The opinion of the court was delivered by: Moskowitz, J.
Turnberry Residential Ltd. Partner, L.P. v Wilmington Trust FSB
Decided on August 28, 2012
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.
Angela M. Mazzarelli,J.P. James M. Catterson Karla Moskowitz Rosalyn H. Richter Sallie Manzanet-Daniels, JJ. Index 651960/10
Plaintiff appeals from the order and judgment (one paper) of the Supreme Court, New York County (Melvin L. Schweitzer, J.), entered January 4, 2012, which, to the extent appealed from as limited by the briefs, denied its motion for summary judgment, granted defendant's cross motion for summary judgment dismissing the complaint and for summary judgment upon both its counterclaims, dismissed the complaint, declared that defendant properly holds the $50,000,000 on deposit and may use such funds to pay certain project costs and damages incurred as a result of plaintiff's breach of contract, and declared that defendant is awarded and plaintiff directed to pay defendant an additional $50,000,000 plus pre- and post-judgment interest for breach of contract under the terms of the subject guaranty.
This appeal presents us with the rare opportunity to analyze a completion guaranty. This sort of guaranty differs from an instrument that guarantees payment. A guarantee of payment typically guarantees a borrower's debt. A completion guaranty guarantees the completion of a project (usually a construction project) should the borrower be unable to do so. Unlike a payment guaranty that is enforceable only after the primary obligor fails to perform, a completion guaranty is often a primary obligation of the guarantor.
In June 2007, a syndicate of lenders (the Lenders) committed to provide $1.85 billion in financing to two limited partnerships (the Borrowers) for the construction of the Fontainebleau Resort and Casino in Las Vegas, Nevada (the Project) pursuant to a Credit Agreement dated June 6, 2007. The financing under the Credit Agreement consisted of three loans: a $700 million term loan facility, a $350 million term loan delay draw facility, and an $800 million revolving loan facility (the Revolver).
Defendant Wilmington Trust FSB (Wilmington Trust) was the successor Administrative Agent under the Credit Agreement. Wilmington Trust was also the Successor Disbursement Agent under the project's Master Disbursement Agreement (the MDA or Disbursement Agreement), pursuant to which, inter alia, Wilmington Trust was to disburse funds for costs related to the Project.
Plaintiff Turnberry Residential Limited Partner, L.P. (Turnberry), is an affiliate of the developer for the Project, Fountainebleau Las Vegas Holdings, LLC. Turnberry agreed to provide a Completion Guaranty, dated June 6, 2007, to guarantee payment of "Applicable Project Costs." The Completion Guaranty defines "Applicable Project Costs" as "Project Costs other than Debt Service incurred to complete the Project in a manner consistent with the standards set forth on Exhibit M-2 to the Disbursement Agreement."[FN1] The Completion Guaranty states that capitalized terms it does not define have the meaning the Disbursement Agreement defines. Accordingly, via the Disbursement Agreement, the Completion Guaranty defined "Debt Service" as "all principal repayments, interest . . . and other amounts payable under . . . the Bank Credit Agreement." "Project Costs," as the Disbursement Agreement defines the term, means "all costs incurred, or to be incurred by the project entities in connection with the development, design, engineering, procurement, construction, installation, opening and completion of the Project in accordance with this Agreement. . ." "Project costs" also includes Debt Service that "will accrue in respect of Indebtedness of the Companies prior to the Opening Date (but expressly excluding Debt Service in respect of the Retail Facility)."
The Preamble to the Completion Guaranty stated that it was "for the benefit of" the Lenders, and was to "induce" the Lenders to make credit extensions. To carry out its obligations under the Completion Guaranty, Turnberry arranged for a $50 million letter of credit that it then drew upon and placed into a Completion Guaranty Proceeds Account (CGPA). Under certain circumstances, Turnberry was required to deposit another $50 million into the account.
Section 3[f][ii] of the Completion Guaranty makes clear that this guaranty is a true guaranty of completion and not a payment guaranty: "[this guaranty] is not a guaranty of indebtedness incurred by the Companies or their Affiliates under the Financing Agreements" and prohibits the use of funds "for any purpose other than the payment of Applicable Project Costs that are then due and payable."
The various agreements governing this project provide several instances where the completion guarantor's obligations survive beyond the life of the project. For instance, section 3[e] of the Completion Guaranty provides that its obligations "shall not be affected by any exercise of remedies by the [Lenders]," and that the Completion Guaranty "shall continue to be enforceable against the Completion Guarantor, for so long as [the Borrowers] remain obligated to the [Lenders] under the Financing Agreements" and "notwithstanding any transfer of the ownership of [the Borrowers]." The Credit Agreement also reflects this continuing obligation. Section 8[B][I] of the Credit Agreement contemplated that an "Event of Default" would trigger the termination of the Commitments under the credit facilities, including the Revolving Loans, and that the Completion Guaranty could continue under these circumstances: "(B)if such event is any other Event of Default, either or both of the following actions may be taken: (I) with the consent of . . . either the Required Lenders or the Required Facility Lenders for the respective Facility, the Administrative Agent may, or upon the request of the Required Lenders or the Required Facility Lenders for the respective Facility, the Administrative Agent shall, by notice to Borrowers, declare the Revolving Commitments and/or ...