United States District Court, Southern District of New York
July 16, 1991
NEW BANK OF NEW ENGLAND, N.A., PLAINTIFF,
THE TORONTO-DOMINION BANK, PROVIDENT NATIONAL BANK, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND THE TORONTO-DOMINION BANK TRUST COMPANY, DEFENDANTS.
The opinion of the court was delivered by: Sweet, District Judge.
The defendants The Toronto-Dominion Bank ("TD Bank"),
Provident National Bank ("Provident"), The Prudential
Insurance Company of America ("Prudential") and The
Toronto-Dominion Bank Trust Company ("TD Trust") have moved
under Rule 56, Fed.R.Civ.P. for summary judgment dismissing
the complaint of plaintiff New Bank of New England, N.A.
("NBNE"), one of four institutional lenders under a syndicated
loan agreement (the "Credit Agreement"). For the reasons set
forth below the motion is granted, and the complaint is
The complaint in this action was filed by NBNE on February
6, 1991, and the instant motion was heard and submitted on
March 26, 1991.
The facts as found here are, except as otherwise noted,
undisputed by the parties.
NBNE is a bridge bank chartered by the Office of the
Comptroller of the Currency under 12 U.S.C. § 1821(n) with its
principal place of business in Boston, Massachusetts. NBNE is
the successor of Bank of New England, N.A. ("BNE"), which has
been placed in receivership by the Comptroller of the Currency.
TD Bank is a Canadian chartered bank with its principal
place of business at Toronto, Ontario, licensed to and doing
business in the State of New York with offices at 31 West 52nd
Street, New York, New York. TD Trust is a New York corporation
with its principal place of business at 42
Wall Street, New York, New York. Provident is a national
banking association with its principal place of business in
Philadelphia, Pennsylvania. Prudential is a New Jersey mutual
insurance company with its principal place of business in
Newark, New Jersey.
On August 25, 1988, Noble Broadcast Group, Inc. ("Noble"),
the borrower, entered into the Credit Agreement with the four
institutional lenders, BNE, TD Bank, Provident and Prudential
The Credit Agreement states that neither that Agreement, any
Note, or any terms of the Agreement or Note may be amended,
supplemented or modified "without the written consent of all
the lenders" if "such amendment, supplement or modification
shall (a) extend the maturity of any Note or any installment
thereof, or reduce the rate or extend the time of payment of
interest thereon. . . ." (Section 13.1).
The Credit Agreement defines certain occurrences as
constituting an "Event of Default." One such occurrence,
defined in § 11.1(a), is that Noble:
shall fail to pay any interest or principal
payment on any Note when due in accordance with
the terms thereof or hereof; or [Noble] shall
fail to pay any other amount required to be paid
hereunder within five Business Days after any
such amount becomes due in accordance with the
In the event of such a default, the Majority Lenders, by
notice of default to Noble, "may" declare all amounts owing
under the Credit Agreement and Notes immediately due and
payable and, upon such acceleration, "may" enforce payment and
exercise all their other rights and remedies (§ 11.1).
The term "Majority Lenders" is defined as "Lenders holding
more than 50% of the aggregate unpaid principal amount of the
Notes. . . ." (§ 1 at p. 9).
The Credit Agreement also provides for the Lenders to waive
an Event of Default, but specifically states at § 11.2 that
"the consent of all Lenders shall be required to waive an Event
of Default under Section 11.1(a). . . ."
Section 13.10 of the Credit Agreement specifies that
California law shall govern all disputes arising under the
At the same time that it signed the Credit Agreement, Noble
pledged its stock in its subsidiaries as collateral to secure
its indebtedness, by means of a Security and Pledge Agreement
(the "Pledge Agreement"). In addition, one of Noble's
subsidiaries pledged its rights under a sales agency agreement
as collateral to secure its guaranty of a portion of Noble's
indebtedness, by means of a Security Agreement (the
Also at that same time, on August 25, 1988, the Lenders
along with two other creditors of Noble (collectively, the
"Creditors") and TD Trust as agent for all of the Creditors
entered into an Intercreditor Agreement in connection with the
Credit Agreement. Among other things, the Intercreditor
Agreement contained § 9(d), entitled "Limitation on Liability
of Creditors to Each Other," which provided that:
No Creditors . . . shall have any liability for
any action taken or omitted to be taken by it or
them . . . in connection with the Credit
Agreement . . . or this Agreement (or any other
documents executed pursuant thereto) except as
expressly provided herein and therein.
The Intercreditor Agreement also stated that the agent, TD
Trust, "shall be liable for its own gross negligence or
willful misconduct." TD Trust holds the collateral which Noble
and its subsidiary pledged to secure Noble's indebtedness to
Since August 1989, Noble and the Lenders have engaged in a
series of negotiations concerning the potential restructuring
of Noble's indebtedness. In connection with these
negotiations, Noble and the Lenders have amended the Credit
Agreement in several respects, including extending Noble's
time to make certain payments. These amendments were
accomplished by means of several agreements, including a
Standstill Agreement, dated August 3, 1989, and an Amended and
Restated Standstill Agreement, dated November 21, 1989. Both
of those agreements have expired.
Noble has defaulted in making payments due under the Credit
On October 23, 1990, BNE notified the other Lenders that
Noble's failure to make payment of interest and principal
constituted an Event of Default under Section 11.1(a) of the
Senior Credit Agreement and that BNE did not consent to a
waiver of the default and requested the other Lenders to
notify Noble of the acceleration of the loan. Thereafter, NBNE
succeeded to all of BNE's rights under the Credit Agreement,
the Intercreditor Agreement, the loans and notes, guarantees
and related security agreements.
On January 23, 1991, TD Bank responded to the October 23
letter, informing NBNE counsel to the bank group had advised
that "no significant period of time should pass without there
being either (i) a waiver of defaults in effect or (ii) an
acceleration of the indebtedness under the Senior Credit
Agreement." The letter also stated: "enclosed for your
information is a copy of a letter that Toronto-Dominion Bank,
on its behalf and on behalf of Provident National Bank and The
Prudential Insurance Company of America, intends to send to
Noble Broadcast Group, Inc." The enclosed letter indicated
that TD Bank, Provident and Prudential "hereby agree, as
Majority Lenders, to refrain from declaring an acceleration
under Section 11.1 of the Senior Credit Agreement as a result
of the currently existing payment default thereunder." The
letter stated that the agreement to refrain from accelerating
was given on the understanding that Noble would continue to
negotiate for a restructuring of its capital structure.
On January 24, 1991, NBNE notified TD Bank that an event of
default by Noble existed and was continuing, that NBNE did not
consent to any waiver of Noble's default, nor did it join in
any position that might be characterized as an agreement to
refrain from accelerating Noble's indebtedness.
On February 1, NBNE sent a second notice to TD Bank stating
that NBNE did not consent to any waiver of Noble's default,
and would not continue to participate in negotiations for a
restructuring of Noble's indebtedness, and that no other
lender was authorized to represent NBNE in such negotiations.
The negotiations between Noble and the other Lenders
continued, and have resulted in a Summary of Indicative Terms
and Conditions for the Restructuring of the Existing Senior
Debt of Noble Broadcast Group, Inc., dated January 23, 1991,
February 11, 1991, and March 8, 1991. This summarizes the
terms the other Lenders have been proposing for a
restructuring of Noble's debt; under the proposal, all of the
Lenders, including NBNE, would agree to extend or negotiate
the time for payment of principal, to extend the time for
payment of interest, and to reduce the interest rate paid by
Summary Judgment Is Appropriate
The facts as set forth above are not disputed by the
parties. Because the case can be resolved as a matter of law
on the basis of these facts, summary judgment is appropriate.
See Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).
The Agreements Are Not Ambiguous
Under the express language of the applicable agreements NBNE
cannot compel the majority lenders to accelerate and
As NBNE itself alleges:
The Intercreditor Agreement provides that the
agent may act in certain circumstances in
accordance with the directions of the majority
lenders, that is, the holders of more than 50% of
the unpaid debt under the Agreement. The Senior
Credit Agreement contains a similar provision. For
example, the Senior Credit Agreement provides that
a majority of the lenders may require the agent to
accelerate the loan upon specified events of
default. Defendants TD Bank, Provident and
Prudential together constitute majority lenders
under both the Senior
Credit Agreement and the Intercreditor Agreement.
Complaint ¶ 14 (emphasis added).
Here, a majority of the Lenders have not directed or
required acceleration or foreclosure. The discretionary
language of the operative documents authorizes them to refrain
from doing so.
In Carondelet Sav. & Loan Assn. v. Citizens Sav. & Loan
Assn., 604 F.2d 464 (7th Cir. 1979), a bank that had purchased
a participation in a loan alleged that the selling bank had
improperly refused to foreclose upon the borrower's default.
The court held that where the participation agreement
"specifically granted the [selling bank] authority to determine
when to foreclose," the selling bank "clearly had the authority
not to foreclose." 604 F.2d at 469. While the form of the loan
participation at issue in Carondelet differed from the
syndication in this case, and while the selling bank in that
case had express authority under the agreement to act on behalf
of all the participating lenders, Carondelet, nevertheless,
establishes that the discretionary power to declare a default
must also include the power not to do so.
Here [the defendant] wished to modify [the loan
agreement] whereas [plaintiff] favored
foreclosure. Nothing in the Participation
Agreement gives [plaintiff] the power to insist
on foreclosure in such a situation, and we are
satisfied that the authority to decide what to do
was vested in [the defendant].
604 F.2d at 470; see also In Re Yale Express System, Inc.,
245 F. Supp. 790, 792 (S.D.N.Y. 1965); First Bank of WaKeeney v.
Peoples State Bank, 12 Kan. App. 2d 788, 758 P.2d 236 (1988);
Clare v. New York Life Ins. Co., 178 A.D. 877, 166 N.Y.S. 95
(1st Dep't 1917).
NBNE asserts that while the agreements may not have
expressly given it the right to insist on foreclosure, the
explicit terms of the Credit Agreement and the Intercreditor
Agreement must be interpreted as implying such a right.
Courts have generally refused to rewrite agreements to
provide minority lenders with any rights, such as the
"implied" right sought here by NBNE, which are not expressly
set forth in the agreements. See, e.g., Hibernia National Bank
v. F.D.I.C., 733 F.2d 1403, 1408 (10th Cir. 1984); Colorado
State Bank of Walsh v. F.D.I.C., 671 F. Supp. 706, 707 (D.Colo.
1987) (loan participation purchaser's claim against selling
bank based on "implied duty to collect" on loan dismissed where
claim was "contrary to the plain language of the written
agreement between the banks"). Nor is there any basis for
reading fiduciary or other duties into agreements "among
sophisticated lending institutions." First Citizens Federal
Savings and Loan Association v. Worthen Bank and Trust Company,
N.A., 919 F.2d 510, 514 (9th Cir. 1990). See also Northern
Trust Company v. F.D.I.C., 619 F. Supp. 1340 (W.D.Okla. 1985).
Indeed, to the extent that NBNE's claim against the other
Lenders is premised on a purported "implied" covenant between
the Lenders, NBNE has expressly waived such a claim. Section
9(d) of the Intercreditor Agreement, quoted above,
specifically provides that none of the Lenders shall have any
liability to each other for any action or omission in
connection with, among other things, the Credit Agreement or
the Intercreditor Agreement, "except as expressly provided" in
those agreements. There is no question that such a limitation
of liability among parties such as the lenders here is
enforceable under California law. See, e.g., Philippine
Airlines, Inc. v. McDonnell Douglas Corp., 189 Cal.App.3d 234,
240, 234 Cal.Rptr. 423, 426 (1987); Price v. Wells Fargo Bank,
213 Cal.App.3d 465, 261 Cal.Rptr. 735 (1989) (affirming
dismissal of borrower's claims that lending bank owed them
implied duty of reasonable forbearance in enforcing creditor's
remedies; "[c]ontracts are enforceable at law according to
In an effort to avoid summary judgment, NBNE has argued that
the agreements must be considered ambiguous because the
interpretation advanced by the moving Lenders has effectively
created a stalemate: while Noble's default has not been
waived, it has also not been acted upon.
NBNE asserts that this stalemate could not reasonably have
been contemplated by the parties, and that this indicates that
the Lenders' interpretation does not reflect the parties'
intentions when the documents were signed.
NBNE's proposed interpretation is that because the Credit
Agreement requires NBNE's consent to a restructuring and
because it will not agree to a restructuring but, instead,
prefers to accelerate and foreclose, the majority lenders are
required to agree to accelerate and foreclose.
However, the document specifically provides that upon
Noble's default the vote of a majority of the Lenders is
required in order to exercise the remedies of acceleration and
foreclosure. There is no provision in the Senior Credit
Agreement for a minority lender such as NBNE to compel such an
acceleration and foreclosure, and indeed, no provision which
even suggests such authority.
Where, as here, the meaning of an agreement among
sophisticated parties is unambiguous on its face, the
agreement does not become ambiguous simply because one of the
parties later asserts that it intended a different
interpretation. E.g., Hunt Ltd. v. Lifschultz Fast Freight,
Inc., 889 F.2d 1274, 1277 (2d Cir. 1989) ("[l]anguage whose
meaning is otherwise plain does not become ambiguous merely
because the parties urge different interpretations in the
litigation"); Wards Co. v. Stamford Ridgeway Assocs.,
761 F.2d 117, 120 (2d Cir. 1985) (courts "will not torture words to
impart ambiguity where the ordinary meaning leaves no room for
ambiguity"); Health-Chem Corp. v. Baker, 737 F. Supp. 770, 773
(S.D.N.Y. 1990), aff'd, 915 F.2d 805 (2d Cir. 1990) (that
parties disagree as to meaning of contractual term "does not in
itself create a question of fact"); Kemelhor v. Penthouse
International, Ltd., 689 F. Supp. 205, 212 (S.D.N.Y. 1988),
aff'd, 873 F.2d 1435 (2d Cir. 1989) ("contract will not be held
to be ambiguous merely because the parties ascribe varying
meanings to a specific provision); Oriental Commercial &
Shipping Co. v. Rosseel. N.V., 769 F. Supp. 514, 517 (S.D.N.Y.
Nor should the court read an ambiguity into an agreement
merely because one of the parties becomes dissatisfied with
its position under the plain terms of the agreement. E.g.,
United States v. 0.35 Of An Acre Of Land, Westchester County,
706 F. Supp. 1064, 1070 (S.D.N.Y. 1988) ("where the language
chosen contains no inherent ambiguity . . . courts are
hesitant, under the guise of judicial construction, to imply
additional requirements to relieve a party from an asserted
disadvantage following from the terms used"); Libra Bank
Limited v. Banco Nacional De Costa Rica, S.A., 570 F. Supp. 870,
893 (S.D.N.Y. 1983) ("where there is no inherent ambiguity,
courts should not . . . reach an artificial interpretation in
order to relieve a party from an improvident bargain").
All of the circumstances indicate that the parties to these
agreements were sophisticated institutions, dealing with the
central issues of their business. As such, there is no basis
to presume that they intended a result other than that
required by the language of their agreements — stalemate or
In addition, NBNE's assertion that the Majority Lenders have
an "implied obligation of good faith" to accelerate and
foreclose is barred by § 9(d) of the Intercreditor Agreement
and Section 12.1 of the Credit Agreement, which states with
respect to TD Trust:
no implied covenants, functions,
responsibilities, duties, obligations or
liability shall be read into this Agreement or
otherwise exist against the Funding Agent.
In each of the cases cited by NBNE in support of this claim
of "good faith obligation," the party alleged to have breached
the implied duty of good faith either wrongfully exercised
some contractual power to its exclusive benefit or wrongfully
denied the existence of a contractual obligation, again to its
exclusive benefit. Here there is no allegation that the other
Lenders have acted in a fashion intended to benefit themselves
at NBNE's expense, but only that the two sides disagree on
course of action will produce a better recovery on the
Thus, NBNE has no "right" to accelerate, nor is there any
"promise" to accelerate. Acceleration is a remedy that can
only be provided by — and exercised in accordance with —
contract. See, e.g., Quick v. American Steel and Pump Corp.,
397 F.2d 561, 564 (2d Cir. 1968); Minor v. Minor, 184 Cal.App.2d 118,
7 Cal.Rptr. 455 (1960) (absent acceleration clause
in contract, future payments will not be accelerated). The
agreement here does provide for the remedy, but only where it
is approved by a majority of the Lenders.
Nevertheless, although acceleration and foreclosure are
contractual remedies which may not be exercised without a
majority vote of the Lenders, NBNE is free to pursue its own
remedies at law by suing Noble to collect on its debt to NBNE.
Section 13.3 of the Senior Credit Agreement provides in
The rights, remedies, power and privileges herein
provided are cumulative and not exclusive of any
rights, powers and privileges provided by law or
See also In re Egbe, 107 B.R. 711, 714 (Bankr. 9th Cir.BAP
1989) (under California law, contractual remedies are
In summary, the language of the controlling agreements is
unambiguous and no implied obligation can be constructed,
impasse or no. Thus the first and second causes of action must
Adherence To The Terms Of The Agreements Does Not Constitute
Negligence Or Wilful Misconduct
With respect to NBNE's third claim, for negligence or wilful
misconduct, the defendants again rely upon § 9(d) of the
Intercreditor Agreement, which provides that no creditor "shall
have any liability . . . except as expressly provided herein."
Although such an exculpatory provision is to be strictly
construed under California law, Philippine Airlines v.
McDonnell Douglas, supra, 189 Cal.App.3d at 237, 234 Cal.
Rptr. at 424, even a strict construction of this language
furnishes a defense to the Lender defendants here.
As for TD Trust, although Section 7(a) of the Intercreditor
Agreement provides that the agent "shall be liable for its own
gross negligence or wilful misconduct," the misconduct alleged
is the failure of the Lenders other than NBNE to declare a
default, rather than TD Trust's failure to act upon such a
declaration. Since no duty is owed to NBNE to declare a
default, the failure to make such a declaration does not
constitute negligence. Therefore the third cause of action
must be dismissed.
Based upon the facts and conclusions set forth above the
motions of the defendants are granted and the complaint
dismissed. Enter judgment on notice.
It is so ordered.
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