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Deutsche Bank Trust Company of Americas v. Tri-Links Investment Trust

April 13, 2010


Plaintiff appeals from an order of the Supreme Court, New York County (Richard B. Lowe, III, J.), which granted defendants' motion for summary judgment dismissing the complaint, and denied its motion for summary judgment.

The opinion of the court was delivered by: Friedman, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

David Friedman,J.P., John W. Sweeny, Jr., James M. Catterson, Dianne T. Renwick and Helen E. Freedman, JJ.


The main issue on this appeal is whether defendant Tri-Links Investment Trust (Tri-Links),*fn1 against which plaintiff Bankers Trust Company (Bankers Trust)*fn2 asserts a contractual right to indemnification for the costs of defending and settling a prior lawsuit, was afforded sufficient notice of the lawsuit to enable Bankers Trust to recover indemnity without having to prove that it would have been held liable had the lawsuit been tried to judgment. On this record, we hold that Tri-Links' notice of the lawsuit brought against Bankers Trust by Western Mining & Investments, LLC (WMI) afforded Tri-Links ample opportunity to protect its interests in that proceeding, in which it could have intervened at any time. In particular, the evidence shows that Tri-Links had a copy of the complaint in the WMI action no later than May 2002, four months after the suit was commenced; that Bankers Trust directly notified Tri-Links of the action orally in March 2003, and then in writing in May 2003; that Tri-Links responded to a subpoena in the action in 2003; and that Bankers Trust, by letter dated February 3, 2004, invited Tri-Links to discuss the matter in light of the latter's contractual indemnity obligation and the plaintiff's progressively decreasing settlement demands. The case was finally settled in March 2004, only after Tri-Links, in response to a February 26 letter advising that a settlement was contemplated, denied having any indemnity obligation at all with respect to the matter.

Given the notice established by the foregoing facts, Bankers Trust need not prove its own liability to WMI to prevail on its claim for contractual indemnity. Moreover, the record fully establishes that Bankers Trust was sued in the WMI action for conduct in its capacity as agent of a group of lenders, which triggers the applicability of the relevant indemnity agreement. Hence, the record establishes, as a matter of law, that Bankers Trust is entitled to contractual indemnity for its settlement of the WMI action, as well as for the expenses it reasonably incurred in defending the suit. Accordingly, we reverse the order appealed from, deny Tri-Links' motion for summary judgment, and grant Bankers Trust's motion for summary judgment as to liability on its cause of action for contractual indemnity.

The pertinent factual background is more fully set forth in this Court's decision on the prior appeal in this case (43 AD3d 56, 57-60 [2007]). To summarize briefly, Bankers Trust was the agent for a group of lenders to Centennial Resources, Inc. (Centennial), a company in the midst of bankruptcy proceedings, pursuant to a Debtor-in-Possession Credit and Guaranty Agreement, dated October 14, 1998 (the DIP Agreement). Under section 11.06 of the DIP Agreement, the DIP lending group is obligated to indemnify Bankers Trust against any damage or liability it might incur by reason of actions taken in its capacity as agent for the group. Section 11.06 provides in pertinent part: "11.06. Indemnification. To the extent the Agent [Bankers Trust] is not reimbursed and indemnified by the Borrower [Centennial], the Lenders will reimburse and indemnify the Agent . . . for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Agent in performing its respective duties hereunder or under any other Loan Document or the Orders [of the bankruptcy court], in any way relating or arising out of this Agreement or any other Loan Document or the Orders provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Agent."

In May 1999, the New York City law firm of Richards Spears Kibbe & Orbe filed a notice of appearance in the Centennial bankruptcy case on behalf of Tri-Links, which had begun acquiring interests in the DIP lending group.

During the course of the Centennial bankruptcy, WMI negotiated an agreement to purchase Centennial's assets with Bankers Trust, among others. Before the hearing on the motion to obtain the bankruptcy court's approval of the sale, however, Tri-Links had acquired a majority in interest of the DIP lending group. Tri-Links opposed the WMI deal, and instructed Bankers Trust, as contractual agent for the DIP lending group, to object to the transaction at the May 1999 hearing. Bankers Trust (which, in its individual capacity, supported the WMI deal) followed these instructions, as it was obligated to do, and the motion for approval of the asset sale was withdrawn.

In January 2002, WMI commenced an action in federal court against Bankers Trust, in which it asserted a number of contractual and tort theories for imposing liability on Bankers Trust based on the failure of WMI's effort to purchase Centennial's assets. So far as can be discerned from the record, Tri-Links first received notice of the WMI action in May 2002, when Bankers Trust filed with the court presiding over the Centennial bankruptcy case an open letter, dated May 1, 2002, announcing the commencement of the WMI action against it*fn3. Tri-Links, which by May 2002 had become Centennial's largest creditor, had filed an appearance in the Centennial bankruptcy case (as previously noted), and thus, through its counsel in that proceeding, had notice of Bankers Trust's May 2002 letter to the bankruptcy court.

Also in May 2002, counsel for the Centennial liquidating agent --- an attorney whom Tri-Links, as Centennial's largest creditor, had selected --- sent Tri-Links (1) Bankers Trust's aforementioned letter to the bankruptcy court, (2) the WMI complaint, and (3) a memorandum, dated May 16, 2002, discussing, among other matters, the WMI action and Bankers Trust's reservation of its contractual indemnity rights with respect thereto. Thereafter, in July 2002, apparently following up on his May 2002 memorandum, the same attorney sent Tri-Links an additional memorandum concerning the WMI action, in which he advised Tri-Links to "lay [sic] low and let [Bankers Trust] make the next move, which may never happen."

Although, as discussed above, Tri-Links had been aware of the WMI action since May 2002 at the latest, direct contact between representatives of Bankers Trust and Tri-Links concerning the WMI action began in March 2003, the month issue was joined in that lawsuit, after Bankers Trust's motion to dismiss was denied*fn4. Bankers Trust's outside counsel (Scott Musoff, Esq., of Skadden, Arps, Slate, Meagher & Flom LLP) recounted in his affirmation that he spoke with Tri-Links' in-house counsel on or about March 27, 2003, at which time the two attorneys "discussed the WMI Action against Bankers Trust, the need to get information from Tri-Links and the likelihood that someone from Tri-Links would be deposed." Subsequently, under cover of a letter dated May 8, 2003, an attorney at the Skadden firm, on Bankers Trust's behalf, sent Tri-Links' in-house counsel, among other documents, the complaint in the WMI action (which, again, had already been in Tri-Links' possession for at least a year) and the DIP agreement (which contains the indemnity provision sought to be enforced in this action). In a conversation with Tri-Links' outside counsel that occurred around this time, Musoff took the position (as he later testified) that Bankers Trust and Tri-Links "were all in this together" with regard to the WMI action. In response, Tri-Links' counsel declared that her client, fearing the "litigious" nature of WMI's principal, did not want to be a named party in the WMI action.

In June 2003, WMI served Tri-Links with a subpoena demanding the production of documents in the WMI action. In response to the subpoena, Tri-Links' counsel, after consulting with Bankers Trust's counsel, asserted a joint attorney-client privilege between Tri-Links and Bankers Trust arising from the latter's status as agent of the Centennial DIP lending group, of which Tri-Links constituted the majority in interest. On this basis, Tri-Links declined to produce certain documents requested by WMI's subpoena, as stated in an October 2003 letter from Tri-Links' counsel to WMI's counsel. In addition, Tri-Links' counsel represented a former Tri-Links employee who was deposed in the WMI action.

Thus, Tri-Links had been well aware of the WMI action for nearly two years --- and actively involved in the litigation of that suit for nearly a year --- when, by letter dated February 3, 2004, Bankers Trust's counsel reminded Tri-Links of its indemnity obligation to Bankers Trust under the DIP agreement and advised it that the court presiding over the WMI action, having refused to entertain summary judgment motions, had scheduled the case to go to trial before a jury on March 15, 2004. He further advised Tri-Links that "WMI has made several settlement demands, which it has revised downward over time," and concluded with the statement that "we want to discuss this matter . . . in light of your [indemnity] obligations to Bankers Trust under Section 11.06 of the Centennial DIP Agreement." It is undisputed that Tri-Links did not respond to this letter.

By letter dated February 26, 2004, Bankers Trust advised Tri-Links that it was contemplating a settlement of the WMI action, involving a contemplated payment of $2.7 million to WMI (which, in its complaint, alleged damages of $225 million). Bankers Trust's letter asked Tri-Links to contact the sender "immediately" to discuss the matter. By letter dated March 2, 2004, Tri-Links' counsel responded, taking the position that the WMI action "d[id] not involve" Tri-Links and denying that Tri-Links owed any indemnity obligations to Bankers Trust with respect to the WMI action. The next day, Bankers Trust and WMI executed a settlement agreement; a stipulation dismissing the WMI action was filed on March 4, 2004*fn5. At no point did Tri-Links appear in court to object to the settlement.

In the present action, Bankers Trust seeks to recover substantially all of the sums it expended in defending and settling the WMI action (allegedly amounting to $6.35 million) from Tri-Links pursuant to the indemnity provision of the DIP agreement*fn6. After discovery, Tri-Links moved for summary judgment on the grounds that Bankers Trust was sued by WMI for actions that Bankers Trust took in its individual capacity (rather than in its capacity as agent of the DIP lending group), that Bankers Trust failed both to provide Tri-Links with adequate "notice" of the WMI action and to "tender" the defense of the action, and that the settlement amount was "unreasonable." Bankers Trust moved for summary judgment in its favor, arguing that it had proven all the facts necessary to establish its right to contractual indemnity.

Supreme Court granted Tri-Links' motion and dismissed the complaint, relying on two independent grounds. First, the court found that Bankers Trust had been sued in its individual capacity, not in its capacity as agent for the DIP lending group, and, therefore, no right of indemnity arose in connection with the WMI action. Second, the court held that Bankers Trust was required to prove that it could have been held liable to WMI, since it gave Tri-Links insufficient notice of the WMI action, and had failed to prove such potential liability. We now reverse.

We turn first to the issue of whether WMI sued Bankers Trust in the latter's capacity as agent for the DIP lending group. Stated otherwise, the question presented is whether the claims asserted against Bankers Trust in the WMI action fall within the scope of the indemnity provision of the DIP Agreement. To reiterate, that provision, section 11.06, obligates the members of the DIP lending group to indemnify Bankers Trust "for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted ...

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