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February 13, 2004.


The opinion of the court was delivered by: GERARD E. LYNCH, District Judge


This lawsuit concerns a $7.5 million personal loan that Lodwrick Cook, a senior executive at Global Crossing, Ltd. ("Global Crossing" or "GX") borrowed from JPMorgan Chase's private banking division and failed to repay. The parties agree that Cook borrowed the money and has defaulted on the debt. They dispute who can be held responsible for the loan, which was made pursuant to a complex chain of agreements among Global Crossing, Cook, a consortium of lender banks and various JPMorgan Chase Bank*fn1 entities. The story is further complicated by JPMorgan Chase Bank's many hats in the transactions at issue: the private Page 2 banking division ("Private Bank")*fn2 loaned Cook the money pursuant to a promissory note. JPMorgan Chase Bank ("JPM") issued a letter of credit to the Private Bank to guarantee the promissory note in the event Cook failed to repay it. JPM was one of the consortium of lender banks that supported the letter of credit pursuant to a revolving credit facility with Global Crossing; and JPM was also administrative agent of the consortium. Global Crossing's bankruptcy in the wake of financial scandals, and the resulting automatic stay, add the final twists to the issue of who can be held responsible to repay the money Cook borrowed.

  JPM argues that under the doctrine of equitable subrogation it stands in the shoes of Private Bank and can pursue claims against Cook for breach of the promissory note. Underlying JPM's claims is the fact that JPM was a member of, as well as administrative agent for, the lender consortium that ultimately had to cover the $7.5 million under the terms of the letter of credit issued pursuant to Global Crossing's revolving credit facility. Private Bank drew down $7.5 million on the letter of credit, and was thus made whole for the defaulted loan. However, the revolving credit facility took the loss and now JPM, as issuer and/or administrative representative of the consortium of lender banks participating in the facility, seeks to recover $7.5 million directly from Cook. As a practical matter, Global Crossing cannot be sued owing to the automatic stay in place as a result of its bankruptcy. Cook has moved to dismiss the complaint, arguing primarily that JPM was made whole for the loss, and that JPM has no standing to sue. JPM cross-moves for summary judgment on the ground that it is equitably subrogated to Private Bank, and that Cook breached the promissory note. The parties appeared Page 3 for oral argument on the motions on July 22, 2003. For the reasons that follow, the motion to dismiss will be denied, and the cross motion for summary judgment will be granted.


  For purposes of the motion to dismiss, the facts in the complaint must be accepted as true. The Court also relies on certain documents appended to the Affidavits of Lodwrick M. Cook and Sean Riley, which, the parties agreed at oral argument, structured the relevant transactions. (Tr. 3.) See Affidavit of Lodwrick M. Cook, sworn to May 12, 2003 ("Cook Aff."); Affidavit of Sean Riley, sworn to May 15, 2003 ("Riley Aff").

  When this lawsuit was filed in April 2003, Lodwrick Cook was Deputy Chairman of Global Crossing, which had declared bankruptcy on January 28, 2002. Prior to becoming Deputy Chairman on December 31, 2002, Cook had been Co-Chairman of Global Crossing, a position he had held since April 1998.

  On or about April 11, 2001, Global Crossing's Board of Directors approved a senior executive loan guarantee plan ("Loan Guarantee Plan") designed to allow senior officers to borrow up to $7.5 million rather than liquidate their GX shares. The value of GX shares was declining, and the Loan Guarantee Plan was intended to allow senior executives to retain their shares by providing loans guaranteed by letters of credit backed by a $1 billion revolving credit facility maintained by Global Crossing, Ltd., Global Crossing Holdings, Ltd. and Global Crossing North America ("Revolving Credit Facility" or "Facility"). The Revolving Credit Facility had been created on August 10, 2000, as a line of credit Global Crossing could draw on for a variety of needs. JPM is a member of, as well as administrative agent for, the consortium of forty-four lender banks ("Lender Banks") that participated in the Facility. (Compl. ¶ 2, n. 2, Ex. Page 4 B; Riley Aff., Ex. A (Credit Agmt.), Schedule 2.01 (listing the Lender Banks and their percentage participation in the facility).) The Revolving Credit Facility provides terms for letters of credit issued at Global Crossing's request. (Riley Aff., Ex. A (Credit Agmt.), § 2.05.)

  On April 16, 2001, five days after the institution of the Loan Guarantee Program, Cook applied for the maximum $7.5 million loan, representing that he needed to cover an outstanding $14 million obligation on his and his wife's personal Salomon Smith Barney margin account, which was secured by GX stock. (Compl. Ex. A (Indication of Interest Form).) On July 26, 2001, Private Bank agreed to loan Cook $7.5 million upon delivery of a letter of credit issued pursuant to the Revolving Credit Facility. In other words, Private Bank would lend Cook the money if a letter of credit guaranteed that Global Crossing's Revolving Credit Facility would cover the loan in case Cook defaulted. (Compl. ¶ 10.) On that same date, at Global Crossing's request, JPM issued an Irrevocable Standby Letter of Credit in the amount of $7.5 million to Private Bank ("Letter of Credit"), pursuant to the requirements of the Revolving Credit Facility.*fn3 Upon delivery of the Letter of Credit to Private Bank, Private Bank extended Cook a $7.5 million loan. Cook simultaneously executed and delivered a promissory note ("Promissory Note") providing that the Loan was due and payable in full to Private Bank on July 5, 2002. (Compl. Ex. C (Promissory Note).)*fn4 Page 5

  Also on July 26, 2001, Cook signed a reimbursement agreement ("Reimbursement Agreement") providing that he and his wife would reimburse Global Crossing "for the amount of any drawing on the [Letter of Credit] and for all costs and expenses incurred by [Global Crossing] in maintaining the [Letter of Credit]." (Cook Aff., Ex. D (Reimbursement Agmt.).) The Reimbursement Agreement further provided that until the Cooks satisfied their reimbursement obligations to Global Crossing, they would not transfer the rights to the approximately 2.5 million shares of GX stock which served as collateral for the $7.5 million Promissory Note. (Cook Aff., Ex. D (Reimbursement Agmt.).)

  In sum, the agreements signed on July 26, 2001, in combination with the Credit Agreement, created a circular system of guarantees to back Cook's $7.5 million Loan. If Cook defaulted on the Promissory Note, Private Bank could present the Letter of Credit to JPM as Issuer for payment of the principle owed by Cook. Global Crossing, in turn, was obligated by the terms of the Revolving Credit Facility to reimburse JPM as the Facility's administrative agent for any sum drawn on the Letter of Credit. (Compl. ¶ 9, Ex. B (Letter of Credit); Riley Aff., Ex. A (Credit Agmt.), § 2.05(e).) And finally, the circle would close when Cook reimbursed Global Crossing for any amount Global Crossing paid to JPM as the Administrative Agent.

  On January 28, 2002, approximately six months after Cook obtained the loan pursuant to the Loan Guarantee Program, Global Crossing and several affiliates declared bankruptcy. (Compl. ¶ 15.) The bankruptcy did not affect Cook's obligations under the Note, (Compl. ¶ 16.) On July 5, 2002, the date the Note matured, an event of default occurred under Section 7 of the Note because Cook failed to pay Private Bank the principal balance. (Compl. Ex. C (Promissory Note).) On July 11, 2002, Private Bank presented a drawing certificate to JPM (Compl. ¶ 19), Page 6 and JPM honored presentment and caused payment of $7.5 million to Private Bank (Compl. ¶ 20).

  Under the terms of the Revolving Credit Facility, Global Crossing is obligated to reimburse JPM as Administrative Agent for the disbursement on the Letter of Credit. (Riley Aff., Ex. A (Credit Agmt.), § 2.05(e).) However, Global Crossing had already entered bankruptcy proceedings by the time Cook defaulted on the Loan, and could not be called upon to fulfill its reimbursement obligation. The Revolving Credit Facility provides that if Global Crossing fails to make the reimbursement payment, then the Administrative Agent is to notify all of the participating Lender Banks of their applicable percentage share, the Lenders are to pay their shares to the Agent, "and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Revolving Credit Lenders." (Riley Aff., Ex. A (Credit Agmt.), § 2.05(e).) The parties appear to agree that the participating Lender Banks paid their applicable credit percentage to JPM as Administrative Agent, with the exception of approximately $300,000 which is not accounted for. (Tr. 5.)*fn5 Presumably, whatever funds the Lender Banks paid to JPM as Administrative Agent were then transferred to the account of JPM as Issuing Bank, as called for by the Revolving Credit Facility Agreement. At any rate, it is agreed (1) that Cook did not pay Private Bank any money to satisfy the principal of the Promissory Note; (2) that Private Bank received $7.5 million from JPM as a draw on the Letter of Credit; (3) that Global Crossing has not reimbursed anyone, nor can it at present; and (4) that Page 7 the Revolving Credit Facility has disbursed $7.5 million on the Letter of Credit and has not been reimbursed for it.


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