,7,17 31:4,9,12 32:1,5,8
32:15,24 33:9 34:2,4,8,13,1 7 35:9
35:16,19 37:6,13,17,1 9 38:4,13,16
39:8,12 40:24 43:21 44:19 45:2,5,7
45:10,13 46:13 47:4,12,19,2 3 48:1
48:4,8,12,15,2 1 49:1,25 50:3,5,9
52:15,19 53:6 54:6,16,21 56:24
57:10,19 61:11,20,23 63:3,7 64:16
68:5 71:1,6,9 72:12 73:18,21 74:3,7
77:7,24 78:3,6 79:2,5,9,13,1 6 80:6
80:19,21 83:13 84:3,5 85:12,14,21
86:2,18,22 87:1,4,8,10,14,16,18,21
88:14,17,21 89:1,8 90:1,20 91:20
92:7,9,12 93:3,7,18,21,2 5 94:7,10
94:16,18 95:1,4,20,23 96:3,16 97:6
97:9,12 98:4,7,9,15,17,19,24 99:4
99:16,20 100:4,7,8,16,2 1 101:6,12
101:14,16 102:4,10,16 104:2,13
courtroom 1:10,25 3:1 41:9 67:21
courts 103:18
cover 19:11,13 43:24 49:21 80:13
81:17
covered 36:3 57:4 58:6,22
co-lenders 52:9
create 41:24 58:14 78:24
created 57:22
creates 30:24 39:13
creating 70:24
credence 72:8
credible 44:1 92:21
credibly 89:6
credit 5:23 6:8,9,18 7:3,20,22 8:25
10:5 26:25 27:25 28:1,6 29:9,15,16
29:19 30:21 31:13 62:8 77:25 78:10
79:13,18,19 82:20 85:15 86:7,20,22
86:25 87:11,19,21 89:9,14,16,18,22
90:24 91:4,18 93:23 94:1,5,10,14
96:1,5
criminal 50:10 52:11
criteria 19:5
Crossing 103:12
culpability 70:20
culpable 61:8
cumulative 83:14
current 42:3
cut 48:5 71:7
C-1 17:7,14 18:3,3,9 34:21
D
D 1:21 29:21 86:11 89:15,21
dah-dah 44:12,12,12
Dallas 27:1
damages 103:10
106
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113
Dan 3:24
DANIEL 2:2
date 10:25 18:6 40:24 41:4 74:16,16
95:12 97:4 102:25 104:12
dates 96:21
day 65:25 82:2
days 42:21 72:23 82:1 88:7
dcantor@omm.com 2:5
dead 76:16
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56:21 64:17 87:18
dealing 56:6 68:13 90:16
dealings 35:22
deals 24:21 97:12
debate 23:12
debt 19:18 26:25
Debtors 1:7
decide 100:23
decided 64:7,8
decision 27:11,14 67:12 82:25
decisions 27:8
decision-makers 27:9
declaration 44:14
declare 30:15 31:23 85:20
declared 82:13,13
declaring 62:3 84:14
deemed 28:7 86:10 95:17
default 11:22,23 25:24,24 26:17 28:4
28:5,8,8,16 29:19,19,21,21,22 30:1
30:10,16 31:16,23 37:24 41:25
49:23 54:6,7 61:24 62:3 66:11
77:10 78:8,11,22 79:14 80:13 81:10
81:12,17,21 82:22,22 83:3,9,16
85:17,24 86:4,11,11,12,1 5 87:5,11
88:1,1,5,5,11,18,2 1 89:11,13,15,22
90:4,23,23 91:3,5,7,15,15
defaulted 80:16
defaults 81:22,23 89:18,18 91:17
Defendants 1:13 2:1 13:11,13
deficiency 18:15
define 36:15
defined 10:3,12 11:25 12:1 14:3 15:25
26:6,9 81:17 88:19 90:7 94:12
95:24
defines 87:6
definition 11:10 14:4,6 27:10 32:13
definitions 10:2,23 11:4
degradation 82:9,19
degree 70:20
delay 7:13 57:24 62:9
Delayed 68:15
deliberate 50:10
deliberately 50:13 56:17
deliberation 69:22
demand 26:16 78:8,20 79:6
demanded 66:8
democracy 90:15 102:22
demonstrated 74:24 76:9 78:14
demonstrates 49:6 71:21
denied 44:4
dependent 55:22
depending 96:24
deposition 43:14
DEPUTY 3:1
describe 49:5 94:14
describing 86:12
designed 93:16
despite 77:5
detailed 57:4
details 25:3
determination 14:7 15:7 16:14 34:23
50:25 51:1 62:13 84:21 85:7
determinations 59:10 84:16
determine 16:12 18:11 24:7 34:9
47:13 83:15 84:19 98:25 100:10
determines 15:16 33:12,13
determining 21:19 34:21 36:18 59:1
65:16 84:1,13
dichotomy 93:10
differ 11:3
difference 84:24
different 5:25 15:15 22:18 27:14
28:15 32:9 37:22 45:3 47:10 49:3
52:8 53:16 62:7 65:7,21,22
differing 68:17
difficulty 28:19
dilemma 55:18
diligence 19:24 20:7,10 21:8,11,21
22:17,23 24:3,14 35:3 61:6 69:6,7
90:18
diligent 33:14
Dillman 1:21 3:20,20 7:13 43:14 98:1
98:3
direct 69:12 103:10
directed 5:17
direction 64:14
directly 3:18 48:16 56:18
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disavowed 76:17
disburse 79:25 90:5
disbursed 47:22 49:23 64:22 78:4
79:24
disbursement 5:7,18,18 6:4,6,10,15
6:23 7:5,8,19,25 8:13,22,25 9:4,5
9:10,14,16,2 1 11:1,5,15,22 12:9,18
12:20 13:9,21 17:19,23 18:10,20
19:19,23 22:7 23:5,12,21 24:6,21
24:24 25:3,9,17,19,2 3,25 26:16
27:4,18,21 28:11,25 29:10,14,18
30:3,19 31:15 32:10 33:3,11,17
34:9,14 35:3,22 42:6 58:25 59:3,6
59:11 60:4,9 62:7 65:6 70:17 77:15
78:10 80:4 85:15 86:19,23 87:19,23
88:3,4,6,12,17,2 2 89:5,19,23 90:10
90:18,19 91:1,4,19 92:6,7,8 93:14
93:17 94:6,8,8,13,19,20,2 1 95:12,13
95:16,18,19,2 4 96:9
disbursing 9:11 14:1 24:22 31:6 32:22
47:7
disclosed 75:4 81:8
discloses 15:15
disclosure 75:7
discovered 55:15
discovery 38:17 99:14,23
discursive 81:25
discuss 53:6 91:22 96:19 101:23 104:3
discussed 52:24 58:17 65:7,18 79:10
86:3
discussing 12:6 39:17 50:12 69:19,20
71:22 97:17
discussion 12:16,24 16:25 17:2 25:14
26:9 27:16 28:22 30:3 38:7 46:7
74:8 80:25 89:2 97:14
discussions 45:23 71:25
dismiss 59:18
dismissed 97:25 98:2
disposes 39:15
dispute 23:13 53:10 60:25 63:10
69:23
disregard 61:3
disregarded 66:22
disregarding 62:21 65:17,24 69:1
70:5
distinction 15:17
distorting 83:2
district 1:1,1,16 97:16
divide 27:19 38:13
division 1:2 77:16
document 8:15 10:9 11:4,19 17:14,23
18:3,4 24:10 34:6
documentation 18:12 24:8 59:2
documents 8:9,23 50:19 52:2 91:18
doing 18:24 20:14 21:12,12 22:19
31:23 33:11 36:1 43:24 61:21 66:5
66:6 68:11
dollar 74:9,10,11,12
dollars 23:4 62:17 64:1
done 24:3 55:8,24 58:6 60:3 85:19
97:2,6 101:1 102:24
doomed 102:14
doubt 41:18,20 60:5 83:11 102:13
Doug 40:4
down 5:11 26:4 27:2 39:25 47:16 54:4
63:24 64:14 65:19 73:1
downgrade 82:15 83:19,22
downgraded 82:16
downgrades 82:3,4
drafted 17:15,18,22,23
draw 62:9 76:13,15
drawn 101:9
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DRS 103:20,24
drying 82:11
during 45:21,21 53:8 57:20 82:18
91:25
duties 6:14 9:16 13:24 25:6 59:9 60:7
60:9,11
duty 28:15 35:6 36:9 37:23 83:15
E
E 104:8,8
each 4:25 7:18 8:7 9:20 26:1 35:4 59:2
88:7 90:18
earlier 28:3 42:6 58:6 67:3 71:22 72:2
74:25 75:1 80:7 83:20 90:8 94:25
early 74:21 81:25
earmarked 23:16
earned 23:3
earning 23:2
easy 92:23
economic 84:19
effect 18:21 28:9 63:3 75:21,23 76:1
93:1 97:21 102:22
effectively 97:22
efficient 103:11
effort 55:6
efforts 13:23 18:14 22:18,23 24:9
either 11:7 13:9 36:8 45:5 58:11 61:3
68:12,21 69:15 80:2 91:5
electronic 74:18
electronically 30:25
Eleventh 97:1,2,7,15 99:6 100:12,24
101:10
email 30:12 31:12 39:21 40:8 41:12
42:2 49:6 68:9 75:2 80:22
emails 38:16,25 39:16,20 40:14 45:15
45:18,20 50:23 74:19
employed 15:23,24
end 58:11 60:2 65:24
ended 45:25 62:17 73:14 102:25
enforceable 61:1
engage 4:19
enjoy 104:5
enormous 77:6
enough 5:2 30:25 45:15 92:23
ensure 59:6
entered 96:19
entire 8:14 60:15
entities 10:25 11:16 18:14 26:1 33:17
34:15 59:12 67:14,16,18 99:14
100:6
entitled 14:9 21:17 36:23 59:12,16
60:19 92:19 95:13,15 96:14
entity 32:13
equal 91:16
equate 61:15
equation 53:12 71:12,15
equity 51:1 63:12 73:9
equivalent 24:15 37:10 50:10
error 49:23
especially 61:8 63:2
ESQ 1:20,21 2:2,3,7
essential 23:5
essentially 11:14 15:3 24:20 59:1
70:12 73:15 101:8
establish 38:24 70:10,19 96:12
established 48:9
et 1:6,9,12 8:19 11:2,2 14:1 20:1 22:9
24:9 26:3,3 34:15
evaluating 66:3
even 9:8 10:25 45:19 51:14 52:6 55:23
56:15 61:6,7 62:19 65:24 66:8,21
69:2 70:18 79:3
event 11:22 25:20,24 28:5,8 29:19,21
29:23 30:10,15,15,2 5 31:23 32:2,25
33:16 34:13 50:21 84:4,8 85:24
86:4,15 88:1,4,6,11,1 8 91:3,15
100:12
events 66:14 68:19,20 85:4 91:5,6
eventually 33:5 72:7
ever 32:23 51:3 66:8 68:22
every 54:8 55:6 59:23 81:22 95:8,11
everybody 3:16 4:13 57:14,20,22,25
75:24 77:8 100:16
everybody's 5:14 13:19 55:7,13
everyone 3:7 10:4 41:9 43:23 71:25
everything 20:18 26:20 36:3 60:3
62:23 66:16 91:2 99:10
evidence 14:2,8,23 15:4,12,16,22,22
16:6,14,19 32:22 38:23 39:1,12,14
40:14,22 41:7 44:1,23,24,2 5 46:25
49:22 51:3,6 53:13 69:14 70:7,9,10
November 18, 2011
83:4,19
exact 41:14 52:25 65:1
exactly 48:11 78:20
example 11:18 19:21 33:22 34:2,4
61:19 78:15 103:12
except 60:10
exception 27:5 66:7 68:24
exchange 43:15
exclude 28:21
excuse 17:23 68:6
executed 8:6 10:25 11:4
exercise 13:22
exercised 24:16,17
exhaustion 12:2,4
Exhibit 17:7 39:21 40:14 41:12 42:6,8
80:22
exists 97:20
expect 82:7
expectation 77:1
expected 75:8,23,25
expert 15:10
explain 50:16
explanation 50:2
explanations 50:12
express 87:4,10
expressed 30:13
expressly 60:4,10
extent 6:20 14:24,25 16:11 36:13
65:22 71:16,19 83:22
extrinsic 14:2,23 15:4,12,16,2 1 16:6
16:18
F
F 104:8
face 15:21 73:10
face-to-face 69:16
facilitated 69:12
facility 36:5 37:11 52:8 62:8 63:24
75:15 76:4 78:17,19 82:3,20
fact 14:9 15:9 16:15 19:7 36:10,16
38:7,18,22 39:13 41:9 42:21 44:1
44:17,23 45:11,16,25 46:1 49:19,22
51:13 52:6 53:9,11 55:1,11 56:24
58:14 61:13 62:14,20 63:7 67:17
70:24 71:20 72:7 74:24 76:11 77:5
79:6 80:12,15,16 82:16 83:2,3 85:3
90:8 92:22 93:15 95:17,19 98:25
103:19
factors 84:19
facts 28:20 33:19 63:11 66:17 67:23
70:14 84:25
factual 38:5 53:12 58:10,13,16
factually 12:23 103:25
fail 41:24
failed 66:15 67:5 70:23 76:20
fails 40:1
failure 32:19 62:14 83:6
failures 89:19
fair 5:2 53:22 96:8
fall 89:21
false 50:18 75:1
family 3:8
fashion 8:10 21:14,24
fast 101:17
favor 11:1
Fax 1:23 2:9,13 104:15
fears 83:4
federal 98:9
Federally 2:12 104:13
fee 23:1
few 42:21 53:7 91:20
fifteen 56:24
Figueroa 1:22
figure 4:18
figures 65:1
figuring 67:12
file 100:16
filed 45:22 100:1,5 101:8
files 20:16,23 75:10,24
filing 74:17,19 75:17 78:23
filings 72:24 73:11
fill 7:24
filled 18:6 76:5
financing 23:9
find 11:7 13:19 70:20 73:3 91:11
finder 16:15
finding 39:5
107
Case 1:09-md-02106-ASG Document 335 Entered on FLSD Docket 12/18/2011 Page 108 of
113
finer 9:12
fingers 65:2
finish 87:8,10 95:21
first 16:7 41:11 45:21,22 53:22,24
58:20 67:16 83:18 84:12 93:9
100:19,21 101:18
five 88:6
FL 2:8,13 104:14
flaw 60:14
Florida 1:1,11 15:15
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flowing 89:24
focus 5:6 6:24 7:17 29:24 58:20 74:13
focused 10:20 49:6
focuses 30:2
focusing 6:3,6
folks 99:25
follow 25:4 61:25
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following 5:5 61:16 95:2
Fontainebleau 1:5,9 33:4,5 37:14,21
39:18,19,23,2 5 40:5,18,23,25 41:8
41:10,23 42:12 44:3,9,15 45:1,23
45:24 46:6,7,8,9,18,2 2 47:1 48:3
49:3,10,16,17 50:13,18,20,25 51:4,4
51:11,15,18 52:2,24 53:2 55:21
56:18 59:17,21 60:1 61:20 62:16,23
63:23,25 64:9,10,22 65:9 66:13
69:11,13 72:18 73:4 80:9 81:21
82:3,12,20,25 84:9,10,12 90:10
94:22 95:8,11 96:14 97:10 99:8,17
99:22,25 100:6
Fontainebleau's 36:24 37:3 41:14,16
44:18 63:9 85:3
foreclosed 70:18
foregoing 104:9
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form 17:7 38:24
formal 4:20 26:16 30:20,23 31:13 32:9
58:5 77:11 88:11 89:11 90:4
formalistic 32:18
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forth 25:2 60:10
forward 21:23,23 37:5 55:10,11,22,25
62:14 63:1,13 68:3,7,22 70:8,9 73:1
96:10 99:7 102:2
found 104:3
four 14:17
frame 4:23
fraud 100:6
Freeman 39:25 42:2,8,11,15,2 5 43:3
43:12,15 51:7 69:16
Freeman's 42:19
from 3:24 4:1,15 7:23 8:22 10:14
11:15 16:4,21 20:4 22:18 27:20
29:22 30:9,12 32:9 34:18 38:6
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50:12 51:7 53:11 54:15,22 55:19,21
57:2,23 59:5,12,17,2 5 60:1 63:17
63:18 64:5,7,9 65:9 67:1 72:2,3
74:22 75:2,19 76:13 80:12 81:9
82:7,10 83:12 86:25 89:7,8,24 90:9
91:25 92:25 95:8 100:11
front 4:24 7:8 92:21
fruition 83:5
fulfilled 22:24
fulfilling 80:5
full 6:15
fully 61:1 97:7,12,15 99:6,13,17 101:9
fun 80:11
function 18:25 19:4 23:13 27:7
functions 26:24
fund 37:20 40:1 42:12,17,18,2 0 46:2
46:10,11 48:24 50:18,22 51:1,11,13
53:10 54:5,25 55:2 56:4,8 62:10
67:5,10,18 71:24 72:1,1,18 73:2
77:5 78:11 90:25
fundamental 60:14
funded 37:15,21,21 44:12 48:3 49:16
53:18,19,19,2 0 56:19 71:20 72:7,10
73:3 74:24 75:15 91:10 93:2 97:7
97:12,15 99:7,13,17
funding 9:20 11:20 26:1,2 37:4,11
38:3 40:6,18,19,2 3 41:5,8,15,25
44:2 45:25 46:5,13 48:17,20 51:17
52:23,24 53:11 54:3 56:16 61:21
62:13,15,23 64:3 65:13 67:13 71:6
73:7,24 74:21 76:22,25 79:12,20,22
80:9 81:13 88:2,7 91:7 95:22 96:10
101:22,24 102:7,17 103:14
fundings 75:1
funds 9:11 11:15 14:1 23:15 24:22
46:23 47:22 49:24 53:2 81:21
further 7:1 25:14 36:23 51:19 52:3
58:11 59:16 61:14 65:10 82:4,9
85:2 95:14 99:14 100:11
future 77:2 82:12
G
gains 12:18
gaming 82:6
gap 7:24 40:1 41:18 73:10,16,17
gave 88:10
Gee 64:8
general 14:12 23:24 24:5 25:2,8
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generated 45:15 46:20
gets 45:19,19 93:18
getting 17:2 62:17 90:9 102:19
give 10:16 11:17 13:20 30:21 33:5,6
56:13,22 79:12 86:15 87:14 89:11
89:15 90:11 91:7,20
given 7:25 16:11 30:24 62:23,24,25
77:11 86:12 102:20
gives 4:22 87:25 90:12
giving 61:12
glad 63:17
Global 103:12
go 4:11 5:4 9:18 17:2 22:14 23:22
25:19 26:4 30:7 32:24 34:19 35:11
37:5 48:1 49:11,16 50:16 52:4 54:4
55:25 62:13 63:1,13 67:13 73:1,21
74:7 75:6 77:24 80:6 87:24 89:9
96:10 101:2
goes 27:24 36:3 42:14 46:19 65:3 99:4
99:7
going 3:16 4:23 11:9 15:8 16:14 18:22
23:11 25:6 27:23 29:5 33:12 34:19
42:12 45:21 46:2,4,6,10 48:4,22
50:8 51:13 53:6 54:2 55:22 56:11
56:13 57:8,14 58:4,11 62:10,24
64:2 65:11,19 67:13,14,18,2 5 68:10
69:3 70:9 71:4,23 72:5,6,18,20,22
73:2,6,16,23 74:13 75:12 76:1,2,21
77:1,4 80:11 82:10,11,12 83:4
84:13,20,22,2 4 88:2 90:6,9 96:6
98:8 99:14,21 100:1,18 103:24
Gold 1:15 3:2
Good 3:3,4,5,14,19,20,24
goods 103:9
Gotcha 31:11
governs 28:1
grant 48:8
great 44:22 63:17
gross 19:13 38:10 56:13,19 60:23 61:2
61:15,25 69:5 70:6,10,24 72:12,14
103:4,6,18,2 2 104:1
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group 26:25,25 27:8 103:6
guess 16:4 37:9 43:18,18
Guggenheim 67:10
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H
habit 48:10
half 12:20
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hang 57:22
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51:8 74:15,18 75:21 90:15
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harder 35:19
HASBUN 4:11
hat 12:7,8,17 18:20 23:13 27:14 28:15
53:17
hats 47:10 53:16
having 11:18 28:19 36:11 49:23 69:15
71:25
hear 3:17,18 4:16 6:16 28:23 53:13
57:2,23 100:11 104:4
heard 73:22 75:10 92:19 101:12
hearing 46:4 59:18 72:3
heart 57:5
held 45:1 103:18,22
help 4:16 5:14 6:17 17:5
helpful 4:25 104:3
helps 4:22
Hennigan 1:20,21 3:4,9,14,15,1 9 5:21
5:23 6:5,20 7:10,16 8:21 10:20
12:12 13:5,14,17 16:22 17:10,18,21
17:25 22:11,15,21 23:15,19 31:1,5
31:11,16 32:12 39:11,14 41:2 45:19
47:9,18,20,2 4 48:2,11,14,18,22 49:4
50:1,17,23 51:5 52:17,20 53:24
71:2 73:22 74:2,6,8 77:14 78:2,5,12
79:4,7,11,15,1 7 80:7,20,22 83:19,23
89:13 90:6 92:2,8,11,13 99:3
100:19,22 101:13,15,17 102:6,13,21
104:5
hennigan@mckoolsmithhennigan....
1:23
Henry 67:20
her 48:20
hereof 60:13
hereto 8:16,18
hereunder 9:22 13:24 59:9,11 60:10
herewith 10:25
hide 80:12
hiding 93:15
high 20:12 61:3 82:21
higher 20:2 21:7 22:8
Highland 31:22 66:7 68:8,8,9,24
77:22 78:20,25 79:2,15
him 16:23 69:16 71:9
hindsight 61:9 73:13
history 72:24 75:11
hit 50:8 84:17
hold 21:25 37:6 38:4 39:8 47:4 100:9
holding 13:25
HOLDINGS 1:5,9
hole 5:12 54:5 76:4 89:22
holiday 3:8
honestly 101:5
Honor 3:4,5,10,14,20,2 4 5:3,9,21 6:5
6:20 7:9,13 8:3,11,21 9:7,13 10:11
10:20 11:9 12:1,10 13:3,13,15 14:5
14:11 16:3,17 17:11,16 18:5,17,23
19:1,6 21:9 22:25 23:3 24:18 26:8
26:12,21,23 27:1,5,12,15,2 2 28:3
29:7,17 30:4 31:1,17 32:7,12 34:7
34:12 35:8,18 38:11,15,20,2 1 39:4
39:15 44:21 45:17 47:9 49:5 50:15
53:4,25 57:9 58:4,9,18,20,23,25
59:15,18,22 60:1,8,15,19,2 2 61:10
61:17 62:4,15,19 63:8 65:2,4 66:2
66:14 67:1 68:2 69:14,23 70:14,25
71:2,15 72:15 76:11 78:12 79:8
84:6 85:20 86:8,21 87:24 88:9,25
89:5,13 91:3 92:2 93:4 94:12,20,24
95:3,6 96:2,7 97:5 98:12,13 99:3,11
100:2,13,19,2 3 101:3,7,18 102:14
103:24 104:5,6
Honorable 1:15 3:1
Honor's 71:4
hope 99:12
hours 81:3 96:18
hundred 64:21
hundreds 63:25
Hunton 2:7 4:4
I
idea 83:25 91:13
if/when 40:1
ignorance 49:20 50:10 52:10
ignorant 56:17
ignore 13:6
ignored 70:14,14 80:13
ignoring 60:16
ill 69:24
illustrates 67:1
imagine 32:19 63:9,15
imperfect 11:10
imploded 102:11,18
important 25:18 32:20 41:5 65:15
66:4 96:18
November 18, 2011
importantly 66:5
impose 17:12 21:6
imposed 59:14
imposing 15:3 60:16
imputed 35:17,24 95:15
inability 58:14 83:7
inactions 6:9
inadmissible 39:3 58:17
inapposite 103:25
incidental 8:18
incidents 66:25
inclined 71:3
include 67:14
included 10:5 40:25
including 51:16 59:9 69:20 77:9
inclusive 81:6
incomplete 59:20
inconsistent 85:6 91:8 92:18
incorporated 17:23
increases 75:3 81:5,7
indeed 76:12 81:15 83:5 91:8
indenture 25:8
independent 9:8 10:15 15:14 28:15
60:18
indication 82:4
indirectly 56:18
individual 69:15
individuals 26:23 27:6
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issue 10:19,21 11:19 22:3 23:12,23
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josephamillikan@gmail.com 104:15
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mealy-mouthed 44:5
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need 3:6 5:1 8:22 13:1 14:20 36:18,19
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package 23:4,9
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pending 99:25 101:3
people 23:10 27:2,4,7,8 37:15 49:16
57:15 72:4 77:18 103:1
per 22:5 75:13
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perform 25:6
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performed 23:9
performing 26:24 27:7 59:5,9
performs 19:25 20:11 21:16,21
perhaps 11:6 101:23 102:9
period 74:13 77:23 82:18
permissible 15:22 37:16 51:10 98:12
permitted 15:16
person 11:22,24 25:23 26:5,8,15 27:3
27:10,19,20 28:13,14 29:4,18 30:2
31:4,5,6 32:2,10,21 35:22 47:7,14
85:17 86:4 88:24 95:10
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place 10:6 16:8 19:21 47:2 63:17,18
64:5
places 83:11
plain 41:21
plaintiff 39:9
plaintiffs 1:10,20 3:15,21 5:16 7:23
10:14 16:21 22:1 25:12 28:22,24
30:8,18 38:6,23 47:6 58:14 59:20
60:14 61:1 66:22 70:6 73:19 86:18
89:8 91:21 97:22,24
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play 72:12
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please 3:6,7,12 5:12 17:5 42:3,3,15
57:13
plenary 22:22
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plug 54:11 55:19 63:4,19 101:19,20
plus 99:21
pocket 64:23
point 9:12 12:22 15:5 16:3,4 21:2 23:1
23:18,23 36:9 37:3 41:22 43:24
46:1 49:2,21 51:20 52:7 54:12
55:14 57:2 58:3 59:19 62:1 63:5
64:2,15 65:3 72:15 74:6 86:24 87:1
90:9 98:14 101:3 102:3,12,18 103:3
103:24
pointed 24:2 58:25 59:19 62:15 78:21
pointing 21:5
points 8:7 24:11 82:5 83:23 91:24
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Poor's 82:3,15 83:18,22
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pose 53:7
posed 57:11
position 5:14,15 6:16 7:18 12:25 13:4
November 18, 2011
13:5,8,19 14:11 22:7 28:21,25 32:7
32:8 35:9,11 37:7 42:19 51:9 53:23
53:24 54:25 55:1 58:23 66:12 67:2
71:11,17 78:22 90:22 91:9,13
positions 4:22
possibility 73:1
possible 26:2 65:19 66:21 72:9,21
posture 96:23
potential 13:14
potentially 55:21 66:12
PowerPoint 4:17
PowerPoints 4:7
practical 76:16 91:9 98:10
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practices 13:24
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35:4,23 36:24 37:2,9 38:1 59:3,6
66:16 75:20 79:25 81:16 84:10
94:23 95:9,10,12 96:11,13
preface 5:10
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present 3:23
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presentations 4:20
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prior 8:19 66:3 71:4
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privileged 41:20
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probability 82:22
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probably 19:13,15 54:19 60:8 74:18
101:4
problem 49:8 52:22 57:21 78:14 96:12
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procedure 90:12
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90:17 91:11
process 9:11 17:9 18:16,18 21:23
26:18 30:23 87:5,11
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products 26:25
prohibition 61:11
project 10:25 11:16 18:14 26:1 33:15
33:17 34:15 40:3 47:2 51:24 53:20
54:8,11 55:5,13,19,22,2 5 56:11
59:12 62:9,24 63:1,12,19 64:4,8,15
64:22,25 65:19 74:10,12,25 76:18
77:5 84:17 91:12 92:17 101:25
102:5,7,11,13,18,24
projected 20:19,21
promptly 88:6
proof 70:6
properly 70:8
properties 103:16
property 103:14,21
protect 53:21 55:6 103:16
protected 55:13,14
protection 103:13
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provide 85:23 88:7 103:13
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province 16:15
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provision 14:12,20 15:2,6 21:10 22:3
28:3,6,12 32:3 59:7 79:11 86:2,14
86:24 87:25 103:8
provisions 7:21,24 25:10 29:9,10
30:20 65:8 79:9 85:14,23 89:10,12
103:7
prudent 13:23
public 68:19,20,21 77:17,19,21 83:21
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publicly 63:25
pull 27:11 28:16 63:4 101:19
pulled 54:11 55:18
pulling 63:19 101:20
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65:11 76:16
pursuant 42:4
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53:12 61:6 63:12,13 64:18 66:10
68:2,7 73:15 74:6,12 75:18 77:2
90:2 103:5
puts 49:19 82:21 83:15
putting 23:4
p.m 104:7
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qualify 31:12
question 6:23 10:7 13:20 15:1,12
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36:6,11,11 38:14 39:15 43:10,13,17
43:20 45:13,14 47:12 48:21,25
49:13 50:11 53:1,3 55:10,25 61:14
62:1,20 75:18 78:7 86:18 89:23
95:2 96:3 102:16
questions 5:1,11,14 7:1 27:25 34:19
39:7 53:7 56:5 57:10 58:8 69:9,10
69:12 71:4 97:7 99:7
Quick 93:3
quickly 103:3
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quote-unquote 90:13 101:19
quoting 39:22
R
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rabbit 5:12
Rafitti 47:20
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88:22 89:1,4 92:4,5,12 95:4
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Recalling 77:14
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59:17,24
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70:5
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46:20,25 47:5 48:15 49:22 50:19
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73:25 80:3
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regard 5:15 7:24 8:22 18:19 22:7,8,10
23:25 24:3,13
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Reporter 2:11,12 104:13,13
Reporter's 2:25
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Resorts 37:14 50:18 51:11 62:23
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44:8,16 51:17,24 52:8 54:11,18
55:10 75:15 76:3 78:15,17,19 81:14
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retaining 25:3
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28:16,17 34:8
reviewed 33:23
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Revolver 63:24 68:16
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Revolving 62:10 63:24
right 3:22 4:6,10 5:4 7:14,17 9:15,18
13:8 15:19 16:5 17:20 18:8,22 19:5
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96:7,16 97:1,7,11,18 98:6,7,23 99:2
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rights 24:23 61:4 62:21 65:17,20,24
65:25 66:23,23 69:1,2 70:5 71:19
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rise 3:1 91:7
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rises 62:19
risk 82:21
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roughly 22:15
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RPR-CM -NSC-FCRR 2:11 104:12
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S
S 1:15 3:2
sake 97:14
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same 7:5 8:2,4,6 22:16 26:25 27:2,4,8
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35:4,23 37:2 38:1 40:12 90:19
94:23 95:12 96:11,13,15
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saw 7:5 86:3
saying 20:18 30:5 31:22 35:2 36:13
43:22 90:1 102:21
says 8:14 10:23 15:11 16:9 18:21
21:17 25:5 32:16 33:3 36:22 42:8
42:15,24 43:3 48:19,23 50:17 52:12
52:20 60:5 68:10 83:11 84:7 87:25
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scheduled 81:3
se 22:5 75:13
seated 3:6 4:24
second 12:2,4 13:20 22:1 25:13 28:23
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102:3
seconds 71:8
section 9:19 14:22
see 6:25 11:13 13:21 16:3 17:12 19:2
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63:1 83:24 89:5 99:6,7
seek 40:19
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33:10 53:16 55:8 94:4 96:20
seen 9:23
self-executing 31:7
send 42:2 43:7 98:9,17
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Senior 1:16 62:8
sense 9:11 14:19 15:2,5 31:13 40:7
54:24 56:10 67:12 100:14 102:7
sent 67:21 76:7,20
sentence 13:21
sentences 52:18
September 39:16 41:4 48:20 52:21
53:2 54:8,15 55:3,9 62:13 64:4,17
71:23 72:5,10,10,1 9 74:14,15,21
75:9 76:13 77:23 82:1,2 90:16
102:24
series 39:15,20 42:22
service 19:18
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session 3:2 80:7
set 8:9 25:14 60:10 83:14 84:19 93:13
96:20 97:3
sets 16:10 25:2
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shock 76:7
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show 44:24,25 45:18
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side 3:13 5:11 16:21 20:4 22:1,13 35:5
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86:8 89:8 91:21 99:18
sides 4:20 7:7 8:1 34:18 56:22
side's 7:18
sign 33:24 34:6
signatories 8:24,25 9:9,14
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signed 10:15 97:21
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since 3:17 30:19 32:13 35:2 63:2
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90:17
situated 25:7
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33:13 34:20 37:22 55:9 56:3 62:5
62:16 67:11,23 69:17
situations 73:11
Skipping 40:10
slides 57:4
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slightly 11:10
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Smith 1:21
Soffer 46:19 100:6
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44:8,15 46:5 52:5 56:21 57:10 58:1
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somebody 23:10 26:6 27:10 48:16
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someone's 65:25
something 10:15,16 14:10,17,20
22:12 33:12,16,20 40:11 48:9 54:13
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somewhere 19:10 46:20 47:15
soon 26:2 65:19
sophisticated 93:13
sorry 7:13 28:18 55:3 68:5 82:13 84:5
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93:13 95:16
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Square 2:4,4
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102:25
stipulation 100:17
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Street 1:22
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90:25
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subpart 11:21 12:14 26:4 32:6
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93:21,22 94:18
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100:24 104:1
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Suite 1:22 2:8,12 104:14
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37:7 45:8 53:13 56:16 60:19 70:23
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sure 20:13 21:11,22 22:18,24 26:19
28:17 35:3 38:19 44:21 50:8 58:4
64:3 73:18,20 90:18 91:10 95:2
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Susman 40:2,14 42:11 44:14
Susman's 80:22
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switch 38:5
synonymous 28:2 29:12
system 68:22
T
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TABLE 2:23
take 7:12,14 25:13 50:5 52:16 54:24
56:11,13,24 60:12 66:9 69:17,22
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taken 38:9 57:16 58:12 83:10,11
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taking 59:11 65:22
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94:24
talking 14:15 25:15 27:9 47:23,24
51:22,23 52:21 61:18 64:12 66:15
83:20 89:17 91:2 93:9
talks 8:13 13:21 16:19 32:21
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technical 102:14
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telling 48:16 65:8 66:25 73:4
ten 72:23
tends 15:22
tens 23:4
term 9:5,14 10:12 30:9,12 31:9,19
53:16 54:24 55:20 56:12 62:8,9
63:20 64:16,18 66:5,5,8,10,18,18
67:21,22 68:2,7,14,15,1 6 69:15,25
70:22 77:9,9,10,25 78:7 79:14 86:6
88:19 89:10 90:1,3,4,7,24 94:13,13
95:24 97:13,22,23 99:16
terms 6:2,8 8:8,17 15:13,15 22:6
23:12,15 45:7 48:9 49:2 53:12 56:9
56:12 60:13 61:16 63:4 69:5 88:22
95:5,6 97:16 100:8 102:7
terribly 20:12
test 67:15 76:25
testified 48:2
testimony 45:20 46:3,9 47:24 48:18
50:19 51:6,7 72:2
thank 3:9,10,22 4:3 13:18 17:13 56:23
57:9,12 71:1,2 73:18 92:2 104:2,6
their 6:7,8,9,17 9:24 22:15 23:7 28:23
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51:9 53:18,25 60:15 61:2,5 64:19
64:23 66:10 67:5 69:2,2,21 70:10
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78:22 80:3 83:2,6 85:6 90:2 91:8,13
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theirs 54:4
themselves 45:18,20 66:11,24 78:7
theory 34:5 54:10
thereof 26:1
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November 18, 2011
113
Case 1:09-md-02106-ASG Document 336 Entered on FLSD Docket 12/22/2011 Page 1 of 1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO 09-MD-02106-CIV-GOLD/GOODMAN
IN RE: FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL No. 2106
This document relates to 09-CV-23835-ASG.
/
MDL ORDER NO. 61; GRANTING UNOPPOSED MOTION TO SEAL [ECF NO. 332];
GRANTING UNOPPOSED MOTION TO REDACT [ECF NO. 333]
This Cause is before the Court upon the Bank of America’s unopposed Motion to
Seal [ECF No. 332] and Unopposed Motion to Redact Oral Argument Transcript [ECF
No. 333].1 Having reviewed the Motions and being otherwise duly advised, it is hereby
ORDERED AND ADJUDGED that:
1.
The Motion to Seal [ECF No. 332] is GRANTED.
2.
The Motion to Redact Oral Argument Transcript [ECF No. 333] is GRANTED.
DONE AND ORDERED in Chambers at Miami, Florida, this 19th day of
December, 2011.
_____________________________________
THE HONORABLE ALAN S. GOLD
UNITED STATES DISTRICT COURT JUDGE
cc:
Magistrate Judge Goodman
All Counsel of Record
1 This Order shall not be under seal.
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Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 1 of 93
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO 09-MD-02106-CIV-GOLD/GOODMAN
IN RE: FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL No. 2106
This document applies to:
Case No. 09-CV-23835 ASG.
_____________________________________/
MDL ORDER NUMBER 62;
OMNIBUS ORDER GRANTING BANK OF AMERICA’S MOTION FOR SUMMARY
JUDGMENT [ECF No. 255] AND DENYING TERM LENDERS’ MOTION FOR
PARTIAL SUMMARY JUDGMENT [ECF No. 258]; CLOSING CASE
This Cause is before the Court upon Bank of America’s Motion for Summary
Judgment [ECF No. 255] and Plaintiffs’ Motion for Partial Summary Judgment [ECF No.
258]. I held oral argument on the Motions on November 18, 2011. While the matters
involved in the remainder of this case appear complex because of the parties’ crossmotions for summary judgment, in essence, based on the material facts not genuinely in
dispute, the legal issues are straightforward. Even assuming all inferences in favor of
the non-moving parties, Bank of America, acting as Disbursement Agent and Bank
Agent under the Disbursement Agreement, did not breach the Disbursement
Agreement, nor did it exercise its duties and responsibilities under the Disbursement
Agent and Credit Agreement in a grossly negligent manner under New York law. The
Term Lender Plaintiffs have not established otherwise. Accordingly, I grant summary
judgment in favor of Defendant Bank of America.
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 2 of 93
I.
Procedural History
This multi-district litigation (“MDL”) arises out of alleged breaches of various
agreements for loans to construct and develop a casino resort in Las Vegas, Nevada.
On December 3, 2009, this MDL was transferred to me by order of the United States
1
Judicial Panel on Multidistrict Litigation [ECF No. 1].
Pursuant to the Panel’s transfer
order (and subsequent related orders, e.g. [ECF No. 21]), pending before me are (1)
Fontainebleau Las Vegas, LLC v. Bank of America, N.A., et al., Case No. 09-cv-21879
(S.D. Fla.) (the “Fontainebleau Action”), (2) Avenue CLO Fund, Ltd., et al. v. Bank of
2
America, et al., Case No. 09-cv-1047 (D. Nev.) (the “Avenue Action”), and (3) ACP
Master, LTD, et al. v. Bank of America, et al, Case No. 09-cv-8064 (S.D.N.Y) (the
3
“Aurelius Action”). I discuss the procedural history of each action in turn.
A.
The Fontainebleau Action
On June 9, 2009, Fontainebleau Las Vegas, LLC ("Fontainebleau") filed a
voluntary Chapter 11 petition in the United States Bankruptcy Court for the Southern
District of Florida. That same day, Fontainebleau commenced an adversary proceeding
against a group of banks. Fontainebleau is the owner and developer of a casino resort
in Las Vegas (the “Project”). On June 6, 2007, Fontainebleau entered into a Credit
Agreement and Disbursement Agreement with a syndicate of lenders for the
1
All references to the docket refer to Case No. 09-MD-02106, unless otherwise indicated.
2
Upon transfer to the Southern District of Florida, the Avenue Action was assigned Case No.
09-23835.
3
Upon transfer to the Southern District of Florida, the Aurelius Action was assigned Case No.
10-20236.
2
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 3 of 93
development of the Project. Under the Credit Agreement, the lenders agreed to loan
$1.85 billion under three senior secured credit facilities: the Term Loan, the Delay Draw
Term Loan, and the Revolver facilities. Defendants in the adversary proceeding and the
Fontainebleau Action are the banks that agreed to lend money under the Revolver
facility (the “Revolver Banks”). Fontainebleau alleged, inter alia, these Revolver Banks
breached the Credit Agreement for failing to fund the revolving loans in March 2009.
[Bankruptcy Case No. 09-01621-AJC, ECF No. 5, Amended Complaint].
On June 10, 2009, Fontainebleau filed a Motion for Partial Summary Judgment
on Liability with Respect to the March 2 Notice of Borrowing in the adversary
proceeding. Fontainebleau argued the Revolver Banks breached the Credit Agreement
by refusing to process the March 2 notice of borrowing (the “March 2 Notice”), which
requested revolving loans in excess of $150 million, on the basis that the Total Delay
Draw Commitments were not “fully drawn” as required by the terms of section 2.1(c)(iii)
of the Credit Agreement. Fontainebleau argued that the March 2 Notice, which, in
addition to revolving loans, requested all funds available under the Delay Draw Term
Loan facility, satisfied the “fully drawn” requirement because the Delay Draw Term
Loans had been fully requested by the time the revolving loans in excess of $150 million
were sought. The Revolver Banks moved to withdraw the reference on July 7, 2009
[Case No. 09-21879, ECF No. 1], and I granted the Motion for Withdrawal of Reference
on August 5, 2009 [Case No. 09-21879, ECF No. 23].
On August 26, 2009, I denied Fontainebleau’s Motion for Partial Summary
Judgment [Case No. 09-21879, ECF No. 62], concluding that (1) the Credit Agreement’s
(Section 2.1(c)(iii)) requirement that the Total Delay Draw Commitments be “fully drawn”
3
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 4 of 93
before disbursement means the Commitments must be “fully funded”; (2) even if this
legal conclusion is erroneous, Plaintiff’s interpretation of “fully drawn” is reasonable but
not conclusive, resulting in an ambiguity that precludes summary judgment; and (3)
even if Plaintiff’s interpretation of the term “fully drawn” is correct, Fontainebleau’s
default entitled the Revolver Banks to reject the March 2 Notice.
On September 20, 2010, upon uncontested request of the Trustee, I entered a
Final Judgment [Case No. 09-21879, ECF No. 138], dismissing the Fontainebleau
Action with prejudice for purposes of facilitating an appeal from my August 26, 2009
Order denying Fontainebleau’s Motion for Partial Summary Judgment. Accordingly, the
August 26, 2009 Order is on appeal, and no other matters are pending before me in the
Fontainebleau Action.
B.
The Avenue and Aurelius Actions
The Avenue Action was originally filed in the District Court of Nevada, and was
transferred to the Southern District of Florida on December 28, 2009. [Case No. 0923835, ECF No. 77]. On January 15, 2010, the Avenue Plaintiffs, each of which is a
term lender under the Credit Agreement, filed a Second Amended Complaint (the
“Avenue Complaint”) [ECF No. 15] against various revolver lenders pursuant to the
Credit Agreement, as well as against Bank of America in its capacities as Administrative
Agent under the Credit Agreement and as Disbursement Agent under the Disbursement
Agreement.
The Avenue Complaint pled the following: Count I - breach of
Disbursement Agreement against Bank of America; Count II - breach of the Credit
Agreement against all defendants; Count III - breach of the implied duty of good faith
and fair dealing against Bank of America; Count IV – breach of the implied duty of good
faith and fair dealing against all defendants; Count V – declaratory relief against Bank of
4
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 5 of 93
America; and Count VI – declaratory relief against all defendants. With respect to the
counts against the revolver lenders, the Avenue Plaintiffs alleged the revolver lenders
should have funded the March 2009 Notices of Borrowing.
The Aurelius Action was originally filed in the Southern District of New York and
was transferred to the Southern District of Florida on January 26, 2010. [Case No. 1020236, ECF No. 29]. On January 19, 2010, the Aurelius Plaintiffs (together with the
Avenue Plaintiffs, the “Term Lenders” or the “Term Lender Plaintiffs”), each of which is a
successor-in-interest to a term lender under the Credit Agreement, filed an Amended
Complaint (the “Aurelius Complaint”) [Case No. 10-20236, ECF No. 27] against various
lenders under the Revolving Loan (together with the defendants in the Avenue Action,
the “Revolving Lenders” or the “Revolving Lender Defendants”), including Bank of
America, under the Credit Agreement.
The Aurelius Complaint pleads the following:
Counts I and II - breach of the Credit Agreement against all defendants; and Count III –
breach of the Disbursement Agreement against Bank of America. With respect to the
claims against the Revolving Lenders, the Aurelius Plaintiffs argued the Revolving
Lenders should have funded the March 2, March 3, and April 21 Notices of Borrowing.
On May 28, 2010, reasoning that the Term Lender Plaintiffs lack standing to
pursue claims based on the alleged breaches of the Credit Agreement, I dismissed with
prejudice the Term Lenders’ claims relating to breach of the Credit Agreement (Count II
of the Avenue Complaint and Counts I and II of the Aurelius Complaint). I further
concluded the Term Lenders’ claim against Bank of America for breach of the implied
covenant of good faith and fair dealing (Count III of the Avenue Complaint) was
precluded by their claims for breach of the Disbursement Agreement because the
5
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 6 of 93
damages sought in the implied covenant claim were intrinsically tied to those sought in
the breach of contract claim. I dismissed the claim for breach of the implied covenant of
good faith and fair dealing accordingly.
I also dismissed the claim against all
defendants for breach of the implied covenant of good faith and fair dealing in
connection with the Credit Agreement (Count VI of the Avenue Complaint) as moot
because the claim sought to impose an obligation that was inconsistent with the terms
of the Credit Agreement. [Amended MDL Order No. 18]. In short, I dismissed all of the
Term Lenders’ claims against the Revolving Lender Defendants.
On January 18, 2011, I granted the Term Lenders’ Joint Motion for Partial Final
Judgment, entering partial final judgment pursuant to Federal Rule of Civil Procedure
54(b) so the Term Lenders could seek an appeal of their claims against the Revolving
Lender Defendants at the same time as the Trustee’s appeal in the Fontainebleau
action. [MDL Order Number 44, ECF No. 201]. Final judgment was therefore entered
against the Term Lenders on Counts II, III, and IV of the Avenue Action, and Counts I
and II of the Aurelius Action. [ECF No. 202]. The dismissal of the Term Lenders’ claims
against the Revolving Lender Defendants is on appeal. [ECF No. 203, 208].
On April 19, 2011, upon agreement and stipulation by the Avenue and Aurelius
Plaintiffs and Bank of America, I dismissed without prejudice Count III of the Aurelius
Action. [MDL Order Number 47, ECF No. 238]. (The Avenue Plaintiffs had purchased
the Term Notes previously held by the Aurelius Plaintiffs, and sought to pursue a single
action on the Notes they owned. [ECF No. 212].). See also 11/18/2011 Oral Argument
Transcript (“11/18/2011 Tr.”) [ECF No. 335] 97:19–98:3.
6
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 7 of 93
Therefore, the only claims outstanding are the Term Lenders’ claims against
Bank of America for breach of the Disbursement Agreement (Count I of the Avenue
Action), and the related request for declaratory relief (Count V of the Avenue Action).
The Term Lenders allege Bank of America breached its obligations as Bank Agent and
Disbursement Agent under the Disbursement Agreement between September 2008 and
March 2009 by improperly approving advance requests that failed to meet one or more
of the conditions precedent under Section 3.3 of the Disbursement Agreement,
improperly issuing Advance Confirmation Notices, improperly failing to issue Stop
Funding Notices, and improperly disbursing funds from the Bank Proceeds Account.
[ECF No. 15, Count I]. These claims and Bank of America’s breach of the Disbursement
Agreement are the subject of the parties’ summary judgment motions.
II.
Summary Judgment Motions: The Parties’ Positions and Relief Sought
On August 5, 2011, the Term Lender Plaintiffs and Bank of America filed cross-
motions for summary judgment and accompanying memoranda of law. [ECF Nos. 255
(“BofA Memo.”), 258 (“TL Memo.”)], and subsequently filed related opposition and reply
memoranda [ECF No. 269 (“BofA Opp. Memo.”), ECF No. 275 (“TL Opp. Memo.”), ECF
No. 290 (“BofA Reply Memo.”), ECF No. 297 (“TL Reply Memo.”). The Term Lenders
seek partial summary judgment that Bank of America wrongfully and with gross
negligence breached its obligations as Disbursement Agent and Bank Agent under the
Disbursement Agreement because Bank of America disbursed funds knowing that
Lehman Brothers Holdings, Inc. (“Lehman”) had declared bankruptcy, and the
bankruptcy and subsequent related events caused multiple conditions precedent to
disbursement to fail. Bank of America, on the other hand, argues that it is entitled to
summary judgment dismissing the Term Lenders’ breach of contract claim because the
7
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 8 of 93
undisputed facts demonstrate that Bank of America performed its duties under the
Disbursement Agreement by approving and funding Fontainebleau Advance Requests
only after receiving the required certifications, had no duty to investigate the
representations in these certifications, and was not grossly negligent. Bank of America
further argues it did not have actual knowledge of the failure of any conditions
precedent to disbursement.
I have considered the parties’ positions, and after careful review of the pleadings,
the case file, and the relevant law, I grant summary judgment in favor of Bank of
America for the reasons discussed below.
III.
Undisputed Facts
Pursuant to Southern District of Florida Local Rule 7.5,
4
the parties filed
Statements of Undisputed Material Facts [ECF Nos. 256 (“BofA Statement”), 315 (“TL
Statement”)] and associated exhibits in support of their respective Motions for Summary
Judgment. The parties filed responses and replies, including additional material facts
(“AMA”) and associated exhibits, to the Statements of Undisputed Material Facts [ECF
Nos. 324 (“BofA Response”; “BofA Response AMA”), 316 (“TL Response”; “TL
Response AMA”), 323 (“BofA Reply”; “BofA Reply AMA”), 317 (“TL Reply”; “TL Reply
AMA”)]. Upon review of the record, including the exhibits submitted, I conclude that the
following material facts are undisputed and supported by evidence in the record.
4
In the Southern District of Florida, a party moving for summary judgment must submit a
statement of undisputed facts. See S.D. Fla. L.R. 7.5. If necessary, the non-moving party may
file a concise statement of the material facts as to which it is contended there exists a genuine
issue to be tried. Id. Each disputed and undisputed fact must be supported by specific
evidence in the record, such as depositions, answers to interrogatories, admissions, or affidavits
on file with the Court. Id. All facts set forth in the movant’s statement which are supported by
evidence in the record are deemed admitted unless controverted by the non-moving party. Id.
8
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A.
The Project and the Parties
The Fontainebleau Las Vegas is a partially-completed resort and casino
5
development in Las Vegas (previously defined as the “Project”). (BofA Statement ¶ 8).
To finance the Project, Fontainebleau Las Vegas, LLC and Fontainebleau Las Vegas II,
LLC (collectively, the “Borrowers” or “Fontainebleau”) entered into various financing
agreements,
including
the
Master
Disbursement
Agreement
(“Disbursement
Agreement”), Credit Agreement, and Retail Agreement, each of which is discussed in
more detail below. (Id. ¶¶ 15–16, 22). The Project’s developer was the Borrowers’
parent, Fontainebleau Resorts, LLC (“Fontainebleau Resorts” or “FBR”). (Id. ¶ 9). Jeff
Soffer was the Chairman of Fontainebleau Resorts, Glenn Schaeffer was the CEO, and
Jim Freeman was Senior Vice President and Chief Financial Officer. (Freeman Dep.
12:10–14; 13:20–24).
Turnberry West Construction (“TWC”), a member of the
Turnberry group of companies, was the Project’s general contractor. (BofA Statement ¶
12).
Bank of America, a nationally chartered bank, held various roles under the
financing agreements. (BofA Response AMA ¶ 1). It acted as Administrative Agent
under the Credit Agreement for the Senior Secured Facility Lenders and Disbursement
Agent under the Disbursement Agreement, and was also a lender under the Credit
Agreement.
(BofA Statement ¶¶ 2–4; BofA Response AMA ¶ 1). Bank of America’s
activities as Administrative and Disbursement Agents for the Project were managed by
the same individuals within its Corporate Debt Products Group. (TL Response AMA ¶
5
Where the fact is not in dispute, I cite only to the statements of material facts, responses, or
replies. Where the fact is in dispute, I cite to the underlying record.
9
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 10 of 93
9; 11/18/2011 Tr. 26:23-27:1). These activities included approving Advance Requests,
disbursing funds to Borrowers, and deciding what information to disseminate to lenders.
(BofA Response ¶ 9; TL Reply ¶ 9).
Jeff Susman was the Senior Vice President of Corporate Debt Products and had
primary management responsibility for Bank of America’s agency activities relating to
the Project until his departure from Bank of America in February 2009. (BofA Response
¶ 10; TL Reply ¶ 10; TL Response AMA ¶ 15). Jean Brown reported to the Corporate
Debt Products group and was the lead contact with TriMont Real Estate Advisors, the
Servicer of the Retail Facility. (TL Response AMA ¶10; Rafeedie Dep. Tr. 33:2–23).
David Howard was the Managing Director of Syndications of Bank of America Securities
until March 31, 2009, and Brett Yunker was the Vice President of the Global Gaming
Team at Bank of America Securities. (TL Response AMA ¶¶ 13–14; BofA Reply AMA
¶¶ 13–14).
Finally, the Term Lender Plaintiffs are a group of sophisticated financial
institutions who were lenders—or in many cases, successors-in-interest to lenders—to
6
Fontainebleau under the Credit Agreement.
(BofA Statement ¶ 5; Aurelius Compl.;
Avenue Compl.).
B.
The Project’s Financing
The Project’s initial budget was $2.9 billion, which included approximately $1.7
billion of hard construction costs.
(BofA Statement ¶ 14). The Project was financed
through a combination of debt and equity capital. The largest financing component for
6
The Term Lenders do not dispute this fact; rather, they contend it is immaterial and irrelevant.
(TL Response at 1).
10
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the Project’s resort component was a $1.85 billion senior secured debt facility (“Senior
Credit Facility”), created by the Credit Agreement. (Id. ¶¶ 15, 17). The Senior Credit
Facility comprised three senior secured loans: (1) a $700 million term loan (the “Initial
Term Loan”); (2) a $350 million delay draw term loan (the “Delay Draw Term Loan”);
and (3) an $800 million revolving loan (the “Revolver Loan”). (Id. ¶ 17). The Term
Lender Plaintiffs own Initial Term Loan and Delay Draw Term Loan notes, and Bank of
America was a Revolver Loan lender. (Id. ¶¶ 4, 18).
7
Additional financing sources for
the Project included equity contributions by Fontainebleau and its affiliates, $675 million
in Second Mortgage Notes, and a $315 million loan earmarked for the Project’s retail
space (the “Retail Facility”). (Id. ¶ 16).
Pursuant to the agreements governing the various financing sources,
Fontainebleau gained access to the financing through a two-step borrowing process.
The first step required Fontainebleau to submit to the Administrative Agent a Notice of
Borrowing specifying the amount and type of loan to be borrowed and the requested
borrowing date. The Administrative Agent would then notify the lenders of the Notice of
Borrowing, and the Lenders would remit funds to the Administrative Agent who, upon
satisfaction of certain conditions precedent, would transfer the funds into a Bank
Proceeds Account.
(Dep. Exhs. 808 ¶ 6, 1501).
Fontainebleau could not access
money in the Bank Proceeds Account; rather, the second step required Fontainebleau
to submit an Advance Request to Bank of America as Disbursement Agent under the
Disbursement Agreement, a process described in more detail below. (TL Statement ¶¶
7
The Term Lenders do not dispute this fact; rather, they only contend that it is immaterial and
irrelevant. (TL Response at 1).
11
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14–15; Dep. Exh. 808 ¶ 7). The $700 Initial Term Loan was funded into the Bank
Proceeds Account upon closing of the Credit Agreement in June 2007, and the majority
of the $350 million Delay Draw Term Loan was funded into the Bank Proceeds Account
in early March 2009. (Dep. Exh. 644; TL Statement ¶ 13).
C.
The Retail Facility, Retail Agreement, and Shared Costs
The Project’s retail space was to be developed by Fontainebleau Las Vegas
Retail, LLC (the “Retail Affiliate”), an FBR subsidiary. (BofA Statement ¶ 19). Although
the Senior Credit Facility and the Retail Facility were separate lending facilities, the
resort budget included $83 million in costs that were to be funded through the Retail
Facility (“Shared Costs”).
(Id. ¶ 24).
These Shared Costs were used to fund
construction of portions of the Project’s retail space that were structurally inseparable
from the resort. (Id. ¶ 25). The Retail Facility was critical to the completion of the
Project. (TL Response AMA ¶ 26).
The Retail Facility was subject to a June 6, 2007 agreement (previously referred
to as the “Retail Agreement”) between the Retail Affiliate and Lehman Brothers
Holdings, Inc. (“Lehman”), which signed the agreement as a lender and as the agent for
one or more of the co-lenders. (BofA Statement ¶¶ 22, 26). Bank of America was not a
Lender under the Retail Agreement or otherwise party to it, but did receive a copy of the
Agreement. (Retail Agreement (“Retail Agmt.”); TL Response AMA ¶ 8). The Retail
Agreement permitted Lehman to syndicate some or all of the Retail Facility to other
lenders. (BofA Statement ¶ 27). On September 24, 2007, pursuant to a Retail CoLending Agreement, Lehman syndicated select notes under the Retail Facility to
National City Bank, Sumitomo Mitsui Banking Corp., and Union Labor Life Insurance
Company (“ULLICO”) (together with Lehman, “Retail Co-Lenders” or “Retail Lenders”).
12
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(BofA Response ¶ 30; Dep. Ex. 9, Retail Co-Lending Agreement (“Retail Co-Lending
Agmt.”). Post syndication, Lehman was the largest Retail Lender, responsible for $215
million, or 68.25% of the Retail Facility. (TL Response AMA ¶ 25; BofA Response ¶
30).
The Retail Agreement further permitted Lehman to delegate any portion of its
responsibilities under the Agreement to a servicer. (BofA Statement ¶ 31). Lehman
designated TriMont Real Estate Advisors, Inc. (“TriMont”) as the servicer for the Retail
Facility, delegating the responsibility for collecting the Retail Co-Lenders’ respective
Shared Cost obligations in response to an Advance Request and transferring those
funds to Bank of America, as Disbursement Agent under the Disbursement Agreement.
(Id. ¶¶ 32–33).
Additionally, the Retail Agreement and Retail Co-Lending Agreement permitted
the Retail Co-Lenders to “sell … any or any part of their right … Loan …to one or more
additional lenders,” and to make payments on behalf of a defaulting Co-Lender, subject
to certain terms and conditions. (Retail Co-Lending Agmt. § 5.01(d); Retail Agmt. §§
9.7.2.9(a) and (b)). Bank of America was not party to, and did not receive a copy of, the
Retail Co-Lending Agreement. (Retail Co-Lending Agmt.; BofA Response AMA ¶ 25).
To that end, Bank of America did not know the identity of the Retail Co-Lenders until
late 2008. (BofA Response AMA ¶ 26; TL Reply AMA ¶ 26).
D.
The Disbursement Agreement
Fontainebleau’s access to the construction financing was governed by the
Disbursement Agreement, which contained a New York choice-of-law provision. (BofA
Statement ¶ 34; Disbursement Agreement (“Disb. Agmt.”) § 11.6). The Disbursement
13
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Agreement contained an integration clause (Section 11.5, entitled “Entire Agreement”)
that permitted reference to select additional agreements:
This Agreement and any agreement, document or instrument attached
hereto or referred to herein integrate all the terms and conditions
mentioned herein or incidental hereto and supersede all oral negotiations
and prior writings in respect to the subject matter hereof, all of which
negotiations and writings are deemed void and of no force and effect.
(Disb. Agmt. § 11.5).
As described above, the Credit and Disbursement Agreements established a
two-step funding process for the Senior Credit Facility. To access funds from the Delay
Draw Term Loan and Revolver Loan facilities, Fontainebleau would submit a Notice of
Borrowing that, subject to certain procedures and conditions set forth in the Credit and
Disbursement Agreements, would cause Lender funds to be transferred into the
designated Bank Proceeds Account. (Credit Agmt. §§ 2.1(b), 2.1(c), 2.4; Disb. Agmt. §
2.1.2).
Fontainebleau could not withdraw funds directly from the Bank Proceeds
Account; rather, it was required to submit a monthly Advance Request, the form and
contents of which were prescribed by the Disbursement Agreement. (BofA Statement ¶
37).
1.
The Advance Request, Conditions Precedent, and the Funding
Process
The Disbursement Agreement required that each Advance be requested
“pursuant to an Advance Request substantially in the form of Exhibit C-1” and provided
“[e]ach Advance Request shall be delivered to the Disbursement Agent … not later than
the 11th day of each calendar month.” (Disb. Agmt. § 2.4.1). Exhibit C-1, in turn,
required Fontainebleau to “represent, warrant and certify” that “the conditions set forth
in Section 3.3 … of the Disbursement Agreement are satisfied as of the Requested
14
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Advance Date.” (BofA Statement ¶ 37; Disb. Agmt. Exh. C-1 at 1, 8). Exhibit C-1 also
outlined certain “General Representations” that overlapped with conditions set forth in
Section 3.3. (Disb. Agmt. § 3.3, Exh. C-1 at 5–8).
Section 3.3, entitled “Conditions Precedent to Advances by Trustee and the Bank
Agent,” contained twenty-four separate conditions precedent. (BofA Statement ¶ 41;
Disb. Agmt. § 3.3). These conditions precedent included the following:
“Representations and Warranties. Each representation and warranty of …
[e]ach Project Entity set forth in Article 4 … shall be true and correct in all
material respects as if made on such date.” (Disb. Agmt. § 3.3.2).
“Default. No Default or Event of Default shall have occurred and be
continuing.” (Id. § 3.3.3).
(Article 7, entitled “Events of Default,” provided
further information on Events of Default. (Id. Art. 7).)
“Advance Request and Advance Confirmation Notice. … [The] Advance
Request shall request an Advance in an amount sufficient to pay all amounts
due and payable for work performed on the Project through the last day of the
period covered by such Advance Request ….” (Id. § 3.3.4).
“Consultant Certificates and Reports. Delivery to each of the applicable
Funding Agents and the Disbursement Agent of (a) the Constriction
Consultant Advance Certificate approving the corresponding Advance
Request, and (b) the Architect’s Advance Certificate with respect to the
Advance, and (c) the General Contractor’s Advance Certificate with respect to
the Advance.” (Id. § 3.3.5).
“In Balance Requirement. The Project Entitles shall have submitted an In
Balance Report demonstrating that the In Balance Test is satisfied.” (Id. §
3.3.8).
(The In Balance Test was satisfied when the Available Funds
equaled or exceeded the Project’s Remaining Costs. (BofA Statement ¶ 41).)
“Material Adverse Effect. Since the Closing Date, there shall not have
occurred any change in the economics or feasibility of constructing and/or
operating the Project, or in the financial condition, business or property of the
Project Entities, any of which could reasonably be expected to have a
Material Adverse Effect.” (Disb. Agmt. § 3.3.11).
“Plans and Specifications. In the case of each Advance from the Bank
Proceeds Account … , the Construction Consultant shall to the extent set
forth in the Construction Consultant Advance Certificate have approved all
15
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Plans and Specifications which, as of the date of the relevant Advance
Request, constitute Final Plans and Specifications to the extent not
theretofore approved.” (Id. § 3.3.19).
“Adverse Information. In the case of each Advance from the Bank Proceeds
Account … , the Bank Agent shall not have become aware after the date
hereof of any information or other matter affecting any Loan Party, Turnberry
Residential, the Project or the transactions contemplated hereby that taken as
a whole is inconsistent in a material and adverse manner with the information
or other matter disclosed to them concerning such Persons and the Project,
taken as a whole.” (Id. § 3.3.21).
“Retail Advances. In the case of each Advance from the Bank Proceeds
Account … , the Retail Agent and the Retail Lenders shall, on the date
specified in the relevant Advance Request, make any Advances required of
them pursuant to the Advance Request.” (Id. § 3.3.23).
“Other Documents. In the case of each Advance from the Bank Proceeds
Account, the Bank Agent shall have received such other documents and
evidence as are customary for transactions of this type as the Bank Agent
may reasonably request in order to evidence the satisfaction of the other
conditions set forth above.” (Id. § 3.3.24).
Moreover, each Advance Request included certification from TWC, that, among
other things, “[t]he Control Estimate … reflects the costs expected to be incurred by
[TWC] to complete the remaining ‘Work’ … on the Project.” (BofA Statement ¶ 44; Disb.
Agmt. Exh. C-4 ¶ 4).
TWC’s certification further specified that the representations
contained therein were “true and correct” and were “made for the benefit of the
Disbursement Agent, the Funding Agents and the Lenders represented thereby, and
may be relied upon for the purposes of making advances pursuant to the …
Disbursement Agreement ….” (Disb. Agmt. Exh. C-4 at 2). Also included with each
Advance Request was certification from the Project’s Architect that “[t]he construction
performed on the Project … is in general accordance with the ‘Drawings and
Specifications.’” (Id. Exh. C-3).
16
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After submission of an Advance Request, the Disbursement Agreement required
Bank of America, as Disbursement Agent, and Inspection and Valuation International,
Inc. (“IVI”), who was appointed as Construction Consultant under the Disbursement
Agreement, to “review the Advance Request and attachments thereto and determine
whether all required documentation has been provided, and [to] use commercially
reasonable efforts to notify the Project Entities of any deficiency within three Banking
Days ….” (Disb. Agmt. § 2.4.4(a); BofA Statement ¶ 45).
The Disbursement Agreement further required IVI to deliver to the Disbursement
Agent a “Construction Consultant Advance Certificate either approving or disapproving
the Advance Request.” (Disb. Agmt. § 2.4.4(b); BofA Statement ¶ 47). To fulfill these
requirements, IVI performed monthly site visits, reviewed information disclosed by
Fontainebleau at the site visits, and summarized its findings in Project Status Reports.
(BofA Statement ¶ 46). By signing the Construction Consultant Advance Certificate, IVI
certified, based on its on-site observation of construction progress and its review of “the
material and data made available” by the Borrowers, Contractor, and others; all relevant
invoices, plans and specifications; and all previous Advance Requests, the following:
“The Project Entities have properly substantiated, in all material respects, the
Project Costs for which payment is requested in the Current Advance
Request”;
“The Remaining Cost Report attached to the Current Advance Request
accurately reflects, in all material aspects, the Remaining Costs required to
achieve Final Completion”;
“The Unallocated Contingency Balance set forth in the Remaining Cost
Report attached to the Current Advance Request is accurate and equals or
exceeds the Required Minimum Contingency”;
17
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“The Opening Date is likely to occur on or before the scheduled Opening Date
set forth in the Current Advance Request and the Completion Date if likely to
occur within 180 days thereafter”;
“The Advances requested in the Current Advance Request are, in our
reasonable judgment, generally appropriate in light of the percentage of
construction completed and the amount of Unincorporated Materials”; and
“The undersigned has not discovered any material error in the matters set
forth in the Current Advance Request or Current Supporting Certificates.”
(Disb. Agmt. Exh. C-2). The Disbursement Agent was tasked with using “reasonable
diligence” to ensure IVI performed its review and delivered its Construction Consultant
Advance Certificate “not less than three Banking Days prior to the Scheduled Advance
Date.”
(Id. § 2.4.4).
In sum, each Advance Request required (and contained)
certification from Fontainebleau, TWC, and IVI that the applicable conditions precedent
were satisfied.
Further, the Disbursement Agent was permitted to require Fontainebleau to
submit a revised Advance Request if it found any “minor or purely mathematical errors.”
(Id.). Independently, Fontainebleau could, with the approval of the Disbursement Agent
and IVI, revise and resubmit its Advance Request if it “obtain[ed] additional information
or documentation or discover[ed] any errors in or updates required to be made to any
Advance Request prior to the Scheduled Advance Date.”
(Id. § 2.4.5).
The
Disbursement Agent was not obligated to accept any such updates, but was required to
“consider their submission in good faith.” (Id.).
Once an Advance Request’s applicable conditions precedent were satisfied,
Bank of America (as Disbursement Agent) and Fontainebleau were required to execute
an Advance Confirmation Notice. (BofA Statement ¶ 51). By executing the Advance
Confirmation
Notice,
Fontainebleau
expressly
18
confirmed
“that
each
of
the
Case 1:09-md-02106-ASG Document 339 Entered on FLSD Docket 03/19/2012 Page 19 of 93
representations, warranties and certifications made in the Advance Request … are true
and correct as of the Requested Advance Date and Disbursement Agent is entitled to
rely on the foregoing in making the Advanced herein requested” and “that the [Advance
Request] representations, warranties and certifications are correct as of the Requested
Advance Date.” (BofA Statement ¶ 52, Disb. Agmt. Exh. E).
The Notice “confirm[ed] the amount of the Advances to be made under the
Financing Agreements” and “confirm[ed] the amount to be transferred into each
Account.”
(Disb. Agmt. Exh. E).
The Disbursement Agreement correspondingly
provided, “each of the Funding Agents shall make the Advances contemplated by [the]
Advance Confirmation Notice to the relevant Accounts” and “the Disbursement Agent
shall make the resulting transfers amongst the Accounts described in the Advance
Confirmation Notice.”
(Id. § 2.4.6).
Thus, once an Advance Request’s conditions
precedent were satisfied and the Advance Confirmation Notice issued, Bank of America
transferred the requested funds from the Bank Proceeds Account to select payment
accounts for further distribution to Fontainebleau. (Id. § 2.4.6, Exh. E).
If, on the other hand, the Advance Request’s conditions precedent were not
satisfied, or the “Controlling Person notifies the Disbursement Agent that a Default or an
Event of Default has occurred and is continuing,” the Disbursement Agreement required
the Disbursement Agent to issue a Stop Funding Notice. (BofA Statement ¶ 54, Disb.
Agmt. § 2.5.1). (By virtue of its role as Bank Agent, as of September 2008, Bank of
America was the Controlling Person under the Disbursement Agreement. (Disb. Agmt.
Exh. A at 10; TL Statement ¶ 26; BofA Response ¶ 26).).
A Stop Funding Notice
relieved the Lenders of their obligation to fund loans under the Credit Agreement until
19
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the circumstances giving rise to the Stop Funding Notice were resolved or the
necessary parties waived the unsatisfied conditions precedent. (BofA Statement ¶ 54,
Disb. Agmt. § 2.5.2).
The Disbursement Agreement specifically provided “[t]he
Disbursement Agent shall have no liability … arising from any Stop Funding Notice
except to the extent arising out of gross negligence or willful misconduct of the
Disbursement Agent.” (Disb. Agmt. § 2.5.1).
2.
Defaults and Events of Default
As noted above, one of the conditions precedent to an Advance Request was
that “No Default or Event of Default shall have occurred and be continuing.” (Disb.
Agmt. § 3.3.3). “Default” was defined “as any events specific in Article 7” and “the
occurrence of any ‘Default’ under any Facility Agreement,” including the Credit
Agreement and the Retail Agreement, and “Event of Default” was defined as having “the
meaning given in Section 7.1.” (Id. Exh. A at 10, 12). Per Article 7, entitled “Events of
Default,” the following constituted an “Event of Default”:
“Other Financing Documents. The occurrence of an ‘Event of Default’ under
and as defined by any one or more of the Facility Agreements ….” (Id. §
7.1.1).
“Representations. … Any representation, warranty or certification confirmed
or made by any of the Project Entities in this Agreement … (including any
Advance Request … ) shall be found to have been incorrect when made or
deemed to be made in any material respect.” (Id. § 7.1.3(c)).
The Credit Agreement outlined what constituted an “Event of Default” under the
Credit Agreement in Section 8, entitled “Events of Default,” and the Retail Agreement
outlined what constituted an “Event of Default” under the Retail Agreement in Section
8.1, entitled “Event of Default.” (Credit Agreement (“Credit Agmt.”) at 11, § 8; Retail
Agmt. § 8.1).
20
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Further, the Credit Agreement defined “Lender Default” as “the failure … of a
Lender to make available … its portion of any Loan required to be made by such Lender
hereunder,” and “Defaulting Lender” as “any time … any Lender with respect to which a
Lender Default is in effect.” (Credit Agmt. 11, 25). However, Section 8 of the Credit
Agreement did not include Lender Defaults or Defaulting Lenders as “Events of Default.”
(Credit Agmt. § 8). The Retail Agreement similarly defined “Lender Default” as “the
failure … of a Lender or Co-Lender to make available its portion of any Loan when
required to be made by it hereunder,” and defined “Defaulting Lender” to include any
Lender or Co-Lender that was the subject of bankruptcy, but neither Lender Default nor
Defaulting Lender was explicitly included as an Event of Default under Section 8.1 of
the Retail Agreement. (Retail Agmt. § 1 at 8, 15, § 8.1).
The Disbursement Agreement imposed on Fontainebleau an obligation “to
provide to the Disbursement Agent, the Construction Consultant and the Funding
Agents written notice of … [a]ny Default or Event of Default of which the Project Entities
have knowledge ….,” and explicitly stated the Disbursement Agent had “no duty to
inquire of any Person whether a Default or an Event of Default has occurred and is
continuing;”
(Disb. Agmt. §§ 5.4.1, 9.10).
The Credit Agreement imposed on
Fontainebleau and the Lenders the obligation to provide the Administrative Agent with
notice of a default under the Credit Agreement. (Credit Agmt. § 9.3(c)). Neither the
Disbursement nor the Credit Agreement imposed on the Disbursement Agent or the
Bank Agent a duty to inquire as to the occurrence of a Default or an Event of Default.
(Disb. Agmt. § 9.10; Credit Agmt. § 9.3(c)).
21
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3.
Article 9: The Disbursement Agent
Article 9 of the Disbursement Agreement, entitled “The Disbursement Agent,” set
forth certain rights and responsibilities of the Disbursement Agent. (Disb. Agmt. Art. 9).
Section 9.1, entitled “Appointment and Acceptance,” provided as follows: “The
Disbursement Agent … agrees to exercise commercially reasonable efforts and utilize
commercially prudent practices in the performance of its duties hereunder consistent
with those of similar institutions holding collateral, administering construction loans and
disbursing disbursement control funds.”
8
(Id. § 9.1).
Sections 9.2 (“Duties and
Liabilities of the Disbursement Agent Generally) and 9.3 (“Particular Duties and
Liabilities of the Disbursement Agent”), as indicated by their titles, set forth the duties
and liabilities of the Disbursement Agent.
Section 9.2.3 prescribed the action to be taken by the Disbursement Agent
should it be notified of an Event of Default or Default:
Notice of Events of Default. If the Disbursement Agent is notified that an
Event of Default or a Default has occurred and is continuing, the
Disbursement Agent shall … exercise such of the rights and powers
vested in it by this [Disbursement] Agreement … and use the same
degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the reasonable administration
of its own affairs.
(Id. § 9.2.3).
In addition, Section 9.2.5, entitled “No Imputed Knowledge,” explicitly provided
that no knowledge may be imputed to Bank of America, as Disbursement Agent, from
Bank of America in its other agency or lender functions:
8
Section 9.1 referenced certain “Control Agreements.” (Disb. Agmt. § 9.1). The parties agreed
during oral argument that I need not consider the Control Agreements in evaluating Section 9.1
and the Disbursement Agreement. (11/18/2011 Tr. 12:24–13:8).
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Notwithstanding anything to the contrary in this Agreement, the
Disbursement Agent shall not be deemed to have knowledge of any fact
known to it in any capacity other than the capacity of Disbursement Agent,
or by reason of the fact that the Disbursement Agent is also a Funding
Agent or Lender.
(Id. § 9.2.5). “Funding Agent” included Bank of America’s role as Bank Agent under the
Disbursement Agreement, and, in turn, Controlling Person under the Disbursement
Agreement and Administrative Agent under the Credit Agreement. (Id. Exh. A at 3, 10,
14). Accordingly, Bank of America, as Disbursement Agent, had no imputed knowledge
from Bank of America as Bank Agent or Administrative Agent.
Regarding the approval of Advance Requests, Section 9.3.2 expressly
authorized the Disbursement Agent to rely on certifications from the Project Entities with
respect to the conditions precedent of an Advance Request, and disavowed any duty on
the part of the Disbursement Agent to investigate independently the veracity of the
statements and information contained in the certifications:
The Disbursement Agent may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval or
other paper document believed by it on reasonable grounds to be genuine
and to have been signed or presented by the proper party or parties.
Notwithstanding anything else in this Agreement to the contrary, in
performing its duties hereunder, including approving any Advance
Requests, making any other determinations or taking any other actions
hereunder, the Disbursement Agent shall be entitled to rely on
certifications from the Project Entities (and, where contemplated herein,
certifications from third parties, including the Construction Consultant) as
to satisfaction of any requirements and/or conditions imposed by this
Agreement. The Disbursement Agent shall not be required to conduct any
independent investigation as to the accuracy, veracity or completeness of
any such items or to investigate any other facts or circumstances to verify
compliance by the Project Entities with their obligations hereunder.
(Id. § 9.3.2).
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Section 9.10, entitled “Limitation of Liability,” also limited the Disbursement
Agent’s responsibility and liability. (Id. § 9.10). Section 9.10 explicitly limited the duties
of the Disbursement Agent as follows: (1) the Disbursement Agent has “no duty to
inquire of any Person whether a Default or an Event of Default has occurred and is
continuing”; (2) “the Disbursement Agent is not obligated to supervise, inspect or inform
the Project Entities of any aspect of the development, construction or operation of the
Project”; (3) the Disbursement Agent has “no duties or obligations hereunder except as
expressly set forth herein, shall be responsible only for the performance of such duties
and obligations and shall not be required to take any action otherwise than in
accordance with the terms hereof”; and (4) “…nothing in this Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon the Disbursement
Agent any obligations in respect of this Agreement except as expressly set forth herein
or therein.” (BofA Statement ¶ 61; Disb. Agmt. § 9.10). Section 9.10 also stated, “The
Disbursement Agent does not represent, warrant or guaranty to the Funding Agents or
the Lenders the performance by any Project Entities, the General Contractor, the
Constriction Consultant, the Architect, or any other Contractor ….” (Disb. Agmt. § 9.10).
Section 9.10, moreover, limited Bank of America’s potential liability to bad faith,
fraud, gross negligence, or willful misconduct:
“[T]he Disbursement Agent shall have no responsibility to the Project Entities,
the Funding Agents, or the Lenders as a consequence of performance by the
Disbursement Agent hereunder except for any bad faith, fraud, gross
negligence or willful misconduct of the Disbursement Agent as finally judicially
determined by a court of competent jurisdiction;” and
“Neither the Disbursement Agent nor any of its officers, directors, employees
or agents shall be in any manner liable of responsible for any loss or damage
arising by reason of any act or omission to act by it or them hereunder or in
connection with any of the transactions contemplated hereby, including, but
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not limited to, any loss that may occur by reason of forgery, fraud, gross
negligence or willful misconduct as finally judicially determined by a court of
competent jurisdiction.”
(BofA Statement ¶ 62; Disb. Agmt. § 9.10). (The Term Lenders do not contend Bank of
America engaged in fraud.)
E.
Bank of America’s Role as Bank Agent and the Credit Agreement
Bank of America was not only the Disbursement Agent under the Disbursement
Agreement, it was also the Bank Agent. (Disb. Agmt. Exh. A at 3). The Disbursement
Agreement defined “Bank Agent” as “Bank of America, N.A. in its capacity as
Administrative Agent under the Bank Credit Agreement ….”
(Id.). Like the
Disbursement Agreement, the Credit Agreement was governed by New York law.
(Credit Agmt § 10.11).
Section 9 of the Credit Agreement set forth certain rights and responsibilities of
the Administrative Agent. (Credit Agmt. § 9). Similar to the exculpatory provisions of
the Disbursement Agreement, the Credit Agreement, Section 9.3, entitled “Exculpatory
Provisions,” specifically provided the Administrative Agent could not be held liable in the
absence of “its own gross negligence of willful misconduct.” (Id. § 9.3(c)). Section 9.3
further stated, “The Administrative Agent shall be deemed not to have knowledge of any
Default unless and until notice describing such Default is given to the Administrative
Agent by Borrowers, a Lender or the Issuing Lender.” (Id.). In the same vein, Section
9.7 of the Credit Agreement, entitled “Non-Reliance on Administrative Agent and Other
Lenders,” required the Lenders to make their own decisions “independently and without
reliance” upon Bank of America as Administrative Agent. (Id. § 9.7).
Section 9 of the Credit Agreement also contained reliance and inquiry provisions
similar to those in Article 9 of the Disbursement Agreement. Section 9.3 stated, “The
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Administrative Agent shall not be responsible for or have any duty to ascertain or inquire
into … any statement, warranty or representation made in or in connection with this
Agreement or any other Loan Document ….”
(Id. § 9.3(c)).
Also, Section 9.4
authorized the Administrative Agent to rely on “any notice, request, certificate, consent,
statement, instrument, document or other writing … believed by it to be genuine and to
have been signed, sent or otherwise authenticated by the proper Person.” (Id. § 9.4).
Having set forth the relevant and material provisions of the pertinent
Agreements, I turn to the material facts underlying the Term Lenders’ claims.
F.
September 2008 through March 2009 Advance Requests
For each Advance Request from September 2008 through March 2009, Bank of
America received all required certifications from Fontainebleau, IVI, TWC, and the
Architect before disbursing funds to Fontainebleau.
Response ¶ 57; TL Statement ¶ 75).
(BofA Statement ¶ 57; TL
Fontainebleau certified the satisfaction of all
conditions precedent and accuracy of all representations and warranties, including the
absence of any defaults under the various loan documents. (BofA Statement ¶ 57; TL
Response ¶ 57).
The Architect certified that the Project’s construction was in
accordance with the plans and specifications. (Id.). TWC certified the Control Estimate
reflected the costs it expected to be incurred to complete the Project. (Id.). And IVI
certified the Remaining Cost Report accompanying the Advance Request accurately
9
reflected the remaining costs to complete the Project. (Id.).
9
It is undisputed that the
The Term Lenders dispute this fact on the basis that IVI rejected the initial March 2009
Advance Request. (TL Response ¶ 57). As discussed below, although IVI rejected the initial
Request, IVI ultimately signed off on the March 2009 Advance Request before Bank of America
disbursed the requested funds to Fontainebleau.
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Controlling Person never formally notified the Disbursement Agent that a Default or
Event of Default had occurred and was continuing. (Disb. Agmt. § 2.5.1).
Notwithstanding, the Term Lenders have identified several events underlying
their claim that Bank of America breached its obligations under the Disbursement
Agreement: the Lehman bankruptcy and the funding of the Retail Facility;
Fontainebleau’s failure to disclose anticipated Project costs; repudiation by the FDIC of
First National Bank of Nevada’s commitments; select lenders’ failure to fund with
respect to the March 2009 Advance; and the “untimely” submission of the March 2009
Advance. I address each event in turn.
G.
The Lehman Bankruptcy and Retail Facility Funding
1.
September 2008 Advance Request
On September 11, 2008, Fontainebleau submitted its September Advance
Request for $103,771.77, including nearly $3.8 million in Retail Facility funds. (Dep.
Exhs. 237, 331; BofA Statement ¶ 65). Fontainebleau represented in the Request that
all conditions precedent to disbursement had been satisfied. (TL Statement ¶ 75).
Lehman filed for bankruptcy on September 15, 2008. (BofA Statement ¶ 64; TL
Statement ¶ 33). In the days following, Bank of America held a series of calls with
Fontainebleau to obtain additional information regarding the bankruptcy’s implications
for the September 2008 Advance Request.
(BofA Statement ¶ 68).
These calls
focused on whether Lehman would fund its portion of the Advance Request and on
potential alternative financing arrangements if Lehman did not fund, including funding by
other Retail Facility Lenders or Fontainebleau. (BofA Statement ¶ 69; TL Statement ¶
47). (As noted above, Lehman was a lender and agent under the Retail Facility, and
one of the conditions precedent of an Advance Request was the “Retail Agent and the
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Retail Lenders … make any Advances required of them pursuant to the Advance
Request.” (Disb. Agmt. § 3.3.23)). During the calls, Bank of America did not make any
recommendations as to the various financing options; however, it later concluded
internally that Fontainebleau funding Lehman’s share would not satisfy the Advance
Request’s condition precedent. (BofA Statement ¶¶ 70–71; TL Statement ¶ 48–49).
There is no evidence on summary judgment that Bank of America communicated this
conclusion to Fontainebleau.
10
On September 17, 2008, Bank of America issued an Advance Confirmation
Notice confirming the amount of the Advances to be made under the various financing
agreements, and on September 22, 2008, Bank of America, as Administrative Agent,
requested Fontainebleau schedule a telephone conference with the lenders to discuss
the implications of Lehman’s bankruptcy on the Project. (Dep. Exh. 901). No call was
held in the following days. On September 26, 2008, TriMont sent Bank of America the
entire amount of the Retail Shared Costs (or the “Retail Advance”). (BofA Statement ¶
73; TL Response ¶ 73). After receiving the Retail Advance and before disbursing funds
to Fontainebleau, Bank of America sought and received reconfirmation from
Fontainebleau CFO Jim Freeman that all conditions precedent to funding had been
10
The Term Lenders’ assert “BofA did not discuss with Fontainebleau BofA’s conclusion that
Fontainebleau’s payment of Lehman’s commitment would cause condition precedent in Section
3.3.23 to fail.” (TL Statement ¶ 50). Bank of America disputes this fact. (BofA Response ¶ 50).
Per the testimony cited by Bank of America, neither Mr. Yunker (of Bank of America) nor Mr.
Freeman (of Fontainebleau) recalls whether Bank of America communicated its conclusion to
Fontainebleau. (Freeman Dep. Tr. 74:12–24; Yunker Dep. Tr. 96:11–98:14). Bank of America
has not, however, cited any evidence on summary judgment stating Bank of America
communicated its conclusion to Fontainebleau. See, e.g., Dickey v. Baptist Mem’l Hosp., 146
F.3d 262, 266 n.1 (5th Cir. 1998) (“The mere fact that [the deponent] does not remember the
alleged phone conversation, however, is not enough, by itself, to create a genuine issue of
material fact [as to whether the conversation occurred.]”)
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satisfied. (Dep. Exh. 75). Specifically, Bank of America’s Jeff Susman requested Jim
Freeman reaffirm “pursuant to Section 11.2 of the Disbursement Agreement … the
representations and warranties … made pursuant to the [September] Advance Request
and Advance Confirmation Notice.” (Id.). (Section 11.2, entitled “Further Assurances,”
authorized the Disbursement Agent to seek further assurances in relation to an
Advance Request. (Disb. Agmt. § 11.2).). Jim Freeman responded, “I affirm.” (Dep.
Exh. 75).
As of September 26, 2008, Lehman had not announced that it would reject the
Retail Agreement as a result of its bankruptcy, and Bank of America had concluded that
the Lehman bankruptcy, in and of itself, did not provide a basis for rejecting
Fontainebleau’s September 2008 Advance Request.
(BofA Statement ¶ 77; BofA
Response AMA ¶ 62). Bank of America also believed it was required to honor the
September 2080 Advance Request if the requested Retail Shared Costs were received
in full and the Advance Request certifications remained in effect. (Howard Dep. Tr.
80:18-81:21).
Accordingly, on September 26, 2008, Bank of America disbursed
Fontainebleau’s September 2008 Advance Request.
2.
Highland’s Contentions Regarding the Lehman Bankruptcy
Meanwhile, Highland sent several communications to Bank of America asserting
Lehman’s bankruptcy caused breaches of the Loan Facility. On September 26, 2008,
Highland Capital Management, one of the original Term Lenders, sent Jeff Susman of
Bank of America an e-mail stating, “[a]s a result of [Lehman’s] bankruptcy filing, … the
financing agreements are no longer in full force and effect, triggering a number of
breaches under the Loan Facility – resulting in the following consequences: (i) No
disbursements may be made under the Loan facility; and (ii) The Borrower should be
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sent a notice of breach immediately to protect the Lenders’ rights and ensure that any
cure period commence as soon as possible.” (Dep. Exh. 455; BofA Response AMA ¶
106). That same day, Bank of America’s counsel Sheppard Mullin Richter & Hampton
LLP (“Sheppard Mullin”) responded to Highland, stating the Bankruptcy Code
“specifically provides that no executor contract may be terminated or modified solely
based on the commencement of a Chapter 11 case” and requesting Highland identify
“authority or documents supporting a contrary conclusion.”
(Dep. Exh. 472; BofA
Response AMA ¶ 107). Following communications with Highland and further internal
analysis, Bank of America concluded that Lehman’s bankruptcy filing did not, on its
own, provide a basis for rejecting Fontainebleau’s September 2008 Advance Request.
(BofA Response AMA ¶ 108).
Bank of America provided additional information and analysis to Highland on
September 29, 2008 in a Sheppard Mullin email explaining that it was “monitoring all of
the [Lehman] court orders” and was “unaware of a restriction on performance of this
agreement.” (Dep. Exh. 79). Sheppard Mullin also rejected Highland’s suggestion that
Lehman’s bankruptcy was an “anticipatory repudiation of the contract,” and affirmed the
earlier conclusion that, “under Section 365(e)(1), an executory contract cannot be
terminated or modified solely on the basis of [Lehman’s] insolvency … or … the
commencement of the Chapter 11 case.” (Id.).
On September 30, 2008, after disbursement of the September 2008 Advance
Request, Highland sent Sheppard Mullin another email, this time claiming, “Re Sec 365
– if this contract can be rejected then, at a minimum, there is [a Material Adverse Effect]
under the [Credit Agreement].” (Id.). Bank of America analyzed Highland’s contention
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and the pertinent portions of the relevant financing agreements and concluded that
Highland’s contention was incorrect, as there was no indication that there would be a
shortfall in Retail funds or that the Retail Lenders would fail to honor their obligations
under the Retail Facility. (Susman Declaration (“Susman Decl.”) ¶ 23). Through these
various communications and correspondence, Highland did not submit a formal Notice
of Default, or specify, with reference to a specific portion of the relevant agreements,
any “Default” or “Event of Default” under the Disbursement Agreement or other
financing documents. (Susman Decl. ¶ 25; Dep. Exhs. 79, 455).
3.
Fontainebleau Resorts’ Funding of Lehman’s Portion of the
September 2008 Retail Shared Costs
Lehman’s portion of the September 2008 Advance Request was funded by
Fontainebleau Resorts, which made a $2,526,184.00 “equity contribution” to “prevent an
overall project funding delay and resulting disruption of its Las Vegas project” after
Lehman failed to fund its required September 2008 Retail Shared Costs portion. (BofA
Statement ¶ 78). Although the parties now know that Fontainebleau Resorts funded
Lehman’s portion of the September 2008 Retail Shared Costs, at the time,
Fontainebleau did not disclose (and Bank of America, as Disbursement or Bank Agent,
did not know) the source of funding. (Newby Dep. Tr. 63:22–65:3). Indeed, internal
December 2008 Bank of America correspondence indicates Bank of America believed
Lehman funded its September obligation.
(Dep. Exh. 905 (Susman email dated
December 30, 2008, “As we understand, each month Lehman has funded its share of
the advance.”)).
On September 30, 2008, Bank of America, as Administrative Agent, requested a
call with Jim Freeman to discuss issues relating to Lehman’s bankruptcy, including
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whether Lehman funded its portion of the Shared Costs on September 26, 2008,
whether its portion was funded by other sources, and the effects of the Lehman
bankruptcy on the Project. (Dep. Exh. 76; TL Statement ¶ 51; BofA Response ¶ 51).
More specifically, Bank of America asked “Who are the current lenders under the Retail
credit facility?” and “Did Lehman fund its portion of the requested $3,789,276.00 of
Shared Costs funded last Friday (9/26/08) or was this made up from other sources? If
Lehman did not fund its portion, what were the other sources?”.
(Dep. Exh. 76).
Fontainebleau refused to engage in the call requested in the September 30, 2008 letter.
(TL Statement ¶ 54).
However, in a separate call regarding the September 2008
Advance, Fontainebleau represented to Bank of America that the retail funds for the
September 2008 Retail Advance came from the retail lenders.
(Susman Dep. Tr.
193:18–195:23).
On October 6, 2008, Highland sent Bank of America an e-mail stating there were
“public reports” that “equity sponsors” had funded Lehman’s portion of the September
2008 Shared Costs. (TL Statement ¶ 60; BofA Response ¶ 60; Dep. Exh. 81). The email did not identify the source of the public reports. (Dep. Exh. 81). That same day,
Jim Freeman told Moody’s 2008 that “[r]etail funded its small portion last month.” (BofA
Response AMA ¶ 74).
The next day, October 7, 2008, Jim Freeman sent Bank of America and the
Lenders a memorandum addressing the Retail Facility’s status. (BofA Statement ¶ 90).
The memorandum assured Lenders the August and September portion of the Shared
Costs had been funded in full: “The company has received various inquiries concerning
the retail facilities for the Fontainebleau Las Vegas project since the unfortunate
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bankruptcy filing by Lehman Brothers Holdings, Inc. … In August and September, the
retail portion of such shared costs was $5 mm and $3.8 mm, respectively, all of which
was funded.” (Dep. Exh. 77). The memorandum further stated Fontainebleau was
“continuing active discussions with Lehman Brothers to ensure that, regardless of the
Lehman bankruptcy filing and related acquisition by Barclay’s, there is no slowdown in
funding of the project.”, and Fontainebleau was “actively talking with co-lenders under
the retail construction facility.” (Id.). Finally, Fontainebleau stated it “[did] not believe
there will be any interruption in the retail funding of the project.” (Id.).
The memo did not directly answer the question of whether Lehman funded its
portion of the September 2008 Shared Costs. (Id.). Indeed, Jim Freeman later testified
in depositions he did not tell Moody’s or the Lenders that FBR had funded for Lehman in
September 2008 because counsel had advised him not to disclose the source of
funding. (BofA Response AMA ¶ 75).
On October 13, 2008, Highland forwarded to Bank of America’s counsel a Merrill
Lynch research analyst e-mail stating, “We understand that the FBLEAU equity
sponsors have funded the amount required from Lehman on the retail credit facility due
this month ($4 million). As a result, there are no delays in construction so far.” (Dep.
Exh. 459). Based on this analyst report, Highland stated, “It does not appear that the
Retail Lenders made the Sept. payment, but rather equity investors. … This would
indicate that the reps the company made for that funding request were false.” (Id.).
Highland conceded, however, the assertion that Fontainebleau equity sponsors had
funded for Lehman was “one of a number of speculations that were out there floating
around” and was merely a “rumor[] in the market.” (Rourke Dep. Tr. 104:11–25).
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In its October 13, 2008 e-mail, Highland also requested that because of the cited
concerns, Bank of America “request the borrower to provide wiring confirmation from
the Retail Lenders or funding certificates from the Retail Lenders to confirm that funding
is made by the Retail Lenders (rather than other sources)” and the “borrower’s legal
counsel should provide an opinion that the Lehman funding agreement is in full force
and effect.” (BofA Response AMA ¶ 115; Dep. Exh. 459). Highland cited no provision
of any agreement requiring such information be provided to the agent or the lenders.
(BofA Response AMA ¶ 115). Although Highland asked Bank of America to “confirm”
the understanding that Lehman had not made any disbursements while in bankruptcy,
there is no evidence that Bank of America did confirm this understanding.
(Dep. Exh.
459). Though Highland voiced its concerns in the October 13, 2008 correspondence, it
did not submit a formal Notice of Default, nor did it specify any “Default” or “Event of
Default” under the Disbursement Agreement or other loan documents. (Susman Decl. ¶
25; Dep. Exh. 459). In fact, Highland funded its share of the Delay Draw Term Loan in
response to the March 2009 Notice of Borrowing. (BofA Response ¶ 130). Highland
has since sold all of its Term Loan holdings and is no longer a plaintiff. (BofA Response
¶ 125).
11
On October 22, 2008, Fontainebleau provided the Lenders with another update
stating “Lehman Brother’s commitment to the facility has not been rejected in
bankruptcy and the facility remains in full force and effect.” and “Lehman Brothers has
indicated to us that it has sought the necessary approvals to fund its commitment this
11
The Term Lenders do not dispute this fact; rather, they contend it is immaterial and irrelevant.
(TL Reply at 1).
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month.” (BofA Statement ¶¶ 94, 95). Fontainebleau further stated, should Lehman not
be able to perform, Fontainebleau had “received assurances from the co-lenders to the
retail facility that they would fund Lehman’s portion of the draw.” (BofA Statement ¶ 95).
Even through December, Fontainebleau did not disclose that FBR had funded for
Lehman in September. On December 5, 2008, FBR issued third quarter (period ending
September 30, 2008) financial statements for both Fontainebleau Las Vegas Holdings,
LLC and FBR. (BofA Response AMA ¶ 91). Fontainebleau Las Vegas Holdings, LLC’s
statement included disclosures regarding the Retail Facility’s status, and, more
specifically, Lehman’s funding. (Dep. Exh. 286 at FBR01280966; BofA Response AMA
¶ 91). The statement noted Lehman filed for bankruptcy on September 16, 2008, stated
Fontainebleau Las Vegas Holdings “has been working diligently with Lehman Brothers
and the co-lenders to ensure that there is no interruption in funding,” and disclosed
“[t]here can be no assurances that Lehman Brothers will continue to fund all or any
portion of its remaining obligation under the Retail Construction Loan, or that the colenders will fund any Lehman Brothers shortfall in funding.”
FBR01280966).
(Dep. Exh. 286 at
Additionally, in the section entitled “Equity contributions” of FBR’s
financial statements, FBR disclosed cash contributions to a Florida project, but made no
mention of its September 2008 equity contribution on Lehman’s behalf.
(BofA
Response AMA ¶ 93; Dep. Exh. 286 at FBR01281007).
4.
The October 2008 Meeting
On October 23, 2008, a meeting (“October Meeting”) was held in Las Vegas
among executives of Fontainebleau Resorts and Bank of America, and representatives
of Retail Co-Lenders ULLICO, Sumitomo Mitsui Bank, and National City Bank in Las
Vegas. (Dep. Exh. 18; TL Statement ¶ 62; BofA Response ¶ 62; BofA Response AMA
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¶ 88). The meeting agenda included an update on the project and the status of the
retail loan, including the effect of the Lehman bankruptcy on the loan. (Dep. Exh. 18; TL
Statement ¶ 62; BofA Response ¶ 62). Specifically, it was noted that the Lehman
bankruptcy had a material impact on the leasing and development of the Project, as well
as the continued funding of the Retail Facility. (Kolben Dep. Tr. 65:7–13).
12
To that
end, during the meeting, the participants discussed possible replacements for Lehman’s
commitment under the Retail Facility. (Id. at 175:18–176:15). Although the Retail CoLenders did not agree during the meeting to assume Lehman’s commitment, ULLICO
and Mitsui Sumitomo expressed the possibility of increasing their respective
commitments to cover a portion of Lehman’s commitment, and additional investment
opportunities, including foreign investors, were discussed. (Id. at 72:17–75:22; 176:4–
9). There is no evidence of record on summary judgment that Lehman’s failure to fund
the September 2008 Retail Advance was discussed at the October Meeting.
13
Additionally, the Retail Lenders asked Bank of America, as Bank Agent, to take
over Lehman’s remaining commitment under the Retail Facility, pursuant to Section 7.1
12
The parties dispute the admissibility of Deposition Exhibit 19, the National City Special Assets
Committee (“SAC”) Report. I need not rule on the parties’ hearsay and authentication
arguments because Mr. Kolben independently testified to the material facts regarding the retail
co-lenders’ willingness to fund and discussions at the October Meeting. These facts do not
contradict the information in the SAC Report.
13
During his deposition, Herbert Kolben of ULLICO testified initially that it was discussed openly
that Lehman had not made the September 2008 payment. (Kolben Dep. Tr. 16–21). He later
corrected his testimony, stating “I said I didn’t recall whether it was openly discussed.” (Kolben
Dep. Tr. 11–18). Upon a direct request for clarification (“Q: Do you … specifically recall any
discussion at the October 23rd meeting about whether Lehman had funded its September retail
events?”), Mr. Kolben stated, “I don’t recall.” (Kolben Dep. Tr. 176:22–177:3). The inconsistent
testimony of a witness, corrected in the same deposition, is not sufficient to create a genuine
issue of material fact. Horn v. United Parcel Services, Inc., 433 F. App’x. 788, 796 (11th Cir.
2011).
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of the Intercreditor Agreement, which permitted—but did not require—the Bank Agent to
purchase and assume the outstanding obligations of the Retail Agent and Lenders. (TL
Statement ¶ 66; BofA Response ¶ 66; Exh. 884 § 7.1; Howard Dep. Tr. 112:13–113:10).
Bank of America did not do so. (TL Statement ¶ 67).
5.
Communications between TriMont and Bank of America
Regarding the September 2008 Retail Advance
TriMont was the Servicer of the Retail Facility, with the responsibility of collecting
funds from the Retail Co-Lenders and transferring them to Bank of America, as
Disbursement Agent under the Disbursement Agreement. (BofA Statement ¶¶ 32, 33).
Each month when Bank of America forwarded to TriMont an Advance Confirmation
Notice, TriMont would send a letter to the Retail Co-Lenders requesting their respective
portions of the Retail Facility Shared Costs be wired to TriMont’s clearing account.
(Dep. Exh. 11; Rafeedie Dep. Tr. 37:8–40:21; Brown Dep. Tr. 42:4–8). Upon receipt of
the funds, TriMont would send to Bank of America a wire transfer for the full amount of
the Retail Advance that was requested, without identifying the amounts funded by each
Retail Co-Lender, and Bank of America would transfer the funds into an account that
could be accessed by Fontainebleau. (TL Statement ¶ 68; Rafeedie Dep. Tr. 40:22–
41:9; Susman Dep. Tr. 204:9–10). Generally, the funding and distribution occurred on
the 25th of each month (though, as discussed above, the September request was
disbursed on the 26th). (Rafeedie Dep. Tr. 39:23–40:4).
By September 26, 2008, TriMont was made aware that Fontainebleau had paid
Lehman’s share of the September Retail Advance. (TL Statement ¶ 69; Dep. Exh. 56;
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14
Dep. Exh. 14).
McLendon Rafeedie was the primary contact at TriMont with respect to
the funding of the Retail Facility, including Lehman’s funding of its obligations and
transfer of the funds to Bank of America.
(Rafeedie Dep. Tr. 21:19–25; 62:3–6).
TriMont’s lead contact at Bank of America regarding funding of Retail advances was
Jean Brown. (Id. at 33:2–23).
Although it was TriMont’s “custom and practice” to
inform Bank of America (and Jean Brown, more specifically) of significant events with
respect to the Retail Facility, there is no evidence that Mr. Rafeedie (or TriMont) actually
informed Ms. Brown (or Bank of America) that Lehman did not fund its portion of the
September 2008 Retail Advance, or that Fontainebleau Resorts funded for Lehman.
15
14
The record is not clear as to when on September 26 TriMont became aware that FBR was
funding Lehman’s portion. On September 26, 2008, Albert Kotite, Executive Vice President of
Fontainebleau Resorts, sent the Retail Facility Co-Lenders a letter stating, “Because Lehman …
has failed to fund its required share under the Retail Facility, in the amount of $2,526,184 …,
Fontainebleau Resorts … is making an equity contribution to fund said amount.” (Dep. Exh.
14). Mr. Kotite forwarded this letter to Mr. Rafeedie on September 26, 2008 at nearly 6:00 p.m.
(Id.). Also on September 26, 2008 at 11:39 a.m., Amit Rustgi from TriMont copied Mr. Rafeedie
on an email stating “the borrower has decided to fund Lehman’s portion.” (Dep. Exh. 56). At
1:11 p.m. Yetta Nicholson of TriMont copied Mr. Rafeedie on an email showing the September
26, 2008 wire coming in from Fontainebleau Resorts, LLC. (Id.).
Although Mr. Rafeedie acknowledged he was copied on these emails, he testified he did not
know when he opened and read the emails. (Rafeedie Dep. Tr. 59:14–62:1). The exact timing
of Mr. Rafeedie’s knowledge that FBR funded for Lehman is not material, though, as there is no
evidence that Mr. Rafeedie communicated to Ms. Brown (or Bank of America) that Lehman did
not fund, or that FBR funded for Lehman.
15
This is a point of much dispute among the parties. After review of Mr. Rafeedie’s and Ms.
Brown’s deposition transcripts, I conclude that there is no evidence to indicate that Mr. Rafeedie
told Ms. Brown that Lehman did not fund its portion of the September 2008 Retail Advance.
While Mr. Rafeedie agreed that it is his “custom and practice” to tell Ms. Brown of “significant
events with respect to the retail facility,” when asked if, “consistent with that practice,” he would
have told Ms. Brown “about the fact that Lehman did not fund” and that “Fontainebleau Resorts
had paid Lehman’s share,” he testified that he “could have,” but he “couldn’t recall exactly” and
“[did not] remember the exact topics of discussion” and the communication “could have been
just that Lehman’s dollars were funded, not necessarily who funded what.” (Rafeedie Dep. Tr.
57:18–58:19, 63:4–9, 53:17–54:5). Mr. Rafeedie further explained that he could have spoken
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6.
Lehman’s Portion from December 2008 through March 2009
Lehman funded its share of the Retail Advance in October and November 2008,
and, as in prior months, Bank of America received from TriMont the full amount of the
October and November Retail Advances. (BofA Statement ¶¶ 99, 102; Kolben Dep. Tr.
77:11–19, 78:12–21). As for the December 2008 Advance Request and related Retail
Advance, Bank of America became aware in December 2008 that ULLICO, a Retail CoLender under the Retail Co-Lending Agreement, would fund Lehman’s portion of the
December Retail Advance. (BofA Statement ¶¶ 100, 101; Dep. Exhs. 9, 905). Bank of
America understood that ULLICO would continue to fund for Lehman for a short time
thereafter until a more permanent solution could be found, and that ULLICO had not
agreed to permanently assume Lehman’s commitment. (BofA Statement ¶¶ 100, 101;
Exh. 905). Each month from December 2008 through March 2009, TriMont wired Bank
of America the full Retail Advance, and Bank of America knew that ULLICO funded
Lehman’s portion of the Retail Advances in these months. (BofA Statement ¶ 102; TL
Statement ¶ 73; BofA Response AMA ¶ 97).
with Ms. Brown and told her the Retail Facility had been fully funded, but only later become
aware that Fontainebleau Resorts funded for Lehman. (Id. at 57:18–58:19).
Ms. Brown testified that she would communicate with Mr. Rafeedie monthly about the status of
the “wire” providing the Retail Advance. (Brown Dep. Tr. 41:7–9; 58:23–3). Ms. Brown also
testified that, although she was concerned as to whether Lehman would fund its portion of the
September 2008 Advance Request, she did not recall Mr. Rafeedie telling her that had not
funded. (Id. at 57:1–8; 58:2–4). Finally, after stating that she “understood Lehman stopped
funding the retail facility in September 2008, Ms. Brown clarified that she did not “know” that
Lehman was not funding, but “assumed so” because she “knew they were bankrupt.” (Id. at
55:6–56:12; 72:9–11).
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7.
Fontainebleau’s Agreement with ULLICO
On December 29, 2008, ULLICO entered into a Guaranty Agreement with FBR,
Turnberry Residential Limited Partner, L.P., and Jeffrey Soffer (together, “Guarantors”).
(Dep. Exh. 24). As a condition of ULLICO’s funding Lehman’s portion of the December
2008 Retail Advance, the Guarantors guaranteed the repayment to ULLICO of
Lehman’s share of the December 2008 Retail Advance. (Id.). Subsequently, ULLICO
and the Guarantors entered into three monthly Amendments to the Guaranty
Agreement, pursuant to which ULLICO would fund Lehman’s portion of the January
2009, February 2009, and March 2009 Retail Advances, and the Guarantors would
reimburse ULLICO, at least in part. (Dep. Exhs. 30, 36, 42). Pursuant to the Guaranty
Agreement and Amendments, ULLICO funded over $11 million on behalf of Lehman,
some of which was reimbursed by the Guarantors. (Dep. Exhs. 24, 30, 36, 42). By
March 2009, the amount of outstanding “Guaranteed Obligations” under the Guaranty
Agreement and Amendments was $5,704,802.32.
(Dep. Exh. 42).
There is no
evidence that Bank of America was aware that ULLICO’s payments on behalf of
Lehman were effectively made by FBR, Jeff Soffer, and Turnberry Residential Limited
16
Partners.
16
The Term Lenders cite to excerpts from Mr. Rafeedie’s deposition transcript to dispute this
fact. (Rafeedie Dep. Tr. 34:19–35:18; 55:16–24). However, those excerpts speak only to
TriMont’s general practice of keeping Bank of America informed of issues involving funding, and
do not state that Bank of America was aware of the Guaranty Agreement or related
Amendments.
Additionally, in response to Bank of America’s additional facts (BofA Response ¶ 104), stating
“There is no evidence that the guaranties provided by Soffer, FBR and TLRP were ever
disclosed to BANA or the Lenders.”, the Term Lenders do not cite any evidence rebutting the
assertion, but only object that Bank of America did not cite specific evidence, as required by
Local Rule 7.5(c)(2). At trial, the Term Lenders would bear the burden of proving Bank of
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8.
Further Assurances from Fontainebleau Regarding the Retail
Facility
On February 20, 2009, Bank of America, as Administrative Agent under the
Credit Agreement, sent Jim Freeman a letter regarding the February 2009 Advance
Request. (Dep. Exhs. 497, 498; TL Statement ¶ 71). Citing lender concerns that were
directed to Bank of America, as Administrative Agent, Bank of America asked
Fontainebleau to comment on the status of the Retail Facility and “the commitments of
the Retail Lenders to fund under the Retail Facility, in particular, whether you anticipate
that Lehman Brothers Holdings, Inc. will fund its share of the requested loans, and
whether the other Lenders under the Retail Facility intend to cover any shortfalls.”
(Dep. Exhs. 497, 498; TL Statement ¶ 71).
Fontainebleau responded on February 23,
2009 (“Fontainebleau’s February 23 Letter”):
As relates to the Retail Facility, we are continuing active discussions with
Lehman Brothers and the co-lenders to ensure that funding for the project
will continue on a timely basis. The Retail Facility is in full force and
effect, there has not been an interruption in the retail funding of the Project
to date.
(Dep. Exh. 811).
America knew Fontainebleau effectively made ULLICO’s payments on behalf of Lehman. On
summary judgment, then, Bank of America may simply point out that there is an absence of
evidence supporting the Term Lenders’ case. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112,
1115–16 (11th Cir. 1993) (for issues on which the opposing party bears the burden at trial, the
party moving for summary judgment “is not required to support its motion with affidavits or other
similar material negating the opponent's claim in order to discharge [its] responsibility. Instead,
the moving party simply may show—that is, point out to the district court—that there is an
absence of evidence to support the non-moving party's case.” (internal citations omitted));
Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (“[T]he
burden on the moving party may be discharged by ‘showing’—that is, pointing out to the district
court—that there is an absence of evidence to support the nonmoving party's case.”).
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H.
Project Costs
Also as discussed above, the Disbursement Agreement required IVI to deliver to
the Disbursement Agent a Construction Consultant Advance Certificate approving or
disapproving each Advance Request. (Disb. Agmt. § 2.4.4(b); BofA Statement ¶ 47).
To inform the Construction Consultant Advance Certificate, the Contractor would
provide IVI with an Anticipated Cost Report (“ACR”), which was a projection of the
Project’s anticipated final cost, including all commitments, pending claims, and pending
issues. (Barone Dep. Tr. 15:6–20). On January 13, 2009, IVI issued its Construction
Consultant Advance Certificate for the January 2009 Advance Request, in which it
affirmed, among other things, that it “ha[d] not discovered any material error in the
matters set forth in the Current Advance Request or Current Supporting Certificates.”
(BofA Statement ¶ 132). On January 30, 2009, IVI issued a Project Status Report
(“PSR 21”) stating it was concerned that Fontainebleau’s cost disclosures might not be
accurate because it appeared that work on the Project would need to be accelerated to
meet the scheduled opening date and the related costs, such as overtime, were not
reflected in the latest Anticipated Cost Report:
“IVI is concerned that all the
subcontractor claims have not been fully incorporated into the report and potential
acceleration impact to meet the schedule has not been included.” (BofA Statement ¶¶
133, 134). PSR 21 also addressed Leadership in Energy and Environmental Design
(“LEED”) credits, which reduce construction costs through Nevada state sales tax
credits on building materials for new construction that meets certain sustainability
standards: “[I]t appears that the LEED credits are tracking behind projections and the
Developer has begun a detailed audit,” and noting that it would “continue to discuss this
with the Developer.” (BofA Statement ¶ 136). Despite the cited concerns, IVI executed
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the Construction Consultant Advance Certificate for the February 2009 Advance
Request and sent it to Bank of America on February 17, 2009. (BofA Statement ¶ 146;
TL Response ¶ 146; Barone Decl. ¶ 20, Exh. 6).
Meanwhile, on February 12, 2009, JPMorgan Chase, a Revolver Lender, sent
Bank of America a letter seeking information on issues raised by IVI in PSR 21, and
also asked Bank of America to provide additional information on the status of the Retail
Facility.
(BofA Statement ¶ 138).
On February 20, 2009, Bank of America sent
Fontainebleau a letter requesting this information.
(BofA Statement ¶ 139).
Fontainebleau responded in its February 23 Letter, stating IVI’s information was
outdated, and “at this point, we are not aware of any cost overruns or acceleration costs
that are not reflected in the Anticipated Cost Report.” (Dep. Exh. 811). Regarding the
LEED credits, Fontainebleau stated, “[W]e believe that the full amount of the credits
reflected in the Budget will in fact be realized.” (Id.). That same day, in response to
lender requests, Bank of America asked Fontainebleau to schedule a lender call to
discuss Fontainebleau’s February 23 Letter.
(BofA Statement ¶¶ 142–43). But
Fontainebleau refused, objecting to having a call on short notice, asserting it was under
no contractual obligation to have the call, and raising concerns that sensitive Projectrelated information may be leaked to the press by lenders. (Id.).
On March 3, 2009, IVI sent Bank of America Project Status Report No. 22 (“PSR
22”). (Id. ¶ 144). Although PSR 22 repeated IVI’s previous concern that there were
unreported Project cost increases, it also indicated that the Project remained within
budget. (Id. ¶ 145).
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On March 4, 2009, Bank of America again requested that Fontainebleau arrange
a meeting with Lenders and provided Fontainebleau with a list of Lender information
requests concerning Project costs.
(Id. ¶¶ 147–48).
The next day, IVI asked
Fontainebleau for “a submission of the future potential claims being made by the
subcontractors against [the Contractor] and any overruns related to the un-bought
work,” and for an updated Anticipated Cost Report “to show the potential exposures to
[Fontainebleau Las Vegas] and a better indication of the current contingency.” (Id. ¶
149). On March 10, 2009, Bank of America sent Fontainebleau another letter and
information request. (Id. ¶ 150).
On March 11, 2009, Fontainebleau submitted its March 2009 Advance Request.
(Id. ¶ 151). In the Remaining Cost Report annexed to the March Advance Request,
Fontainebleau disclosed that it had increased construction costs by approximately $64.8
million. (Id. ¶ 153). The next day, IVI’s Robert Barone met with Fontainebleau’s Deven
Kumar in Las Vegas, and Kumar informed Barone that the Project was $35 million over
budget.
(Id.).
On March 19, 2009, IVI issued a Construction Consultant Advance
Certificate that declared IVI had discovered material errors in the Advance Request and
supporting documentation; believed the Project would require an additional $50 million
for Construction Costs; and the Opening date would be November 1, 2009, rather than
October 1, 2009 as originally planned. (BofA Statement ¶¶ 154–155; TL Response ¶
154).
A few days later, IVI informed Bank of America that IVI had been “working with
the developer to update their most recent anticipated cost report” and that
Fontainebleau had “provided an ACR that they state represents their understanding of
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the hard cost exposure to the project.” (BofA Statement ¶ 156). IVI advised that it had
not yet conducted an audit of the information presented by Fontainebleau (an audit
would take weeks), but the information appeared reasonable. (Id.). IVI further stated it
believed the developer credibly projected the potential costs, but it would be prudent to
include additional funds for unexpected or known costs. (Id.).
On March 20, 2009, Fontainebleau held a Lender meeting in Las Vegas where it
delivered a presentation updating the Lenders on the Project’s construction budget and
other issues relating to the Project’s financial condition, representing, among other
things, that it had retained KPMG to conduct a LEED credit audit. (Id. ¶¶ 157, 159–60).
A few days later, on March 23, 2009, Fontainebleau submitted an unsigned draft
revised Advance Request reflecting its earlier discussions with IVI. (Id. ¶ 161). IVI
signed off on Fontainebleau’s revisions and issued a Construction Consultant Advance
Certificate approving the March 2009 Advance, after which Fontainebleau submitted an
executed revised March Advance Request. (Id. ¶¶ 162–63).
Bank of America made the revised March Advance Request available to the
Lenders the next morning (March 24) along with, among other things, IVI’s Certificate
and a chart Fontainebleau prepared at the Lenders’ request showing the changes to the
Remaining Cost Report and the In Balance Report. (Id. ¶ 164). The revised Request
represented the Project was In Balance by $13,785,184. (Id. ¶ 164). On March 25,
2009, the scheduled Advance Date, Fontainebleau further revised the March Advance
Request, increasing the margin by which the Project as In Balance to $14,084,071. (Id.
¶ 165). No Term (or other) Lenders submitted a Notice of Default or otherwise formally
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objected to the March Advance.
Bank of America transferred the Advance to
Fontainebleau on March 26, 2009. (BofA Statement ¶ 166; TL Response ¶ 166).
I.
First National Bank of Nevada Repudiation
On July 25, 2008, the First National Bank of Nevada (a Delay Draw Term Loam
and Revolving Loan Lender) was closed by the Comptroller of the Currency, and the
Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver.
Statement ¶¶ 181–82).
(BofA
In late-December 2008, the FDIC formally repudiated First
National Bank of Nevada’s unfunded Senior Credit Facility commitments, which
amounted to $1,666,666 under the Delay Draw Term Loan and $10,000,000 under the
Revolver Loan.
(Id. ¶¶ 183–84).
In response to the FDIC’s repudiation, Bank of
America directed Fontainebleau to remove First National Bank of Nevada’s
commitments from the In Balance Test’s “Available Sources” component. (Id. ¶ 185).
Even without First National Bank of Nevada’s unfunded commitments, though, the
Project was “In Balance” by approximately $107.7 million, as reflected in the December
2008 Advance Request. (Id. ¶ 186).
J.
March 2009 Advance Request and Defaulting Lenders
On March 2, 2009, Fontainebleau submitted a Notice of Borrowing under the
Credit Agreement requesting a Delay Draw Term Loan for the entire $350 million
facility, and, simultaneously, a $670 million Revolver Loan (which was reduced to $652
million the next day). (Id. ¶ 187). Bank of America refused to process the Notice of
Borrowing on the grounds that the amounts requested were not permissible under the
Credit Agreement, and on March 9, 2009, Fontainebleau submitted a revised Notice of
Borrowing seeking only the $350 million Delay Draw Loan. (Id. ¶¶ 188–89). Bank of
America approved the revised Notice of Borrowing. (Id. ¶ 190). All but two of the Delay
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Draw Term Lenders—Z Capital and Guggenheim—funded their commitments. (BofA
Statement ¶ 191; TL Response ¶ 191). Accordingly, $326.7 million of the $350 million
was funded. (Id.). Although Z Capital and Guggenheim did not fund, Bank of America
continued to include their commitments as “Available Funds” for In Balance Test
purposes.
(BofA Statement ¶ 192; TL Response ¶ 192).
On March 11, 2009,
Fontainebleau submitted its March 2009 Advance Request, requesting $137.9 million.
(Bolio Decl. ¶ 18 Exh. 16). Accordingly, there were ample funds to cover the requested
amount.
On March 23, 2009, Bank of America, as Disbursement Agent and Administrative
Agent, sent the Lenders a letter disclosing Z Capital and Guggenheim had not yet
funded their respective Delay Draw Term Loan commitments, and excluding those
commitments from the Available Funds would result in a failure to satisfy the In Balance
test. (Dep. Exh. 104). Bank of America further stated it was willing to include the
unfunded commitment in the Available Funds component for the March Advance
“pending further information about whether these lenders will fund.” (Id.). Finally, Bank
of America invited “any Lender that does not support these interpretations [to]
immediately inform us in writing of their specific position.” (Id.).
Deutsche Bank and Highland responded to Bank of America’s letter, but neither
expressed disagreement with Bank of America’s position.
17
Rather, Highland merely
stated it was under no obligation to state a position about Bank of America’s
interpretation of the credit documents and reserved all rights and claims against Bank of
17
Highland conceded that it did not “reach a contrary position” to the March 25th Advance being
made available to Fontainebleau. (Rourke Dep. Tr. 172:18–173:3).
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America. (Dep. Exh. 471). Deutsche Bank asked Bank of America “[w]hy it [was]
appropriate to allow for the inclusion of [the] defaulting lender commitments in the InBalance Test.” (Dep. Exh. 832). Bank of America scheduled a lender call to address
this inquiry. (Non-Dep. Exh. 1505). Ultimately, Bank of America disbursed the March
2009 Advance Request to Fontainebleau. (BofA Statement ¶ 197; TL Response ¶ 197).
K.
Termination of Funding
On April 13, 2009, Fontainebleau notified Lenders that one or more events “had
occurred which reasonably could be expected to cause the In Balance test to fail to be
satisfied” and, further, the “Project Entities have learned that (i) the April Advance
Request under the Retail Loan may not be fully funded and (ii) as of today, the
Remaining Costs exceed Available Funds.” (BofA Statement ¶ 167). The next day,
April 14, Fontainebleau provided IVI with a schedule of Anticipated Costs dated “as of
April 14, 2009” revealing more than $186 million in previously unreported Anticipated
Costs. (Id. ¶ 169).
On April 17, 2009, Fontainebleau held a Lender meeting and reported that the
Project “may be out-of-balance by approximately $180 million,” reflecting a deficit of
$186 million in committed construction costs.
(Dep. Exh. 268).
Fontainebleau
presented a luxurious “enhanced plan” that would require a further $203 million in
spending. (Id. 268). Fontainebleau also indicated at the meeting that it could not meet
its debt obligations as they came due, disclosing that it planned to extinguish the
Second Mortgage Notes and ask the Lenders to convert their debt into equity. (BofA
Statement ¶ 172). Based on the information provided by Fontainebleau at the April 17,
2009 Lender meeting, the Revolver Lenders determined that one or more Events of
Default had occurred and terminated the Revolver Loan on April 20, 2009. (Id. ¶ 173).
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On April 20, 2009, Bank of America, as Administrative Agent, sent Jim Freeman
a letter stating “the Required Facility Lenders under the Revolving Credit Facility have
determined that one or more Events of Default have occurred and are continuing to
occur and they have requested that the Administrative Agent notify you that the Total
Revolving Commitments have been terminated.” (Dep. Exh. 827). On June 9, 2009,
the
Borrowers
and
certain
affiliates
filed
a
Chapter
11
Petition
in
the
United States Bankruptcy Court for the Southern District of Florida. (TL Statement ¶
79).
In May 2009, Bank of America commissioned IVI to “perform a cost-complete
review” of the Project’s construction costs based on the “enhanced plan” presented
during the April 2009 Lender meeting. (BofA Statement ¶ 175). As part of its review,
IVI received additional information from Fontainebleau and the Contractor regarding the
Project budget, including an April 30, 2009 Anticipated Cost Report, which included
almost $300 million in pending charges for additional work by subcontractors. (Id. ¶
176).
After reviewing the documentation supporting the pending charges, IVI
concluded, based on the number and scope of the pending items, that the
subcontractors made the claims “some time ago, possibly as far back as a year,” but
they were never included in the Anticipated Cost Reports Fontainebleau submitted to
IVI. (Id. ¶ 177). It was later determined that, to conceal the Project’s cost overruns,
Fontainebleau and TWC used two separate sets of books: one for their own internal
use, which allowed them to keep track of the actual progress, scope, and cost of the
Project, and a second set shown to Bank of America and IVI, which disclosed only a
subset of the actual costs. (Id. ¶ 178). Fontainebleau and TWC also kept two sets of
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Anticipated Cost Reports: an “internal” Report that included actual costs, and a “bank”
Report that was disclosed to Bank of America and IVI and that conformed with the
construction budget that had been disclosed to the Lenders. (Id. ¶¶ 179–80).
IV.
Standard of Review
Rule 56(c) of the Federal Rules of Civil Procedure authorizes summary judgment
when the pleadings and supporting materials show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment as a matter of law.
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d
202 (1986). A fact is “material” if it hinges on the substantive law at issue and it might
affect the outcome of the nonmoving party's claim. See id. (“Only disputes over facts
that might affect the outcome of the suit under the governing law will properly preclude
the entry of summary judgment.”). The court’s focus in reviewing a motion for summary
judgment is “whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a matter
of law.” Anderson, 477 U.S. at 252; Bishop v. Birmingham Police Dep’t, 361 F.3d 607,
609 (11th Cir. 2004).
The moving party bears the initial burden under Rule 56(c) of demonstrating the
absence of a genuine issue of material fact. Allen v. Tyson Foods, Inc., 121 F.3d 642,
646 (11th Cir. 1997). Once the moving party satisfies this burden, the burden shifts to
the party opposing the motion to go beyond the pleadings and designate “specific facts
showing that there is a genuine issue for trial.” Celotex v. Catrett, 477 U.S. 317, 324,
106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
A factual dispute is genuine only if the
evidence is such that a reasonable fact finder could return a verdict for the non-moving
party. Anderson, 477 U.S. at 248; Denney v. City of Albany, 247 F.3d 1172, 1181 (11th
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Cir. 2001).
Moreover, speculation or conjecture cannot create a genuine issue of
material fact. Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1181 (11th Cir. 2005)
In assessing whether the movant has met its burden, the court should view the
evidence in the light most favorable to the party opposing the motion and should resolve
all reasonable doubts about the facts in favor of the non-moving party. Denney, 247
F.3d at 1181; Am. Bankers Ins. Group v. U.S., 408 F.3d 1328, 1331 (11th Cir. 2005)
(applying same standard to cross-motions for summary judgment).
In determining
whether to grant summary judgment, the court must remember that "[c]redibility
determinations, the weighing of the evidence, and the drawing of legitimate inferences
from the facts are jury functions, not those of a judge." Anderson, 477 U.S. at 255. In
determining whether summary judgment is appropriate, the court is required to “draw all
reasonable inferences in favor of the non-moving party, not all possible inferences.”
Horn v. United Parcel Services, Inc., 433 F. App’x. 788, 796 (11th Cir. 2011) (emphasis
added).
V.
Discussion of Summary Judgment Motions
Upon review of the parties’ cross-motions for summary judgment, I grant Bank of
America’s Motion for Summary Judgment and, correspondingly, deny the Term
Lenders’ Motion for Partial Summary Judgment.
In reaching this decision, I have
carefully examined each cross-motion (and corresponding exhibits) under the proper
standard; that is, I have reviewed Bank of America’s Motion for Summary Judgment
with all inferences in favor of the Term Lenders, and the Term Lenders’ Motion for
Partial Summary Judgment with all inferences in favor of Bank of America. I conclude
the Term Lenders, with all inferences in their favor, have failed to raise a genuine issue
of material fact as to whether Bank of America, as Disbursement Agent or Bank Agent,
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breached the Disbursement Agreement, or whether Bank of America acted with bad
faith, gross negligence, or willful misconduct. Accordingly, I enter judgment as a matter
of law in favor of Bank of America on both of these issues.
In addressing the legal issues presented, I turn first to Bank of America’s duties
and responsibilities under the Disbursement Agreement.
Concluding that Bank of
America can be held liable under the Disbursement Agreement for only bad faith, gross
negligence, or willful misconduct, I explain, with all inferences in favor of the Term
Lenders, that the evidence of record on summary judgment does not demonstrate Bank
of America acted with bad faith or gross negligence or engaged in willful misconduct in
the performance of its duties under the Disbursement Agreement. Finally, I turn to the
specific scenarios underlying the Term Lenders’ claims, and conclude, based on the
facts not materially in dispute, Bank of America did not breach the Disbursement
Agreement, and even if it did, it did not act with gross negligence under New York law.
A.
Claims at Issue: The Disbursement Agreement
As an initial matter, I reiterate that the only claims outstanding in this case are
under the Disbursement Agent, not the Credit Agreement. See 11/18/2011 Tr. 6:5–23;
ECF No. 328. Therefore, the Disbursement Agreement, and Bank of America’s roles
and responsibilities as Disbursement Agent and Bank Agent under that Agreement, are
the focus of this Order. Pursuant to Section 11.5 of the Disbursement Agreement,
however, the Credit Agreement is expressly integrated into the Disbursement
Agreement to the extent necessary to define the roles of Bank Agent and Disbursement
Agent under the Disbursement Agreement. In fact, the choice of Agreement does not
matter, as under either Agreement, Bank of America is held to the same standard, and
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Bank of America, in its roles as both Disbursement Agent and Bank Agent, did not act
with gross negligence or engage in willful misconduct.
B.
Bank of America’s Duties Under the Disbursement Agreement
Before addressing the factual circumstances underlying the Term Lenders’
breach of contract claims, I turn to Bank of America’s duties and responsibilities under
the Disbursement Agreement.
Under New York law, a written agreement that is
complete, clear, and unambiguous on its face must be enforced according to the plain
meaning of its terms. Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (N.Y. 2002).
“Whether an agreement is ambiguous is a question of law to be resolved by the courts.”
W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (N.Y. 1990). “Ambiguity is resolved
by looking within the four corners of the document, not to outside sources.” Kass v.
Kass, 91 N.Y.2d 554, 566 (N.Y. 1998); Jet Acceptance Corp. v. Quest Mexicana S.A.
de C.V., 929 N.Y.S.2d 206, 211 (N.Y. App. Div. 2011) (“Extrinsic evidence may not be
introduced to create an ambiguity in an otherwise clear document.”).
In analyzing
whether a term is ambiguous, the court should examine the entire contract and consider
the relation of the parties and the circumstances under which it was executed. Kass, 91
N.Y.2d at 566. The court should further construe such terms in accordance with the
parties’ intent, which is generally discerned from the four corners of the document itself.
MHR Capital Partners LP v. Presstek, Inc., 912 N.E. 2d 43, 47 (N.Y. 2009); Int’l. Klafter
Co., Inc. v. Continental Cas. Co., Inc., 869 F.2d 96, 99 (2d Cir. 1989) (applying New
York law; “the court is required to discern the intent of the parties to the extent their
intent is evidenced by their written agreement.”).
Furthermore, “[l]anguage whose
meaning is otherwise plain is not ambiguous merely because the parties urge different
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interpretations in the litigation.” Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906
F.2d 884, 889 (2d. Cir. 1990) (applying New York law).
Here, the parties agree that the relevant provisions of the Disbursement
Agreement are unambiguous.
See, e.g., BofA Memo. at 25 (“Here, the relevant
Disbursement Agreement … provisions are complete, clear, and ambiguous.”);
11/18/2011 Tr. 13:16–17 (Term Lenders counsel stating Term Lenders argued no
ambiguity in their briefs). They disagree, however, on the meaning of those provisions
and, correspondingly, on the scope of Bank of America’s responsibilities under the
Disbursement Agreement. I conclude that the Disbursement Agreement limits Bank of
America’s duties in approving and funding Advance Requests to determining whether
Fontainebleau, IVI, the Contractor, and the Architect submitted the required documents,
and determining whether the Advance Request conditions precedent were satisfied. In
determining whether the conditions precedent were satisfied, Bank of America was
entitled to rely on the representations, certifications, and documents it received from
Fontainebleau, IVI, the Contractor, and the Architect. Moreover, Bank of America had
no duty to investigate the veracity of or facts and circumstances underlying the
representations. Nor did Bank of America have any affirmative duty to ensure that the
conditions precedent were, in fact, met.
The Disbursement Agreement plainly set forth Bank of America’s obligations in
approving an Advance Request. Section 2.4.4 required Bank of America to review, in a
timely manner, the Advance Request and its attachments to determine whether all
required documentation had been provided, and to “use reasonable diligence” to assure
that IVI performed its review and delivered its Construction Consultant Advance
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Certificate in a timely manner. See Disb. Agmt. § 2.4.4. Section 2.4.6 required Bank of
America to execute and deliver an Advance Confirmation Notice “[w]hen the applicable
conditions precedent set forth in Article 3 have been satisfied.” See id. § 2.4.6. To the
contrary, “[i]n the event … (1) the conditions precedent to an Advance have not been
satisfied, or (ii) the Controlling Person notifies the Disbursement Agent that a Default or
Event of Default has occurred and is continuing,” Bank of America was required to issue
a Stop Funding Notice. See id. § 2.5.1.
In determining whether the conditions precedent to an Advance Request were
satisfied, Bank of America was explicitly authorized to rely on Fontainebleau’s
certifications and representations as to, among other things, the satisfaction of Article
3’s conditions precedent, and was explicitly not required to conduct “any independent
investigation as to the accuracy, veracity, or completeness” of those certifications, or to
“investigate any other facts or circumstances to verify compliance by [Fontainebleau]
with [its] obligations hereunder.” See id. § 9.3.2 (emphasis added). Furthermore, the
Disbursement Agreement was clear that Bank of America had “no duty to inquire of any
Person whether a Default or an Event of Default has occurred and is continuing.” See
id. § 9.10.
Even if Bank of America failed to fulfill its obligations under the Disbursement
Agreement, the Disbursement Agreement contained a broad exculpatory provision
under which Bank of America’s liability was limited to its own bad faith, gross
negligence, or willful misconduct. See id. § 9.10; Metropolitan Life Ins. Co. v. Noble
Lowndes Intern., Inc., 643 N.E.2d 504, 506–7 (N.Y. 1994) (enforcing contract provision
“limiting defendant's liability for consequential damages to injuries to plaintiff caused by
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intentional misrepresentations, willful acts and gross negligence” because it represented
parties’ agreement on allocation of risk). Section 9.10 stated the Disbursement Agent
shall not be “in any manner liable or responsible” for any loss or damage “except as a
result of [its] bad faith, … gross negligence or willful misconduct.” See Disb. Agmt. §
9.10. In sum, even if Bank of America approved an Advance Request or failed to issue
a Stop Funding Notice in violation of the Disbursement Agreement, it could be held
liable only if it acted with malice, reckless disregard, or the intent to harm.
C.
The Term Lenders’ Interpretation of Section 9.3.2
The Term Lenders urge a different interpretation of the Disbursement
Agreement, and, in particular, of Bank of America’s reliance on and duty to investigate
Fontainebleau’s representations, as reflected in Section 9.3.2.
The Term Lenders
argue Bank of America could not rely on Fontainebleau’s certificates if Bank of America
“had reason to believe that they were false.” Term Lenders Opp. at 6. The Term
Lenders further argue Bank of America places “unsustainable weight” on Section 9.3.2,
which entitles Bank of America to rely on Fontainebleau’s certificates, and contend the
Disbursement Agreement imposed upon Bank of America an obligation to “determine
the satisfaction of conditions precedent not covered by certificates” and a duty to
investigate to “resolve[] known inconsistencies.” Id. While I—and Bank of America—
agree that the Disbursement Agreement imposed on Bank of America a duty to issue a
Stop Funding Notice when it has actual knowledge of the failure of a condition
precedent to disbursement or the occurrence of a Default or Event of Default, see Nov.
18, 2011 Tr. 37:1–5, I disagree with the Term Lenders that the Disbursement
Agreement imposes a duty to investigate possible inconsistencies, and address each of
the Term Lenders’ arguments regarding the interpretation of the Agreement below.
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As an initial matter, though, I note the Term Lenders’ interpretation of the
Disbursement Agreement contradicts the plain language of Section 9.3.2.
Imposing
upon Bank of America a duty to resolve inconsistencies or investigate the veracity of
Fontainebleau’s representations directly contradicts Section 9.3.2’s provision that Bank
of America “shall not be required to conduct any independent investigation” as to the
accuracy of the representations. See Disb. Agmt. § 9.3.2 (emphasis added). Similarly,
the Term Lenders’ argument that Bank of America could not rely on certificates it had
“reason to believe” are false contradicts the plain language of Section 9.3.2, which,
without
qualification,
entitled
Bank
of
America
to
rely
on
Fontainebleau’s
representations as to the satisfaction of the conditions precedent to disbursement. See
id.
The cases cited by the Term Lenders do not dictate otherwise.
See TL
Opposition at 9–10. In Bank Brussels Lambert v. Chase Manhattan Bank, the district
court for the Southern District of New York analyzed a revolving credit agreement under
which Chase was the agent bank. No. 93 Civ. 5298, 1996 WL 609439 (S.D.N.Y. Oct.
23, 1996). After the borrower filed for bankruptcy, the lender banks sued Chase for
breach of the credit agreement, claiming Chase relied on materially inaccurate financial
statements and certificates. The revolving credit agreement required Chase to find the
documents and documents “satisfactory … in form and substance.” Id. at *6 (emphasis
added). The court held, “if Chase knew, or was grossly negligent in not knowing, that
the materials it delivered prior to and at closing were materially inaccurate, it cannot
argue that those materials were satisfactory in ‘substance.’”
57
Id. at *7.
As the
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Disbursement Agreement contains no requirement that Bank of America evaluate the
certificates for their substance, Bank Brussels Lambert is readily distinguishable.
Chase Manhattan Bank v. Motorola, Inc. is similarly distinguishable, as it pertains
to a guarantor’s right to rely on a borrower’s false certificate to terminate its guarantee
obligation. 184 F.Supp.2d 384 (S.D.N.Y. 2002). The court held the guarantor could not
rely on a false certificate to terminate its obligation. Notably, the guaranty agreement at
issue did not contain any provision entitling the guarantor to rely on certificates from the
borrower in terminating its obligations. Moreover, in response to Motorola’s argument
that Chase approved the “form and substance” of the false certificate and therefore
cannot challenge its validity, the Motorola court cited to language stating Chase had no
duty to ascertain or inquire into any statement, warranty or representation, and
concluded Chase had the right to rely on the representations in the certificate.
Therefore, the case law cited by the Term Lenders does not alter Section 9.3.2’s
reliance provision. I turn next to the Term Lenders’ textual arguments.
1.
“Commercially Reasonable” and “Commercially Prudent”
The Term Lenders first argue that Section 9.1’s “commercially reasonable”
language controls Bank of America’s duties under the Disbursement Agreement and
cite to parol evidence, including expert reports from Shepherd Pryor and Daniel Lupiani
and a treatise, to argue that it would have been commercially unreasonable for Bank of
America to disburse funds from September 2008 through March 2009. Section 9.1, the
introductory paragraph of Article 9, entitled “Disbursement Agreement,” stated that, by
accepting appointment as Disbursement Agent, Bank of America agreed to “exercise
commercially reasonable efforts and utilize commercially prudent practices” in the
performance of its duties hereunder consistent with those of similar institutions holding
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collateral, administering construction loans and disbursing control funds.” See Disb.
Agmt. § 9.1. The subsequent sections of Article 9 set forth, inter alia, the “Duties and
Liabilities of the Disbursement Agent Generally” (§ 9.2); “Particular Duties and Liabilities
of the Disbursement Agent” (§ 9.3, including § 9.3.2); and “Limitation of Liability” (§
9.10). Structurally, then, Section 9.1 contained general standards, and the subsequent
sections of Article 9 provided more specificity on Bank of America’s duties and liabilities.
The Term Lenders appear to argue that Section 9.1 trumps Sections 9.3.2 and
9.10, and, under Section 9.1, it would be commercially unreasonable for Bank of
America to rely on representations that could be false, and commercially reasonable for
Bank of America to investigate possible inaccuracies. I disagree.
Reading Article 9 and the Disbursement Agreement in their entirety, I conclude
Section 9.1 is not inconsistent with the reliance and investigation provisions of Section
9.3.2, or the exculpatory provision of Section 9.10.
Section 9.1 required Bank of
America to use commercially reasonable efforts and commercially prudent practices in
the general performance of its duties, but the Disbursement Agreement still entitled
Bank of America to rely on Fontainebleau’s certifications without independent
investigation (Section 9.3.2) and absolved Bank of America for liability for conduct
outside of bad faith, willful misconduct, or gross negligence (Section 9.10). Indeed, to
conclude otherwise would render the reliance, investigation, and exculpatory provisions
meaningless, in contravention of the basic tenet of contract interpretation that a contract
should be read to give all provisions meaning and effect. See Excess Ins. Co. Ltd. v.
Factory Mut. Ins., 822 N.E.2d 768, 770–71 (N.Y. 2004) (in interpreting contracts, “the
intention of the parties should control. To discern the parties' intentions, the court should
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construe the agreements so as to give full meaning and effect to the material
provisions.”). Even if I were to conclude Section 9.1’s “commercially reasonable” and
“commercially prudent” standards are inconsistent with Sections 9.3.2 and 9.10, the
latter sections would control, as, in the face of an inconsistency between a general
provision and specific provisions, the specific provisions prevail. See Muzak Corp. v.
Hotel Taft Corp., 133 N.E.2d 688, 690 (N.Y. 1956); John B. Stetson Co. v. Joh. A.
Benckiser GmbH, 917 N.Y.S.2d 189 (N.Y. App. Div. 2011) (interpreting contract and
concluding more specific articulation of duty controlled over general articulation of duty).
As I have concluded that “commercial reasonableness” and “commercially
prudent” do not control or affect Bank of America’s entitlement to rely on
Fontainebleau’s representations or Bank of America’s duty to investigate those
representations, I need not determine the meaning of these terms.
If I were to
determine their meaning, though, I would not consider the expert reports and treatise
cited by the Term Lenders because, as the Term Lenders and Bank of America agree,
“commercial reasonableness” and “commercially prudent” in the Disbursement
Agreement are unambiguous terms and, under New York law, parol evidence may not
be admitted to interpret unambiguous contract terms. See R/S Associates v. New York
Job Development Authority, 771 N.E.2d 240, 242 (N.Y. 2002) (“[W]hen interpreting an
unambiguous contract term, evidence outside the four corners of the document is
generally inadmissible to add to or vary the writing.”); TL Memo. Reply at 6 (conceding
expert reports and treatise are inadmissible if contract terms are unambiguous, and
arguing Disbursement Agreement is unambiguous). Accordingly, Section 9.1 does not
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alter the duties, responsibilities, and protections clearly set forth in Sections 9.3.2 and
9.10.
2.
The Meaning of “Genuine”
The Term Lenders next argue that Section 9.3.2’s provision that Bank of America
may rely only on certificates it believes to be “genuine” imposes a duty on Bank of
America to determine whether the representations in the certificate are truthful. The
Term Lenders reason that a document containing a misrepresentation is not genuine,
and Bank of America therefore had a duty to determine if the certificates contained any
misrepresentations before relying on them. While the first sentence of Section 9.3.2
does state Bank of America may rely on any document or certificate believed by it on
reasonable grounds to be “genuine,” the very next sentence of Section 9.3.2 authorizes
Bank of America, specifically in conjunction with the approval of an Advance Request,
to “[n]otwithstanding anything else in this Agreement to the contrary” “rely on
Fontainebleau’s certifications … as to the satisfaction of any requirements and/or
conditions imposed by this Agreement.” See Disb. Agmt. § 9.3.2. Moreover, the final
sentence of Section 9.3.2 specifically rejects any duty of the Disbursement Agent to
conduct an independent investigation of the accuracy or veracity of the certificates. See
id. § 9.3.2 (“The Disbursement Agent shall not be required to conduct any independent
investigation as to the accuracy, veracity or completeness of any such items or to
investigate any other facts or circumstances ….”). Reading Section 9.3.2 in its entirety,
I conclude that “genuine” in Section 9.3.2 means authentic or not fake.
18
18
The
In support of their contention that “genuine” means “truthful”, the Term Lenders cite to only
one case, Stanford Seed Co. v. Balfour, Guthrie & Co., 27 Misc. 2d 147 (N.Y. Sup. Ct. 1960),
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interpretation advanced by the Term Lenders—suggesting Bank of America may only
rely on a certificate it deems truthful—renders the reliance and investigation provisions
of the rest of Section 9.3.2 meaningless and is therefore not an interpretation supported
by New York law.
Lastly, I disagree with the Term Lenders’ argument that “[t]he fact that Bank of
America could be liable for ‘false representations’ under Section 9.10 “establishes that it
could not blindly rely on false certificates.” See TL Opposition at 9. Bank of America’s
liability for Bank of America itself making a false representation has no bearing on its
reliance on the possibly-false representation of another party. Furthermore, the Term
Lenders’ reliance on Section 7.1.3(c) is misplaced, as a prohibition on acting on a
known, material falsity in a certification does not translate into a duty to investigate any
possibly falsity. Therefore, I conclude 9.3.2 did not impose any obligation to investigate
the accuracy of a representation.
3.
Sections 3.3.21 and 3.3.24
In further support of their contention that Bank of America could rely only on
truthful certificates, the Term Lenders cite Sections 3.3.21 and 3.3.24. Section 3.3.21,
stated, as a condition precedent to disbursement, “the Bank Agent shall not have
become aware … of any information … that taken as a whole is inconsistent in a
which I find readily distinguishable. In Stanford Seed, the trial court addressed what constituted
a genuine receipt under the Uniform Warehouses Receipts Act and held that a document was a
not a “genuine” receipt because it was not signed by a warehouseman under Oregon law.
Moreover, even if “genuine” means truthful, Bank of America, in approving an Advance
Request, was protected by the specific provision of the second sentence of Section 9.3.2
entitling it, notwithstanding anything in the Agreement to the contrary, to rely on Fontainebleau’s
representations. See John B. Stetson Co. v. Joh. A. Benckiser GmbH, 917 N.Y.S.2d 189 (N.Y.
App. Div.).
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material and adverse matter with the information … disclosed to them concerning … the
Project,” and Section 3.3.24 similarly stated “the Bank Agent shall have received such
other documents and evidence as are customary for transactions of this type as the
Bank Agent may reasonably request in order to evidence the satisfaction of the other
conditions set forth above.” See Disb. Agmt. §§ 3.3.21 and 3.3.24 (emphasis added).
Although Bank of America was the Bank Agent (as well as the Disbursement Agent),
Bank of America, as Disbursement Agent, cannot be held liable for information it knew
as Bank Agent. Indeed, the parties contemplated Bank of America’s multiple roles and
agreed, “Notwithstanding anything to the contrary in this Agreement, the Disbursement
Agent shall not be deemed to have knowledge of any fact known to it in any capacity
other than the capacity of Disbursement Agent.”
See id. § 9.2.5 (“No Imputed
Knowledge”). Accordingly, Bank of America, as Disbursement Agent, cannot be held to
any duties imposed by the Disbursement Agreement on the Bank Agent, and, in the
context of Bank of America’s duties as Disbursement Agent, the Term Lenders’
emphasis on Sections 3.3.21 and 3.3.24 is misplaced. Having explained the duties and
liability of Bank of America under the Disbursement Agreement, I turn to the facts
underlying the Term Lenders’ claim.
D.
Bank of America was Not Grossly Negligent
As explained above, pursuant to the exculpatory provision of the Disbursement
Agreement, Bank of America could be held liable for breach of the Disbursement
Agreement only if it acted with gross negligence in the performance of its duties under
the Disbursement Agreement. Under New York law, gross negligence is “conduct that
evinces a reckless disregard for the rights of others or smacks of intentional
wrongdoing.” Curley v. AMR Corp., 153 F.3d 5, 12–13 (2d Cir. 1998) (applying New
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York law); see also Colnaghi, U.S.A., Ltd. v. Jewelers Prot. Servs., Ltd., 611 N.E.2d
282, 284 (N.Y. 1993) (gross negligence is “conduct that evinces a reckless disregard for
the rights of others or ‘smacks’ of intentional wrongdoing” (internal citation omitted));
Travelers Indem. Co. of Connecticut v. Losco Group, Inc., 204 F. Supp. 2d 639, 644–45
(S.D.N.Y. 2002) (“Under New York law, a mistake or series of mistakes alone, without a
showing of recklessness, is insufficient for a finding of gross negligence.”; gross
negligence requires that the defendant “not only acted carelessly in making a mistake,
but that it was so extremely careless that it was equivalent to recklessness.”); DRS
Optronics, Inc. v. North Fork Bank, 843 N.Y.S.2d 124, 127–28 (N.Y. App. Div. 2007)
(holding defendant exhibited gross negligence where it failed to exercise “slight care” or
“slight diligence”); New York Patten Jury Instructions, PJI 2:10A (“Gross negligence
means a failure to use even slight care, or conduct that is so careless as to show
complete disregard for the rights and safety of others.”).
The standard for willful misconduct is similarly high. Under New York law, willful
misconduct is “conduct which is tortious in nature, i.e., wrongful conduct in which
defendant willfully intends to inflict harm on plaintiff at least in part through the means of
breaching the contract between the parties.” Metro. Life, 643 N.E.2d at 508; see also In
re CCT Communications, Inc., --- B.R. ----, 2011 WL 3023501, at *5, 13 (Bankr.
S.D.N.Y. July 22, 2011) (interpreting contract under New York law and concluding willful
misconduct “does not include the voluntary and intentional failure or refusal to perform a
contract for economic reasons,” but requires malice or acting with the purpose of
inflicting harm).
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The Term Lenders argue that Bank of America was grossly negligent because it
disbursed funds in the known failure of conditions precedent. See TL Motion at 27–28;
TL Opposition at 37–39. Putting aside, for the moment, whether Bank of America had
actual knowledge of the failures of any conditions precedent, the Term Lenders’
argument is fundamentally flawed because it equates breach of the Disbursement
Agreement with gross negligence. As discussed above, the exculpatory provision of the
Disbursement Agreement requires more than mere breach of the Disbursement
Agreement to hold Bank of America liable.
See Disb. Agmt. § 9.10 (limiting
Disbursement Agent’s liability to bad faith, gross negligence, or willful misconduct).
Upon review of the facts, I conclude Bank of America, as Disbursement Agent,
did not act in bad faith or with gross negligence or willful misconduct in performing its
duties under the Disbursement Agreement.
See David Gutter Furs v. Jewelers
Protection Services, Ltd., 594 N.E.2d 924 (N.Y. 1992) (granting summary judgment in
favor of defendant because allegations did not raise an issue of fact whether defendant
19
performed its duties with reckless indifference to plaintiff's rights);
Gold v. Park Ave.
Extended Care Center Corp., 935 N.Y.S.2d 597, 599 (N.Y. App. Div. 2011) (affirming
trial court’s granting of summary judgment in favor of hospital and holding hospital was
not grossly negligent where evidence showed absence of any conduct that could be
19
During oral argument, counsel for the Term Lenders argued that in the case of contracts that
provide for the protection of property, such as alarm companies, courts have routinely held that
gross negligence is a triable fact. (11/18/2011 Tr. 103:13-19). In David Gutter Furs, a case
involving defendant’s design, installation, and monitoring of a burglar alarm system, the New
York Court of Appeals reversed the appellate court’s denial of summary judgment on the
grounds there was no issue of fact whether defendant performed its duties with reckless
indifference to plaintiff's rights. 594 N.E.2d 924 (N.Y. 1992). It follows that summary judgment
may be granted on the issue of gross negligence in the case of contracts that provide for the
protection of property.
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viewed as so reckless or wantonly negligent as to be the equivalent of a conscious
disregard for the rights of others); see also Net2Globe Intern., Inc. v. Time Warner
Telecom of New York, 273 F. Supp. 2d 436 (S.D.N.Y. 2003) (“While issues of malice,
willfulness, and gross negligence often present questions of fact, courts have sustained
limitation of liability provisions in the context of a summary judgment motion when the
surrounding facts compel such a result.”). Indeed, there is no evidence of record on
summary judgment that Bank of America intended to harm the Term Lenders, or that it
recklessly disregarded their rights.
To the contrary, Bank of America gave consideration to the Term Lenders’ rights
and interests.
From September 2008 through April 2009, Bank of America was
responsive to Lenders’ questions, tried to get information from Fontainebleau, and
facilitated communications between the Lenders and Fontainebleau.
For example,
when Bank of America became aware that there may be an issue with Lehman funding
its portion of the Retail Advance, Bank of America consulted internally and with counsel.
See CFIP Master Fund, Ltd. v. Citibank, N.A., 738 F. Supp. 2d 450, 474 n.27 (S.D.N.Y.
2010) (concluding bank did not act in bad faith and stating bank’s consultation with
counsel demonstrated good faith). Bank of America also repeatedly conferred with
Fontainebleau, and requested Fontainebleau provide the Lenders with information
regarding both Lehman and the Project. Bank of America further responded thoroughly
and promptly to Highland’s inquiries regarding the Lehman bankruptcy and its
implications for the Senior Credit Facility.
Finally, before disbursing funds to
Fontainebleau, Bank of America sought reaffirmation from Fontainebleau that all
conditions precedent to funding had been satisfied.
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In addressing First National Bank of Nevada’s repudiation, which represented
only 0.6% of the Senior Credit Facility, Bank of America proposed a solution that would
permit funding to occur. This solution gave consideration to the Lenders’ interests, as
neither the Lenders nor Fontainebleau would have expected funding to cease based on
the repudiation of such a small commitment.
In the same vein, Bank of America consulted with the Lenders regarding
Guggenheim and Z Capital’s failure to fund the March 2009 Advance Request. Bank of
America informed the Lenders that Guggenheim and Z Capital had not funded, and
suggested it would still include their commitment in the Available Funds component, so
that funding could occur.
Bank of America invited any Lender to comment on the
intended solution, and no Lender protested.
In performing its duties under the
Disbursement Agreement, Bank of America consistently communicated with the
Lenders, provided them with pertinent information, and invited comment.
Indeed, Bank of America’s conduct, even when viewed in the light most favorable
to the Term Lenders, is vastly distinct from the conduct of the defendant in DRS
Optronics, Inc. v. North Fork Bank, the case cited by the Term Lenders in support of
their gross negligence argument. See 843 N.Y.S.2d 124 (N.Y. App. Div. 2007). In DRS
Optronics, the defendant entered into a custodial agreement with two parties under
which it was required to ensure that no payments were made without joint written
instructions of the two parties. Id. at 126. The court held the defendant was grossly
negligent because it made no effort to implement any procedure to ensure the twosignature requirement would be enforced, and instead established a system that
allowed one party to unilaterally transfer funds. Id. at 128. Moreover, the court noted
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the defendant “failed to submit any evidence … as to whether it exercised even the
slightest care in performing its obligations.” Id. In contrast, Bank of America made
significant efforts to comply with the requirements of the Disbursement Agreement, and,
as evidenced by meetings, calls, and communications with key parties, exercised well
more than the slightest care in performing its obligations.
It bears noting the Term Lenders (or their successors in interest) were aware of
the chief “risk”—namely the Lehman bankruptcy—they claim should have prompted
Bank of America to investigate Fontainebleau’s representations. Yet, not a single Term
Lender demanded that Bank of America take any action relating to the allegations
presented in this case, nor did any of the Term Lenders file a Notice of Default to
compel the issuance of a Stop Funding Notice. It could hardly follow that Bank of
America recklessly disregarded the Term Lenders’ rights when the Term Lenders
themselves did not seek to enforce those rights.
20
Based on these facts, it cannot be
said that Bank of America acted with bad faith, gross negligence, or willful misconduct.
E.
Bank of America’s Knowledge of Failures of Conditions Precedent
Nor can it be said that Bank of America breached the Disbursement Agreement
by disbursing funds in the known failures of conditions precedent. The Term Lenders
argue that Bank of America disbursed funds despite known failures of conditions
precedent relating to (1) Lehman’s bankruptcy; (2) the Project’s cost overruns; (3) the
20
To the extent the Term Lenders rely on Highland’s communications with Bank of America
regarding the Lehman bankruptcy as an assertion of the Term Lenders’ rights, counsel for the
Term Lenders conceded that “[t]here is no protocol for [the Term Lenders] to do that.”
(11/18/2011 Tr. 79:2-8).
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First National Bank of Nevada repudiation; (4) select lenders’ failure to fund the March
2009 Advance Request; and (5) the timing of the March 2009 Advance Request.
However, as explained below, with respect to each of these situations, there is no
evidence on summary judgment that Bank of America actually knew that a condition
precedent was not met. Before discussing each scenario, it bears repeating that for all
Advance Requests from September 2008 through March 2009, Fontainebleau
submitted documentation certifying all conditions precedent to disbursement had been
met.
See, e.g. TL Motion at 21 (“In connection with each Advance Request, the
Borrowers were required to and did represent and warrant that all conditions precedent
to disbursement, including Lehman’s funding of its commitments under the Retail
Facility had been satisfied.”).
1.
The Lehman Bankruptcy and Lehman’s Failure to Fund
The Term Lenders argue the Lehman bankruptcy, and its aftermath, some of
which was known to Bank of America, caused numerous conditions precedent to fail.
Specifically, the Term Lenders argue the Lehman bankruptcy was a material adverse
effect on the Project; Bank of America knew that Lehman did not fund the September
2008 advance; and ULLICO funding for Lehman was impermissible. Before addressing
each of these arguments, I note that, even if the Term Lenders’ contentions regarding
the Lehman bankruptcy and effects on the Retail Facility were true, it was not grossly
negligent for Bank of America to disburse funds when, each month, the Retail Facility
was fully funded.
Indeed, if commercially reasonable were the applicable standard
under the Disbursement Agreement, it would have been commercially unreasonable for
Bank of America, as Disbursement Agent and Bank Agent, to halt construction of a the
multi-billion dollar Fontainebleau Project when Retail funded its September Shared
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Costs in full, and when Lehman’s portion of the September Shared Costs was a small
portion of the total September Advance Request.
a)
The Lehman Bankruptcy
The Term Lenders first argue the Lehman bankruptcy alone had a Material
Adverse Effect on the Project, and Bank of America therefore should have issued a
Stop Funding Notice. See TL Opposition at 11. The Term Lenders reason that Lehman
was the largest Retail Lender, the Retail Facility was critical to the completion of the
Project, and Lehman bankruptcy rendered uncertain the availability of Lehman’s
committed funds. See id. at 11–12.
First, the Disbursement Agreement requires Bank of America as Disbursement
Agent to issue a Stop Funding Notice only in the event that (1) the Controlling Person
notifies Bank of America, as Disbursement Agent, that a Default or Event of Default has
occurred, or (2) conditions precedent to an Advance have not been satisfied. See Disb.
Agmt. § 2.5.1. There is no evidence on summary judgment that Bank of America, as
Disbursement Agent, was notified that the Lehman bankruptcy was a Default or Event
of Default, and the Term Lenders have not pointed to any provision of the Disbursement
Agreement requiring Bank of America, as Disbursement Agent or Bank Agent, to make
that determination on its own. To the extent the Term Lenders suggest Highland’s
emails to Bank of America regarding the Lehman bankruptcy constituted notice of
default, as required by Section 2.5.1, I conclude the emails were not notices of default
upon which Bank of America could issue stop funding notices, as they did not state that
a Default or Event of Default had taken place or identify the Default or Event of Default.
To the Term Lenders’ suggestion that Bank of America should be deemed to
have knowledge of defaults irrespective of the role (Controlling Person versus
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Disbursement Agent) in which it came across that information, the “no imputed
knowledge” provision of the Section 9.2.5 of the Disbursement Agreement expressly
defeats the Term Lenders’ suggestion. Regardless, there is no evidence of record on
summary
judgment
that
Bank
of
America,
as
Controlling
Person/Bank
Agent/Administrative Agent, was notified of a Default or Event of Default, and like the
Disbursement Agent, the Credit Agreement, Section 9.3, imposed no duty on Bank of
America as Administrative Agent to inquire about defaults.
As for satisfaction of the conditions precedent to disbursement, Fontainebleau
expressly certified that the conditions precedent to the September 2008 Advance
Request, including there being no Material Adverse Effects on the Project, had been
satisfied, a certification upon which Bank of America was entitled to rely in approving an
Advance Request and disbursing funds. Accordingly, Bank of America did not breach
the Disbursement Agreement by disbursing funds in the face of Lehman’s bankruptcy
filing.
Even if the Disbursement Agreement imposed on Bank of America as
Disbursement Agent or Bank Agent a duty to determine whether the Lehman
bankruptcy had a Material Adverse Effect on the Project, under Section 3.3.21 or
otherwise, I would conclude that Bank of America did not breach the Disbursement or
Credit Agreements by determining there was no Material Adverse Effect. Although
Bank of America stated immediately after the Lehman bankruptcy that “Lehman may be
the death nail for [the Project],” see Dep. Exh. 67, as of the disbursement of the
September 2008 Advance Request, there was no indication that there would be a
shortfall in Retail Funds or that the Retail Lenders would fail to honor their obligations
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under the Retail Facility. Indeed, although it was later discovered that Lehman did not
fund its portion of the September 2008 Shared Costs, Lehman did fund its portion in
October and November 2008, demonstrating Lehman’s bankruptcy filing itself did not
make Lehman’s funds unavailable or necessarily compromise the Project. Moreover,
every month from September 2008 through March 2009, TriMont wired to Bank of
America the full amount of the requested Retail Shared Costs, indicating there was no
funding gap on the Retail end of the Project. At a minimum, Bank of America did not act
with bad faith, gross negligence, or willful misconduct by disbursing funds in the face of
the full monthly funding of the Retail Advance.
b)
Bank of America’s Knowledge that Lehman Failed to
Make the September 2008 Retail Advance
The Term Lenders next argue that Bank of America knew that Fontainebleau
funded Lehman’s share of the September 2008 Retail Advance, but the evidence of
record on summary judgment, with all inferences in favor of the Term Lenders,
demonstrates otherwise.
Bank of America did not have actual knowledge that
Fontainebleau funded for Lehman. Nor did it have actual knowledge that Lehman did
not fund its share of the September 2008 Retail Advance.
Immediately before
disbursing the September 2008 Advance Request to Fontainebleau, Bank of America
sought and received oral and written confirmation from Jim Freeman that, even though
Lehman had filed for bankruptcy, all conditions precedent to funding were satisfied and
all prior representation, warranties, and certifications remained correct.
McLendon
Rafeedie’s deposition testimony, the Highland emails, and communications from
Fontainebleau did not provide Bank of America with actual knowledge of who funded
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the September 2008 Retail Advance such that it could deem Fontainebleau’s
representations false.
First, contrary to the Term Lenders’ assertion, there is no evidence that
TriMont told Bank of America that Lehman did not fund its portion of the September
2008 Retail Advance. As explained above, TriMont’s McLendon Rafeedie testified that
he could not recall the specific communications regarding Lehman’s funding with Bank
of America’s Jean Brown, and stated he “could have” told Ms. Brown that Fontainebleau
funded for Lehman, not that he “did” tell Ms. Brown. Similarly, Ms. Brown stated she did
not know that Lehman did not fund its portion of the September 2008 Retail Advance.
Lack of recollection does not create a genuine issue of material fact. See, e.g., Brown
v. St. Paul Travelers Companies, 331 F. App’x. 68, 70 (2nd Cir. 2009) (“We agree with
the District Court that ‘[p]laintiff's statement, that she has no recollection or record of
receiving the employee handbook and arbitration policy, despite the fact that it was
distributed on at least six occasions during her employment, is ... not sufficient to raise a
genuine issue of material fact.’ ”); Tinder v. Pinkerton Sec’y, 305 F.3d 728, 735–36 (7th
Cir.2002) (plaintiff's testimony that she did not recall seeing or reviewing a brochure did
not create a genuine issue of material fact in light of affidavits that the brochure was
sent to her); Dickey v. Baptist Mem’l Hosp., 146 F.3d 262, 266 n.1 (5th Cir. 1998) (“The
mere fact that [the deponent] does not remember the alleged phone conversation,
however, is not enough, by itself, to create a genuine issue of material fact [as to
whether the conversation occurred.]”).
Moreover, based on the testimony from Mr.
Rafeedie and Ms. Brown, a fact finder could only speculate as to whether Bank of
America knew Fontainebleau funded for Lehman, and speculation does not create a
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genuine issue of material fact. See Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1181
(11th Cir. 2005) (stating speculation does not create a genuine issue of material face);
see also Hughes v. Stryker Corp., 423 F. App’x. 878, 882 (11th Cir. 2011) (affirming
district court’s award of summary judgment in favor of defendant in negligence action
because, based on factual record, a jury could only speculate as to causation, and
speculation does not create a genuine issue of material fact). The testimony from Mr.
Rafeedie and Ms. Brown therefore does not create a genuine issue of material fact as to
whether Bank of America knew that Fontainebleau funded Lehman’s portion of the
September 2008 Advance Request, and there is no other evidence of record on
summary judgment that TriMont told Bank of America that Lehman did not fund.
Second, Highland’s October 6 and 13 emails (sent after the disbursement date of
the September 2008 Advance Request) do not establish that Bank of America had
knowledge that Fontainebleau funded for Lehman. The October 6, 2008 email alleged
“public reports” that “equity sponsors” had funded for Lehman, but did not identify the
source of the public reports. Additionally, the October 13 email, forwarding a Merrill
Lynch analyst report, only stated the analyst “underst[ood]” Fontainebleau equity
sponsors had funded for Lehman. Most importantly, Highland acknowledged that, at
the time of these emails, the assertion that Fontainebleau equity sponsors had funded
for Lehman was one of a number of rumors or speculations in the market. Although the
Lehman bankruptcy and possible replacements for Lehman were discussed at the
October 23, 2008 Retail meeting (at which Bank of America was present), there is no
evidence of record that Lehman’s failure to fund the September 2008 Retail Advance
was discussed at the October Meeting.
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Finally, I do not find compelling the Term Lenders’ argument that Bank of
America’s “cryptic” communications, Fontainebleau’s refusal to meet with Lenders to
discuss the Lehman bankruptcy, Fontainebleau’s “shift to the passive voice,” Bank of
America internal emails, and Mr. Bolio’s handwritten notes create a reasonable
inference (much less “the only reasonable inference”) that Bank of America knew
Fontainebleau paid Lehman’ share of the September 2008 Retail Advance. See TL
Opposition at 13, 15–16. First, Bank of America’s September 26, 2008 request for
confirmation of fulfillment of conditions precedent after Lehman’s bankruptcy was
reasonable and prudent, as the Lehman bankruptcy caused substantial concern in the
market.
Second, Fontainebleau’s silence and refusal to meet with Lenders in
September and October 2008 do not equate to an admission that Fontainebleau funded
for Lehman.
Third, Fontainebleau’s October 7, 2008 Memorandum, in which
Fontainebleau craftily avoided answering who funded for Lehman by using the passive
voice, did not provide Bank of America with notice that Fontainebleau funded for
Lehman, or that Lehman did not fund. Nor did the Memorandum cause Section 3.3.24
to fail, as Section 3.3.24, by its plain language, applies only to “documents and
evidence,” not information in general, and, moreover, the Memorandum adequately
answered the questions asked by Bank of America and fulfilled Section 3.3.24. Notably,
the Memorandum was sent to the Lenders, as well as Bank of America. Yet no Term
Lender submitted a Notice of Default based on the (now alleged-to-be) insufficient
information contained therein.
Next, the internal emails cited by Term Lenders reflect Bank of America’s initial
understanding from the mid-September 2008 conference calls that Fontainebleau may
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fund for Lehman, but not an actual understanding that Lehman did not fund its share of
the September 2008 Retail Advance, or that Fontainebleau funded Lehman’s share.
See, e.g., Dep. Exh. 73 (dated September 19, 2008), Dep. Exh. 204 (dated September
19, 2008).
The Term Lenders have presented no evidence to contradict Bank of
America’s emails showing, as of December 2008, Bank of America thought Lehman
funded the September 2008 Retail Advance. Moreover, the January 2009 Bank of
America emails cited by the Term Lenders, see Dep. Exhs. 1513, 1514, 1515, and
1516, were from the Commercial Real Estate Banking group, a group which had no
involvement in Bank of America’s roles as Disbursement Agent and Bank Agent and
whose knowledge cannot be imputed to Bank of America as Disbursement Agent or
Bank Agent.
Finally, the Term Lenders have not pointed to any testimony tying Brandon
Bolio’s handwritten notes, which state Lehman did not fund, to the September 2008
Advance Request. Indeed, the notes reflect dollar amounts that do not correspond to
the September 2008 Advance and ask whether Fontainebleau could permissibly fund
for Lehman, a question which Bank of America had answered in the negative by the
time Bank of America disbursed the September 2008 Advance Request. See Dep. Exh.
475 at BANA_FB00846432–33; Bolio Dep. Tr. 58:7–60:25).
In sum, on summary
judgment, the Term Lenders have not presented evidence from which it could
reasonably be inferred that Bank of America actually knew Fontainebleau funded
Lehman’s portion of the September 2008 Retail Advance, or Lehman did not fund its
portion of the Advance.
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c)
ULLICO Funding for Lehman
Turning next to the funding of Lehman’s portion of the Retail Advance from
December 2008 through March 2009, it is undisputed that ULLICO, a Retail Co-Lender,
funded Lehman’s portion of the Retail Shared Costs, and Fontainebleau (Fontainebleau
Resorts, Jeff Soffer, and Turnberry Residential Limited Partners, to be more precise)
reimbursed ULLICO for at least a portion of those payments through a Guaranty
Agreement and a series of Amendments thereto. It is further undisputed that Bank of
America knew that ULLICO was funding Lehman’s portion of the Retail Shared Costs
from December 2008 through March 2009, and it was impermissible under the
Disbursement Agreement for Fontainebleau to reimburse ULLICO and, in effect, make
the Retail Advance.
The parties disagree, however, on whether it was permissible
under Section 3.3.23 of the Disbursement Agreement for ULLICO to fund for Lehman,
and whether Bank of America knew of Fontainebleau’s guaranty arrangement with
ULLICO.
Section 3.3.23 states “the Retail Agent and the Retail Lenders shall, on the date
specified in the relevant Advance Request, make any Advances required of them
pursuant to the Advance Request.” Disb. Agmt. § 3.3.23. The Term Lenders argue the
advances made by the Retail Lenders were several, not joint, and therefore Lehman
had to fund its respective share of the Retail Advance. Bank of America, on the other
hand, argues Section 3.3.23 requires the Retail Agent and Retail Lenders to collectively
make their Advances, but does not require each Retail Lender to fund a specific
amount.
Reading the Disbursement Agreement in its entirety, I conclude Section 3.3.23
mandates only that the Retail Shared Costs be funded collectively by the Retail
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Lenders, not that each Retail Co-Lender funds its respective portion, therefore
permitting ULLICO to fund for Lehman. In reaching this conclusion, I rely not only on
the plain language of Section 3.3.23, but also Section 2.6.3, which states the
Disbursement Agent shall not release Advances until “the Retail Lenders have made
any requested Loans under the Retail Facility.” Id. § 2.6.3. Like Section 3.3.23, Section
2.6.3, by its plain language, does not require each Retail Lender to fund its respective
portion, but rather requires the “Retail Lenders” to fund their collective “Loans.”
To the Term Lenders’ reference to Section 9.7.2 of the Retail Agreement, see TL
Motion at 20, which provides that the liabilities of the Retail Co-Lenders “shall be
several not joint,” Section 9.7.2 provides that the Retail Co-Lenders are under no
obligation to fund for each other. However, this provision does not control whether, to
satisfy Section 3.3.23 of the Disbursement Agreement, the Retail Co-Lenders may fund
for each other. Further, Section 9.7.2(a) permits each Retail Co-Lender to assume the
obligations of any other Co-Lender, supporting an interpretation of Section 3.3.23 which
permits Retail Co-Lenders to fund for each other.
To the extent the parties’ intent when drafting Section 3.3.23 can be discerned
from the four corners of the relevant agreements, Bank of America was not a party to or
provided a copy of the Retail Co-Lending Agreement. Accordingly, the parties could not
have intended Bank of America, as Disbursement Agent or Bank Agent, to evaluate
whether each Retail Co-Lender made its respective contribution pursuant to the Retail
Agreement and Retail Co-Lending Agreement.
Finally, I conclude Bank of America did not have actual knowledge that
Fontainebleau reimbursed ULLICO for any portion of the December 2008 through
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March 2009 Retail Advances, as the Term Lenders, who would bear the burden at trial,
have pointed to no evidence in the record suggesting that Bank of America knew of the
guaranty arrangement. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115–16 (11th
Cir. 1993) (for issues on which the non-moving party bears the burden at trial, to meet
its burden on summary judgment, the moving party may point the district court to the
absence of evidence to support the non-moving party's position).
Thus, Bank of
America, as Disbursement Agent, did not breach the Disbursement Agreement with
respect to ULLICO’s funding of Lehman’s portion of the Retail Shared Costs.
Even if it were determined that ULLICO funding for Lehman was impermissible
and therefore caused the condition precedent in Section 3.3.23 to fail, or that ULLICO
funding for Lehman constituted a “default” of the Retail Agreement and therefore
caused the failure of the condition precedent set forth in Section 3.3.3, Bank of America
did not act with bad faith, gross negligence, or willful misconduct in permitting a Retail
Co-Lender to fund Lehman’s commitment when Fontainebleau certified that all
conditions precedent had been met, the Co-Lender funding resulted in full funding of the
Retail Shared Costs, and Bank of America believed Section 3.3.23 was satisfied by the
Retail Co-Lenders, collectively, funding the Retail Shared Costs.
2.
Project Cost Overruns
The Term Lenders next argue that Bank of America knew that Fontainebleau
was falsifying (and underreporting) the anticipated cost to complete the Project, this
misstatement of Project costs caused numerous conditions precedent to fail, and Bank
of America disbursed funds in the face of the failures of these conditions precedent.
See TL Opposition 23–29. More specifically, the Term Lenders appear to argue that
Bank of America knew, as early as May 2008, that Fontainebleau was substantially
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underreporting costs, and Bank of America knew this cost underreporting would
continue into the future (as, in fact, it did). But the evidence cited by the Term Lenders,
with all inference in favor of the Term Lenders, does not support its factual argument or
conclusion.
First, the Term Lenders do not dispute that, Fontainebleau and TWC actively
concealed the Project’s cost overruns from Bank of America and IVI by maintaining two
sets of books and Anticipated Cost Reports: an internal set that reflected the actual
costs, and an external set disclosed to Bank of America and IVI which contained only a
subset of the actual costs. Given this evidence, the Term Lenders’ argument that Bank
of America was aware of Fontainebleau’s inaccurate cost reporting lacks merit.
Notwithstanding, the evidence cited by the Term Lenders does not support the
conclusion that Bank of America was actually aware of any cost concealment. The
Term Lenders cite documents and testimony demonstrating that, in May 2008,
Fontainebleau presented Bank of America with $201 million in change orders. As an
initial matter, I concur with Bank of America that the May 23, 2008 Owner Change Order
is inadmissible under Federal Rules of Evidence 801, 802, and 901 as an
unauthenticated document, the contents of which are hearsay. Even if the Change
Order were admissible, though, the information contained therein does not indicate that
Fontainebleau was concealing cost overruns. Although the documents accompanying
the May 2008 Change Order indicated Fontainebleau knew about select change orders
(amounting to about $41.5 million) for some time, the documents also demonstrated
that, as of May 2008, these change orders were still being negotiated and had not been
finalized. Accordingly, it cannot be said from this evidence that Fontainebleau was
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concealing cost overruns, or that Bank of America knew that Fontainebleau was
concealing cost overruns.
Second, the evidence on summary judgment does not support the Term Lenders
suggestion that Bank of America knew the cost underreporting would continue into the
future. The June 10, 2008 email cited by the Term Lenders indicates that, as of that
date, IVI believed the $210 million in cost increases was not all inclusive. See Dep.
Exh. 217. However, the email also indicates that Bank of America and IVI contacted
Jim Freeman to express their concerns, and Mr. Freeman would ensure IVI was
provided with all necessary information. IVI promptly investigated the additional costs,
see Dep. Exh. 892, and included its assessment in the June Project Status Report, see
Dep. Exh. 868. More specifically, the June PSR stated the March 27, 2008 Anticipated
Cost Report confirmed additional change orders and potential extra cost exposure, and
concluded the March ACR would increase the final budget. See Dep. Exh. 868 at 14.
Thus, the record indicates Bank of America addressed any concerns about cost
overruns with IVI in June 2008, and does not indicate that Bank of America knew that
Fontainebleau concealed those pre-June 2008 overruns. Indeed, it is undisputed that,
for the April, May, and June 2008 Advance Requests, IVI issued Construction
Consultant Advance Certificates, upon which the Disbursement Agreement authorized
Bank of America to rely.
Regarding cost overruns in late 2008 and early 2009, IVI’s January 30, 2009
Project Status Report, PSR 21, indicated it had concerns that Fontainebleau’s cost
disclosures were not accurate and the LEED credits, which reduce construction costs
through tax credits, were lagging.
Despite these concerns, IVI executed the
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Construction Consultant Certificate for the February 2009 Advance Request. Similarly,
although IVI’s March 19, 2009 Construction Consultant Advance Certificate stated it had
declared material errors in the Advance Request and supporting documentation, after
IVI consulted with Fontainebleau and Fontainebleau revised the March request, IVI
issued a Construction Consultant Advance Certificate approving the request.
The
Disbursement Agreement specifically authorized Bank of America to rely on IVI’s
Certificate, and Bank of America had no obligation to independently investigate whether
the concerns expressed in the Project Status Reports had been adequately resolved.
Had the parties wanted to vest Bank of America with such an obligation, they could
have included the “reasonable diligence” language employed in Section 2.4.4 with
respect to Bank of America’s obligation to ensure IVI performed its review and delivered
the Certificate in a timely manner. See Disb. Agmt. § 2.4.4. As a result, and especially
in light of IVI’s Certificates, on which Bank of America was expressly authorized to rely,
Bank of America did not have actual knowledge of any cost overruns that would have
caused a condition precedent to fail or otherwise require the issuance of a Stop Funding
Notice.
Moreover, as Bank of America became aware of potential cost overruns, it
communicated with, and facilitated communications between, the Lenders and
Fontainebleau. For example, in February 2009, when JPMorgan Chase requested from
Bank of America information regarding the issues raised in PSR 21, Bank of America
promptly requested the information from Fontainebleau.
After Fontainebleau
responded, Bank of America asked Fontainebleau to schedule a lender call to discuss
its response. Fontainebleau initially refused, and in early March, Bank of America again
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requested Fontainebleau meet with the Lenders and again requested information
regarding Project costs. Upon Bank of America’s requests, Fontainebleau finally held a
Lender meeting in Las Vegas on March 21, 2009.
Similarly, after Fontainebleau submitted its revised March 2009 Advance
Request, and IVI issued the necessary Construction Consultant Advance Certificate,
Bank of America promptly made the revised Request and Certificate available to the
Lenders. It cannot be said, based on these facts and with all inferences in favor of the
Term Lenders, that Bank of America acted in bad faith, with reckless disregard for the
Term Lenders’ rights, or the intent to harm the Term Lenders, or even knew of the
failure of any conditions precedent related to the actively-concealed Project cost
overruns.
3.
First National Bank of Nevada Repudiation
In July 2008, the Comptroller of Currency closed the First National Bank of
Nevada (“FNBN”) and appointed the FDIC as receiver. In late December, the FDIC
formally repudiated FNBN’s unfunded Senior Credit Facility commitments, which
amounted to less than 0.6 percent of the $1.85 billion Senior Credit Facility. The Term
Lenders argue that, once the FDIC repudiated FNBN’s commitment, FNBN was in
Lender Default under the Credit Agreement, causing several conditions precedent
(Sections 3.3.2, 3.3.3, 3.3.21, and 3.3.11) to fail, and Bank of America disbursed funds
in the known failure of condition precedents. Bank of America argues the default was
not material, and therefore was not a condition precedent failure.
Although materiality is generally for the finder of fact, “where the evidence
concerning the materiality is clear and substantially uncontradicted, the question is a
matter of law for the court to decide.” Wiljeff, LLC v. United Realty Mgmt. Corp., 920
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N.Y.S.2d 495, 497 (N.Y. App. Div. 2011) (granting partial summary judgment on issue
of materiality).
Here, with all inferences in favor of the Term Lenders, including
consideration of the Lehman bankruptcy and other criteria in the market, I conclude the
FNBN repudiation was not material, as reasonable lenders and borrowers would not
expect a $1.85 billion loan facility to fail due to a repudiation of less than $12 million,
especially when the Project remained In Budget by over $100 million. See Feinman v.
Dean Witter Reynolds, Inc., 84 F.3d 539, 540–41 (2d Cir. 1996) (affirming district court
judgment, in proxy rules context, that misstatements were immaterial as a matter of
law).
If the sophisticated parties to the Credit and Disbursement Agreements had
intended any Lender Default to constitute a Default of the Credit Agreement, they would
have included it as a specifically-delineated Event of Default in the Credit Agreement,
Section 7 or Disbursement Agreement, Section 8.
Even if the FNBN repudiation caused numerous conditions precedent to fail,
Bank of America did not act with gross negligence or exhibit willful misconduct in
approving Advance Requests in the face of the repudiation. FNBN’s commitment was
only 0.6 percent of the Senior Credit Facility, and, according to the December 2008
Advance Request, the Project was significantly In Balance. Accordingly, even if the
FNBN repudiation caused numerous conditions precedent to fail and Bank of America
knew of this failure, viewing the evidence will all inferences in favor of the Term
Lenders, no reasonable fact finder could conclude that Bank of America acted in bad
faith or with disregard for the Term Lenders’ rights in disbursing funds in the face of a
repudiation of such a minimal amount and allowing the Project to continue.
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4.
March 2009 Advance Request and Defaulting Lenders
On March 9, 2009, Fontainebleau submitted a revised Notice of Borrowing,
requesting $350 million in Delay Draw funds. Two of the Delay Draw Term Lenders—Z
Capital and Guggenheim—did not fund their commitments.
Z Capital and
Guggenheim’s share was less than $23 million of the $350 million draw (roughly 1
percent of the Senior Credit Facility, and 6 percent of the March 2009 draw). Similar to
the arguments raised with respect to the First National Bank of Nevada repudiation, the
Term Lenders argue these lenders’ failure to fund was a default, caused numerous
conditions precedent to fail, and Bank of America disbursed funds in the face of the
known failure of conditions precedent. Further, the Term Lenders argue that these
Lenders’ commitments were material, as excluding these commitments caused the In
Balance test to fail.
As with the FNBN repudiation, I conclude the Z Capital and Guggenheim’s failure
to fund was not material, as, even though the failure caused the In Balance Test to fail,
the commitment was minimal in the context of the Senior Credit Facility, had no
immediate impact on the loan facility because $327 million in Delay Draw Term Loans
had been funded, while only $138 million was requested, and no reasonable investor or
borrower would expect—or, as discussed below, would request—the loan facility to fail
under these circumstances.
Furthermore, even if the failure of Z Capital and Guggenheim caused conditions
precedent to fail, Bank of America did not act with gross negligence in disbursing the
March 2009 Advance Request. Before disbursing the funds, on March 23, 2009, Bank
of America sent the Lenders a letter disclosing Z Capital and Guggenheim’s failure to
fund.
Bank of America advised that excluding Z Capital and Guggenheim’s
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commitments from the Available Funds would cause the In Balance test to fail, stated it
was willing to include the unfunded commitment in the Available Funds component of
the March 2009 Advance, and invited any lender who disagreed to inform Bank of
America. Although two Lenders replied to the correspondence, no Lender disagreed
with Bank of America’s position regarding the March 2009 Advance. Accordingly, Bank
of America was not grossly negligent or exhibiting willful misconduct—i.e., it was not
indifferent to the Term Lenders’ rights or intentionally trying to harm them—in disbursing
the March 2009 funds.
5.
Timing of the March 2009 Advance Request
I turn finally to the timing of the March 2009 Advance Request. On March 11,
2009, Fontainebleau submitted an Advance Request with an Advance Date of March
25, 2009. Approximately one week later, on March 19, 2009, IVI issued a Construction
Consultant Advance Certificate declaring it had discovered material errors in the
Advance Request and supporting documentation and was concerned about the Project
costs. Fontainebleau worked with IVI to address IVI’s concerns, and Fontainebleau
submitted a revised Advance Request on March 23, 2009, and another revised Request
on March 25, 2009. The Term Lenders contend Bank of America should have rejected
the revised Requests as untimely under Section 2.4 of the Disbursement Agreement,
and Bank of America could not in good faith have approved the Requests.
Regarding the timing of the revised Requests, the Term Lenders argue that,
pursuant to Section 2.4.1 of the Disbursement Agreement, Fontainebleau had to submit
its March Advance Request by March 11; Section 2.4 allows resubmission of a Request
only in the case of minor or purely mathematical errors, not where the Construction
Consultant rejected the Request for material misstatements; and Section 2.4.4(b)
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requires delivery of the Advance Request no later than four Banking Days prior to the
requested Advance Date.
Contrary to the Term Lenders’ interpretation of the
Disbursement Agreement, Section 2.4 does not restrict Fontainebleau’s right to
supplement its Advance request to correct minor or mathematical errors, it merely
permits the Disbursement Agent to require Fontainebleau to resubmit the Advance
Request in these circumstances.
See Disb. Agmt. § 2.4.4 (“In the event … the
Disbursement Agent finds any minor or purely mathematical errors or inaccuracies in
the Advance Request or supporting materials, the Disbursement Agent may require the
Project Entities to revise and resubmit the same.”)
Indeed, Section 2.4.5, entitled
“Supplementation of Advance Requests,” specifically permits Fontainebleau to revise an
Advance request in the event it discovers any updates required to be made “prior to the
Scheduled Advance Date” and is not limited to mathematical errors.
Regarding the timing of Bank of America’s approval of an Advance Request,
Section 2.4.5’s provision that the Disbursement Agent use “reasonable diligence to
review and approve such supplemental Advance Request and to cause the
Construction Consultant to review and approve the same not less than three Banking
Days prior to the Scheduled Advance date,” requires only that Bank of America make
reasonable efforts under the circumstances. It does not state—or mean—that Bank of
America cannot review and approve a supplemental Advance Request less than three
Banking Days before the Scheduled Advance Date, especially when that supplemental
Request is submitted less than three Days before the Scheduled Advance Date.
Moreover, Section 2.4.4’s requirement that IVI submit a Construction Consultant
Advance Certificate not later than four Banking Days prior to the requested Advance
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Date applies to Fontainebleau’s original request. IVI fulfilled this requirement, as it
submitted its initial Construction Consultant Advance Certificate on March 19, 2009.
The four Banking Days requirement does not apply to IVI’s approval of a supplemental
request, as Section 2.4.5 controls IVI’s approval of a supplemental request.
The Term Lenders next argue that Bank of America could not, in good faith, have
approved the revised March 2009 Request in the face of the “funding crunch” (as
evidenced, according to the Term Lenders, by the Lehman bankruptcy, FNBN
repudiation, and Guggenheim/Z Capital defaults) and cost overruns. In further support
of this argument, the Term Lenders cite to Bank of America’s internal risk
classifications, downgrading the risk rating of the Project. These internal risk ratings are
irrelevant to my analysis, as they were conducted by Bank of America, as a Lender, and
Section 9.2.5 does not permit the imputation of knowledge from Bank of America as
Lender to Bank of America as Disbursement Agent. Moreover, Section 2.4.5 requires
Bank of America, as Disbursement Agent to consider the submission of a revised
Advance Request “in good faith.”
Fontainebleau’s supplemental March Advance
Requests showed the Project In Balance by almost $14 million, and over $14 million.
Given this representation and IVI’s certifications, Bank of America, as Disbursement
Agent, did not act in bad faith in approving the March 2009 Request.
VI.
Requests for Judicial Notice
In conjunction with the motions for summary judgment, the Term Lenders filed a
Request for Judicial Notice [ECF No. 261 and September 9, 2011 Declaration of Robert
Mockler and Request for Judicial Notice], requesting I take judicial notice, pursuant to
Federal Rule of Evidence 201, of a Proof of Claim submitted by Fontainebleau Las
Vegas Retail, LLC in the Lehman bankruptcy [Non-Dep. Exh. 1504]. The Term Lenders
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request judicial notice of the Proof of Claim to “evidence that Fontainebleau filed the
Proof of Claim and alleged that Lehman’s failure to pay its portion of Advance Requests
beginning in September 2008 and on four occasions thereafter were defaults under the
Retail Facility, and not for the truth of the matters asserted therein.” See Term Lenders’
Reply in Support of Judicial Notice [ECF No. 286] at 1. “A court may take judicial notice
of a document filed in another court not for the truth of the matters asserted in the other
litigation, but to establish the fact of such litigation and related filings.” Autonation, Inc.
v. O’Brien, 347 F. Supp. 2d 1299, 1310 (S.D. Fla. 2004) (citing U.S. v. Jones, 29 F.3d
1549, 1553 (11th Cir. 1994)). Bank of America does not oppose the taking of judicial
notice of the Proof of Claim solely for the fact of the document’s existence, and not for
the truth of the matters contained therein. See Bank of America Opposition to Plaintiff’s
Request for Judicial Notice [ECF Nos. 271 and 292].
Here, however, the fact of
Fontainebleau’s filing of a Proof of Claim alleging there were defaults under the Retail
Agreement is not material to the pending summary judgment motions. Bank of America
does not dispute that Lehman did not fund its portion of the September 2008, December
2008, January 2009, and February 2009 Retail Advances. Whether this failure to fund
constituted a default under the Retail Agreement and the failure of a condition
precedent under the Disbursement Agreement as a matter of law is for the Court, not
Fontainebleau, to determine.
Accordingly, I deny the Term Lenders’ Request for
Judicial Notice.
Bank of America filed a Request for Judicial Notice [ECF No. 272], requesting I
take judicial notice of (1) an article by Pierre Paulden entitled Highland Shuts Funds
Amid ‘Unprecedented’ Disruption [ECF No. 272, Exh. 28] (“Paulden Article”) and (2) the
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March 25, 2011 Complaint in Brigade Leveraged Capital Structures Fund, Ltd. v.
Fontainebleau Resorts, LLC, filed in District Court in Clark County, Nevada [ECF No.
272, Exh. 101] (“Brigade Complaint”). Bank of America seeks to use the fact of the
Paulden Article, not its contents, to support its proposition that, “[i]n September 2008,
numerous credible publications reported that certain Highland finds had suffered losses
and faced a liquidity crunch.”, and to justify its response to Highland’s September 2008
claims regarding the Lehman bankruptcy and its funding of the September 2008 Retail
Advance. See BofA Response AMA ¶ 118, BofA Opp. Memo. at 16. But the Paulden
Article, dated October 16, 2008, does not demonstrate reports of Highland’s losses in
September 2008. Further, Bank of America has cited no evidence to indicate any of the
Bank of America individuals who evaluated Highland’s claims actually read the Paulden
Article, and therefore cannot establish that the Paulden Article was relevant to Bank of
America’s assessment of Highland’s claims.
Finally, the communications between
Highland and Bank of America regarding the Lehman bankruptcy and Lehman’s failure
to fund the September 2008 Retail Advance occurred between from late September
2008 through October 13, 2008, before the Paulden Article was published. I conclude,
therefore, the fact of the Paulden Article is not relevant to the resolution of the pending
summary judgment motions and deny Bank of America’s request for judicial notice. See
Cravens v. Smith, 610 F.3d 1019, 1029 (8th Cir. 2010) (“[A] court may properly decline
to take judicial notice of documents that are irrelevant to the resolution of a case.”); Am.
Prairie Const. Co. v. Hoich, 560 F.3d 780 (8th Cir. 2009) (“Caution must also be taken
to avoid admitting evidence, through the use of judicial notice, in contravention of the
relevancy, foundation, and hearsay rules.”); see also Shahar v. Bowers, 120 F.3d 211,
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214 (11th Cir. 1997) (noting the taking of judicial notice is, “as a matter of evidence law,
a highly limited process” because “the taking of judicial notice bypasses the safeguards
which are involved with the usual process of proving facts by competent evidence ….”).
Turning to the Brigade Complaint, Bank of America seeks admission of the
Brigade Complaint not only for the fact that it was filed, but also for the content therein,
arguing the Complaint’s allegations are relevant to the instant action and constitute a
party admission and are therefore an exception to the hearsay rule.
The Brigade
plaintiffs, some of whom are Term Lenders, allege, inter alia, that Fontainebleau
executives and affiliates made material misrepresentations in the Advance Requests,
hid cost overruns, and concealed adverse information regarding the Lehman
bankruptcy’s implications for the Project. Bank of America argues these allegations are
relevant to the Term Lenders’ claim that Bank of America breached its duties as
Disbursement Agent and Bank Agent, and, more specifically, had knowledge of
“Fontainebleau’s Lehman-related machinations.”
[ECF No. 301 at 3].
As set forth
above, independent of the Brigade Complaint, I have concluded the evidence of record
on summary judgment, with all inferences in favor of the Term Lenders, does not
demonstrate that Bank of America had knowledge of Fontainebleau’s “Lehman-related
machinations” or cost overruns. Accordingly, I deny Bank of America’s request for
judicial notice of the Brigade Complaint as moot.
VII.
Conclusion
For reasons discussed, I conclude Bank of America, as Disbursement Agent or
Bank Agent, did not breach the Disbursement Agreement, nor did it act with bad faith,
gross negligence, or willful misconduct in the performance of its duties under the
Disbursement Agreement. The Disbursement Agreement imposed on Bank of America
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no duty to inquire or investigate whether Fontainebleau’s representations that all
conditions precedent had been met were accurate, and, with all inferences in favor of
the Term Lenders, the Term Lenders have failed to present a genuine issue of material
fact as to whether Bank of America, as Disbursement Agent or Bank Agent, had actual
knowledge of the failure of any conditions precedent to disbursement, including, but not
limited to, Fontainebleau funding Lehman’s portion of the September 2008 Retail
Advance, Fontainebleau reimbursing ULLICO for a portion of the December 2008
through March 2009 Retail Advances, and the Project’s cost overruns.
Although not germane to my analysis, I would be remiss by not observing that,
while the Term Lenders argue on summary judgment that Bank of America should have
pulled the plug on the Project as early as September 2008, they argued in their
complaints and on motion to dismiss that the Revolving Lenders should have funded the
Project as late as March and April 2009. Further, while the Term Lenders argue on
summary judgment that Bank of America should have been aware of issues with the
Retail Facility and Project costs, they allege in other actions that Fontainebleau
perpetrated a fraud against the Lenders and Bank of America in actively concealing cost
overruns and misleading interested parties about the status and potential success of the
Project. That said, having reviewed the motions for summary judgment and related
requested for judicial notice and being otherwise duly advised, it is HEREBY ORDERED
and ADJUDGED as follows:
1.
Bank of America’s Motion for Summary Judgment [ECF No. 255] is
GRANTED.
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2.
The Term Lenders’ Motion for Partial Summary Judgment [ECF No. 258] is
DENIED.
3.
The parties’ Requests for Judicial Notice [ECF No. 261 and 272] are DENIED.
4.
All pending motions are DENIED as MOOT and all hearings are
CANCELLED.
5.
The Clerk of the Court is instructed to CLOSE this case.
6.
Final judgment will be entered by separate court order pursuant to Federal
Rule of Civil Procedure 58.
DONE AND ORDERED in Chambers at Miami, Florida, this 19th day of March,
2012.
_____________________________________
THE HONORABLE ALAN S. GOLD
UNITED STATES DISTRICT COURT JUDGE
cc:
Clerk of the United States Court of Appeals for the Eleventh Circuit
(related to your Case No. 11-10740)
Clerk of the United States Judicial Panel on Multidistrict Litigation
Magistrate Judge Jonathan Goodman
All Counsel of Record
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO 09-MD-02106-CIV-GOLD/GOODMAN
IN RE: FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL No. 2106
This document applies to:
Case No. 09-CV-23835 ASG.
_____________________________________/
MDL ORDER NUMBER 62;
OMNIBUS ORDER GRANTING BANK OF AMERICA’S MOTION FOR SUMMARY
JUDGMENT [ECF No. 255] AND DENYING TERM LENDERS’ MOTION FOR
PARTIAL SUMMARY JUDGMENT [ECF No. 258]; CLOSING CASE
This Cause is before the Court upon Bank of America’s Motion for Summary
Judgment [ECF No. 255] and Plaintiffs’ Motion for Partial Summary Judgment [ECF No.
258]. I held oral argument on the Motions on November 18, 2011. While the matters
involved in the remainder of this case appear complex because of the parties’ crossmotions for summary judgment, in essence, based on the material facts not genuinely in
dispute, the legal issues are straightforward. Even assuming all inferences in favor of
the non-moving parties, Bank of America, acting as Disbursement Agent and Bank
Agent under the Disbursement Agreement, did not breach the Disbursement
Agreement, nor did it exercise its duties and responsibilities under the Disbursement
Agent and Credit Agreement in a grossly negligent manner under New York law. The
Term Lender Plaintiffs have not established otherwise. Accordingly, I grant summary
judgment in favor of Defendant Bank of America.
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 2 of 93
I.
Procedural History
This multi-district litigation (“MDL”) arises out of alleged breaches of various
agreements for loans to construct and develop a casino resort in Las Vegas, Nevada.
On December 3, 2009, this MDL was transferred to me by order of the United States
1
Judicial Panel on Multidistrict Litigation [ECF No. 1].
Pursuant to the Panel’s transfer
order (and subsequent related orders, e.g. [ECF No. 21]), pending before me are (1)
Fontainebleau Las Vegas, LLC v. Bank of America, N.A., et al., Case No. 09-cv-21879
(S.D. Fla.) (the “Fontainebleau Action”), (2) Avenue CLO Fund, Ltd., et al. v. Bank of
2
America, et al., Case No. 09-cv-1047 (D. Nev.) (the “Avenue Action”), and (3) ACP
Master, LTD, et al. v. Bank of America, et al, Case No. 09-cv-8064 (S.D.N.Y) (the
3
“Aurelius Action”). I discuss the procedural history of each action in turn.
A.
The Fontainebleau Action
On June 9, 2009, Fontainebleau Las Vegas, LLC ("Fontainebleau") filed a
voluntary Chapter 11 petition in the United States Bankruptcy Court for the Southern
District of Florida. That same day, Fontainebleau commenced an adversary proceeding
against a group of banks. Fontainebleau is the owner and developer of a casino resort
in Las Vegas (the “Project”). On June 6, 2007, Fontainebleau entered into a Credit
Agreement and Disbursement Agreement with a syndicate of lenders for the
1
All references to the docket refer to Case No. 09-MD-02106, unless otherwise indicated.
2
Upon transfer to the Southern District of Florida, the Avenue Action was assigned Case No.
09-23835.
3
Upon transfer to the Southern District of Florida, the Aurelius Action was assigned Case No.
10-20236.
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development of the Project. Under the Credit Agreement, the lenders agreed to loan
$1.85 billion under three senior secured credit facilities: the Term Loan, the Delay Draw
Term Loan, and the Revolver facilities. Defendants in the adversary proceeding and the
Fontainebleau Action are the banks that agreed to lend money under the Revolver
facility (the “Revolver Banks”). Fontainebleau alleged, inter alia, these Revolver Banks
breached the Credit Agreement for failing to fund the revolving loans in March 2009.
[Bankruptcy Case No. 09-01621-AJC, ECF No. 5, Amended Complaint].
On June 10, 2009, Fontainebleau filed a Motion for Partial Summary Judgment
on Liability with Respect to the March 2 Notice of Borrowing in the adversary
proceeding. Fontainebleau argued the Revolver Banks breached the Credit Agreement
by refusing to process the March 2 notice of borrowing (the “March 2 Notice”), which
requested revolving loans in excess of $150 million, on the basis that the Total Delay
Draw Commitments were not “fully drawn” as required by the terms of section 2.1(c)(iii)
of the Credit Agreement. Fontainebleau argued that the March 2 Notice, which, in
addition to revolving loans, requested all funds available under the Delay Draw Term
Loan facility, satisfied the “fully drawn” requirement because the Delay Draw Term
Loans had been fully requested by the time the revolving loans in excess of $150 million
were sought. The Revolver Banks moved to withdraw the reference on July 7, 2009
[Case No. 09-21879, ECF No. 1], and I granted the Motion for Withdrawal of Reference
on August 5, 2009 [Case No. 09-21879, ECF No. 23].
On August 26, 2009, I denied Fontainebleau’s Motion for Partial Summary
Judgment [Case No. 09-21879, ECF No. 62], concluding that (1) the Credit Agreement’s
(Section 2.1(c)(iii)) requirement that the Total Delay Draw Commitments be “fully drawn”
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before disbursement means the Commitments must be “fully funded”; (2) even if this
legal conclusion is erroneous, Plaintiff’s interpretation of “fully drawn” is reasonable but
not conclusive, resulting in an ambiguity that precludes summary judgment; and (3)
even if Plaintiff’s interpretation of the term “fully drawn” is correct, Fontainebleau’s
default entitled the Revolver Banks to reject the March 2 Notice.
On September 20, 2010, upon uncontested request of the Trustee, I entered a
Final Judgment [Case No. 09-21879, ECF No. 138], dismissing the Fontainebleau
Action with prejudice for purposes of facilitating an appeal from my August 26, 2009
Order denying Fontainebleau’s Motion for Partial Summary Judgment. Accordingly, the
August 26, 2009 Order is on appeal, and no other matters are pending before me in the
Fontainebleau Action.
B.
The Avenue and Aurelius Actions
The Avenue Action was originally filed in the District Court of Nevada, and was
transferred to the Southern District of Florida on December 28, 2009. [Case No. 0923835, ECF No. 77]. On January 15, 2010, the Avenue Plaintiffs, each of which is a
term lender under the Credit Agreement, filed a Second Amended Complaint (the
“Avenue Complaint”) [ECF No. 15] against various revolver lenders pursuant to the
Credit Agreement, as well as against Bank of America in its capacities as Administrative
Agent under the Credit Agreement and as Disbursement Agent under the Disbursement
Agreement.
The Avenue Complaint pled the following: Count I - breach of
Disbursement Agreement against Bank of America; Count II - breach of the Credit
Agreement against all defendants; Count III - breach of the implied duty of good faith
and fair dealing against Bank of America; Count IV – breach of the implied duty of good
faith and fair dealing against all defendants; Count V – declaratory relief against Bank of
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America; and Count VI – declaratory relief against all defendants. With respect to the
counts against the revolver lenders, the Avenue Plaintiffs alleged the revolver lenders
should have funded the March 2009 Notices of Borrowing.
The Aurelius Action was originally filed in the Southern District of New York and
was transferred to the Southern District of Florida on January 26, 2010. [Case No. 1020236, ECF No. 29]. On January 19, 2010, the Aurelius Plaintiffs (together with the
Avenue Plaintiffs, the “Term Lenders” or the “Term Lender Plaintiffs”), each of which is a
successor-in-interest to a term lender under the Credit Agreement, filed an Amended
Complaint (the “Aurelius Complaint”) [Case No. 10-20236, ECF No. 27] against various
lenders under the Revolving Loan (together with the defendants in the Avenue Action,
the “Revolving Lenders” or the “Revolving Lender Defendants”), including Bank of
America, under the Credit Agreement.
The Aurelius Complaint pleads the following:
Counts I and II - breach of the Credit Agreement against all defendants; and Count III –
breach of the Disbursement Agreement against Bank of America. With respect to the
claims against the Revolving Lenders, the Aurelius Plaintiffs argued the Revolving
Lenders should have funded the March 2, March 3, and April 21 Notices of Borrowing.
On May 28, 2010, reasoning that the Term Lender Plaintiffs lack standing to
pursue claims based on the alleged breaches of the Credit Agreement, I dismissed with
prejudice the Term Lenders’ claims relating to breach of the Credit Agreement (Count II
of the Avenue Complaint and Counts I and II of the Aurelius Complaint). I further
concluded the Term Lenders’ claim against Bank of America for breach of the implied
covenant of good faith and fair dealing (Count III of the Avenue Complaint) was
precluded by their claims for breach of the Disbursement Agreement because the
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damages sought in the implied covenant claim were intrinsically tied to those sought in
the breach of contract claim. I dismissed the claim for breach of the implied covenant of
good faith and fair dealing accordingly.
I also dismissed the claim against all
defendants for breach of the implied covenant of good faith and fair dealing in
connection with the Credit Agreement (Count VI of the Avenue Complaint) as moot
because the claim sought to impose an obligation that was inconsistent with the terms
of the Credit Agreement. [Amended MDL Order No. 18]. In short, I dismissed all of the
Term Lenders’ claims against the Revolving Lender Defendants.
On January 18, 2011, I granted the Term Lenders’ Joint Motion for Partial Final
Judgment, entering partial final judgment pursuant to Federal Rule of Civil Procedure
54(b) so the Term Lenders could seek an appeal of their claims against the Revolving
Lender Defendants at the same time as the Trustee’s appeal in the Fontainebleau
action. [MDL Order Number 44, ECF No. 201]. Final judgment was therefore entered
against the Term Lenders on Counts II, III, and IV of the Avenue Action, and Counts I
and II of the Aurelius Action. [ECF No. 202]. The dismissal of the Term Lenders’ claims
against the Revolving Lender Defendants is on appeal. [ECF No. 203, 208].
On April 19, 2011, upon agreement and stipulation by the Avenue and Aurelius
Plaintiffs and Bank of America, I dismissed without prejudice Count III of the Aurelius
Action. [MDL Order Number 47, ECF No. 238]. (The Avenue Plaintiffs had purchased
the Term Notes previously held by the Aurelius Plaintiffs, and sought to pursue a single
action on the Notes they owned. [ECF No. 212].). See also 11/18/2011 Oral Argument
Transcript (“11/18/2011 Tr.”) [ECF No. 335] 97:19–98:3.
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Therefore, the only claims outstanding are the Term Lenders’ claims against
Bank of America for breach of the Disbursement Agreement (Count I of the Avenue
Action), and the related request for declaratory relief (Count V of the Avenue Action).
The Term Lenders allege Bank of America breached its obligations as Bank Agent and
Disbursement Agent under the Disbursement Agreement between September 2008 and
March 2009 by improperly approving advance requests that failed to meet one or more
of the conditions precedent under Section 3.3 of the Disbursement Agreement,
improperly issuing Advance Confirmation Notices, improperly failing to issue Stop
Funding Notices, and improperly disbursing funds from the Bank Proceeds Account.
[ECF No. 15, Count I]. These claims and Bank of America’s breach of the Disbursement
Agreement are the subject of the parties’ summary judgment motions.
II.
Summary Judgment Motions: The Parties’ Positions and Relief Sought
On August 5, 2011, the Term Lender Plaintiffs and Bank of America filed cross-
motions for summary judgment and accompanying memoranda of law. [ECF Nos. 255
(“BofA Memo.”), 258 (“TL Memo.”)], and subsequently filed related opposition and reply
memoranda [ECF No. 269 (“BofA Opp. Memo.”), ECF No. 275 (“TL Opp. Memo.”), ECF
No. 290 (“BofA Reply Memo.”), ECF No. 297 (“TL Reply Memo.”). The Term Lenders
seek partial summary judgment that Bank of America wrongfully and with gross
negligence breached its obligations as Disbursement Agent and Bank Agent under the
Disbursement Agreement because Bank of America disbursed funds knowing that
Lehman Brothers Holdings, Inc. (“Lehman”) had declared bankruptcy, and the
bankruptcy and subsequent related events caused multiple conditions precedent to
disbursement to fail. Bank of America, on the other hand, argues that it is entitled to
summary judgment dismissing the Term Lenders’ breach of contract claim because the
7
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undisputed facts demonstrate that Bank of America performed its duties under the
Disbursement Agreement by approving and funding Fontainebleau Advance Requests
only after receiving the required certifications, had no duty to investigate the
representations in these certifications, and was not grossly negligent. Bank of America
further argues it did not have actual knowledge of the failure of any conditions
precedent to disbursement.
I have considered the parties’ positions, and after careful review of the pleadings,
the case file, and the relevant law, I grant summary judgment in favor of Bank of
America for the reasons discussed below.
III.
Undisputed Facts
Pursuant to Southern District of Florida Local Rule 7.5,
4
the parties filed
Statements of Undisputed Material Facts [ECF Nos. 256 (“BofA Statement”), 315 (“TL
Statement”)] and associated exhibits in support of their respective Motions for Summary
Judgment. The parties filed responses and replies, including additional material facts
(“AMA”) and associated exhibits, to the Statements of Undisputed Material Facts [ECF
Nos. 324 (“BofA Response”; “BofA Response AMA”), 316 (“TL Response”; “TL
Response AMA”), 323 (“BofA Reply”; “BofA Reply AMA”), 317 (“TL Reply”; “TL Reply
AMA”)]. Upon review of the record, including the exhibits submitted, I conclude that the
following material facts are undisputed and supported by evidence in the record.
4
In the Southern District of Florida, a party moving for summary judgment must submit a
statement of undisputed facts. See S.D. Fla. L.R. 7.5. If necessary, the non-moving party may
file a concise statement of the material facts as to which it is contended there exists a genuine
issue to be tried. Id. Each disputed and undisputed fact must be supported by specific
evidence in the record, such as depositions, answers to interrogatories, admissions, or affidavits
on file with the Court. Id. All facts set forth in the movant’s statement which are supported by
evidence in the record are deemed admitted unless controverted by the non-moving party. Id.
8
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A.
The Project and the Parties
The Fontainebleau Las Vegas is a partially-completed resort and casino
5
development in Las Vegas (previously defined as the “Project”). (BofA Statement ¶ 8).
To finance the Project, Fontainebleau Las Vegas, LLC and Fontainebleau Las Vegas II,
LLC (collectively, the “Borrowers” or “Fontainebleau”) entered into various financing
agreements,
including
the
Master
Disbursement
Agreement
(“Disbursement
Agreement”), Credit Agreement, and Retail Agreement, each of which is discussed in
more detail below. (Id. ¶¶ 15–16, 22). The Project’s developer was the Borrowers’
parent, Fontainebleau Resorts, LLC (“Fontainebleau Resorts” or “FBR”). (Id. ¶ 9). Jeff
Soffer was the Chairman of Fontainebleau Resorts, Glenn Schaeffer was the CEO, and
Jim Freeman was Senior Vice President and Chief Financial Officer. (Freeman Dep.
12:10–14; 13:20–24).
Turnberry West Construction (“TWC”), a member of the
Turnberry group of companies, was the Project’s general contractor. (BofA Statement ¶
12).
Bank of America, a nationally chartered bank, held various roles under the
financing agreements. (BofA Response AMA ¶ 1). It acted as Administrative Agent
under the Credit Agreement for the Senior Secured Facility Lenders and Disbursement
Agent under the Disbursement Agreement, and was also a lender under the Credit
Agreement.
(BofA Statement ¶¶ 2–4; BofA Response AMA ¶ 1). Bank of America’s
activities as Administrative and Disbursement Agents for the Project were managed by
the same individuals within its Corporate Debt Products Group. (TL Response AMA ¶
5
Where the fact is not in dispute, I cite only to the statements of material facts, responses, or
replies. Where the fact is in dispute, I cite to the underlying record.
9
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 10 of 93
9; 11/18/2011 Tr. 26:23-27:1). These activities included approving Advance Requests,
disbursing funds to Borrowers, and deciding what information to disseminate to lenders.
(BofA Response ¶ 9; TL Reply ¶ 9).
Jeff Susman was the Senior Vice President of Corporate Debt Products and had
primary management responsibility for Bank of America’s agency activities relating to
the Project until his departure from Bank of America in February 2009. (BofA Response
¶ 10; TL Reply ¶ 10; TL Response AMA ¶ 15). Jean Brown reported to the Corporate
Debt Products group and was the lead contact with TriMont Real Estate Advisors, the
Servicer of the Retail Facility. (TL Response AMA ¶10; Rafeedie Dep. Tr. 33:2–23).
David Howard was the Managing Director of Syndications of Bank of America Securities
until March 31, 2009, and Brett Yunker was the Vice President of the Global Gaming
Team at Bank of America Securities. (TL Response AMA ¶¶ 13–14; BofA Reply AMA
¶¶ 13–14).
Finally, the Term Lender Plaintiffs are a group of sophisticated financial
institutions who were lenders—or in many cases, successors-in-interest to lenders—to
6
Fontainebleau under the Credit Agreement.
(BofA Statement ¶ 5; Aurelius Compl.;
Avenue Compl.).
B.
The Project’s Financing
The Project’s initial budget was $2.9 billion, which included approximately $1.7
billion of hard construction costs.
(BofA Statement ¶ 14). The Project was financed
through a combination of debt and equity capital. The largest financing component for
6
The Term Lenders do not dispute this fact; rather, they contend it is immaterial and irrelevant.
(TL Response at 1).
10
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the Project’s resort component was a $1.85 billion senior secured debt facility (“Senior
Credit Facility”), created by the Credit Agreement. (Id. ¶¶ 15, 17). The Senior Credit
Facility comprised three senior secured loans: (1) a $700 million term loan (the “Initial
Term Loan”); (2) a $350 million delay draw term loan (the “Delay Draw Term Loan”);
and (3) an $800 million revolving loan (the “Revolver Loan”). (Id. ¶ 17). The Term
Lender Plaintiffs own Initial Term Loan and Delay Draw Term Loan notes, and Bank of
America was a Revolver Loan lender. (Id. ¶¶ 4, 18).
7
Additional financing sources for
the Project included equity contributions by Fontainebleau and its affiliates, $675 million
in Second Mortgage Notes, and a $315 million loan earmarked for the Project’s retail
space (the “Retail Facility”). (Id. ¶ 16).
Pursuant to the agreements governing the various financing sources,
Fontainebleau gained access to the financing through a two-step borrowing process.
The first step required Fontainebleau to submit to the Administrative Agent a Notice of
Borrowing specifying the amount and type of loan to be borrowed and the requested
borrowing date. The Administrative Agent would then notify the lenders of the Notice of
Borrowing, and the Lenders would remit funds to the Administrative Agent who, upon
satisfaction of certain conditions precedent, would transfer the funds into a Bank
Proceeds Account.
(Dep. Exhs. 808 ¶ 6, 1501).
Fontainebleau could not access
money in the Bank Proceeds Account; rather, the second step required Fontainebleau
to submit an Advance Request to Bank of America as Disbursement Agent under the
Disbursement Agreement, a process described in more detail below. (TL Statement ¶¶
7
The Term Lenders do not dispute this fact; rather, they only contend that it is immaterial and
irrelevant. (TL Response at 1).
11
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14–15; Dep. Exh. 808 ¶ 7). The $700 Initial Term Loan was funded into the Bank
Proceeds Account upon closing of the Credit Agreement in June 2007, and the majority
of the $350 million Delay Draw Term Loan was funded into the Bank Proceeds Account
in early March 2009. (Dep. Exh. 644; TL Statement ¶ 13).
C.
The Retail Facility, Retail Agreement, and Shared Costs
The Project’s retail space was to be developed by Fontainebleau Las Vegas
Retail, LLC (the “Retail Affiliate”), an FBR subsidiary. (BofA Statement ¶ 19). Although
the Senior Credit Facility and the Retail Facility were separate lending facilities, the
resort budget included $83 million in costs that were to be funded through the Retail
Facility (“Shared Costs”).
(Id. ¶ 24).
These Shared Costs were used to fund
construction of portions of the Project’s retail space that were structurally inseparable
from the resort. (Id. ¶ 25). The Retail Facility was critical to the completion of the
Project. (TL Response AMA ¶ 26).
The Retail Facility was subject to a June 6, 2007 agreement (previously referred
to as the “Retail Agreement”) between the Retail Affiliate and Lehman Brothers
Holdings, Inc. (“Lehman”), which signed the agreement as a lender and as the agent for
one or more of the co-lenders. (BofA Statement ¶¶ 22, 26). Bank of America was not a
Lender under the Retail Agreement or otherwise party to it, but did receive a copy of the
Agreement. (Retail Agreement (“Retail Agmt.”); TL Response AMA ¶ 8). The Retail
Agreement permitted Lehman to syndicate some or all of the Retail Facility to other
lenders. (BofA Statement ¶ 27). On September 24, 2007, pursuant to a Retail CoLending Agreement, Lehman syndicated select notes under the Retail Facility to
National City Bank, Sumitomo Mitsui Banking Corp., and Union Labor Life Insurance
Company (“ULLICO”) (together with Lehman, “Retail Co-Lenders” or “Retail Lenders”).
12
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(BofA Response ¶ 30; Dep. Ex. 9, Retail Co-Lending Agreement (“Retail Co-Lending
Agmt.”). Post syndication, Lehman was the largest Retail Lender, responsible for $215
million, or 68.25% of the Retail Facility. (TL Response AMA ¶ 25; BofA Response ¶
30).
The Retail Agreement further permitted Lehman to delegate any portion of its
responsibilities under the Agreement to a servicer. (BofA Statement ¶ 31). Lehman
designated TriMont Real Estate Advisors, Inc. (“TriMont”) as the servicer for the Retail
Facility, delegating the responsibility for collecting the Retail Co-Lenders’ respective
Shared Cost obligations in response to an Advance Request and transferring those
funds to Bank of America, as Disbursement Agent under the Disbursement Agreement.
(Id. ¶¶ 32–33).
Additionally, the Retail Agreement and Retail Co-Lending Agreement permitted
the Retail Co-Lenders to “sell … any or any part of their right … Loan …to one or more
additional lenders,” and to make payments on behalf of a defaulting Co-Lender, subject
to certain terms and conditions. (Retail Co-Lending Agmt. § 5.01(d); Retail Agmt. §§
9.7.2.9(a) and (b)). Bank of America was not party to, and did not receive a copy of, the
Retail Co-Lending Agreement. (Retail Co-Lending Agmt.; BofA Response AMA ¶ 25).
To that end, Bank of America did not know the identity of the Retail Co-Lenders until
late 2008. (BofA Response AMA ¶ 26; TL Reply AMA ¶ 26).
D.
The Disbursement Agreement
Fontainebleau’s access to the construction financing was governed by the
Disbursement Agreement, which contained a New York choice-of-law provision. (BofA
Statement ¶ 34; Disbursement Agreement (“Disb. Agmt.”) § 11.6). The Disbursement
13
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Agreement contained an integration clause (Section 11.5, entitled “Entire Agreement”)
that permitted reference to select additional agreements:
This Agreement and any agreement, document or instrument attached
hereto or referred to herein integrate all the terms and conditions
mentioned herein or incidental hereto and supersede all oral negotiations
and prior writings in respect to the subject matter hereof, all of which
negotiations and writings are deemed void and of no force and effect.
(Disb. Agmt. § 11.5).
As described above, the Credit and Disbursement Agreements established a
two-step funding process for the Senior Credit Facility. To access funds from the Delay
Draw Term Loan and Revolver Loan facilities, Fontainebleau would submit a Notice of
Borrowing that, subject to certain procedures and conditions set forth in the Credit and
Disbursement Agreements, would cause Lender funds to be transferred into the
designated Bank Proceeds Account. (Credit Agmt. §§ 2.1(b), 2.1(c), 2.4; Disb. Agmt. §
2.1.2).
Fontainebleau could not withdraw funds directly from the Bank Proceeds
Account; rather, it was required to submit a monthly Advance Request, the form and
contents of which were prescribed by the Disbursement Agreement. (BofA Statement ¶
37).
1.
The Advance Request, Conditions Precedent, and the Funding
Process
The Disbursement Agreement required that each Advance be requested
“pursuant to an Advance Request substantially in the form of Exhibit C-1” and provided
“[e]ach Advance Request shall be delivered to the Disbursement Agent … not later than
the 11th day of each calendar month.” (Disb. Agmt. § 2.4.1). Exhibit C-1, in turn,
required Fontainebleau to “represent, warrant and certify” that “the conditions set forth
in Section 3.3 … of the Disbursement Agreement are satisfied as of the Requested
14
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 15 of 93
Advance Date.” (BofA Statement ¶ 37; Disb. Agmt. Exh. C-1 at 1, 8). Exhibit C-1 also
outlined certain “General Representations” that overlapped with conditions set forth in
Section 3.3. (Disb. Agmt. § 3.3, Exh. C-1 at 5–8).
Section 3.3, entitled “Conditions Precedent to Advances by Trustee and the Bank
Agent,” contained twenty-four separate conditions precedent. (BofA Statement ¶ 41;
Disb. Agmt. § 3.3). These conditions precedent included the following:
“Representations and Warranties. Each representation and warranty of …
[e]ach Project Entity set forth in Article 4 … shall be true and correct in all
material respects as if made on such date.” (Disb. Agmt. § 3.3.2).
“Default. No Default or Event of Default shall have occurred and be
continuing.” (Id. § 3.3.3).
(Article 7, entitled “Events of Default,” provided
further information on Events of Default. (Id. Art. 7).)
“Advance Request and Advance Confirmation Notice. … [The] Advance
Request shall request an Advance in an amount sufficient to pay all amounts
due and payable for work performed on the Project through the last day of the
period covered by such Advance Request ….” (Id. § 3.3.4).
“Consultant Certificates and Reports. Delivery to each of the applicable
Funding Agents and the Disbursement Agent of (a) the Constriction
Consultant Advance Certificate approving the corresponding Advance
Request, and (b) the Architect’s Advance Certificate with respect to the
Advance, and (c) the General Contractor’s Advance Certificate with respect to
the Advance.” (Id. § 3.3.5).
“In Balance Requirement. The Project Entitles shall have submitted an In
Balance Report demonstrating that the In Balance Test is satisfied.” (Id. §
3.3.8).
(The In Balance Test was satisfied when the Available Funds
equaled or exceeded the Project’s Remaining Costs. (BofA Statement ¶ 41).)
“Material Adverse Effect. Since the Closing Date, there shall not have
occurred any change in the economics or feasibility of constructing and/or
operating the Project, or in the financial condition, business or property of the
Project Entities, any of which could reasonably be expected to have a
Material Adverse Effect.” (Disb. Agmt. § 3.3.11).
“Plans and Specifications. In the case of each Advance from the Bank
Proceeds Account … , the Construction Consultant shall to the extent set
forth in the Construction Consultant Advance Certificate have approved all
15
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Plans and Specifications which, as of the date of the relevant Advance
Request, constitute Final Plans and Specifications to the extent not
theretofore approved.” (Id. § 3.3.19).
“Adverse Information. In the case of each Advance from the Bank Proceeds
Account … , the Bank Agent shall not have become aware after the date
hereof of any information or other matter affecting any Loan Party, Turnberry
Residential, the Project or the transactions contemplated hereby that taken as
a whole is inconsistent in a material and adverse manner with the information
or other matter disclosed to them concerning such Persons and the Project,
taken as a whole.” (Id. § 3.3.21).
“Retail Advances. In the case of each Advance from the Bank Proceeds
Account … , the Retail Agent and the Retail Lenders shall, on the date
specified in the relevant Advance Request, make any Advances required of
them pursuant to the Advance Request.” (Id. § 3.3.23).
“Other Documents. In the case of each Advance from the Bank Proceeds
Account, the Bank Agent shall have received such other documents and
evidence as are customary for transactions of this type as the Bank Agent
may reasonably request in order to evidence the satisfaction of the other
conditions set forth above.” (Id. § 3.3.24).
Moreover, each Advance Request included certification from TWC, that, among
other things, “[t]he Control Estimate … reflects the costs expected to be incurred by
[TWC] to complete the remaining ‘Work’ … on the Project.” (BofA Statement ¶ 44; Disb.
Agmt. Exh. C-4 ¶ 4).
TWC’s certification further specified that the representations
contained therein were “true and correct” and were “made for the benefit of the
Disbursement Agent, the Funding Agents and the Lenders represented thereby, and
may be relied upon for the purposes of making advances pursuant to the …
Disbursement Agreement ….” (Disb. Agmt. Exh. C-4 at 2). Also included with each
Advance Request was certification from the Project’s Architect that “[t]he construction
performed on the Project … is in general accordance with the ‘Drawings and
Specifications.’” (Id. Exh. C-3).
16
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After submission of an Advance Request, the Disbursement Agreement required
Bank of America, as Disbursement Agent, and Inspection and Valuation International,
Inc. (“IVI”), who was appointed as Construction Consultant under the Disbursement
Agreement, to “review the Advance Request and attachments thereto and determine
whether all required documentation has been provided, and [to] use commercially
reasonable efforts to notify the Project Entities of any deficiency within three Banking
Days ….” (Disb. Agmt. § 2.4.4(a); BofA Statement ¶ 45).
The Disbursement Agreement further required IVI to deliver to the Disbursement
Agent a “Construction Consultant Advance Certificate either approving or disapproving
the Advance Request.” (Disb. Agmt. § 2.4.4(b); BofA Statement ¶ 47). To fulfill these
requirements, IVI performed monthly site visits, reviewed information disclosed by
Fontainebleau at the site visits, and summarized its findings in Project Status Reports.
(BofA Statement ¶ 46). By signing the Construction Consultant Advance Certificate, IVI
certified, based on its on-site observation of construction progress and its review of “the
material and data made available” by the Borrowers, Contractor, and others; all relevant
invoices, plans and specifications; and all previous Advance Requests, the following:
“The Project Entities have properly substantiated, in all material respects, the
Project Costs for which payment is requested in the Current Advance
Request”;
“The Remaining Cost Report attached to the Current Advance Request
accurately reflects, in all material aspects, the Remaining Costs required to
achieve Final Completion”;
“The Unallocated Contingency Balance set forth in the Remaining Cost
Report attached to the Current Advance Request is accurate and equals or
exceeds the Required Minimum Contingency”;
17
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“The Opening Date is likely to occur on or before the scheduled Opening Date
set forth in the Current Advance Request and the Completion Date if likely to
occur within 180 days thereafter”;
“The Advances requested in the Current Advance Request are, in our
reasonable judgment, generally appropriate in light of the percentage of
construction completed and the amount of Unincorporated Materials”; and
“The undersigned has not discovered any material error in the matters set
forth in the Current Advance Request or Current Supporting Certificates.”
(Disb. Agmt. Exh. C-2). The Disbursement Agent was tasked with using “reasonable
diligence” to ensure IVI performed its review and delivered its Construction Consultant
Advance Certificate “not less than three Banking Days prior to the Scheduled Advance
Date.”
(Id. § 2.4.4).
In sum, each Advance Request required (and contained)
certification from Fontainebleau, TWC, and IVI that the applicable conditions precedent
were satisfied.
Further, the Disbursement Agent was permitted to require Fontainebleau to
submit a revised Advance Request if it found any “minor or purely mathematical errors.”
(Id.). Independently, Fontainebleau could, with the approval of the Disbursement Agent
and IVI, revise and resubmit its Advance Request if it “obtain[ed] additional information
or documentation or discover[ed] any errors in or updates required to be made to any
Advance Request prior to the Scheduled Advance Date.”
(Id. § 2.4.5).
The
Disbursement Agent was not obligated to accept any such updates, but was required to
“consider their submission in good faith.” (Id.).
Once an Advance Request’s applicable conditions precedent were satisfied,
Bank of America (as Disbursement Agent) and Fontainebleau were required to execute
an Advance Confirmation Notice. (BofA Statement ¶ 51). By executing the Advance
Confirmation
Notice,
Fontainebleau
expressly
18
confirmed
“that
each
of
the
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 19 of 93
representations, warranties and certifications made in the Advance Request … are true
and correct as of the Requested Advance Date and Disbursement Agent is entitled to
rely on the foregoing in making the Advanced herein requested” and “that the [Advance
Request] representations, warranties and certifications are correct as of the Requested
Advance Date.” (BofA Statement ¶ 52, Disb. Agmt. Exh. E).
The Notice “confirm[ed] the amount of the Advances to be made under the
Financing Agreements” and “confirm[ed] the amount to be transferred into each
Account.”
(Disb. Agmt. Exh. E).
The Disbursement Agreement correspondingly
provided, “each of the Funding Agents shall make the Advances contemplated by [the]
Advance Confirmation Notice to the relevant Accounts” and “the Disbursement Agent
shall make the resulting transfers amongst the Accounts described in the Advance
Confirmation Notice.”
(Id. § 2.4.6).
Thus, once an Advance Request’s conditions
precedent were satisfied and the Advance Confirmation Notice issued, Bank of America
transferred the requested funds from the Bank Proceeds Account to select payment
accounts for further distribution to Fontainebleau. (Id. § 2.4.6, Exh. E).
If, on the other hand, the Advance Request’s conditions precedent were not
satisfied, or the “Controlling Person notifies the Disbursement Agent that a Default or an
Event of Default has occurred and is continuing,” the Disbursement Agreement required
the Disbursement Agent to issue a Stop Funding Notice. (BofA Statement ¶ 54, Disb.
Agmt. § 2.5.1). (By virtue of its role as Bank Agent, as of September 2008, Bank of
America was the Controlling Person under the Disbursement Agreement. (Disb. Agmt.
Exh. A at 10; TL Statement ¶ 26; BofA Response ¶ 26).).
A Stop Funding Notice
relieved the Lenders of their obligation to fund loans under the Credit Agreement until
19
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the circumstances giving rise to the Stop Funding Notice were resolved or the
necessary parties waived the unsatisfied conditions precedent. (BofA Statement ¶ 54,
Disb. Agmt. § 2.5.2).
The Disbursement Agreement specifically provided “[t]he
Disbursement Agent shall have no liability … arising from any Stop Funding Notice
except to the extent arising out of gross negligence or willful misconduct of the
Disbursement Agent.” (Disb. Agmt. § 2.5.1).
2.
Defaults and Events of Default
As noted above, one of the conditions precedent to an Advance Request was
that “No Default or Event of Default shall have occurred and be continuing.” (Disb.
Agmt. § 3.3.3). “Default” was defined “as any events specific in Article 7” and “the
occurrence of any ‘Default’ under any Facility Agreement,” including the Credit
Agreement and the Retail Agreement, and “Event of Default” was defined as having “the
meaning given in Section 7.1.” (Id. Exh. A at 10, 12). Per Article 7, entitled “Events of
Default,” the following constituted an “Event of Default”:
“Other Financing Documents. The occurrence of an ‘Event of Default’ under
and as defined by any one or more of the Facility Agreements ….” (Id. §
7.1.1).
“Representations. … Any representation, warranty or certification confirmed
or made by any of the Project Entities in this Agreement … (including any
Advance Request … ) shall be found to have been incorrect when made or
deemed to be made in any material respect.” (Id. § 7.1.3(c)).
The Credit Agreement outlined what constituted an “Event of Default” under the
Credit Agreement in Section 8, entitled “Events of Default,” and the Retail Agreement
outlined what constituted an “Event of Default” under the Retail Agreement in Section
8.1, entitled “Event of Default.” (Credit Agreement (“Credit Agmt.”) at 11, § 8; Retail
Agmt. § 8.1).
20
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Further, the Credit Agreement defined “Lender Default” as “the failure … of a
Lender to make available … its portion of any Loan required to be made by such Lender
hereunder,” and “Defaulting Lender” as “any time … any Lender with respect to which a
Lender Default is in effect.” (Credit Agmt. 11, 25). However, Section 8 of the Credit
Agreement did not include Lender Defaults or Defaulting Lenders as “Events of Default.”
(Credit Agmt. § 8). The Retail Agreement similarly defined “Lender Default” as “the
failure … of a Lender or Co-Lender to make available its portion of any Loan when
required to be made by it hereunder,” and defined “Defaulting Lender” to include any
Lender or Co-Lender that was the subject of bankruptcy, but neither Lender Default nor
Defaulting Lender was explicitly included as an Event of Default under Section 8.1 of
the Retail Agreement. (Retail Agmt. § 1 at 8, 15, § 8.1).
The Disbursement Agreement imposed on Fontainebleau an obligation “to
provide to the Disbursement Agent, the Construction Consultant and the Funding
Agents written notice of … [a]ny Default or Event of Default of which the Project Entities
have knowledge ….,” and explicitly stated the Disbursement Agent had “no duty to
inquire of any Person whether a Default or an Event of Default has occurred and is
continuing;”
(Disb. Agmt. §§ 5.4.1, 9.10).
The Credit Agreement imposed on
Fontainebleau and the Lenders the obligation to provide the Administrative Agent with
notice of a default under the Credit Agreement. (Credit Agmt. § 9.3(c)). Neither the
Disbursement nor the Credit Agreement imposed on the Disbursement Agent or the
Bank Agent a duty to inquire as to the occurrence of a Default or an Event of Default.
(Disb. Agmt. § 9.10; Credit Agmt. § 9.3(c)).
21
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3.
Article 9: The Disbursement Agent
Article 9 of the Disbursement Agreement, entitled “The Disbursement Agent,” set
forth certain rights and responsibilities of the Disbursement Agent. (Disb. Agmt. Art. 9).
Section 9.1, entitled “Appointment and Acceptance,” provided as follows: “The
Disbursement Agent … agrees to exercise commercially reasonable efforts and utilize
commercially prudent practices in the performance of its duties hereunder consistent
with those of similar institutions holding collateral, administering construction loans and
disbursing disbursement control funds.”
8
(Id. § 9.1).
Sections 9.2 (“Duties and
Liabilities of the Disbursement Agent Generally) and 9.3 (“Particular Duties and
Liabilities of the Disbursement Agent”), as indicated by their titles, set forth the duties
and liabilities of the Disbursement Agent.
Section 9.2.3 prescribed the action to be taken by the Disbursement Agent
should it be notified of an Event of Default or Default:
Notice of Events of Default. If the Disbursement Agent is notified that an
Event of Default or a Default has occurred and is continuing, the
Disbursement Agent shall … exercise such of the rights and powers
vested in it by this [Disbursement] Agreement … and use the same
degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the reasonable administration
of its own affairs.
(Id. § 9.2.3).
In addition, Section 9.2.5, entitled “No Imputed Knowledge,” explicitly provided
that no knowledge may be imputed to Bank of America, as Disbursement Agent, from
Bank of America in its other agency or lender functions:
8
Section 9.1 referenced certain “Control Agreements.” (Disb. Agmt. § 9.1). The parties agreed
during oral argument that I need not consider the Control Agreements in evaluating Section 9.1
and the Disbursement Agreement. (11/18/2011 Tr. 12:24–13:8).
22
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Notwithstanding anything to the contrary in this Agreement, the
Disbursement Agent shall not be deemed to have knowledge of any fact
known to it in any capacity other than the capacity of Disbursement Agent,
or by reason of the fact that the Disbursement Agent is also a Funding
Agent or Lender.
(Id. § 9.2.5). “Funding Agent” included Bank of America’s role as Bank Agent under the
Disbursement Agreement, and, in turn, Controlling Person under the Disbursement
Agreement and Administrative Agent under the Credit Agreement. (Id. Exh. A at 3, 10,
14). Accordingly, Bank of America, as Disbursement Agent, had no imputed knowledge
from Bank of America as Bank Agent or Administrative Agent.
Regarding the approval of Advance Requests, Section 9.3.2 expressly
authorized the Disbursement Agent to rely on certifications from the Project Entities with
respect to the conditions precedent of an Advance Request, and disavowed any duty on
the part of the Disbursement Agent to investigate independently the veracity of the
statements and information contained in the certifications:
The Disbursement Agent may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval or
other paper document believed by it on reasonable grounds to be genuine
and to have been signed or presented by the proper party or parties.
Notwithstanding anything else in this Agreement to the contrary, in
performing its duties hereunder, including approving any Advance
Requests, making any other determinations or taking any other actions
hereunder, the Disbursement Agent shall be entitled to rely on
certifications from the Project Entities (and, where contemplated herein,
certifications from third parties, including the Construction Consultant) as
to satisfaction of any requirements and/or conditions imposed by this
Agreement. The Disbursement Agent shall not be required to conduct any
independent investigation as to the accuracy, veracity or completeness of
any such items or to investigate any other facts or circumstances to verify
compliance by the Project Entities with their obligations hereunder.
(Id. § 9.3.2).
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Section 9.10, entitled “Limitation of Liability,” also limited the Disbursement
Agent’s responsibility and liability. (Id. § 9.10). Section 9.10 explicitly limited the duties
of the Disbursement Agent as follows: (1) the Disbursement Agent has “no duty to
inquire of any Person whether a Default or an Event of Default has occurred and is
continuing”; (2) “the Disbursement Agent is not obligated to supervise, inspect or inform
the Project Entities of any aspect of the development, construction or operation of the
Project”; (3) the Disbursement Agent has “no duties or obligations hereunder except as
expressly set forth herein, shall be responsible only for the performance of such duties
and obligations and shall not be required to take any action otherwise than in
accordance with the terms hereof”; and (4) “…nothing in this Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon the Disbursement
Agent any obligations in respect of this Agreement except as expressly set forth herein
or therein.” (BofA Statement ¶ 61; Disb. Agmt. § 9.10). Section 9.10 also stated, “The
Disbursement Agent does not represent, warrant or guaranty to the Funding Agents or
the Lenders the performance by any Project Entities, the General Contractor, the
Constriction Consultant, the Architect, or any other Contractor ….” (Disb. Agmt. § 9.10).
Section 9.10, moreover, limited Bank of America’s potential liability to bad faith,
fraud, gross negligence, or willful misconduct:
“[T]he Disbursement Agent shall have no responsibility to the Project Entities,
the Funding Agents, or the Lenders as a consequence of performance by the
Disbursement Agent hereunder except for any bad faith, fraud, gross
negligence or willful misconduct of the Disbursement Agent as finally judicially
determined by a court of competent jurisdiction;” and
“Neither the Disbursement Agent nor any of its officers, directors, employees
or agents shall be in any manner liable of responsible for any loss or damage
arising by reason of any act or omission to act by it or them hereunder or in
connection with any of the transactions contemplated hereby, including, but
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not limited to, any loss that may occur by reason of forgery, fraud, gross
negligence or willful misconduct as finally judicially determined by a court of
competent jurisdiction.”
(BofA Statement ¶ 62; Disb. Agmt. § 9.10). (The Term Lenders do not contend Bank of
America engaged in fraud.)
E.
Bank of America’s Role as Bank Agent and the Credit Agreement
Bank of America was not only the Disbursement Agent under the Disbursement
Agreement, it was also the Bank Agent. (Disb. Agmt. Exh. A at 3). The Disbursement
Agreement defined “Bank Agent” as “Bank of America, N.A. in its capacity as
Administrative Agent under the Bank Credit Agreement ….”
(Id.). Like the
Disbursement Agreement, the Credit Agreement was governed by New York law.
(Credit Agmt § 10.11).
Section 9 of the Credit Agreement set forth certain rights and responsibilities of
the Administrative Agent. (Credit Agmt. § 9). Similar to the exculpatory provisions of
the Disbursement Agreement, the Credit Agreement, Section 9.3, entitled “Exculpatory
Provisions,” specifically provided the Administrative Agent could not be held liable in the
absence of “its own gross negligence of willful misconduct.” (Id. § 9.3(c)). Section 9.3
further stated, “The Administrative Agent shall be deemed not to have knowledge of any
Default unless and until notice describing such Default is given to the Administrative
Agent by Borrowers, a Lender or the Issuing Lender.” (Id.). In the same vein, Section
9.7 of the Credit Agreement, entitled “Non-Reliance on Administrative Agent and Other
Lenders,” required the Lenders to make their own decisions “independently and without
reliance” upon Bank of America as Administrative Agent. (Id. § 9.7).
Section 9 of the Credit Agreement also contained reliance and inquiry provisions
similar to those in Article 9 of the Disbursement Agreement. Section 9.3 stated, “The
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Administrative Agent shall not be responsible for or have any duty to ascertain or inquire
into … any statement, warranty or representation made in or in connection with this
Agreement or any other Loan Document ….”
(Id. § 9.3(c)).
Also, Section 9.4
authorized the Administrative Agent to rely on “any notice, request, certificate, consent,
statement, instrument, document or other writing … believed by it to be genuine and to
have been signed, sent or otherwise authenticated by the proper Person.” (Id. § 9.4).
Having set forth the relevant and material provisions of the pertinent
Agreements, I turn to the material facts underlying the Term Lenders’ claims.
F.
September 2008 through March 2009 Advance Requests
For each Advance Request from September 2008 through March 2009, Bank of
America received all required certifications from Fontainebleau, IVI, TWC, and the
Architect before disbursing funds to Fontainebleau.
Response ¶ 57; TL Statement ¶ 75).
(BofA Statement ¶ 57; TL
Fontainebleau certified the satisfaction of all
conditions precedent and accuracy of all representations and warranties, including the
absence of any defaults under the various loan documents. (BofA Statement ¶ 57; TL
Response ¶ 57).
The Architect certified that the Project’s construction was in
accordance with the plans and specifications. (Id.). TWC certified the Control Estimate
reflected the costs it expected to be incurred to complete the Project. (Id.). And IVI
certified the Remaining Cost Report accompanying the Advance Request accurately
9
reflected the remaining costs to complete the Project. (Id.).
9
It is undisputed that the
The Term Lenders dispute this fact on the basis that IVI rejected the initial March 2009
Advance Request. (TL Response ¶ 57). As discussed below, although IVI rejected the initial
Request, IVI ultimately signed off on the March 2009 Advance Request before Bank of America
disbursed the requested funds to Fontainebleau.
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Controlling Person never formally notified the Disbursement Agent that a Default or
Event of Default had occurred and was continuing. (Disb. Agmt. § 2.5.1).
Notwithstanding, the Term Lenders have identified several events underlying
their claim that Bank of America breached its obligations under the Disbursement
Agreement: the Lehman bankruptcy and the funding of the Retail Facility;
Fontainebleau’s failure to disclose anticipated Project costs; repudiation by the FDIC of
First National Bank of Nevada’s commitments; select lenders’ failure to fund with
respect to the March 2009 Advance; and the “untimely” submission of the March 2009
Advance. I address each event in turn.
G.
The Lehman Bankruptcy and Retail Facility Funding
1.
September 2008 Advance Request
On September 11, 2008, Fontainebleau submitted its September Advance
Request for $103,771.77, including nearly $3.8 million in Retail Facility funds. (Dep.
Exhs. 237, 331; BofA Statement ¶ 65). Fontainebleau represented in the Request that
all conditions precedent to disbursement had been satisfied. (TL Statement ¶ 75).
Lehman filed for bankruptcy on September 15, 2008. (BofA Statement ¶ 64; TL
Statement ¶ 33). In the days following, Bank of America held a series of calls with
Fontainebleau to obtain additional information regarding the bankruptcy’s implications
for the September 2008 Advance Request.
(BofA Statement ¶ 68).
These calls
focused on whether Lehman would fund its portion of the Advance Request and on
potential alternative financing arrangements if Lehman did not fund, including funding by
other Retail Facility Lenders or Fontainebleau. (BofA Statement ¶ 69; TL Statement ¶
47). (As noted above, Lehman was a lender and agent under the Retail Facility, and
one of the conditions precedent of an Advance Request was the “Retail Agent and the
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Retail Lenders … make any Advances required of them pursuant to the Advance
Request.” (Disb. Agmt. § 3.3.23)). During the calls, Bank of America did not make any
recommendations as to the various financing options; however, it later concluded
internally that Fontainebleau funding Lehman’s share would not satisfy the Advance
Request’s condition precedent. (BofA Statement ¶¶ 70–71; TL Statement ¶ 48–49).
There is no evidence on summary judgment that Bank of America communicated this
conclusion to Fontainebleau.
10
On September 17, 2008, Bank of America issued an Advance Confirmation
Notice confirming the amount of the Advances to be made under the various financing
agreements, and on September 22, 2008, Bank of America, as Administrative Agent,
requested Fontainebleau schedule a telephone conference with the lenders to discuss
the implications of Lehman’s bankruptcy on the Project. (Dep. Exh. 901). No call was
held in the following days. On September 26, 2008, TriMont sent Bank of America the
entire amount of the Retail Shared Costs (or the “Retail Advance”). (BofA Statement ¶
73; TL Response ¶ 73). After receiving the Retail Advance and before disbursing funds
to Fontainebleau, Bank of America sought and received reconfirmation from
Fontainebleau CFO Jim Freeman that all conditions precedent to funding had been
10
The Term Lenders’ assert “BofA did not discuss with Fontainebleau BofA’s conclusion that
Fontainebleau’s payment of Lehman’s commitment would cause condition precedent in Section
3.3.23 to fail.” (TL Statement ¶ 50). Bank of America disputes this fact. (BofA Response ¶ 50).
Per the testimony cited by Bank of America, neither Mr. Yunker (of Bank of America) nor Mr.
Freeman (of Fontainebleau) recalls whether Bank of America communicated its conclusion to
Fontainebleau. (Freeman Dep. Tr. 74:12–24; Yunker Dep. Tr. 96:11–98:14). Bank of America
has not, however, cited any evidence on summary judgment stating Bank of America
communicated its conclusion to Fontainebleau. See, e.g., Dickey v. Baptist Mem’l Hosp., 146
F.3d 262, 266 n.1 (5th Cir. 1998) (“The mere fact that [the deponent] does not remember the
alleged phone conversation, however, is not enough, by itself, to create a genuine issue of
material fact [as to whether the conversation occurred.]”)
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satisfied. (Dep. Exh. 75). Specifically, Bank of America’s Jeff Susman requested Jim
Freeman reaffirm “pursuant to Section 11.2 of the Disbursement Agreement … the
representations and warranties … made pursuant to the [September] Advance Request
and Advance Confirmation Notice.” (Id.). (Section 11.2, entitled “Further Assurances,”
authorized the Disbursement Agent to seek further assurances in relation to an
Advance Request. (Disb. Agmt. § 11.2).). Jim Freeman responded, “I affirm.” (Dep.
Exh. 75).
As of September 26, 2008, Lehman had not announced that it would reject the
Retail Agreement as a result of its bankruptcy, and Bank of America had concluded that
the Lehman bankruptcy, in and of itself, did not provide a basis for rejecting
Fontainebleau’s September 2008 Advance Request.
(BofA Statement ¶ 77; BofA
Response AMA ¶ 62). Bank of America also believed it was required to honor the
September 2080 Advance Request if the requested Retail Shared Costs were received
in full and the Advance Request certifications remained in effect. (Howard Dep. Tr.
80:18-81:21).
Accordingly, on September 26, 2008, Bank of America disbursed
Fontainebleau’s September 2008 Advance Request.
2.
Highland’s Contentions Regarding the Lehman Bankruptcy
Meanwhile, Highland sent several communications to Bank of America asserting
Lehman’s bankruptcy caused breaches of the Loan Facility. On September 26, 2008,
Highland Capital Management, one of the original Term Lenders, sent Jeff Susman of
Bank of America an e-mail stating, “[a]s a result of [Lehman’s] bankruptcy filing, … the
financing agreements are no longer in full force and effect, triggering a number of
breaches under the Loan Facility – resulting in the following consequences: (i) No
disbursements may be made under the Loan facility; and (ii) The Borrower should be
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sent a notice of breach immediately to protect the Lenders’ rights and ensure that any
cure period commence as soon as possible.” (Dep. Exh. 455; BofA Response AMA ¶
106). That same day, Bank of America’s counsel Sheppard Mullin Richter & Hampton
LLP (“Sheppard Mullin”) responded to Highland, stating the Bankruptcy Code
“specifically provides that no executor contract may be terminated or modified solely
based on the commencement of a Chapter 11 case” and requesting Highland identify
“authority or documents supporting a contrary conclusion.”
(Dep. Exh. 472; BofA
Response AMA ¶ 107). Following communications with Highland and further internal
analysis, Bank of America concluded that Lehman’s bankruptcy filing did not, on its
own, provide a basis for rejecting Fontainebleau’s September 2008 Advance Request.
(BofA Response AMA ¶ 108).
Bank of America provided additional information and analysis to Highland on
September 29, 2008 in a Sheppard Mullin email explaining that it was “monitoring all of
the [Lehman] court orders” and was “unaware of a restriction on performance of this
agreement.” (Dep. Exh. 79). Sheppard Mullin also rejected Highland’s suggestion that
Lehman’s bankruptcy was an “anticipatory repudiation of the contract,” and affirmed the
earlier conclusion that, “under Section 365(e)(1), an executory contract cannot be
terminated or modified solely on the basis of [Lehman’s] insolvency … or … the
commencement of the Chapter 11 case.” (Id.).
On September 30, 2008, after disbursement of the September 2008 Advance
Request, Highland sent Sheppard Mullin another email, this time claiming, “Re Sec 365
– if this contract can be rejected then, at a minimum, there is [a Material Adverse Effect]
under the [Credit Agreement].” (Id.). Bank of America analyzed Highland’s contention
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and the pertinent portions of the relevant financing agreements and concluded that
Highland’s contention was incorrect, as there was no indication that there would be a
shortfall in Retail funds or that the Retail Lenders would fail to honor their obligations
under the Retail Facility. (Susman Declaration (“Susman Decl.”) ¶ 23). Through these
various communications and correspondence, Highland did not submit a formal Notice
of Default, or specify, with reference to a specific portion of the relevant agreements,
any “Default” or “Event of Default” under the Disbursement Agreement or other
financing documents. (Susman Decl. ¶ 25; Dep. Exhs. 79, 455).
3.
Fontainebleau Resorts’ Funding of Lehman’s Portion of the
September 2008 Retail Shared Costs
Lehman’s portion of the September 2008 Advance Request was funded by
Fontainebleau Resorts, which made a $2,526,184.00 “equity contribution” to “prevent an
overall project funding delay and resulting disruption of its Las Vegas project” after
Lehman failed to fund its required September 2008 Retail Shared Costs portion. (BofA
Statement ¶ 78). Although the parties now know that Fontainebleau Resorts funded
Lehman’s portion of the September 2008 Retail Shared Costs, at the time,
Fontainebleau did not disclose (and Bank of America, as Disbursement or Bank Agent,
did not know) the source of funding. (Newby Dep. Tr. 63:22–65:3). Indeed, internal
December 2008 Bank of America correspondence indicates Bank of America believed
Lehman funded its September obligation.
(Dep. Exh. 905 (Susman email dated
December 30, 2008, “As we understand, each month Lehman has funded its share of
the advance.”)).
On September 30, 2008, Bank of America, as Administrative Agent, requested a
call with Jim Freeman to discuss issues relating to Lehman’s bankruptcy, including
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whether Lehman funded its portion of the Shared Costs on September 26, 2008,
whether its portion was funded by other sources, and the effects of the Lehman
bankruptcy on the Project. (Dep. Exh. 76; TL Statement ¶ 51; BofA Response ¶ 51).
More specifically, Bank of America asked “Who are the current lenders under the Retail
credit facility?” and “Did Lehman fund its portion of the requested $3,789,276.00 of
Shared Costs funded last Friday (9/26/08) or was this made up from other sources? If
Lehman did not fund its portion, what were the other sources?”.
(Dep. Exh. 76).
Fontainebleau refused to engage in the call requested in the September 30, 2008 letter.
(TL Statement ¶ 54).
However, in a separate call regarding the September 2008
Advance, Fontainebleau represented to Bank of America that the retail funds for the
September 2008 Retail Advance came from the retail lenders.
(Susman Dep. Tr.
193:18–195:23).
On October 6, 2008, Highland sent Bank of America an e-mail stating there were
“public reports” that “equity sponsors” had funded Lehman’s portion of the September
2008 Shared Costs. (TL Statement ¶ 60; BofA Response ¶ 60; Dep. Exh. 81). The email did not identify the source of the public reports. (Dep. Exh. 81). That same day,
Jim Freeman told Moody’s 2008 that “[r]etail funded its small portion last month.” (BofA
Response AMA ¶ 74).
The next day, October 7, 2008, Jim Freeman sent Bank of America and the
Lenders a memorandum addressing the Retail Facility’s status. (BofA Statement ¶ 90).
The memorandum assured Lenders the August and September portion of the Shared
Costs had been funded in full: “The company has received various inquiries concerning
the retail facilities for the Fontainebleau Las Vegas project since the unfortunate
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bankruptcy filing by Lehman Brothers Holdings, Inc. … In August and September, the
retail portion of such shared costs was $5 mm and $3.8 mm, respectively, all of which
was funded.” (Dep. Exh. 77). The memorandum further stated Fontainebleau was
“continuing active discussions with Lehman Brothers to ensure that, regardless of the
Lehman bankruptcy filing and related acquisition by Barclay’s, there is no slowdown in
funding of the project.”, and Fontainebleau was “actively talking with co-lenders under
the retail construction facility.” (Id.). Finally, Fontainebleau stated it “[did] not believe
there will be any interruption in the retail funding of the project.” (Id.).
The memo did not directly answer the question of whether Lehman funded its
portion of the September 2008 Shared Costs. (Id.). Indeed, Jim Freeman later testified
in depositions he did not tell Moody’s or the Lenders that FBR had funded for Lehman in
September 2008 because counsel had advised him not to disclose the source of
funding. (BofA Response AMA ¶ 75).
On October 13, 2008, Highland forwarded to Bank of America’s counsel a Merrill
Lynch research analyst e-mail stating, “We understand that the FBLEAU equity
sponsors have funded the amount required from Lehman on the retail credit facility due
this month ($4 million). As a result, there are no delays in construction so far.” (Dep.
Exh. 459). Based on this analyst report, Highland stated, “It does not appear that the
Retail Lenders made the Sept. payment, but rather equity investors. … This would
indicate that the reps the company made for that funding request were false.” (Id.).
Highland conceded, however, the assertion that Fontainebleau equity sponsors had
funded for Lehman was “one of a number of speculations that were out there floating
around” and was merely a “rumor[] in the market.” (Rourke Dep. Tr. 104:11–25).
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In its October 13, 2008 e-mail, Highland also requested that because of the cited
concerns, Bank of America “request the borrower to provide wiring confirmation from
the Retail Lenders or funding certificates from the Retail Lenders to confirm that funding
is made by the Retail Lenders (rather than other sources)” and the “borrower’s legal
counsel should provide an opinion that the Lehman funding agreement is in full force
and effect.” (BofA Response AMA ¶ 115; Dep. Exh. 459). Highland cited no provision
of any agreement requiring such information be provided to the agent or the lenders.
(BofA Response AMA ¶ 115). Although Highland asked Bank of America to “confirm”
the understanding that Lehman had not made any disbursements while in bankruptcy,
there is no evidence that Bank of America did confirm this understanding.
(Dep. Exh.
459). Though Highland voiced its concerns in the October 13, 2008 correspondence, it
did not submit a formal Notice of Default, nor did it specify any “Default” or “Event of
Default” under the Disbursement Agreement or other loan documents. (Susman Decl. ¶
25; Dep. Exh. 459). In fact, Highland funded its share of the Delay Draw Term Loan in
response to the March 2009 Notice of Borrowing. (BofA Response ¶ 130). Highland
has since sold all of its Term Loan holdings and is no longer a plaintiff. (BofA Response
¶ 125).
11
On October 22, 2008, Fontainebleau provided the Lenders with another update
stating “Lehman Brother’s commitment to the facility has not been rejected in
bankruptcy and the facility remains in full force and effect.” and “Lehman Brothers has
indicated to us that it has sought the necessary approvals to fund its commitment this
11
The Term Lenders do not dispute this fact; rather, they contend it is immaterial and irrelevant.
(TL Reply at 1).
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month.” (BofA Statement ¶¶ 94, 95). Fontainebleau further stated, should Lehman not
be able to perform, Fontainebleau had “received assurances from the co-lenders to the
retail facility that they would fund Lehman’s portion of the draw.” (BofA Statement ¶ 95).
Even through December, Fontainebleau did not disclose that FBR had funded for
Lehman in September. On December 5, 2008, FBR issued third quarter (period ending
September 30, 2008) financial statements for both Fontainebleau Las Vegas Holdings,
LLC and FBR. (BofA Response AMA ¶ 91). Fontainebleau Las Vegas Holdings, LLC’s
statement included disclosures regarding the Retail Facility’s status, and, more
specifically, Lehman’s funding. (Dep. Exh. 286 at FBR01280966; BofA Response AMA
¶ 91). The statement noted Lehman filed for bankruptcy on September 16, 2008, stated
Fontainebleau Las Vegas Holdings “has been working diligently with Lehman Brothers
and the co-lenders to ensure that there is no interruption in funding,” and disclosed
“[t]here can be no assurances that Lehman Brothers will continue to fund all or any
portion of its remaining obligation under the Retail Construction Loan, or that the colenders will fund any Lehman Brothers shortfall in funding.”
FBR01280966).
(Dep. Exh. 286 at
Additionally, in the section entitled “Equity contributions” of FBR’s
financial statements, FBR disclosed cash contributions to a Florida project, but made no
mention of its September 2008 equity contribution on Lehman’s behalf.
(BofA
Response AMA ¶ 93; Dep. Exh. 286 at FBR01281007).
4.
The October 2008 Meeting
On October 23, 2008, a meeting (“October Meeting”) was held in Las Vegas
among executives of Fontainebleau Resorts and Bank of America, and representatives
of Retail Co-Lenders ULLICO, Sumitomo Mitsui Bank, and National City Bank in Las
Vegas. (Dep. Exh. 18; TL Statement ¶ 62; BofA Response ¶ 62; BofA Response AMA
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¶ 88). The meeting agenda included an update on the project and the status of the
retail loan, including the effect of the Lehman bankruptcy on the loan. (Dep. Exh. 18; TL
Statement ¶ 62; BofA Response ¶ 62). Specifically, it was noted that the Lehman
bankruptcy had a material impact on the leasing and development of the Project, as well
as the continued funding of the Retail Facility. (Kolben Dep. Tr. 65:7–13).
12
To that
end, during the meeting, the participants discussed possible replacements for Lehman’s
commitment under the Retail Facility. (Id. at 175:18–176:15). Although the Retail CoLenders did not agree during the meeting to assume Lehman’s commitment, ULLICO
and Mitsui Sumitomo expressed the possibility of increasing their respective
commitments to cover a portion of Lehman’s commitment, and additional investment
opportunities, including foreign investors, were discussed. (Id. at 72:17–75:22; 176:4–
9). There is no evidence of record on summary judgment that Lehman’s failure to fund
the September 2008 Retail Advance was discussed at the October Meeting.
13
Additionally, the Retail Lenders asked Bank of America, as Bank Agent, to take
over Lehman’s remaining commitment under the Retail Facility, pursuant to Section 7.1
12
The parties dispute the admissibility of Deposition Exhibit 19, the National City Special Assets
Committee (“SAC”) Report. I need not rule on the parties’ hearsay and authentication
arguments because Mr. Kolben independently testified to the material facts regarding the retail
co-lenders’ willingness to fund and discussions at the October Meeting. These facts do not
contradict the information in the SAC Report.
13
During his deposition, Herbert Kolben of ULLICO testified initially that it was discussed openly
that Lehman had not made the September 2008 payment. (Kolben Dep. Tr. 16–21). He later
corrected his testimony, stating “I said I didn’t recall whether it was openly discussed.” (Kolben
Dep. Tr. 11–18). Upon a direct request for clarification (“Q: Do you … specifically recall any
discussion at the October 23rd meeting about whether Lehman had funded its September retail
events?”), Mr. Kolben stated, “I don’t recall.” (Kolben Dep. Tr. 176:22–177:3). The inconsistent
testimony of a witness, corrected in the same deposition, is not sufficient to create a genuine
issue of material fact. Horn v. United Parcel Services, Inc., 433 F. App’x. 788, 796 (11th Cir.
2011).
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of the Intercreditor Agreement, which permitted—but did not require—the Bank Agent to
purchase and assume the outstanding obligations of the Retail Agent and Lenders. (TL
Statement ¶ 66; BofA Response ¶ 66; Exh. 884 § 7.1; Howard Dep. Tr. 112:13–113:10).
Bank of America did not do so. (TL Statement ¶ 67).
5.
Communications between TriMont and Bank of America
Regarding the September 2008 Retail Advance
TriMont was the Servicer of the Retail Facility, with the responsibility of collecting
funds from the Retail Co-Lenders and transferring them to Bank of America, as
Disbursement Agent under the Disbursement Agreement. (BofA Statement ¶¶ 32, 33).
Each month when Bank of America forwarded to TriMont an Advance Confirmation
Notice, TriMont would send a letter to the Retail Co-Lenders requesting their respective
portions of the Retail Facility Shared Costs be wired to TriMont’s clearing account.
(Dep. Exh. 11; Rafeedie Dep. Tr. 37:8–40:21; Brown Dep. Tr. 42:4–8). Upon receipt of
the funds, TriMont would send to Bank of America a wire transfer for the full amount of
the Retail Advance that was requested, without identifying the amounts funded by each
Retail Co-Lender, and Bank of America would transfer the funds into an account that
could be accessed by Fontainebleau. (TL Statement ¶ 68; Rafeedie Dep. Tr. 40:22–
41:9; Susman Dep. Tr. 204:9–10). Generally, the funding and distribution occurred on
the 25th of each month (though, as discussed above, the September request was
disbursed on the 26th). (Rafeedie Dep. Tr. 39:23–40:4).
By September 26, 2008, TriMont was made aware that Fontainebleau had paid
Lehman’s share of the September Retail Advance. (TL Statement ¶ 69; Dep. Exh. 56;
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14
Dep. Exh. 14).
McLendon Rafeedie was the primary contact at TriMont with respect to
the funding of the Retail Facility, including Lehman’s funding of its obligations and
transfer of the funds to Bank of America.
(Rafeedie Dep. Tr. 21:19–25; 62:3–6).
TriMont’s lead contact at Bank of America regarding funding of Retail advances was
Jean Brown. (Id. at 33:2–23).
Although it was TriMont’s “custom and practice” to
inform Bank of America (and Jean Brown, more specifically) of significant events with
respect to the Retail Facility, there is no evidence that Mr. Rafeedie (or TriMont) actually
informed Ms. Brown (or Bank of America) that Lehman did not fund its portion of the
September 2008 Retail Advance, or that Fontainebleau Resorts funded for Lehman.
15
14
The record is not clear as to when on September 26 TriMont became aware that FBR was
funding Lehman’s portion. On September 26, 2008, Albert Kotite, Executive Vice President of
Fontainebleau Resorts, sent the Retail Facility Co-Lenders a letter stating, “Because Lehman …
has failed to fund its required share under the Retail Facility, in the amount of $2,526,184 …,
Fontainebleau Resorts … is making an equity contribution to fund said amount.” (Dep. Exh.
14). Mr. Kotite forwarded this letter to Mr. Rafeedie on September 26, 2008 at nearly 6:00 p.m.
(Id.). Also on September 26, 2008 at 11:39 a.m., Amit Rustgi from TriMont copied Mr. Rafeedie
on an email stating “the borrower has decided to fund Lehman’s portion.” (Dep. Exh. 56). At
1:11 p.m. Yetta Nicholson of TriMont copied Mr. Rafeedie on an email showing the September
26, 2008 wire coming in from Fontainebleau Resorts, LLC. (Id.).
Although Mr. Rafeedie acknowledged he was copied on these emails, he testified he did not
know when he opened and read the emails. (Rafeedie Dep. Tr. 59:14–62:1). The exact timing
of Mr. Rafeedie’s knowledge that FBR funded for Lehman is not material, though, as there is no
evidence that Mr. Rafeedie communicated to Ms. Brown (or Bank of America) that Lehman did
not fund, or that FBR funded for Lehman.
15
This is a point of much dispute among the parties. After review of Mr. Rafeedie’s and Ms.
Brown’s deposition transcripts, I conclude that there is no evidence to indicate that Mr. Rafeedie
told Ms. Brown that Lehman did not fund its portion of the September 2008 Retail Advance.
While Mr. Rafeedie agreed that it is his “custom and practice” to tell Ms. Brown of “significant
events with respect to the retail facility,” when asked if, “consistent with that practice,” he would
have told Ms. Brown “about the fact that Lehman did not fund” and that “Fontainebleau Resorts
had paid Lehman’s share,” he testified that he “could have,” but he “couldn’t recall exactly” and
“[did not] remember the exact topics of discussion” and the communication “could have been
just that Lehman’s dollars were funded, not necessarily who funded what.” (Rafeedie Dep. Tr.
57:18–58:19, 63:4–9, 53:17–54:5). Mr. Rafeedie further explained that he could have spoken
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6.
Lehman’s Portion from December 2008 through March 2009
Lehman funded its share of the Retail Advance in October and November 2008,
and, as in prior months, Bank of America received from TriMont the full amount of the
October and November Retail Advances. (BofA Statement ¶¶ 99, 102; Kolben Dep. Tr.
77:11–19, 78:12–21). As for the December 2008 Advance Request and related Retail
Advance, Bank of America became aware in December 2008 that ULLICO, a Retail CoLender under the Retail Co-Lending Agreement, would fund Lehman’s portion of the
December Retail Advance. (BofA Statement ¶¶ 100, 101; Dep. Exhs. 9, 905). Bank of
America understood that ULLICO would continue to fund for Lehman for a short time
thereafter until a more permanent solution could be found, and that ULLICO had not
agreed to permanently assume Lehman’s commitment. (BofA Statement ¶¶ 100, 101;
Exh. 905). Each month from December 2008 through March 2009, TriMont wired Bank
of America the full Retail Advance, and Bank of America knew that ULLICO funded
Lehman’s portion of the Retail Advances in these months. (BofA Statement ¶ 102; TL
Statement ¶ 73; BofA Response AMA ¶ 97).
with Ms. Brown and told her the Retail Facility had been fully funded, but only later become
aware that Fontainebleau Resorts funded for Lehman. (Id. at 57:18–58:19).
Ms. Brown testified that she would communicate with Mr. Rafeedie monthly about the status of
the “wire” providing the Retail Advance. (Brown Dep. Tr. 41:7–9; 58:23–3). Ms. Brown also
testified that, although she was concerned as to whether Lehman would fund its portion of the
September 2008 Advance Request, she did not recall Mr. Rafeedie telling her that had not
funded. (Id. at 57:1–8; 58:2–4). Finally, after stating that she “understood Lehman stopped
funding the retail facility in September 2008, Ms. Brown clarified that she did not “know” that
Lehman was not funding, but “assumed so” because she “knew they were bankrupt.” (Id. at
55:6–56:12; 72:9–11).
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7.
Fontainebleau’s Agreement with ULLICO
On December 29, 2008, ULLICO entered into a Guaranty Agreement with FBR,
Turnberry Residential Limited Partner, L.P., and Jeffrey Soffer (together, “Guarantors”).
(Dep. Exh. 24). As a condition of ULLICO’s funding Lehman’s portion of the December
2008 Retail Advance, the Guarantors guaranteed the repayment to ULLICO of
Lehman’s share of the December 2008 Retail Advance. (Id.). Subsequently, ULLICO
and the Guarantors entered into three monthly Amendments to the Guaranty
Agreement, pursuant to which ULLICO would fund Lehman’s portion of the January
2009, February 2009, and March 2009 Retail Advances, and the Guarantors would
reimburse ULLICO, at least in part. (Dep. Exhs. 30, 36, 42). Pursuant to the Guaranty
Agreement and Amendments, ULLICO funded over $11 million on behalf of Lehman,
some of which was reimbursed by the Guarantors. (Dep. Exhs. 24, 30, 36, 42). By
March 2009, the amount of outstanding “Guaranteed Obligations” under the Guaranty
Agreement and Amendments was $5,704,802.32.
(Dep. Exh. 42).
There is no
evidence that Bank of America was aware that ULLICO’s payments on behalf of
Lehman were effectively made by FBR, Jeff Soffer, and Turnberry Residential Limited
16
Partners.
16
The Term Lenders cite to excerpts from Mr. Rafeedie’s deposition transcript to dispute this
fact. (Rafeedie Dep. Tr. 34:19–35:18; 55:16–24). However, those excerpts speak only to
TriMont’s general practice of keeping Bank of America informed of issues involving funding, and
do not state that Bank of America was aware of the Guaranty Agreement or related
Amendments.
Additionally, in response to Bank of America’s additional facts (BofA Response ¶ 104), stating
“There is no evidence that the guaranties provided by Soffer, FBR and TLRP were ever
disclosed to BANA or the Lenders.”, the Term Lenders do not cite any evidence rebutting the
assertion, but only object that Bank of America did not cite specific evidence, as required by
Local Rule 7.5(c)(2). At trial, the Term Lenders would bear the burden of proving Bank of
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8.
Further Assurances from Fontainebleau Regarding the Retail
Facility
On February 20, 2009, Bank of America, as Administrative Agent under the
Credit Agreement, sent Jim Freeman a letter regarding the February 2009 Advance
Request. (Dep. Exhs. 497, 498; TL Statement ¶ 71). Citing lender concerns that were
directed to Bank of America, as Administrative Agent, Bank of America asked
Fontainebleau to comment on the status of the Retail Facility and “the commitments of
the Retail Lenders to fund under the Retail Facility, in particular, whether you anticipate
that Lehman Brothers Holdings, Inc. will fund its share of the requested loans, and
whether the other Lenders under the Retail Facility intend to cover any shortfalls.”
(Dep. Exhs. 497, 498; TL Statement ¶ 71).
Fontainebleau responded on February 23,
2009 (“Fontainebleau’s February 23 Letter”):
As relates to the Retail Facility, we are continuing active discussions with
Lehman Brothers and the co-lenders to ensure that funding for the project
will continue on a timely basis. The Retail Facility is in full force and
effect, there has not been an interruption in the retail funding of the Project
to date.
(Dep. Exh. 811).
America knew Fontainebleau effectively made ULLICO’s payments on behalf of Lehman. On
summary judgment, then, Bank of America may simply point out that there is an absence of
evidence supporting the Term Lenders’ case. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112,
1115–16 (11th Cir. 1993) (for issues on which the opposing party bears the burden at trial, the
party moving for summary judgment “is not required to support its motion with affidavits or other
similar material negating the opponent's claim in order to discharge [its] responsibility. Instead,
the moving party simply may show—that is, point out to the district court—that there is an
absence of evidence to support the non-moving party's case.” (internal citations omitted));
Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (“[T]he
burden on the moving party may be discharged by ‘showing’—that is, pointing out to the district
court—that there is an absence of evidence to support the nonmoving party's case.”).
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H.
Project Costs
Also as discussed above, the Disbursement Agreement required IVI to deliver to
the Disbursement Agent a Construction Consultant Advance Certificate approving or
disapproving each Advance Request. (Disb. Agmt. § 2.4.4(b); BofA Statement ¶ 47).
To inform the Construction Consultant Advance Certificate, the Contractor would
provide IVI with an Anticipated Cost Report (“ACR”), which was a projection of the
Project’s anticipated final cost, including all commitments, pending claims, and pending
issues. (Barone Dep. Tr. 15:6–20). On January 13, 2009, IVI issued its Construction
Consultant Advance Certificate for the January 2009 Advance Request, in which it
affirmed, among other things, that it “ha[d] not discovered any material error in the
matters set forth in the Current Advance Request or Current Supporting Certificates.”
(BofA Statement ¶ 132). On January 30, 2009, IVI issued a Project Status Report
(“PSR 21”) stating it was concerned that Fontainebleau’s cost disclosures might not be
accurate because it appeared that work on the Project would need to be accelerated to
meet the scheduled opening date and the related costs, such as overtime, were not
reflected in the latest Anticipated Cost Report:
“IVI is concerned that all the
subcontractor claims have not been fully incorporated into the report and potential
acceleration impact to meet the schedule has not been included.” (BofA Statement ¶¶
133, 134). PSR 21 also addressed Leadership in Energy and Environmental Design
(“LEED”) credits, which reduce construction costs through Nevada state sales tax
credits on building materials for new construction that meets certain sustainability
standards: “[I]t appears that the LEED credits are tracking behind projections and the
Developer has begun a detailed audit,” and noting that it would “continue to discuss this
with the Developer.” (BofA Statement ¶ 136). Despite the cited concerns, IVI executed
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the Construction Consultant Advance Certificate for the February 2009 Advance
Request and sent it to Bank of America on February 17, 2009. (BofA Statement ¶ 146;
TL Response ¶ 146; Barone Decl. ¶ 20, Exh. 6).
Meanwhile, on February 12, 2009, JPMorgan Chase, a Revolver Lender, sent
Bank of America a letter seeking information on issues raised by IVI in PSR 21, and
also asked Bank of America to provide additional information on the status of the Retail
Facility.
(BofA Statement ¶ 138).
On February 20, 2009, Bank of America sent
Fontainebleau a letter requesting this information.
(BofA Statement ¶ 139).
Fontainebleau responded in its February 23 Letter, stating IVI’s information was
outdated, and “at this point, we are not aware of any cost overruns or acceleration costs
that are not reflected in the Anticipated Cost Report.” (Dep. Exh. 811). Regarding the
LEED credits, Fontainebleau stated, “[W]e believe that the full amount of the credits
reflected in the Budget will in fact be realized.” (Id.). That same day, in response to
lender requests, Bank of America asked Fontainebleau to schedule a lender call to
discuss Fontainebleau’s February 23 Letter.
(BofA Statement ¶¶ 142–43). But
Fontainebleau refused, objecting to having a call on short notice, asserting it was under
no contractual obligation to have the call, and raising concerns that sensitive Projectrelated information may be leaked to the press by lenders. (Id.).
On March 3, 2009, IVI sent Bank of America Project Status Report No. 22 (“PSR
22”). (Id. ¶ 144). Although PSR 22 repeated IVI’s previous concern that there were
unreported Project cost increases, it also indicated that the Project remained within
budget. (Id. ¶ 145).
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On March 4, 2009, Bank of America again requested that Fontainebleau arrange
a meeting with Lenders and provided Fontainebleau with a list of Lender information
requests concerning Project costs.
(Id. ¶¶ 147–48).
The next day, IVI asked
Fontainebleau for “a submission of the future potential claims being made by the
subcontractors against [the Contractor] and any overruns related to the un-bought
work,” and for an updated Anticipated Cost Report “to show the potential exposures to
[Fontainebleau Las Vegas] and a better indication of the current contingency.” (Id. ¶
149). On March 10, 2009, Bank of America sent Fontainebleau another letter and
information request. (Id. ¶ 150).
On March 11, 2009, Fontainebleau submitted its March 2009 Advance Request.
(Id. ¶ 151). In the Remaining Cost Report annexed to the March Advance Request,
Fontainebleau disclosed that it had increased construction costs by approximately $64.8
million. (Id. ¶ 153). The next day, IVI’s Robert Barone met with Fontainebleau’s Deven
Kumar in Las Vegas, and Kumar informed Barone that the Project was $35 million over
budget.
(Id.).
On March 19, 2009, IVI issued a Construction Consultant Advance
Certificate that declared IVI had discovered material errors in the Advance Request and
supporting documentation; believed the Project would require an additional $50 million
for Construction Costs; and the Opening date would be November 1, 2009, rather than
October 1, 2009 as originally planned. (BofA Statement ¶¶ 154–155; TL Response ¶
154).
A few days later, IVI informed Bank of America that IVI had been “working with
the developer to update their most recent anticipated cost report” and that
Fontainebleau had “provided an ACR that they state represents their understanding of
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the hard cost exposure to the project.” (BofA Statement ¶ 156). IVI advised that it had
not yet conducted an audit of the information presented by Fontainebleau (an audit
would take weeks), but the information appeared reasonable. (Id.). IVI further stated it
believed the developer credibly projected the potential costs, but it would be prudent to
include additional funds for unexpected or known costs. (Id.).
On March 20, 2009, Fontainebleau held a Lender meeting in Las Vegas where it
delivered a presentation updating the Lenders on the Project’s construction budget and
other issues relating to the Project’s financial condition, representing, among other
things, that it had retained KPMG to conduct a LEED credit audit. (Id. ¶¶ 157, 159–60).
A few days later, on March 23, 2009, Fontainebleau submitted an unsigned draft
revised Advance Request reflecting its earlier discussions with IVI. (Id. ¶ 161). IVI
signed off on Fontainebleau’s revisions and issued a Construction Consultant Advance
Certificate approving the March 2009 Advance, after which Fontainebleau submitted an
executed revised March Advance Request. (Id. ¶¶ 162–63).
Bank of America made the revised March Advance Request available to the
Lenders the next morning (March 24) along with, among other things, IVI’s Certificate
and a chart Fontainebleau prepared at the Lenders’ request showing the changes to the
Remaining Cost Report and the In Balance Report. (Id. ¶ 164). The revised Request
represented the Project was In Balance by $13,785,184. (Id. ¶ 164). On March 25,
2009, the scheduled Advance Date, Fontainebleau further revised the March Advance
Request, increasing the margin by which the Project as In Balance to $14,084,071. (Id.
¶ 165). No Term (or other) Lenders submitted a Notice of Default or otherwise formally
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objected to the March Advance.
Bank of America transferred the Advance to
Fontainebleau on March 26, 2009. (BofA Statement ¶ 166; TL Response ¶ 166).
I.
First National Bank of Nevada Repudiation
On July 25, 2008, the First National Bank of Nevada (a Delay Draw Term Loam
and Revolving Loan Lender) was closed by the Comptroller of the Currency, and the
Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver.
Statement ¶¶ 181–82).
(BofA
In late-December 2008, the FDIC formally repudiated First
National Bank of Nevada’s unfunded Senior Credit Facility commitments, which
amounted to $1,666,666 under the Delay Draw Term Loan and $10,000,000 under the
Revolver Loan.
(Id. ¶¶ 183–84).
In response to the FDIC’s repudiation, Bank of
America directed Fontainebleau to remove First National Bank of Nevada’s
commitments from the In Balance Test’s “Available Sources” component. (Id. ¶ 185).
Even without First National Bank of Nevada’s unfunded commitments, though, the
Project was “In Balance” by approximately $107.7 million, as reflected in the December
2008 Advance Request. (Id. ¶ 186).
J.
March 2009 Advance Request and Defaulting Lenders
On March 2, 2009, Fontainebleau submitted a Notice of Borrowing under the
Credit Agreement requesting a Delay Draw Term Loan for the entire $350 million
facility, and, simultaneously, a $670 million Revolver Loan (which was reduced to $652
million the next day). (Id. ¶ 187). Bank of America refused to process the Notice of
Borrowing on the grounds that the amounts requested were not permissible under the
Credit Agreement, and on March 9, 2009, Fontainebleau submitted a revised Notice of
Borrowing seeking only the $350 million Delay Draw Loan. (Id. ¶¶ 188–89). Bank of
America approved the revised Notice of Borrowing. (Id. ¶ 190). All but two of the Delay
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Draw Term Lenders—Z Capital and Guggenheim—funded their commitments. (BofA
Statement ¶ 191; TL Response ¶ 191). Accordingly, $326.7 million of the $350 million
was funded. (Id.). Although Z Capital and Guggenheim did not fund, Bank of America
continued to include their commitments as “Available Funds” for In Balance Test
purposes.
(BofA Statement ¶ 192; TL Response ¶ 192).
On March 11, 2009,
Fontainebleau submitted its March 2009 Advance Request, requesting $137.9 million.
(Bolio Decl. ¶ 18 Exh. 16). Accordingly, there were ample funds to cover the requested
amount.
On March 23, 2009, Bank of America, as Disbursement Agent and Administrative
Agent, sent the Lenders a letter disclosing Z Capital and Guggenheim had not yet
funded their respective Delay Draw Term Loan commitments, and excluding those
commitments from the Available Funds would result in a failure to satisfy the In Balance
test. (Dep. Exh. 104). Bank of America further stated it was willing to include the
unfunded commitment in the Available Funds component for the March Advance
“pending further information about whether these lenders will fund.” (Id.). Finally, Bank
of America invited “any Lender that does not support these interpretations [to]
immediately inform us in writing of their specific position.” (Id.).
Deutsche Bank and Highland responded to Bank of America’s letter, but neither
expressed disagreement with Bank of America’s position.
17
Rather, Highland merely
stated it was under no obligation to state a position about Bank of America’s
interpretation of the credit documents and reserved all rights and claims against Bank of
17
Highland conceded that it did not “reach a contrary position” to the March 25th Advance being
made available to Fontainebleau. (Rourke Dep. Tr. 172:18–173:3).
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America. (Dep. Exh. 471). Deutsche Bank asked Bank of America “[w]hy it [was]
appropriate to allow for the inclusion of [the] defaulting lender commitments in the InBalance Test.” (Dep. Exh. 832). Bank of America scheduled a lender call to address
this inquiry. (Non-Dep. Exh. 1505). Ultimately, Bank of America disbursed the March
2009 Advance Request to Fontainebleau. (BofA Statement ¶ 197; TL Response ¶ 197).
K.
Termination of Funding
On April 13, 2009, Fontainebleau notified Lenders that one or more events “had
occurred which reasonably could be expected to cause the In Balance test to fail to be
satisfied” and, further, the “Project Entities have learned that (i) the April Advance
Request under the Retail Loan may not be fully funded and (ii) as of today, the
Remaining Costs exceed Available Funds.” (BofA Statement ¶ 167). The next day,
April 14, Fontainebleau provided IVI with a schedule of Anticipated Costs dated “as of
April 14, 2009” revealing more than $186 million in previously unreported Anticipated
Costs. (Id. ¶ 169).
On April 17, 2009, Fontainebleau held a Lender meeting and reported that the
Project “may be out-of-balance by approximately $180 million,” reflecting a deficit of
$186 million in committed construction costs.
(Dep. Exh. 268).
Fontainebleau
presented a luxurious “enhanced plan” that would require a further $203 million in
spending. (Id. 268). Fontainebleau also indicated at the meeting that it could not meet
its debt obligations as they came due, disclosing that it planned to extinguish the
Second Mortgage Notes and ask the Lenders to convert their debt into equity. (BofA
Statement ¶ 172). Based on the information provided by Fontainebleau at the April 17,
2009 Lender meeting, the Revolver Lenders determined that one or more Events of
Default had occurred and terminated the Revolver Loan on April 20, 2009. (Id. ¶ 173).
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On April 20, 2009, Bank of America, as Administrative Agent, sent Jim Freeman
a letter stating “the Required Facility Lenders under the Revolving Credit Facility have
determined that one or more Events of Default have occurred and are continuing to
occur and they have requested that the Administrative Agent notify you that the Total
Revolving Commitments have been terminated.” (Dep. Exh. 827). On June 9, 2009,
the
Borrowers
and
certain
affiliates
filed
a
Chapter
11
Petition
in
the
United States Bankruptcy Court for the Southern District of Florida. (TL Statement ¶
79).
In May 2009, Bank of America commissioned IVI to “perform a cost-complete
review” of the Project’s construction costs based on the “enhanced plan” presented
during the April 2009 Lender meeting. (BofA Statement ¶ 175). As part of its review,
IVI received additional information from Fontainebleau and the Contractor regarding the
Project budget, including an April 30, 2009 Anticipated Cost Report, which included
almost $300 million in pending charges for additional work by subcontractors. (Id. ¶
176).
After reviewing the documentation supporting the pending charges, IVI
concluded, based on the number and scope of the pending items, that the
subcontractors made the claims “some time ago, possibly as far back as a year,” but
they were never included in the Anticipated Cost Reports Fontainebleau submitted to
IVI. (Id. ¶ 177). It was later determined that, to conceal the Project’s cost overruns,
Fontainebleau and TWC used two separate sets of books: one for their own internal
use, which allowed them to keep track of the actual progress, scope, and cost of the
Project, and a second set shown to Bank of America and IVI, which disclosed only a
subset of the actual costs. (Id. ¶ 178). Fontainebleau and TWC also kept two sets of
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Anticipated Cost Reports: an “internal” Report that included actual costs, and a “bank”
Report that was disclosed to Bank of America and IVI and that conformed with the
construction budget that had been disclosed to the Lenders. (Id. ¶¶ 179–80).
IV.
Standard of Review
Rule 56(c) of the Federal Rules of Civil Procedure authorizes summary judgment
when the pleadings and supporting materials show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment as a matter of law.
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d
202 (1986). A fact is “material” if it hinges on the substantive law at issue and it might
affect the outcome of the nonmoving party's claim. See id. (“Only disputes over facts
that might affect the outcome of the suit under the governing law will properly preclude
the entry of summary judgment.”). The court’s focus in reviewing a motion for summary
judgment is “whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a matter
of law.” Anderson, 477 U.S. at 252; Bishop v. Birmingham Police Dep’t, 361 F.3d 607,
609 (11th Cir. 2004).
The moving party bears the initial burden under Rule 56(c) of demonstrating the
absence of a genuine issue of material fact. Allen v. Tyson Foods, Inc., 121 F.3d 642,
646 (11th Cir. 1997). Once the moving party satisfies this burden, the burden shifts to
the party opposing the motion to go beyond the pleadings and designate “specific facts
showing that there is a genuine issue for trial.” Celotex v. Catrett, 477 U.S. 317, 324,
106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
A factual dispute is genuine only if the
evidence is such that a reasonable fact finder could return a verdict for the non-moving
party. Anderson, 477 U.S. at 248; Denney v. City of Albany, 247 F.3d 1172, 1181 (11th
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Cir. 2001).
Moreover, speculation or conjecture cannot create a genuine issue of
material fact. Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1181 (11th Cir. 2005)
In assessing whether the movant has met its burden, the court should view the
evidence in the light most favorable to the party opposing the motion and should resolve
all reasonable doubts about the facts in favor of the non-moving party. Denney, 247
F.3d at 1181; Am. Bankers Ins. Group v. U.S., 408 F.3d 1328, 1331 (11th Cir. 2005)
(applying same standard to cross-motions for summary judgment).
In determining
whether to grant summary judgment, the court must remember that "[c]redibility
determinations, the weighing of the evidence, and the drawing of legitimate inferences
from the facts are jury functions, not those of a judge." Anderson, 477 U.S. at 255. In
determining whether summary judgment is appropriate, the court is required to “draw all
reasonable inferences in favor of the non-moving party, not all possible inferences.”
Horn v. United Parcel Services, Inc., 433 F. App’x. 788, 796 (11th Cir. 2011) (emphasis
added).
V.
Discussion of Summary Judgment Motions
Upon review of the parties’ cross-motions for summary judgment, I grant Bank of
America’s Motion for Summary Judgment and, correspondingly, deny the Term
Lenders’ Motion for Partial Summary Judgment.
In reaching this decision, I have
carefully examined each cross-motion (and corresponding exhibits) under the proper
standard; that is, I have reviewed Bank of America’s Motion for Summary Judgment
with all inferences in favor of the Term Lenders, and the Term Lenders’ Motion for
Partial Summary Judgment with all inferences in favor of Bank of America. I conclude
the Term Lenders, with all inferences in their favor, have failed to raise a genuine issue
of material fact as to whether Bank of America, as Disbursement Agent or Bank Agent,
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breached the Disbursement Agreement, or whether Bank of America acted with bad
faith, gross negligence, or willful misconduct. Accordingly, I enter judgment as a matter
of law in favor of Bank of America on both of these issues.
In addressing the legal issues presented, I turn first to Bank of America’s duties
and responsibilities under the Disbursement Agreement.
Concluding that Bank of
America can be held liable under the Disbursement Agreement for only bad faith, gross
negligence, or willful misconduct, I explain, with all inferences in favor of the Term
Lenders, that the evidence of record on summary judgment does not demonstrate Bank
of America acted with bad faith or gross negligence or engaged in willful misconduct in
the performance of its duties under the Disbursement Agreement. Finally, I turn to the
specific scenarios underlying the Term Lenders’ claims, and conclude, based on the
facts not materially in dispute, Bank of America did not breach the Disbursement
Agreement, and even if it did, it did not act with gross negligence under New York law.
A.
Claims at Issue: The Disbursement Agreement
As an initial matter, I reiterate that the only claims outstanding in this case are
under the Disbursement Agent, not the Credit Agreement. See 11/18/2011 Tr. 6:5–23;
ECF No. 328. Therefore, the Disbursement Agreement, and Bank of America’s roles
and responsibilities as Disbursement Agent and Bank Agent under that Agreement, are
the focus of this Order. Pursuant to Section 11.5 of the Disbursement Agreement,
however, the Credit Agreement is expressly integrated into the Disbursement
Agreement to the extent necessary to define the roles of Bank Agent and Disbursement
Agent under the Disbursement Agreement. In fact, the choice of Agreement does not
matter, as under either Agreement, Bank of America is held to the same standard, and
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Bank of America, in its roles as both Disbursement Agent and Bank Agent, did not act
with gross negligence or engage in willful misconduct.
B.
Bank of America’s Duties Under the Disbursement Agreement
Before addressing the factual circumstances underlying the Term Lenders’
breach of contract claims, I turn to Bank of America’s duties and responsibilities under
the Disbursement Agreement.
Under New York law, a written agreement that is
complete, clear, and unambiguous on its face must be enforced according to the plain
meaning of its terms. Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (N.Y. 2002).
“Whether an agreement is ambiguous is a question of law to be resolved by the courts.”
W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (N.Y. 1990). “Ambiguity is resolved
by looking within the four corners of the document, not to outside sources.” Kass v.
Kass, 91 N.Y.2d 554, 566 (N.Y. 1998); Jet Acceptance Corp. v. Quest Mexicana S.A.
de C.V., 929 N.Y.S.2d 206, 211 (N.Y. App. Div. 2011) (“Extrinsic evidence may not be
introduced to create an ambiguity in an otherwise clear document.”).
In analyzing
whether a term is ambiguous, the court should examine the entire contract and consider
the relation of the parties and the circumstances under which it was executed. Kass, 91
N.Y.2d at 566. The court should further construe such terms in accordance with the
parties’ intent, which is generally discerned from the four corners of the document itself.
MHR Capital Partners LP v. Presstek, Inc., 912 N.E. 2d 43, 47 (N.Y. 2009); Int’l. Klafter
Co., Inc. v. Continental Cas. Co., Inc., 869 F.2d 96, 99 (2d Cir. 1989) (applying New
York law; “the court is required to discern the intent of the parties to the extent their
intent is evidenced by their written agreement.”).
Furthermore, “[l]anguage whose
meaning is otherwise plain is not ambiguous merely because the parties urge different
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interpretations in the litigation.” Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906
F.2d 884, 889 (2d. Cir. 1990) (applying New York law).
Here, the parties agree that the relevant provisions of the Disbursement
Agreement are unambiguous.
See, e.g., BofA Memo. at 25 (“Here, the relevant
Disbursement Agreement … provisions are complete, clear, and ambiguous.”);
11/18/2011 Tr. 13:16–17 (Term Lenders counsel stating Term Lenders argued no
ambiguity in their briefs). They disagree, however, on the meaning of those provisions
and, correspondingly, on the scope of Bank of America’s responsibilities under the
Disbursement Agreement. I conclude that the Disbursement Agreement limits Bank of
America’s duties in approving and funding Advance Requests to determining whether
Fontainebleau, IVI, the Contractor, and the Architect submitted the required documents,
and determining whether the Advance Request conditions precedent were satisfied. In
determining whether the conditions precedent were satisfied, Bank of America was
entitled to rely on the representations, certifications, and documents it received from
Fontainebleau, IVI, the Contractor, and the Architect. Moreover, Bank of America had
no duty to investigate the veracity of or facts and circumstances underlying the
representations. Nor did Bank of America have any affirmative duty to ensure that the
conditions precedent were, in fact, met.
The Disbursement Agreement plainly set forth Bank of America’s obligations in
approving an Advance Request. Section 2.4.4 required Bank of America to review, in a
timely manner, the Advance Request and its attachments to determine whether all
required documentation had been provided, and to “use reasonable diligence” to assure
that IVI performed its review and delivered its Construction Consultant Advance
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Certificate in a timely manner. See Disb. Agmt. § 2.4.4. Section 2.4.6 required Bank of
America to execute and deliver an Advance Confirmation Notice “[w]hen the applicable
conditions precedent set forth in Article 3 have been satisfied.” See id. § 2.4.6. To the
contrary, “[i]n the event … (1) the conditions precedent to an Advance have not been
satisfied, or (ii) the Controlling Person notifies the Disbursement Agent that a Default or
Event of Default has occurred and is continuing,” Bank of America was required to issue
a Stop Funding Notice. See id. § 2.5.1.
In determining whether the conditions precedent to an Advance Request were
satisfied, Bank of America was explicitly authorized to rely on Fontainebleau’s
certifications and representations as to, among other things, the satisfaction of Article
3’s conditions precedent, and was explicitly not required to conduct “any independent
investigation as to the accuracy, veracity, or completeness” of those certifications, or to
“investigate any other facts or circumstances to verify compliance by [Fontainebleau]
with [its] obligations hereunder.” See id. § 9.3.2 (emphasis added). Furthermore, the
Disbursement Agreement was clear that Bank of America had “no duty to inquire of any
Person whether a Default or an Event of Default has occurred and is continuing.” See
id. § 9.10.
Even if Bank of America failed to fulfill its obligations under the Disbursement
Agreement, the Disbursement Agreement contained a broad exculpatory provision
under which Bank of America’s liability was limited to its own bad faith, gross
negligence, or willful misconduct. See id. § 9.10; Metropolitan Life Ins. Co. v. Noble
Lowndes Intern., Inc., 643 N.E.2d 504, 506–7 (N.Y. 1994) (enforcing contract provision
“limiting defendant's liability for consequential damages to injuries to plaintiff caused by
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intentional misrepresentations, willful acts and gross negligence” because it represented
parties’ agreement on allocation of risk). Section 9.10 stated the Disbursement Agent
shall not be “in any manner liable or responsible” for any loss or damage “except as a
result of [its] bad faith, … gross negligence or willful misconduct.” See Disb. Agmt. §
9.10. In sum, even if Bank of America approved an Advance Request or failed to issue
a Stop Funding Notice in violation of the Disbursement Agreement, it could be held
liable only if it acted with malice, reckless disregard, or the intent to harm.
C.
The Term Lenders’ Interpretation of Section 9.3.2
The Term Lenders urge a different interpretation of the Disbursement
Agreement, and, in particular, of Bank of America’s reliance on and duty to investigate
Fontainebleau’s representations, as reflected in Section 9.3.2.
The Term Lenders
argue Bank of America could not rely on Fontainebleau’s certificates if Bank of America
“had reason to believe that they were false.” Term Lenders Opp. at 6. The Term
Lenders further argue Bank of America places “unsustainable weight” on Section 9.3.2,
which entitles Bank of America to rely on Fontainebleau’s certificates, and contend the
Disbursement Agreement imposed upon Bank of America an obligation to “determine
the satisfaction of conditions precedent not covered by certificates” and a duty to
investigate to “resolve[] known inconsistencies.” Id. While I—and Bank of America—
agree that the Disbursement Agreement imposed on Bank of America a duty to issue a
Stop Funding Notice when it has actual knowledge of the failure of a condition
precedent to disbursement or the occurrence of a Default or Event of Default, see Nov.
18, 2011 Tr. 37:1–5, I disagree with the Term Lenders that the Disbursement
Agreement imposes a duty to investigate possible inconsistencies, and address each of
the Term Lenders’ arguments regarding the interpretation of the Agreement below.
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As an initial matter, though, I note the Term Lenders’ interpretation of the
Disbursement Agreement contradicts the plain language of Section 9.3.2.
Imposing
upon Bank of America a duty to resolve inconsistencies or investigate the veracity of
Fontainebleau’s representations directly contradicts Section 9.3.2’s provision that Bank
of America “shall not be required to conduct any independent investigation” as to the
accuracy of the representations. See Disb. Agmt. § 9.3.2 (emphasis added). Similarly,
the Term Lenders’ argument that Bank of America could not rely on certificates it had
“reason to believe” are false contradicts the plain language of Section 9.3.2, which,
without
qualification,
entitled
Bank
of
America
to
rely
on
Fontainebleau’s
representations as to the satisfaction of the conditions precedent to disbursement. See
id.
The cases cited by the Term Lenders do not dictate otherwise.
See TL
Opposition at 9–10. In Bank Brussels Lambert v. Chase Manhattan Bank, the district
court for the Southern District of New York analyzed a revolving credit agreement under
which Chase was the agent bank. No. 93 Civ. 5298, 1996 WL 609439 (S.D.N.Y. Oct.
23, 1996). After the borrower filed for bankruptcy, the lender banks sued Chase for
breach of the credit agreement, claiming Chase relied on materially inaccurate financial
statements and certificates. The revolving credit agreement required Chase to find the
documents and documents “satisfactory … in form and substance.” Id. at *6 (emphasis
added). The court held, “if Chase knew, or was grossly negligent in not knowing, that
the materials it delivered prior to and at closing were materially inaccurate, it cannot
argue that those materials were satisfactory in ‘substance.’”
57
Id. at *7.
As the
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Disbursement Agreement contains no requirement that Bank of America evaluate the
certificates for their substance, Bank Brussels Lambert is readily distinguishable.
Chase Manhattan Bank v. Motorola, Inc. is similarly distinguishable, as it pertains
to a guarantor’s right to rely on a borrower’s false certificate to terminate its guarantee
obligation. 184 F.Supp.2d 384 (S.D.N.Y. 2002). The court held the guarantor could not
rely on a false certificate to terminate its obligation. Notably, the guaranty agreement at
issue did not contain any provision entitling the guarantor to rely on certificates from the
borrower in terminating its obligations. Moreover, in response to Motorola’s argument
that Chase approved the “form and substance” of the false certificate and therefore
cannot challenge its validity, the Motorola court cited to language stating Chase had no
duty to ascertain or inquire into any statement, warranty or representation, and
concluded Chase had the right to rely on the representations in the certificate.
Therefore, the case law cited by the Term Lenders does not alter Section 9.3.2’s
reliance provision. I turn next to the Term Lenders’ textual arguments.
1.
“Commercially Reasonable” and “Commercially Prudent”
The Term Lenders first argue that Section 9.1’s “commercially reasonable”
language controls Bank of America’s duties under the Disbursement Agreement and
cite to parol evidence, including expert reports from Shepherd Pryor and Daniel Lupiani
and a treatise, to argue that it would have been commercially unreasonable for Bank of
America to disburse funds from September 2008 through March 2009. Section 9.1, the
introductory paragraph of Article 9, entitled “Disbursement Agreement,” stated that, by
accepting appointment as Disbursement Agent, Bank of America agreed to “exercise
commercially reasonable efforts and utilize commercially prudent practices” in the
performance of its duties hereunder consistent with those of similar institutions holding
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collateral, administering construction loans and disbursing control funds.” See Disb.
Agmt. § 9.1. The subsequent sections of Article 9 set forth, inter alia, the “Duties and
Liabilities of the Disbursement Agent Generally” (§ 9.2); “Particular Duties and Liabilities
of the Disbursement Agent” (§ 9.3, including § 9.3.2); and “Limitation of Liability” (§
9.10). Structurally, then, Section 9.1 contained general standards, and the subsequent
sections of Article 9 provided more specificity on Bank of America’s duties and liabilities.
The Term Lenders appear to argue that Section 9.1 trumps Sections 9.3.2 and
9.10, and, under Section 9.1, it would be commercially unreasonable for Bank of
America to rely on representations that could be false, and commercially reasonable for
Bank of America to investigate possible inaccuracies. I disagree.
Reading Article 9 and the Disbursement Agreement in their entirety, I conclude
Section 9.1 is not inconsistent with the reliance and investigation provisions of Section
9.3.2, or the exculpatory provision of Section 9.10.
Section 9.1 required Bank of
America to use commercially reasonable efforts and commercially prudent practices in
the general performance of its duties, but the Disbursement Agreement still entitled
Bank of America to rely on Fontainebleau’s certifications without independent
investigation (Section 9.3.2) and absolved Bank of America for liability for conduct
outside of bad faith, willful misconduct, or gross negligence (Section 9.10). Indeed, to
conclude otherwise would render the reliance, investigation, and exculpatory provisions
meaningless, in contravention of the basic tenet of contract interpretation that a contract
should be read to give all provisions meaning and effect. See Excess Ins. Co. Ltd. v.
Factory Mut. Ins., 822 N.E.2d 768, 770–71 (N.Y. 2004) (in interpreting contracts, “the
intention of the parties should control. To discern the parties' intentions, the court should
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construe the agreements so as to give full meaning and effect to the material
provisions.”). Even if I were to conclude Section 9.1’s “commercially reasonable” and
“commercially prudent” standards are inconsistent with Sections 9.3.2 and 9.10, the
latter sections would control, as, in the face of an inconsistency between a general
provision and specific provisions, the specific provisions prevail. See Muzak Corp. v.
Hotel Taft Corp., 133 N.E.2d 688, 690 (N.Y. 1956); John B. Stetson Co. v. Joh. A.
Benckiser GmbH, 917 N.Y.S.2d 189 (N.Y. App. Div. 2011) (interpreting contract and
concluding more specific articulation of duty controlled over general articulation of duty).
As I have concluded that “commercial reasonableness” and “commercially
prudent” do not control or affect Bank of America’s entitlement to rely on
Fontainebleau’s representations or Bank of America’s duty to investigate those
representations, I need not determine the meaning of these terms.
If I were to
determine their meaning, though, I would not consider the expert reports and treatise
cited by the Term Lenders because, as the Term Lenders and Bank of America agree,
“commercial reasonableness” and “commercially prudent” in the Disbursement
Agreement are unambiguous terms and, under New York law, parol evidence may not
be admitted to interpret unambiguous contract terms. See R/S Associates v. New York
Job Development Authority, 771 N.E.2d 240, 242 (N.Y. 2002) (“[W]hen interpreting an
unambiguous contract term, evidence outside the four corners of the document is
generally inadmissible to add to or vary the writing.”); TL Memo. Reply at 6 (conceding
expert reports and treatise are inadmissible if contract terms are unambiguous, and
arguing Disbursement Agreement is unambiguous). Accordingly, Section 9.1 does not
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alter the duties, responsibilities, and protections clearly set forth in Sections 9.3.2 and
9.10.
2.
The Meaning of “Genuine”
The Term Lenders next argue that Section 9.3.2’s provision that Bank of America
may rely only on certificates it believes to be “genuine” imposes a duty on Bank of
America to determine whether the representations in the certificate are truthful. The
Term Lenders reason that a document containing a misrepresentation is not genuine,
and Bank of America therefore had a duty to determine if the certificates contained any
misrepresentations before relying on them. While the first sentence of Section 9.3.2
does state Bank of America may rely on any document or certificate believed by it on
reasonable grounds to be “genuine,” the very next sentence of Section 9.3.2 authorizes
Bank of America, specifically in conjunction with the approval of an Advance Request,
to “[n]otwithstanding anything else in this Agreement to the contrary” “rely on
Fontainebleau’s certifications … as to the satisfaction of any requirements and/or
conditions imposed by this Agreement.” See Disb. Agmt. § 9.3.2. Moreover, the final
sentence of Section 9.3.2 specifically rejects any duty of the Disbursement Agent to
conduct an independent investigation of the accuracy or veracity of the certificates. See
id. § 9.3.2 (“The Disbursement Agent shall not be required to conduct any independent
investigation as to the accuracy, veracity or completeness of any such items or to
investigate any other facts or circumstances ….”). Reading Section 9.3.2 in its entirety,
I conclude that “genuine” in Section 9.3.2 means authentic or not fake.
18
18
The
In support of their contention that “genuine” means “truthful”, the Term Lenders cite to only
one case, Stanford Seed Co. v. Balfour, Guthrie & Co., 27 Misc. 2d 147 (N.Y. Sup. Ct. 1960),
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interpretation advanced by the Term Lenders—suggesting Bank of America may only
rely on a certificate it deems truthful—renders the reliance and investigation provisions
of the rest of Section 9.3.2 meaningless and is therefore not an interpretation supported
by New York law.
Lastly, I disagree with the Term Lenders’ argument that “[t]he fact that Bank of
America could be liable for ‘false representations’ under Section 9.10 “establishes that it
could not blindly rely on false certificates.” See TL Opposition at 9. Bank of America’s
liability for Bank of America itself making a false representation has no bearing on its
reliance on the possibly-false representation of another party. Furthermore, the Term
Lenders’ reliance on Section 7.1.3(c) is misplaced, as a prohibition on acting on a
known, material falsity in a certification does not translate into a duty to investigate any
possibly falsity. Therefore, I conclude 9.3.2 did not impose any obligation to investigate
the accuracy of a representation.
3.
Sections 3.3.21 and 3.3.24
In further support of their contention that Bank of America could rely only on
truthful certificates, the Term Lenders cite Sections 3.3.21 and 3.3.24. Section 3.3.21,
stated, as a condition precedent to disbursement, “the Bank Agent shall not have
become aware … of any information … that taken as a whole is inconsistent in a
which I find readily distinguishable. In Stanford Seed, the trial court addressed what constituted
a genuine receipt under the Uniform Warehouses Receipts Act and held that a document was a
not a “genuine” receipt because it was not signed by a warehouseman under Oregon law.
Moreover, even if “genuine” means truthful, Bank of America, in approving an Advance
Request, was protected by the specific provision of the second sentence of Section 9.3.2
entitling it, notwithstanding anything in the Agreement to the contrary, to rely on Fontainebleau’s
representations. See John B. Stetson Co. v. Joh. A. Benckiser GmbH, 917 N.Y.S.2d 189 (N.Y.
App. Div.).
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material and adverse matter with the information … disclosed to them concerning … the
Project,” and Section 3.3.24 similarly stated “the Bank Agent shall have received such
other documents and evidence as are customary for transactions of this type as the
Bank Agent may reasonably request in order to evidence the satisfaction of the other
conditions set forth above.” See Disb. Agmt. §§ 3.3.21 and 3.3.24 (emphasis added).
Although Bank of America was the Bank Agent (as well as the Disbursement Agent),
Bank of America, as Disbursement Agent, cannot be held liable for information it knew
as Bank Agent. Indeed, the parties contemplated Bank of America’s multiple roles and
agreed, “Notwithstanding anything to the contrary in this Agreement, the Disbursement
Agent shall not be deemed to have knowledge of any fact known to it in any capacity
other than the capacity of Disbursement Agent.”
See id. § 9.2.5 (“No Imputed
Knowledge”). Accordingly, Bank of America, as Disbursement Agent, cannot be held to
any duties imposed by the Disbursement Agreement on the Bank Agent, and, in the
context of Bank of America’s duties as Disbursement Agent, the Term Lenders’
emphasis on Sections 3.3.21 and 3.3.24 is misplaced. Having explained the duties and
liability of Bank of America under the Disbursement Agreement, I turn to the facts
underlying the Term Lenders’ claim.
D.
Bank of America was Not Grossly Negligent
As explained above, pursuant to the exculpatory provision of the Disbursement
Agreement, Bank of America could be held liable for breach of the Disbursement
Agreement only if it acted with gross negligence in the performance of its duties under
the Disbursement Agreement. Under New York law, gross negligence is “conduct that
evinces a reckless disregard for the rights of others or smacks of intentional
wrongdoing.” Curley v. AMR Corp., 153 F.3d 5, 12–13 (2d Cir. 1998) (applying New
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York law); see also Colnaghi, U.S.A., Ltd. v. Jewelers Prot. Servs., Ltd., 611 N.E.2d
282, 284 (N.Y. 1993) (gross negligence is “conduct that evinces a reckless disregard for
the rights of others or ‘smacks’ of intentional wrongdoing” (internal citation omitted));
Travelers Indem. Co. of Connecticut v. Losco Group, Inc., 204 F. Supp. 2d 639, 644–45
(S.D.N.Y. 2002) (“Under New York law, a mistake or series of mistakes alone, without a
showing of recklessness, is insufficient for a finding of gross negligence.”; gross
negligence requires that the defendant “not only acted carelessly in making a mistake,
but that it was so extremely careless that it was equivalent to recklessness.”); DRS
Optronics, Inc. v. North Fork Bank, 843 N.Y.S.2d 124, 127–28 (N.Y. App. Div. 2007)
(holding defendant exhibited gross negligence where it failed to exercise “slight care” or
“slight diligence”); New York Patten Jury Instructions, PJI 2:10A (“Gross negligence
means a failure to use even slight care, or conduct that is so careless as to show
complete disregard for the rights and safety of others.”).
The standard for willful misconduct is similarly high. Under New York law, willful
misconduct is “conduct which is tortious in nature, i.e., wrongful conduct in which
defendant willfully intends to inflict harm on plaintiff at least in part through the means of
breaching the contract between the parties.” Metro. Life, 643 N.E.2d at 508; see also In
re CCT Communications, Inc., --- B.R. ----, 2011 WL 3023501, at *5, 13 (Bankr.
S.D.N.Y. July 22, 2011) (interpreting contract under New York law and concluding willful
misconduct “does not include the voluntary and intentional failure or refusal to perform a
contract for economic reasons,” but requires malice or acting with the purpose of
inflicting harm).
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The Term Lenders argue that Bank of America was grossly negligent because it
disbursed funds in the known failure of conditions precedent. See TL Motion at 27–28;
TL Opposition at 37–39. Putting aside, for the moment, whether Bank of America had
actual knowledge of the failures of any conditions precedent, the Term Lenders’
argument is fundamentally flawed because it equates breach of the Disbursement
Agreement with gross negligence. As discussed above, the exculpatory provision of the
Disbursement Agreement requires more than mere breach of the Disbursement
Agreement to hold Bank of America liable.
See Disb. Agmt. § 9.10 (limiting
Disbursement Agent’s liability to bad faith, gross negligence, or willful misconduct).
Upon review of the facts, I conclude Bank of America, as Disbursement Agent,
did not act in bad faith or with gross negligence or willful misconduct in performing its
duties under the Disbursement Agreement.
See David Gutter Furs v. Jewelers
Protection Services, Ltd., 594 N.E.2d 924 (N.Y. 1992) (granting summary judgment in
favor of defendant because allegations did not raise an issue of fact whether defendant
19
performed its duties with reckless indifference to plaintiff's rights);
Gold v. Park Ave.
Extended Care Center Corp., 935 N.Y.S.2d 597, 599 (N.Y. App. Div. 2011) (affirming
trial court’s granting of summary judgment in favor of hospital and holding hospital was
not grossly negligent where evidence showed absence of any conduct that could be
19
During oral argument, counsel for the Term Lenders argued that in the case of contracts that
provide for the protection of property, such as alarm companies, courts have routinely held that
gross negligence is a triable fact. (11/18/2011 Tr. 103:13-19). In David Gutter Furs, a case
involving defendant’s design, installation, and monitoring of a burglar alarm system, the New
York Court of Appeals reversed the appellate court’s denial of summary judgment on the
grounds there was no issue of fact whether defendant performed its duties with reckless
indifference to plaintiff's rights. 594 N.E.2d 924 (N.Y. 1992). It follows that summary judgment
may be granted on the issue of gross negligence in the case of contracts that provide for the
protection of property.
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viewed as so reckless or wantonly negligent as to be the equivalent of a conscious
disregard for the rights of others); see also Net2Globe Intern., Inc. v. Time Warner
Telecom of New York, 273 F. Supp. 2d 436 (S.D.N.Y. 2003) (“While issues of malice,
willfulness, and gross negligence often present questions of fact, courts have sustained
limitation of liability provisions in the context of a summary judgment motion when the
surrounding facts compel such a result.”). Indeed, there is no evidence of record on
summary judgment that Bank of America intended to harm the Term Lenders, or that it
recklessly disregarded their rights.
To the contrary, Bank of America gave consideration to the Term Lenders’ rights
and interests.
From September 2008 through April 2009, Bank of America was
responsive to Lenders’ questions, tried to get information from Fontainebleau, and
facilitated communications between the Lenders and Fontainebleau.
For example,
when Bank of America became aware that there may be an issue with Lehman funding
its portion of the Retail Advance, Bank of America consulted internally and with counsel.
See CFIP Master Fund, Ltd. v. Citibank, N.A., 738 F. Supp. 2d 450, 474 n.27 (S.D.N.Y.
2010) (concluding bank did not act in bad faith and stating bank’s consultation with
counsel demonstrated good faith). Bank of America also repeatedly conferred with
Fontainebleau, and requested Fontainebleau provide the Lenders with information
regarding both Lehman and the Project. Bank of America further responded thoroughly
and promptly to Highland’s inquiries regarding the Lehman bankruptcy and its
implications for the Senior Credit Facility.
Finally, before disbursing funds to
Fontainebleau, Bank of America sought reaffirmation from Fontainebleau that all
conditions precedent to funding had been satisfied.
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In addressing First National Bank of Nevada’s repudiation, which represented
only 0.6% of the Senior Credit Facility, Bank of America proposed a solution that would
permit funding to occur. This solution gave consideration to the Lenders’ interests, as
neither the Lenders nor Fontainebleau would have expected funding to cease based on
the repudiation of such a small commitment.
In the same vein, Bank of America consulted with the Lenders regarding
Guggenheim and Z Capital’s failure to fund the March 2009 Advance Request. Bank of
America informed the Lenders that Guggenheim and Z Capital had not funded, and
suggested it would still include their commitment in the Available Funds component, so
that funding could occur.
Bank of America invited any Lender to comment on the
intended solution, and no Lender protested.
In performing its duties under the
Disbursement Agreement, Bank of America consistently communicated with the
Lenders, provided them with pertinent information, and invited comment.
Indeed, Bank of America’s conduct, even when viewed in the light most favorable
to the Term Lenders, is vastly distinct from the conduct of the defendant in DRS
Optronics, Inc. v. North Fork Bank, the case cited by the Term Lenders in support of
their gross negligence argument. See 843 N.Y.S.2d 124 (N.Y. App. Div. 2007). In DRS
Optronics, the defendant entered into a custodial agreement with two parties under
which it was required to ensure that no payments were made without joint written
instructions of the two parties. Id. at 126. The court held the defendant was grossly
negligent because it made no effort to implement any procedure to ensure the twosignature requirement would be enforced, and instead established a system that
allowed one party to unilaterally transfer funds. Id. at 128. Moreover, the court noted
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the defendant “failed to submit any evidence … as to whether it exercised even the
slightest care in performing its obligations.” Id. In contrast, Bank of America made
significant efforts to comply with the requirements of the Disbursement Agreement, and,
as evidenced by meetings, calls, and communications with key parties, exercised well
more than the slightest care in performing its obligations.
It bears noting the Term Lenders (or their successors in interest) were aware of
the chief “risk”—namely the Lehman bankruptcy—they claim should have prompted
Bank of America to investigate Fontainebleau’s representations. Yet, not a single Term
Lender demanded that Bank of America take any action relating to the allegations
presented in this case, nor did any of the Term Lenders file a Notice of Default to
compel the issuance of a Stop Funding Notice. It could hardly follow that Bank of
America recklessly disregarded the Term Lenders’ rights when the Term Lenders
themselves did not seek to enforce those rights.
20
Based on these facts, it cannot be
said that Bank of America acted with bad faith, gross negligence, or willful misconduct.
E.
Bank of America’s Knowledge of Failures of Conditions Precedent
Nor can it be said that Bank of America breached the Disbursement Agreement
by disbursing funds in the known failures of conditions precedent. The Term Lenders
argue that Bank of America disbursed funds despite known failures of conditions
precedent relating to (1) Lehman’s bankruptcy; (2) the Project’s cost overruns; (3) the
20
To the extent the Term Lenders rely on Highland’s communications with Bank of America
regarding the Lehman bankruptcy as an assertion of the Term Lenders’ rights, counsel for the
Term Lenders conceded that “[t]here is no protocol for [the Term Lenders] to do that.”
(11/18/2011 Tr. 79:2-8).
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First National Bank of Nevada repudiation; (4) select lenders’ failure to fund the March
2009 Advance Request; and (5) the timing of the March 2009 Advance Request.
However, as explained below, with respect to each of these situations, there is no
evidence on summary judgment that Bank of America actually knew that a condition
precedent was not met. Before discussing each scenario, it bears repeating that for all
Advance Requests from September 2008 through March 2009, Fontainebleau
submitted documentation certifying all conditions precedent to disbursement had been
met.
See, e.g. TL Motion at 21 (“In connection with each Advance Request, the
Borrowers were required to and did represent and warrant that all conditions precedent
to disbursement, including Lehman’s funding of its commitments under the Retail
Facility had been satisfied.”).
1.
The Lehman Bankruptcy and Lehman’s Failure to Fund
The Term Lenders argue the Lehman bankruptcy, and its aftermath, some of
which was known to Bank of America, caused numerous conditions precedent to fail.
Specifically, the Term Lenders argue the Lehman bankruptcy was a material adverse
effect on the Project; Bank of America knew that Lehman did not fund the September
2008 advance; and ULLICO funding for Lehman was impermissible. Before addressing
each of these arguments, I note that, even if the Term Lenders’ contentions regarding
the Lehman bankruptcy and effects on the Retail Facility were true, it was not grossly
negligent for Bank of America to disburse funds when, each month, the Retail Facility
was fully funded.
Indeed, if commercially reasonable were the applicable standard
under the Disbursement Agreement, it would have been commercially unreasonable for
Bank of America, as Disbursement Agent and Bank Agent, to halt construction of a the
multi-billion dollar Fontainebleau Project when Retail funded its September Shared
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Costs in full, and when Lehman’s portion of the September Shared Costs was a small
portion of the total September Advance Request.
a)
The Lehman Bankruptcy
The Term Lenders first argue the Lehman bankruptcy alone had a Material
Adverse Effect on the Project, and Bank of America therefore should have issued a
Stop Funding Notice. See TL Opposition at 11. The Term Lenders reason that Lehman
was the largest Retail Lender, the Retail Facility was critical to the completion of the
Project, and Lehman bankruptcy rendered uncertain the availability of Lehman’s
committed funds. See id. at 11–12.
First, the Disbursement Agreement requires Bank of America as Disbursement
Agent to issue a Stop Funding Notice only in the event that (1) the Controlling Person
notifies Bank of America, as Disbursement Agent, that a Default or Event of Default has
occurred, or (2) conditions precedent to an Advance have not been satisfied. See Disb.
Agmt. § 2.5.1. There is no evidence on summary judgment that Bank of America, as
Disbursement Agent, was notified that the Lehman bankruptcy was a Default or Event
of Default, and the Term Lenders have not pointed to any provision of the Disbursement
Agreement requiring Bank of America, as Disbursement Agent or Bank Agent, to make
that determination on its own. To the extent the Term Lenders suggest Highland’s
emails to Bank of America regarding the Lehman bankruptcy constituted notice of
default, as required by Section 2.5.1, I conclude the emails were not notices of default
upon which Bank of America could issue stop funding notices, as they did not state that
a Default or Event of Default had taken place or identify the Default or Event of Default.
To the Term Lenders’ suggestion that Bank of America should be deemed to
have knowledge of defaults irrespective of the role (Controlling Person versus
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Disbursement Agent) in which it came across that information, the “no imputed
knowledge” provision of the Section 9.2.5 of the Disbursement Agreement expressly
defeats the Term Lenders’ suggestion. Regardless, there is no evidence of record on
summary
judgment
that
Bank
of
America,
as
Controlling
Person/Bank
Agent/Administrative Agent, was notified of a Default or Event of Default, and like the
Disbursement Agent, the Credit Agreement, Section 9.3, imposed no duty on Bank of
America as Administrative Agent to inquire about defaults.
As for satisfaction of the conditions precedent to disbursement, Fontainebleau
expressly certified that the conditions precedent to the September 2008 Advance
Request, including there being no Material Adverse Effects on the Project, had been
satisfied, a certification upon which Bank of America was entitled to rely in approving an
Advance Request and disbursing funds. Accordingly, Bank of America did not breach
the Disbursement Agreement by disbursing funds in the face of Lehman’s bankruptcy
filing.
Even if the Disbursement Agreement imposed on Bank of America as
Disbursement Agent or Bank Agent a duty to determine whether the Lehman
bankruptcy had a Material Adverse Effect on the Project, under Section 3.3.21 or
otherwise, I would conclude that Bank of America did not breach the Disbursement or
Credit Agreements by determining there was no Material Adverse Effect. Although
Bank of America stated immediately after the Lehman bankruptcy that “Lehman may be
the death nail for [the Project],” see Dep. Exh. 67, as of the disbursement of the
September 2008 Advance Request, there was no indication that there would be a
shortfall in Retail Funds or that the Retail Lenders would fail to honor their obligations
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under the Retail Facility. Indeed, although it was later discovered that Lehman did not
fund its portion of the September 2008 Shared Costs, Lehman did fund its portion in
October and November 2008, demonstrating Lehman’s bankruptcy filing itself did not
make Lehman’s funds unavailable or necessarily compromise the Project. Moreover,
every month from September 2008 through March 2009, TriMont wired to Bank of
America the full amount of the requested Retail Shared Costs, indicating there was no
funding gap on the Retail end of the Project. At a minimum, Bank of America did not act
with bad faith, gross negligence, or willful misconduct by disbursing funds in the face of
the full monthly funding of the Retail Advance.
b)
Bank of America’s Knowledge that Lehman Failed to
Make the September 2008 Retail Advance
The Term Lenders next argue that Bank of America knew that Fontainebleau
funded Lehman’s share of the September 2008 Retail Advance, but the evidence of
record on summary judgment, with all inferences in favor of the Term Lenders,
demonstrates otherwise.
Bank of America did not have actual knowledge that
Fontainebleau funded for Lehman. Nor did it have actual knowledge that Lehman did
not fund its share of the September 2008 Retail Advance.
Immediately before
disbursing the September 2008 Advance Request to Fontainebleau, Bank of America
sought and received oral and written confirmation from Jim Freeman that, even though
Lehman had filed for bankruptcy, all conditions precedent to funding were satisfied and
all prior representation, warranties, and certifications remained correct.
McLendon
Rafeedie’s deposition testimony, the Highland emails, and communications from
Fontainebleau did not provide Bank of America with actual knowledge of who funded
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the September 2008 Retail Advance such that it could deem Fontainebleau’s
representations false.
First, contrary to the Term Lenders’ assertion, there is no evidence that
TriMont told Bank of America that Lehman did not fund its portion of the September
2008 Retail Advance. As explained above, TriMont’s McLendon Rafeedie testified that
he could not recall the specific communications regarding Lehman’s funding with Bank
of America’s Jean Brown, and stated he “could have” told Ms. Brown that Fontainebleau
funded for Lehman, not that he “did” tell Ms. Brown. Similarly, Ms. Brown stated she did
not know that Lehman did not fund its portion of the September 2008 Retail Advance.
Lack of recollection does not create a genuine issue of material fact. See, e.g., Brown
v. St. Paul Travelers Companies, 331 F. App’x. 68, 70 (2nd Cir. 2009) (“We agree with
the District Court that ‘[p]laintiff's statement, that she has no recollection or record of
receiving the employee handbook and arbitration policy, despite the fact that it was
distributed on at least six occasions during her employment, is ... not sufficient to raise a
genuine issue of material fact.’ ”); Tinder v. Pinkerton Sec’y, 305 F.3d 728, 735–36 (7th
Cir.2002) (plaintiff's testimony that she did not recall seeing or reviewing a brochure did
not create a genuine issue of material fact in light of affidavits that the brochure was
sent to her); Dickey v. Baptist Mem’l Hosp., 146 F.3d 262, 266 n.1 (5th Cir. 1998) (“The
mere fact that [the deponent] does not remember the alleged phone conversation,
however, is not enough, by itself, to create a genuine issue of material fact [as to
whether the conversation occurred.]”).
Moreover, based on the testimony from Mr.
Rafeedie and Ms. Brown, a fact finder could only speculate as to whether Bank of
America knew Fontainebleau funded for Lehman, and speculation does not create a
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genuine issue of material fact. See Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1181
(11th Cir. 2005) (stating speculation does not create a genuine issue of material face);
see also Hughes v. Stryker Corp., 423 F. App’x. 878, 882 (11th Cir. 2011) (affirming
district court’s award of summary judgment in favor of defendant in negligence action
because, based on factual record, a jury could only speculate as to causation, and
speculation does not create a genuine issue of material fact). The testimony from Mr.
Rafeedie and Ms. Brown therefore does not create a genuine issue of material fact as to
whether Bank of America knew that Fontainebleau funded Lehman’s portion of the
September 2008 Advance Request, and there is no other evidence of record on
summary judgment that TriMont told Bank of America that Lehman did not fund.
Second, Highland’s October 6 and 13 emails (sent after the disbursement date of
the September 2008 Advance Request) do not establish that Bank of America had
knowledge that Fontainebleau funded for Lehman. The October 6, 2008 email alleged
“public reports” that “equity sponsors” had funded for Lehman, but did not identify the
source of the public reports. Additionally, the October 13 email, forwarding a Merrill
Lynch analyst report, only stated the analyst “underst[ood]” Fontainebleau equity
sponsors had funded for Lehman. Most importantly, Highland acknowledged that, at
the time of these emails, the assertion that Fontainebleau equity sponsors had funded
for Lehman was one of a number of rumors or speculations in the market. Although the
Lehman bankruptcy and possible replacements for Lehman were discussed at the
October 23, 2008 Retail meeting (at which Bank of America was present), there is no
evidence of record that Lehman’s failure to fund the September 2008 Retail Advance
was discussed at the October Meeting.
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Finally, I do not find compelling the Term Lenders’ argument that Bank of
America’s “cryptic” communications, Fontainebleau’s refusal to meet with Lenders to
discuss the Lehman bankruptcy, Fontainebleau’s “shift to the passive voice,” Bank of
America internal emails, and Mr. Bolio’s handwritten notes create a reasonable
inference (much less “the only reasonable inference”) that Bank of America knew
Fontainebleau paid Lehman’ share of the September 2008 Retail Advance. See TL
Opposition at 13, 15–16. First, Bank of America’s September 26, 2008 request for
confirmation of fulfillment of conditions precedent after Lehman’s bankruptcy was
reasonable and prudent, as the Lehman bankruptcy caused substantial concern in the
market.
Second, Fontainebleau’s silence and refusal to meet with Lenders in
September and October 2008 do not equate to an admission that Fontainebleau funded
for Lehman.
Third, Fontainebleau’s October 7, 2008 Memorandum, in which
Fontainebleau craftily avoided answering who funded for Lehman by using the passive
voice, did not provide Bank of America with notice that Fontainebleau funded for
Lehman, or that Lehman did not fund. Nor did the Memorandum cause Section 3.3.24
to fail, as Section 3.3.24, by its plain language, applies only to “documents and
evidence,” not information in general, and, moreover, the Memorandum adequately
answered the questions asked by Bank of America and fulfilled Section 3.3.24. Notably,
the Memorandum was sent to the Lenders, as well as Bank of America. Yet no Term
Lender submitted a Notice of Default based on the (now alleged-to-be) insufficient
information contained therein.
Next, the internal emails cited by Term Lenders reflect Bank of America’s initial
understanding from the mid-September 2008 conference calls that Fontainebleau may
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fund for Lehman, but not an actual understanding that Lehman did not fund its share of
the September 2008 Retail Advance, or that Fontainebleau funded Lehman’s share.
See, e.g., Dep. Exh. 73 (dated September 19, 2008), Dep. Exh. 204 (dated September
19, 2008).
The Term Lenders have presented no evidence to contradict Bank of
America’s emails showing, as of December 2008, Bank of America thought Lehman
funded the September 2008 Retail Advance. Moreover, the January 2009 Bank of
America emails cited by the Term Lenders, see Dep. Exhs. 1513, 1514, 1515, and
1516, were from the Commercial Real Estate Banking group, a group which had no
involvement in Bank of America’s roles as Disbursement Agent and Bank Agent and
whose knowledge cannot be imputed to Bank of America as Disbursement Agent or
Bank Agent.
Finally, the Term Lenders have not pointed to any testimony tying Brandon
Bolio’s handwritten notes, which state Lehman did not fund, to the September 2008
Advance Request. Indeed, the notes reflect dollar amounts that do not correspond to
the September 2008 Advance and ask whether Fontainebleau could permissibly fund
for Lehman, a question which Bank of America had answered in the negative by the
time Bank of America disbursed the September 2008 Advance Request. See Dep. Exh.
475 at BANA_FB00846432–33; Bolio Dep. Tr. 58:7–60:25).
In sum, on summary
judgment, the Term Lenders have not presented evidence from which it could
reasonably be inferred that Bank of America actually knew Fontainebleau funded
Lehman’s portion of the September 2008 Retail Advance, or Lehman did not fund its
portion of the Advance.
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c)
ULLICO Funding for Lehman
Turning next to the funding of Lehman’s portion of the Retail Advance from
December 2008 through March 2009, it is undisputed that ULLICO, a Retail Co-Lender,
funded Lehman’s portion of the Retail Shared Costs, and Fontainebleau (Fontainebleau
Resorts, Jeff Soffer, and Turnberry Residential Limited Partners, to be more precise)
reimbursed ULLICO for at least a portion of those payments through a Guaranty
Agreement and a series of Amendments thereto. It is further undisputed that Bank of
America knew that ULLICO was funding Lehman’s portion of the Retail Shared Costs
from December 2008 through March 2009, and it was impermissible under the
Disbursement Agreement for Fontainebleau to reimburse ULLICO and, in effect, make
the Retail Advance.
The parties disagree, however, on whether it was permissible
under Section 3.3.23 of the Disbursement Agreement for ULLICO to fund for Lehman,
and whether Bank of America knew of Fontainebleau’s guaranty arrangement with
ULLICO.
Section 3.3.23 states “the Retail Agent and the Retail Lenders shall, on the date
specified in the relevant Advance Request, make any Advances required of them
pursuant to the Advance Request.” Disb. Agmt. § 3.3.23. The Term Lenders argue the
advances made by the Retail Lenders were several, not joint, and therefore Lehman
had to fund its respective share of the Retail Advance. Bank of America, on the other
hand, argues Section 3.3.23 requires the Retail Agent and Retail Lenders to collectively
make their Advances, but does not require each Retail Lender to fund a specific
amount.
Reading the Disbursement Agreement in its entirety, I conclude Section 3.3.23
mandates only that the Retail Shared Costs be funded collectively by the Retail
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Lenders, not that each Retail Co-Lender funds its respective portion, therefore
permitting ULLICO to fund for Lehman. In reaching this conclusion, I rely not only on
the plain language of Section 3.3.23, but also Section 2.6.3, which states the
Disbursement Agent shall not release Advances until “the Retail Lenders have made
any requested Loans under the Retail Facility.” Id. § 2.6.3. Like Section 3.3.23, Section
2.6.3, by its plain language, does not require each Retail Lender to fund its respective
portion, but rather requires the “Retail Lenders” to fund their collective “Loans.”
To the Term Lenders’ reference to Section 9.7.2 of the Retail Agreement, see TL
Motion at 20, which provides that the liabilities of the Retail Co-Lenders “shall be
several not joint,” Section 9.7.2 provides that the Retail Co-Lenders are under no
obligation to fund for each other. However, this provision does not control whether, to
satisfy Section 3.3.23 of the Disbursement Agreement, the Retail Co-Lenders may fund
for each other. Further, Section 9.7.2(a) permits each Retail Co-Lender to assume the
obligations of any other Co-Lender, supporting an interpretation of Section 3.3.23 which
permits Retail Co-Lenders to fund for each other.
To the extent the parties’ intent when drafting Section 3.3.23 can be discerned
from the four corners of the relevant agreements, Bank of America was not a party to or
provided a copy of the Retail Co-Lending Agreement. Accordingly, the parties could not
have intended Bank of America, as Disbursement Agent or Bank Agent, to evaluate
whether each Retail Co-Lender made its respective contribution pursuant to the Retail
Agreement and Retail Co-Lending Agreement.
Finally, I conclude Bank of America did not have actual knowledge that
Fontainebleau reimbursed ULLICO for any portion of the December 2008 through
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March 2009 Retail Advances, as the Term Lenders, who would bear the burden at trial,
have pointed to no evidence in the record suggesting that Bank of America knew of the
guaranty arrangement. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115–16 (11th
Cir. 1993) (for issues on which the non-moving party bears the burden at trial, to meet
its burden on summary judgment, the moving party may point the district court to the
absence of evidence to support the non-moving party's position).
Thus, Bank of
America, as Disbursement Agent, did not breach the Disbursement Agreement with
respect to ULLICO’s funding of Lehman’s portion of the Retail Shared Costs.
Even if it were determined that ULLICO funding for Lehman was impermissible
and therefore caused the condition precedent in Section 3.3.23 to fail, or that ULLICO
funding for Lehman constituted a “default” of the Retail Agreement and therefore
caused the failure of the condition precedent set forth in Section 3.3.3, Bank of America
did not act with bad faith, gross negligence, or willful misconduct in permitting a Retail
Co-Lender to fund Lehman’s commitment when Fontainebleau certified that all
conditions precedent had been met, the Co-Lender funding resulted in full funding of the
Retail Shared Costs, and Bank of America believed Section 3.3.23 was satisfied by the
Retail Co-Lenders, collectively, funding the Retail Shared Costs.
2.
Project Cost Overruns
The Term Lenders next argue that Bank of America knew that Fontainebleau
was falsifying (and underreporting) the anticipated cost to complete the Project, this
misstatement of Project costs caused numerous conditions precedent to fail, and Bank
of America disbursed funds in the face of the failures of these conditions precedent.
See TL Opposition 23–29. More specifically, the Term Lenders appear to argue that
Bank of America knew, as early as May 2008, that Fontainebleau was substantially
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underreporting costs, and Bank of America knew this cost underreporting would
continue into the future (as, in fact, it did). But the evidence cited by the Term Lenders,
with all inference in favor of the Term Lenders, does not support its factual argument or
conclusion.
First, the Term Lenders do not dispute that, Fontainebleau and TWC actively
concealed the Project’s cost overruns from Bank of America and IVI by maintaining two
sets of books and Anticipated Cost Reports: an internal set that reflected the actual
costs, and an external set disclosed to Bank of America and IVI which contained only a
subset of the actual costs. Given this evidence, the Term Lenders’ argument that Bank
of America was aware of Fontainebleau’s inaccurate cost reporting lacks merit.
Notwithstanding, the evidence cited by the Term Lenders does not support the
conclusion that Bank of America was actually aware of any cost concealment. The
Term Lenders cite documents and testimony demonstrating that, in May 2008,
Fontainebleau presented Bank of America with $201 million in change orders. As an
initial matter, I concur with Bank of America that the May 23, 2008 Owner Change Order
is inadmissible under Federal Rules of Evidence 801, 802, and 901 as an
unauthenticated document, the contents of which are hearsay. Even if the Change
Order were admissible, though, the information contained therein does not indicate that
Fontainebleau was concealing cost overruns. Although the documents accompanying
the May 2008 Change Order indicated Fontainebleau knew about select change orders
(amounting to about $41.5 million) for some time, the documents also demonstrated
that, as of May 2008, these change orders were still being negotiated and had not been
finalized. Accordingly, it cannot be said from this evidence that Fontainebleau was
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concealing cost overruns, or that Bank of America knew that Fontainebleau was
concealing cost overruns.
Second, the evidence on summary judgment does not support the Term Lenders
suggestion that Bank of America knew the cost underreporting would continue into the
future. The June 10, 2008 email cited by the Term Lenders indicates that, as of that
date, IVI believed the $210 million in cost increases was not all inclusive. See Dep.
Exh. 217. However, the email also indicates that Bank of America and IVI contacted
Jim Freeman to express their concerns, and Mr. Freeman would ensure IVI was
provided with all necessary information. IVI promptly investigated the additional costs,
see Dep. Exh. 892, and included its assessment in the June Project Status Report, see
Dep. Exh. 868. More specifically, the June PSR stated the March 27, 2008 Anticipated
Cost Report confirmed additional change orders and potential extra cost exposure, and
concluded the March ACR would increase the final budget. See Dep. Exh. 868 at 14.
Thus, the record indicates Bank of America addressed any concerns about cost
overruns with IVI in June 2008, and does not indicate that Bank of America knew that
Fontainebleau concealed those pre-June 2008 overruns. Indeed, it is undisputed that,
for the April, May, and June 2008 Advance Requests, IVI issued Construction
Consultant Advance Certificates, upon which the Disbursement Agreement authorized
Bank of America to rely.
Regarding cost overruns in late 2008 and early 2009, IVI’s January 30, 2009
Project Status Report, PSR 21, indicated it had concerns that Fontainebleau’s cost
disclosures were not accurate and the LEED credits, which reduce construction costs
through tax credits, were lagging.
Despite these concerns, IVI executed the
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Construction Consultant Certificate for the February 2009 Advance Request. Similarly,
although IVI’s March 19, 2009 Construction Consultant Advance Certificate stated it had
declared material errors in the Advance Request and supporting documentation, after
IVI consulted with Fontainebleau and Fontainebleau revised the March request, IVI
issued a Construction Consultant Advance Certificate approving the request.
The
Disbursement Agreement specifically authorized Bank of America to rely on IVI’s
Certificate, and Bank of America had no obligation to independently investigate whether
the concerns expressed in the Project Status Reports had been adequately resolved.
Had the parties wanted to vest Bank of America with such an obligation, they could
have included the “reasonable diligence” language employed in Section 2.4.4 with
respect to Bank of America’s obligation to ensure IVI performed its review and delivered
the Certificate in a timely manner. See Disb. Agmt. § 2.4.4. As a result, and especially
in light of IVI’s Certificates, on which Bank of America was expressly authorized to rely,
Bank of America did not have actual knowledge of any cost overruns that would have
caused a condition precedent to fail or otherwise require the issuance of a Stop Funding
Notice.
Moreover, as Bank of America became aware of potential cost overruns, it
communicated with, and facilitated communications between, the Lenders and
Fontainebleau. For example, in February 2009, when JPMorgan Chase requested from
Bank of America information regarding the issues raised in PSR 21, Bank of America
promptly requested the information from Fontainebleau.
After Fontainebleau
responded, Bank of America asked Fontainebleau to schedule a lender call to discuss
its response. Fontainebleau initially refused, and in early March, Bank of America again
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requested Fontainebleau meet with the Lenders and again requested information
regarding Project costs. Upon Bank of America’s requests, Fontainebleau finally held a
Lender meeting in Las Vegas on March 21, 2009.
Similarly, after Fontainebleau submitted its revised March 2009 Advance
Request, and IVI issued the necessary Construction Consultant Advance Certificate,
Bank of America promptly made the revised Request and Certificate available to the
Lenders. It cannot be said, based on these facts and with all inferences in favor of the
Term Lenders, that Bank of America acted in bad faith, with reckless disregard for the
Term Lenders’ rights, or the intent to harm the Term Lenders, or even knew of the
failure of any conditions precedent related to the actively-concealed Project cost
overruns.
3.
First National Bank of Nevada Repudiation
In July 2008, the Comptroller of Currency closed the First National Bank of
Nevada (“FNBN”) and appointed the FDIC as receiver. In late December, the FDIC
formally repudiated FNBN’s unfunded Senior Credit Facility commitments, which
amounted to less than 0.6 percent of the $1.85 billion Senior Credit Facility. The Term
Lenders argue that, once the FDIC repudiated FNBN’s commitment, FNBN was in
Lender Default under the Credit Agreement, causing several conditions precedent
(Sections 3.3.2, 3.3.3, 3.3.21, and 3.3.11) to fail, and Bank of America disbursed funds
in the known failure of condition precedents. Bank of America argues the default was
not material, and therefore was not a condition precedent failure.
Although materiality is generally for the finder of fact, “where the evidence
concerning the materiality is clear and substantially uncontradicted, the question is a
matter of law for the court to decide.” Wiljeff, LLC v. United Realty Mgmt. Corp., 920
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N.Y.S.2d 495, 497 (N.Y. App. Div. 2011) (granting partial summary judgment on issue
of materiality).
Here, with all inferences in favor of the Term Lenders, including
consideration of the Lehman bankruptcy and other criteria in the market, I conclude the
FNBN repudiation was not material, as reasonable lenders and borrowers would not
expect a $1.85 billion loan facility to fail due to a repudiation of less than $12 million,
especially when the Project remained In Budget by over $100 million. See Feinman v.
Dean Witter Reynolds, Inc., 84 F.3d 539, 540–41 (2d Cir. 1996) (affirming district court
judgment, in proxy rules context, that misstatements were immaterial as a matter of
law).
If the sophisticated parties to the Credit and Disbursement Agreements had
intended any Lender Default to constitute a Default of the Credit Agreement, they would
have included it as a specifically-delineated Event of Default in the Credit Agreement,
Section 7 or Disbursement Agreement, Section 8.
Even if the FNBN repudiation caused numerous conditions precedent to fail,
Bank of America did not act with gross negligence or exhibit willful misconduct in
approving Advance Requests in the face of the repudiation. FNBN’s commitment was
only 0.6 percent of the Senior Credit Facility, and, according to the December 2008
Advance Request, the Project was significantly In Balance. Accordingly, even if the
FNBN repudiation caused numerous conditions precedent to fail and Bank of America
knew of this failure, viewing the evidence will all inferences in favor of the Term
Lenders, no reasonable fact finder could conclude that Bank of America acted in bad
faith or with disregard for the Term Lenders’ rights in disbursing funds in the face of a
repudiation of such a minimal amount and allowing the Project to continue.
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4.
March 2009 Advance Request and Defaulting Lenders
On March 9, 2009, Fontainebleau submitted a revised Notice of Borrowing,
requesting $350 million in Delay Draw funds. Two of the Delay Draw Term Lenders—Z
Capital and Guggenheim—did not fund their commitments.
Z Capital and
Guggenheim’s share was less than $23 million of the $350 million draw (roughly 1
percent of the Senior Credit Facility, and 6 percent of the March 2009 draw). Similar to
the arguments raised with respect to the First National Bank of Nevada repudiation, the
Term Lenders argue these lenders’ failure to fund was a default, caused numerous
conditions precedent to fail, and Bank of America disbursed funds in the face of the
known failure of conditions precedent. Further, the Term Lenders argue that these
Lenders’ commitments were material, as excluding these commitments caused the In
Balance test to fail.
As with the FNBN repudiation, I conclude the Z Capital and Guggenheim’s failure
to fund was not material, as, even though the failure caused the In Balance Test to fail,
the commitment was minimal in the context of the Senior Credit Facility, had no
immediate impact on the loan facility because $327 million in Delay Draw Term Loans
had been funded, while only $138 million was requested, and no reasonable investor or
borrower would expect—or, as discussed below, would request—the loan facility to fail
under these circumstances.
Furthermore, even if the failure of Z Capital and Guggenheim caused conditions
precedent to fail, Bank of America did not act with gross negligence in disbursing the
March 2009 Advance Request. Before disbursing the funds, on March 23, 2009, Bank
of America sent the Lenders a letter disclosing Z Capital and Guggenheim’s failure to
fund.
Bank of America advised that excluding Z Capital and Guggenheim’s
85
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 86 of 93
commitments from the Available Funds would cause the In Balance test to fail, stated it
was willing to include the unfunded commitment in the Available Funds component of
the March 2009 Advance, and invited any lender who disagreed to inform Bank of
America. Although two Lenders replied to the correspondence, no Lender disagreed
with Bank of America’s position regarding the March 2009 Advance. Accordingly, Bank
of America was not grossly negligent or exhibiting willful misconduct—i.e., it was not
indifferent to the Term Lenders’ rights or intentionally trying to harm them—in disbursing
the March 2009 funds.
5.
Timing of the March 2009 Advance Request
I turn finally to the timing of the March 2009 Advance Request. On March 11,
2009, Fontainebleau submitted an Advance Request with an Advance Date of March
25, 2009. Approximately one week later, on March 19, 2009, IVI issued a Construction
Consultant Advance Certificate declaring it had discovered material errors in the
Advance Request and supporting documentation and was concerned about the Project
costs. Fontainebleau worked with IVI to address IVI’s concerns, and Fontainebleau
submitted a revised Advance Request on March 23, 2009, and another revised Request
on March 25, 2009. The Term Lenders contend Bank of America should have rejected
the revised Requests as untimely under Section 2.4 of the Disbursement Agreement,
and Bank of America could not in good faith have approved the Requests.
Regarding the timing of the revised Requests, the Term Lenders argue that,
pursuant to Section 2.4.1 of the Disbursement Agreement, Fontainebleau had to submit
its March Advance Request by March 11; Section 2.4 allows resubmission of a Request
only in the case of minor or purely mathematical errors, not where the Construction
Consultant rejected the Request for material misstatements; and Section 2.4.4(b)
86
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 87 of 93
requires delivery of the Advance Request no later than four Banking Days prior to the
requested Advance Date.
Contrary to the Term Lenders’ interpretation of the
Disbursement Agreement, Section 2.4 does not restrict Fontainebleau’s right to
supplement its Advance request to correct minor or mathematical errors, it merely
permits the Disbursement Agent to require Fontainebleau to resubmit the Advance
Request in these circumstances.
See Disb. Agmt. § 2.4.4 (“In the event … the
Disbursement Agent finds any minor or purely mathematical errors or inaccuracies in
the Advance Request or supporting materials, the Disbursement Agent may require the
Project Entities to revise and resubmit the same.”)
Indeed, Section 2.4.5, entitled
“Supplementation of Advance Requests,” specifically permits Fontainebleau to revise an
Advance request in the event it discovers any updates required to be made “prior to the
Scheduled Advance Date” and is not limited to mathematical errors.
Regarding the timing of Bank of America’s approval of an Advance Request,
Section 2.4.5’s provision that the Disbursement Agent use “reasonable diligence to
review and approve such supplemental Advance Request and to cause the
Construction Consultant to review and approve the same not less than three Banking
Days prior to the Scheduled Advance date,” requires only that Bank of America make
reasonable efforts under the circumstances. It does not state—or mean—that Bank of
America cannot review and approve a supplemental Advance Request less than three
Banking Days before the Scheduled Advance Date, especially when that supplemental
Request is submitted less than three Days before the Scheduled Advance Date.
Moreover, Section 2.4.4’s requirement that IVI submit a Construction Consultant
Advance Certificate not later than four Banking Days prior to the requested Advance
87
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 88 of 93
Date applies to Fontainebleau’s original request. IVI fulfilled this requirement, as it
submitted its initial Construction Consultant Advance Certificate on March 19, 2009.
The four Banking Days requirement does not apply to IVI’s approval of a supplemental
request, as Section 2.4.5 controls IVI’s approval of a supplemental request.
The Term Lenders next argue that Bank of America could not, in good faith, have
approved the revised March 2009 Request in the face of the “funding crunch” (as
evidenced, according to the Term Lenders, by the Lehman bankruptcy, FNBN
repudiation, and Guggenheim/Z Capital defaults) and cost overruns. In further support
of this argument, the Term Lenders cite to Bank of America’s internal risk
classifications, downgrading the risk rating of the Project. These internal risk ratings are
irrelevant to my analysis, as they were conducted by Bank of America, as a Lender, and
Section 9.2.5 does not permit the imputation of knowledge from Bank of America as
Lender to Bank of America as Disbursement Agent. Moreover, Section 2.4.5 requires
Bank of America, as Disbursement Agent to consider the submission of a revised
Advance Request “in good faith.”
Fontainebleau’s supplemental March Advance
Requests showed the Project In Balance by almost $14 million, and over $14 million.
Given this representation and IVI’s certifications, Bank of America, as Disbursement
Agent, did not act in bad faith in approving the March 2009 Request.
VI.
Requests for Judicial Notice
In conjunction with the motions for summary judgment, the Term Lenders filed a
Request for Judicial Notice [ECF No. 261 and September 9, 2011 Declaration of Robert
Mockler and Request for Judicial Notice], requesting I take judicial notice, pursuant to
Federal Rule of Evidence 201, of a Proof of Claim submitted by Fontainebleau Las
Vegas Retail, LLC in the Lehman bankruptcy [Non-Dep. Exh. 1504]. The Term Lenders
88
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 89 of 93
request judicial notice of the Proof of Claim to “evidence that Fontainebleau filed the
Proof of Claim and alleged that Lehman’s failure to pay its portion of Advance Requests
beginning in September 2008 and on four occasions thereafter were defaults under the
Retail Facility, and not for the truth of the matters asserted therein.” See Term Lenders’
Reply in Support of Judicial Notice [ECF No. 286] at 1. “A court may take judicial notice
of a document filed in another court not for the truth of the matters asserted in the other
litigation, but to establish the fact of such litigation and related filings.” Autonation, Inc.
v. O’Brien, 347 F. Supp. 2d 1299, 1310 (S.D. Fla. 2004) (citing U.S. v. Jones, 29 F.3d
1549, 1553 (11th Cir. 1994)). Bank of America does not oppose the taking of judicial
notice of the Proof of Claim solely for the fact of the document’s existence, and not for
the truth of the matters contained therein. See Bank of America Opposition to Plaintiff’s
Request for Judicial Notice [ECF Nos. 271 and 292].
Here, however, the fact of
Fontainebleau’s filing of a Proof of Claim alleging there were defaults under the Retail
Agreement is not material to the pending summary judgment motions. Bank of America
does not dispute that Lehman did not fund its portion of the September 2008, December
2008, January 2009, and February 2009 Retail Advances. Whether this failure to fund
constituted a default under the Retail Agreement and the failure of a condition
precedent under the Disbursement Agreement as a matter of law is for the Court, not
Fontainebleau, to determine.
Accordingly, I deny the Term Lenders’ Request for
Judicial Notice.
Bank of America filed a Request for Judicial Notice [ECF No. 272], requesting I
take judicial notice of (1) an article by Pierre Paulden entitled Highland Shuts Funds
Amid ‘Unprecedented’ Disruption [ECF No. 272, Exh. 28] (“Paulden Article”) and (2) the
89
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 90 of 93
March 25, 2011 Complaint in Brigade Leveraged Capital Structures Fund, Ltd. v.
Fontainebleau Resorts, LLC, filed in District Court in Clark County, Nevada [ECF No.
272, Exh. 101] (“Brigade Complaint”). Bank of America seeks to use the fact of the
Paulden Article, not its contents, to support its proposition that, “[i]n September 2008,
numerous credible publications reported that certain Highland finds had suffered losses
and faced a liquidity crunch.”, and to justify its response to Highland’s September 2008
claims regarding the Lehman bankruptcy and its funding of the September 2008 Retail
Advance. See BofA Response AMA ¶ 118, BofA Opp. Memo. at 16. But the Paulden
Article, dated October 16, 2008, does not demonstrate reports of Highland’s losses in
September 2008. Further, Bank of America has cited no evidence to indicate any of the
Bank of America individuals who evaluated Highland’s claims actually read the Paulden
Article, and therefore cannot establish that the Paulden Article was relevant to Bank of
America’s assessment of Highland’s claims.
Finally, the communications between
Highland and Bank of America regarding the Lehman bankruptcy and Lehman’s failure
to fund the September 2008 Retail Advance occurred between from late September
2008 through October 13, 2008, before the Paulden Article was published. I conclude,
therefore, the fact of the Paulden Article is not relevant to the resolution of the pending
summary judgment motions and deny Bank of America’s request for judicial notice. See
Cravens v. Smith, 610 F.3d 1019, 1029 (8th Cir. 2010) (“[A] court may properly decline
to take judicial notice of documents that are irrelevant to the resolution of a case.”); Am.
Prairie Const. Co. v. Hoich, 560 F.3d 780 (8th Cir. 2009) (“Caution must also be taken
to avoid admitting evidence, through the use of judicial notice, in contravention of the
relevancy, foundation, and hearsay rules.”); see also Shahar v. Bowers, 120 F.3d 211,
90
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 91 of 93
214 (11th Cir. 1997) (noting the taking of judicial notice is, “as a matter of evidence law,
a highly limited process” because “the taking of judicial notice bypasses the safeguards
which are involved with the usual process of proving facts by competent evidence ….”).
Turning to the Brigade Complaint, Bank of America seeks admission of the
Brigade Complaint not only for the fact that it was filed, but also for the content therein,
arguing the Complaint’s allegations are relevant to the instant action and constitute a
party admission and are therefore an exception to the hearsay rule.
The Brigade
plaintiffs, some of whom are Term Lenders, allege, inter alia, that Fontainebleau
executives and affiliates made material misrepresentations in the Advance Requests,
hid cost overruns, and concealed adverse information regarding the Lehman
bankruptcy’s implications for the Project. Bank of America argues these allegations are
relevant to the Term Lenders’ claim that Bank of America breached its duties as
Disbursement Agent and Bank Agent, and, more specifically, had knowledge of
“Fontainebleau’s Lehman-related machinations.”
[ECF No. 301 at 3].
As set forth
above, independent of the Brigade Complaint, I have concluded the evidence of record
on summary judgment, with all inferences in favor of the Term Lenders, does not
demonstrate that Bank of America had knowledge of Fontainebleau’s “Lehman-related
machinations” or cost overruns. Accordingly, I deny Bank of America’s request for
judicial notice of the Brigade Complaint as moot.
VII.
Conclusion
For reasons discussed, I conclude Bank of America, as Disbursement Agent or
Bank Agent, did not breach the Disbursement Agreement, nor did it act with bad faith,
gross negligence, or willful misconduct in the performance of its duties under the
Disbursement Agreement. The Disbursement Agreement imposed on Bank of America
91
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 92 of 93
no duty to inquire or investigate whether Fontainebleau’s representations that all
conditions precedent had been met were accurate, and, with all inferences in favor of
the Term Lenders, the Term Lenders have failed to present a genuine issue of material
fact as to whether Bank of America, as Disbursement Agent or Bank Agent, had actual
knowledge of the failure of any conditions precedent to disbursement, including, but not
limited to, Fontainebleau funding Lehman’s portion of the September 2008 Retail
Advance, Fontainebleau reimbursing ULLICO for a portion of the December 2008
through March 2009 Retail Advances, and the Project’s cost overruns.
Although not germane to my analysis, I would be remiss by not observing that,
while the Term Lenders argue on summary judgment that Bank of America should have
pulled the plug on the Project as early as September 2008, they argued in their
complaints and on motion to dismiss that the Revolving Lenders should have funded the
Project as late as March and April 2009. Further, while the Term Lenders argue on
summary judgment that Bank of America should have been aware of issues with the
Retail Facility and Project costs, they allege in other actions that Fontainebleau
perpetrated a fraud against the Lenders and Bank of America in actively concealing cost
overruns and misleading interested parties about the status and potential success of the
Project. That said, having reviewed the motions for summary judgment and related
requested for judicial notice and being otherwise duly advised, it is HEREBY ORDERED
and ADJUDGED as follows:
1.
Bank of America’s Motion for Summary Judgment [ECF No. 255] is
GRANTED.
92
Case 1:09-md-02106-ASG Document 340 Entered on FLSD Docket 03/19/2012 Page 93 of 93
2.
The Term Lenders’ Motion for Partial Summary Judgment [ECF No. 258] is
DENIED.
3.
The parties’ Requests for Judicial Notice [ECF No. 261 and 272] are DENIED.
4.
All pending motions are DENIED as MOOT and all hearings are
CANCELLED.
5.
The Clerk of the Court is instructed to CLOSE this case.
6.
Final judgment will be entered by separate court order pursuant to Federal
Rule of Civil Procedure 58.
DONE AND ORDERED in Chambers at Miami, Florida, this 19th day of March,
2012.
_____________________________________
THE HONORABLE ALAN S. GOLD
UNITED STATES DISTRICT COURT JUDGE
cc:
Clerk of the United States Court of Appeals for the Eleventh Circuit
(related to your Case No. 11-10740)
Clerk of the United States Judicial Panel on Multidistrict Litigation
Magistrate Judge Jonathan Goodman
All Counsel of Record
93
Case 1:09-md-02106-ASG Document 341 Entered on FLSD Docket 03/20/2012 Page 1 of 1
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Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 1 of 8
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO 09-MD-02106-CIV-GOLD/GOODMAN
IN RE: FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL No. 2106
This document relates to 09-23835-CIVGOLD/GOODMAN
/
NOTICE OF APPEAL
Notice is hereby given that the plaintiffs in Avenue CLO Fund, Ltd., et al v. Bank of
America, N.A., et al., Case No. 09-23835-CIV-GOLD/GOODMAN, hereby appeal to the United
States Court of Appeals for the Eleventh Circuit from the Final Judgment entered on March 19,
2012 and docketed on March 20, 2012 in both the multidistrict litigation [Case No. 09-md02106- GOLD/GOODMAN, D.E. # 341] and the underlying case [Case No. 09-23835-CIVGOLD/GOODMAN, D.E. # 128 ], and the related MDL Order Number 62: Omnibus Order
Granting Bank of America’s Motion for Summary Judgment[ECF No. 255] and Denying Term
Lenders’ Motion for Partial Summary Judgment [ECF No. 258]; Closing Case entered and
docketed on March 19, 2012 in the multidistrict litigation [Case No. 09-md-02106GOLD/GOODMAN, D.E. # 339 & 340].
This Notice of Appeal has simultaneously been filed and docketed in both the
multidistrict litigation case, Case No. 09-md-02106- GOLD/GOODMAN, and the underlying
case, Case No. 09-23835-CIV-GOLD/GOODMAN, as the above referenced Final Judgment was
entered and docketed in both cases.
Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 2 of 8
Dated: March 22, 2012
Respectfully submitted,
____s/ Lorenz M. Prüss, Esq.
David A. Rothstein, Esq.
Fla. Bar No.: 056881
DRothstein@dkrpa.com
Lorenz M. Prüss, Esq.
Fla Bar No.: 581305
LPruss@dkrpa.com
DIMOND KAPLAN & ROTHSTEIN, P.A.
2665 South Bayshore Drive, PH-2B
Miami, FL 33133
Telephone:
(305) 374-1920
Facsimile:
(305) 374-1961
Local Counsel for Plaintiff Term Lenders
Of counsel:
J. Michael Hennigan
Kirk D. Dillman
MCKOOL SMITH, P.C.
865 South Figueroa Street, Suite 2900
Los Angeles, California 90017
Telephone: (213) 694-1200
Facsimile: (213) 694-1234
Email: Hennigan@mckoolsmithhennigan.com
KDillman@mckoolsmithhennigan.com
-1-
Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 3 of 8
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a copy of the foregoing NOTICE OF APPEAL
was filed with the Clerk of the Court using CM/ECF. I also certify that the foregoing document
is being served this day on all counsel of record or pro se parties identified on the attached
Service List in the manner specified either via transmission of Notices of Electronic Filing
generated by CM/ECF or in some other authorized manner for those counsel or parties who are
not authorized to receive electronically the Notice of Electronic Filing.
Dated: March 22, 2012
s/Lorenz Prüss __________
Lorenz M. Prüss, Esq.
-1-
Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 4 of 8
SERVICE LIST
Attorneys:
Representing:
Bradley J. Butwin
Daniel L. Cantor
Jonathan Rosenberg
William J. Sushon
Ken Murata
Asher Rivner
O’MELVENY & MYERS LLP
Times Square Tower
7 Times Square
New York, NY 10036
Tele: (212) 326-2000
Fax: (212) 326-2061
Defendant and Appellees
Bank of America, N.A.
Merrill Lynch Capital Corporation
Craig V. Rasile
Kevin Michael Eckhardt
HUNTON & WILLIAMS
1111 Brickell Avenue
Suite 2500
Miami, FL 33131
Tele: (305) 810-2579
Fax: (305) 810-2460
Defendant and Appellees
Bank of America, N.A.
Merrill Lynch Capital Corporation
David J. Woll
Lisa H. Rubin
Thomas C. Rice
Peri L. Zelig
Donald D. Conklin
SIMPSON THACHER & BARTLETT LLP
425 Lexington Avenue
New York, NY 10017-3954
Tele: (212) 455-3040
Fax: (212) 455-2502
Appellees
JP Morgan Chase Bank, N.A.
Barclays Bank PLC
Deutsche Bank Trust Company Americas
The Royal Bank of Scotland PLC
-2-
Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 5 of 8
Attorneys:
Representing:
John Blair Hutton III, Esq,
Mark D. Bloom
GREENBERG TAURIG
333 Avenue of the Americas
Suite 4400
Miami, FL 33131
Tele: (305) 579-0500
Fax: (305) 579-0717
Appellees
JP Morgan Chase Bank, N.A.
Barclays Bank PLC
Deutsche Bank Trust Company Americas
The Royal Bank of Scotland PLC
Sarah A. Harmon
BAILEY KENNEDY
8984 Spanish Ridge Avenue
Las Vegas, NV 89148
Tele: (702) 562-8820
Fax: (702) 562-8821
Appellees
JP Morgan Chase Bank, N.A.
Barclays Bank PLC
Deutsche Bank Trust Company Americas
The Royal Bank of Scotland PLC
Frederick D. Hyman
Jason I. Kirschner
Jean-Marie L. Atamian
MAYER BROWN LLP
1675 Broadway
New York, NY 10019-5820
Tele: (212) 506-2500
Fax: (212) 261-1910
Appellee
Sumitomo Mitsui Banking Corporation
Stephen Trivett Maher
Robert Gerald Fracasso, Jr.
SHUTTS & BOWEN
201 S Biscayne Boulevard
Suite 1500 Miami Center
Miami, FL 33131
Tele: (305) 358-6300
Fax: (305) 381-9982
Appellee
Sumitomo Mitsui Banking Corporation
Phillip A. Geraci
Steven C. Chin
Aaron Rubinsten
W. Stewart Wallace
KAYE SCHOLER LLP
425 Park Avenue
New York, NY 10022-3598
Tele: (212) 836-8000
Fax: (212) 836-8689
Appellee
HSH Nordbank AG, New York Branch
-3-
Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 6 of 8
Attorneys:
Representing:
Arthur Halsey Rice
RICE PUGATCH ROBINSON &
SCHILLER
101 NE 3 Avenue
Suite 1800
Fort Lauderdale, FL 33301
Tele: (305) 379-3121
Fax: (305) 379-4119
Appellee
HSH Nordbank AG, New York Branch
Gregory S. Grossman
ASTIGARRAGA DAVIS MULLINS &
GROSSMAN
701 Brickell Avenue, 16th Floor
Miami, FL 33131-2847
Tele: (305) 372-8282
Fax: (305) 372-8202
Appellee
MB Financial Bank, N.A.
Laury M. Macauley
LEWIS & ROCA LLP
50 W Liberty Street
Reno, NV 89501
Tele: (775) 823-2900
Fax: (775) 321-5572
Appellee
MB Financial Bank, N.A.
Peter J. Roberts
SHAW GUSSIS FISHMAN FLANTZ
WOLFSON & TOWBIN LLC
321 N Clark Street, Suite 800
Chicago, IL 60654
Tele: (312) 276-1322
Fax: (312) 275-0568
Appellee
MB Financial Bank, N.A.
Anthony L. Paccione
Arthur S. Linker
Kenneth E. Noble
KATTEN MUCHIN ROSENMAN LLP
575 Madison Avenue
New York, NY 10022-2585
Tele: (212) 940-8800
Fax: (212) 940-8776
Appellee
Bank of Scotland plc
-4-
Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 7 of 8
Attorneys:
Representing:
Andrew B. Kratenstein
Michael R. Huttenlocher
MCDERMOTT WILL & EMERY LLP
340 Madison Avenue
New York, NY 10173
Tele: (212) 547-5400
Appellee
Camulos Master Fund, L.P.
Raquel A. Rodriguez
MCDERMOTT WILL & EMERY LLP
201 S. Biscayne Blvd.
Suite 2200
Miami, FL 33131
Tele: (305) 358-3500
Fax: : (305) 347-6500
Appellee
Camulos Master Fund, L.P.
Harold Defore Moorefield Jr.
STEARNS WEAVER MILLER
WEISSLER ALHADEFF & SITTERSON
Museum Tower
150 W Flagler Street, Suite 2200
Miami, FL 33130
Tele: (305) 789-3467
Fax: (305) 789-3395
Appellee
Bank of Scotland plc
Russell Merrin Blain
Micahel J. Hooi
Harley E. Reidel
Susan Heath Sharp
STICHTER REIDEL BLAIN & PROSSER
110 East Madison Street
Suite 200
Tampa, FL 33602
Tele: (813) 229-0144
Fax: (813) 229-1811
Appellant Chapter 7 Trustee
-5-
Case 1:09-md-02106-ASG Document 342 Entered on FLSD Docket 03/22/2012 Page 8 of 8
Attorneys:
Representing:
Gavin Schryver
David M. Friedman
Jed I. Bergman
Seth A. Moskowitz
KASOWITZ BENSON TORRES &
FRIEDMAN
1633 Broadway, 22nd Floor
New York, NY 10019-6799
Tele: (212) 506-1700
Fax: (212) 506-1800
Appellant Chapter 7 Trustee
Soneet R. Kapila
-6-
Case 1:09-md-02106-ASG Document 343 Entered on FLSD Docket 03/22/2012 Page 1 of 1
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Case 1:09-cv-23835-ASG Document 347 Entered on FLSD Docket 04/12/2012 Page 1 of 1
Case: 12-11815
Date Filed: 04/06/2012
Page: 1 of 8
APR 12 2012
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO 09-MD-02106-CIV-GOLD/GOODMAN
IN RE: FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL No. 2106
This document relates to 09-23835-CIVGOLD/GOODMAN
/
NOTICE OF APPEAL
Notice is hereby given that the plaintiffs in Avenue CLO Fund, Ltd., et al v. Bank of
America, N.A., et al., Case No. 09-23835-CIV-GOLD/GOODMAN, hereby appeal to the United
States Court of Appeals for the Eleventh Circuit from the Final Judgment entered on March 19,
2012 and docketed on March 20, 2012 in both the multidistrict litigation [Case No. 09-md02106- GOLD/GOODMAN, D.E. # 341] and the underlying case [Case No. 09-23835-CIVGOLD/GOODMAN, D.E. # 128 ], and the related MDL Order Number 62: Omnibus Order
Granting Bank of America’s Motion for Summary Judgment[ECF No. 255] and Denying Term
Lenders’ Motion for Partial Summary Judgment [ECF No. 258]; Closing Case entered and
docketed on March 19, 2012 in the multidistrict litigation [Case No. 09-md-02106GOLD/GOODMAN, D.E. # 339 & 340].
This Notice of Appeal has simultaneously been filed and docketed in both the
multidistrict litigation case, Case No. 09-md-02106- GOLD/GOODMAN, and the underlying
case, Case No. 09-23835-CIV-GOLD/GOODMAN, as the above referenced Final Judgment was
entered and docketed in both cases.
1 of 1
Case 1:09-md-02106-ASG Document 348 Entered on FLSD Docket 04/18/2012 Page 1 of 3
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MASTER CASE NO. 09-2106-MD-GOLD/GOODMAN
In re:
FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL NO. 2106
This document relates to:
Case No. 09-CV-23835-ASG
__________________________________/
JOINT MOTION FOR EXTENSION OF DEADLINE
FOR SUBMITTING BILL OF COSTS
Plaintiffs in Avenue CLO Fund, Ltd. v. Bank of America, N.A., Case No. 09-CV-23835ASG (the “Avenue Action”), and defendant Bank of America, N.A. (“BANA”) submit this joint
motion respectfully requesting that the Court extend BANA’s deadline for filing its bill of costs
under Federal Rule of Civil Procedure 54(d)(1) and Southern District of Florida Local Rule
7.3(c).
WHEREAS, on March 19, 2012, the Court issued MDL Order Number 62 [ECF No. 340]
granting BANA’s motion for summary judgment and denying Plaintiffs’ motion for partial
summary judgment; and
WHEREAS, later that day, the Court entered judgment in favor of BANA and against
Plaintiffs [ECF No. 341];
WHEREAS, the parties are continuing to meet and confer as required by Southern
District of Florida Local Rule 7.1(a) regarding certain costs BANA is seeking to recover under
19 U.S.C. § 1920; and
Case 1:09-md-02106-ASG Document 348 Entered on FLSD Docket 04/18/2012 Page 2 of 3
WHEREAS, the parties have reached an agreement concerning BANA’s time to file its
bill of costs.
NOW, THEREFORE, the undersigned parties hereby respectfully request that this Court
approve the following extension:
1.
The parties respectfully request that BANA’s time to file its bill of costs be
extended to and including April 30, 2012 to allow the parties to continue meeting and conferring.
Dated: April 18, 2012
Respectfully submitted,
By: /s/ Jamie Zysk Isani
HUNTON & WILLIAMS LLP
Jamie Zysk Isani
1111 Brickell Avenue, Suite 2500
Miami, Florida 33131
Telephone: (305) 810-2576
Facsimile: (305) 810-1661
E-mail: jisani@hunton.com
- and O’MELVENY & MYERS LLP
Bradley J. Butwin (pro hac vice)
Jonathan Rosenberg (pro hac vice)
Daniel L. Cantor (pro hac vice)
William J. Sushon (pro hac vice)
7 Times Square
New York, New York 10036
Telephone: (212) 326-2000
Facsimile: (212) 326-2061
Attorneys for Bank Of America, N.A.
2
Case 1:09-md-02106-ASG Document 348 Entered on FLSD Docket 04/18/2012 Page 3 of 3
- and DIMOND KAPLAN & ROTHSTEIN, P.A.
By: /s/ David Rothstein
David A. Rothstein
2665 South Bayshore Drive, Penthouse Two
Miami, Florida 33133
Telephone: (305) 374-1920
Facsimile: (305) 374-1961
Email: drothstein@dkrpa.com
-andMCKOOL SMITH HENNIGAN LLP
Kirk D. Dillman (pro hac vice)
Robert Mockler (pro hac vice)
865 South Figueroa Street, Suite 2900
Los Angeles, California 90017
Telephone: (213) 694-1200
Facsimile: (213) 694-1234
Attorneys for Plaintiffs Avenue CLO Fund,
Ltd., et al.
[Electronically filed by Jamie Zysk Isani with
consent of the parties.]
3
Case 1:09-md-02106-ASG Document 348-1 Entered on FLSD Docket 04/18/2012 Page 1 of 1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
MASTER CASE NO. 09-2106-MD-GOLD/GOODMAN
In re:
FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL NO. 2106
This document relates to:
ALL ACTIONS
__________________________________/
[PROPOSED] ORDER EXTENDING BANA’S TIME
FOR SUBMITTING BILL OF COSTS
THIS MATTER came before the Court for consideration upon the Joint Motion for
Extension of BANA’s Time For Submitting Bill of Costs [DE __] (the “Motion”) filed by
Plaintiffs in Avenue CLO Fund, Ltd. v. Bank of America, N.A., Case No. 09-CV-23835-ASG and
Defendant Bank of America, N.A. The Court, having considered the Motion, the record, and the
representations of counsel, finds good cause to grant the Motion.
Accordingly, it is hereby ORDERED AND ADJUDGED that:
1.
The Motion [DE __] is GRANTED.
2.
BANA’s time to file its bill of costs be extended to and including April 30, 2012 .
DONE and ORDERED in Chambers in Miami, Florida this ___ day of __________, 2012.
ALAN S. GOLD
UNITED STATES DISTRICT JUDGE
Case 1:09-md-02106-ASG Document 349 Entered on FLSD Docket 04/23/2012 Page 1 of 2
UNI
TED STATES DI
STRI COURT
CT
SO UTHERN DI
STRI OF FLO RI
CT
DA
CASE NO 09- DM 02106- V- O LD/
CI G
GOO DM AN
I RE:FO NTAI
N
NEBLEAU LAS VEGAS
CO NTRACT LI GATI N
TI
O
MDL No.2106
Thi documentr at t 09- 23835s
el es o CVASG.
M DL ORDER NO .62;G RANTI JO I M OTI N FO R EXTENSI N O F TI E FO R
NG
NT
O
O
M
SUBM I NG BI O F CO STS I
TTI
LL
ECF NO .3481 STAYI MO TI N FOR COSTS
:
NG
O
Thi Cause i bef e t Cour upon t padi Joi M oton f Ext on of
s
s or he
t
he
es' nt
i or ensi
Deadl e f Su tig Bi o Coss ( No.3 ) i whih Bank o Amer a r ess
i or bmi n l f t ECF
n
t
l
48 ,n c
f
i equ t
c
untlA prl30,2012 t fl is Moton f Cost pur
i
i
o i t
e
i or
s
suantt LocalRul 7. and Feder
o
e 3
al
Rul o Ci lPr edu e 54( . Igr t Mo i f Exen i o Ti
e f vi oc r
d)
ant he ton or t son f me. Howev ,
er
n ig t e Fial udg tI No.3 )h b app ed I No.3 ( eaI ,
ot h n J men ECF
n
41 as een eal ECF
42) '
App '
'
)
an Ban o Amer a' en iemen t co t i pr ia e on j dgmen i i f or Isu
d k f
i s t l t o ss s edc t d u
c
t
t n t av , a
s
s
pont s ay t Moton f Cost pendi r uton oft Appeal Accor ngl i i
e t he
i or
s
ng esol i
he
.
di y, t s
her ORDERED AND ADJUDGED t :
eby
hat
Th Mo i f Exen i o Ti I No.348 i GRANTED an Ban of
e t or t son f me ECF
on
)s
d
k
Am erca shalhave untl prl30,2012 t fl i M oton f Cos s.
i
l
iA i
o i t
e s
i or
t
2.
Upon fl oft M oton f Cost t Moton f Cost and aIf
ii
ng he
i or
s, he
i or
s
I udherr at
el ed
brefng shalbe STAYED pendi r uton oft Appeal
ii
l
ng esol i
he
.
3.
W ihi fve days of r uton oft Appeal t pari shal FI a notce
tn i
esol i
he
, he
tes
l LE
i
wih t Cour i catng t sam e.
t he
t ndi i he
4.
Thi case shalr ai CLOSED.
s
l em n
Case 1:09-md-02106-ASG Document 349 Entered on FLSD Docket 04/23/2012 Page 2 of 2
DO NE AND ORDERED i Cham ber at M i i Fl i t s
n
s
am , orda, hi
day of Aprl
i,
2012.
THE HO NO RABLE ALAN S.GO LD
UNI
TED STATES DI
STRI COURT JUDG E
CT
cc:
Magi r e Judge Goodm an
stat
AI CounselofRecor
I
d
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