JPMorgan Chase Bank, N.A. v Luxor Capital, LLC

[*1] JPMorgan Chase Bank, N.A. v Luxor Capital, LLC 2011 NY Slip Op 51705(U) Decided on July 25, 2011 Supreme Court, New York County Bransten, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on July 25, 2011
Supreme Court, New York County

JPMorgan Chase Bank, N.A., Plaintiff,

against

Luxor Capital, LLC, Defendant.



601257/2010

 

The attorneys on the matter are Sam. M. Lowery, Esq. of Cravath, Swaine & Moore (for the plaintiff), Peter J. Gallagher, Esq. of Porzio, Bromberg & Newman P.C. (for defendant and third-party plaintiff Luxor Capital) and Kenyanna M. Scott, Esq. of Jenner & Block LLP (for the third-party defendant Credit Industriel et Commercial).

Eileen Bransten, J.

Motion sequences 002 and 004 are consolidated for disposition.

In motion sequence 002, Plaintiff JPMorgan Chase Bank, N.A.("JPMorgan") moves for summary judgment granting its cause of action for a declaratory judgment. Defendant Luxor Capital, LLC ("Luxor") opposes.

In motion sequence 004, third party plaintiff Luxor moves for summary judgment granting its causes of action for indemnification and breach of contract against third party defendant Credit Industriel El Commercial ("CIC") and to dismiss CIC's counterclaim for sanctions. CIC opposes.

[*2]BACKGROUNDIn May 2004, media companies Freedom Communications Holdings, Inc. and Freedom Communications, Inc, (collectively "Freedom") executed a credit agreement with a syndicate of institutional lenders including CIC. See Affirmation of Sam Lowery in Support of JPMorgan's Motion for Summary Judgment ["Lowery Affirm."], Ex. 1 ["Credit Agreement"]. The Credit Agreement governed the terms of several credit facilities extended to Freedom. JPMorgan acted as the administrative agent under the Credit Agreement. As administrative agent, JPMorgan's duties included receiving and distributing sums owed by Freedom to the lenders under each credit facility.

Among the credit facilities was a $300,000,000 revolving loan (the "Revolving Loan"). CIC and several of the other lenders in the syndicate (collectively the "Lenders"), committed to fund the Revolving Loan. See JPMorgan's Statement of Material Facts as to Which There is No Genuine Issue to be Tried Pursuant to Commercial Division Rule 19-A ("JPMorgan's 19-A Statement"), ¶¶ 1-4 (admitted).

Freedom drew down from the Revolving Loan in three tranches. Under the first tranche, which occurred through August 26, 2008, Freedom drew down $58,000,000 (the "Legacy Borrowing"). Under the second tranche, Freedom drew down $237,860,201 pursuant to a request it made on August 27, 2008 (the "2008 Drawdown"). Only CIC did not fund its share of the 2008 Drawdown. Whether or not it was obligated to fund is an important and unresolved issue in both the first and third party actions. CIC's unfunded share amounted to $5,489,081.56. Id., ¶¶ 5-10 (admitted).

A number of significant events occurred prior to the third tranche of borrowing.

In April of 2009, Freedom and the Lenders executed an amendment to the Credit Agreement (See Lowery Affirm. Ex. 5, [the "April 2009 Amendment"]). Pursuant to the Amendment, Freedom repaid $40,000,000 due under the Revolving Loan. JPMorgan distributed the $40,000,000 repayment to the Lenders who funded the 2008 Drawdown (the "April 2009 Distribution"). CIC did not receive any of this distribution. This distribution is not at issue in the instant case. JPMorgan's 19-A Statement, ¶¶ 11-13 (admitted).

The April 2009 Amendment also reduced the Lenders' respective obligations under the Revolving Loan. CIC's unfunded portion of the loan decreased to $4,371,315.21. Id., ¶ 15 (admitted).

In September of 2009, Freedom filed for Chapter 11 bankruptcy in the District of Delaware. The total amounts due under the Legacy Borrowing, $58,000,000, and the 2008 Drawdown, $185,052,344.03, remained outstanding upon Freedom's filing for bankruptcy. JPMorgan's 19-A Statement, ¶ 16.

On February 17, 2010, CIC sold its outstanding interest in the Revolving Loan to Cantor Fitzgerald Securities, LLC ("Cantor Fitzgerald"). See Affirmation of Peter Gallagher in Opposition to JPMorgan's Motion for Summary Judgment ("Gallagher Opp. Affirm."), Ex. A ("Cantor Fitzgerald Agreement"). Under the terms of CIC's sale, Cantor Fitzgerald purchased "any and all of [CIC's] right, title, and interest in, to and under" the Revolving [*3]Loan. Id., § 2. That same day, Cantor Fitzgerald sold to defendant Luxor all of Cantor Fitzgerald's rights and obligations under, inter alia, the Revolving Loan. Gallagher Opp. Affirm., Ex. B ("Luxor Loan Assignment").

On March 9, 2010, the Delaware Bankruptcy Court approved a reorganization plan (see Lowery Affirm., Ex. 7 [the "Plan"]) pursuant to which the Lenders would receive cash, debt and warrants in partial satisfaction of amounts due under the Revolving Loan (the "Revolving Loan Distribution"). The total value the Revolving Loan Distribution is insufficient to repay the total amount due under the Revolving Loan. JPMorgan's 19-A Statement, ¶¶ 17-19 (admitted).

On March 23, 2010, Freedom drew down $284,814.31 from the Revolving Loan under the third and final tranche of borrowing (the "2010 Letter of Credit"). Luxor, as successor-in-interest to CIC, funded its $6,752.64 share of the 2010 Letter of Credit. Id., ¶¶ 24-25 (admitted).

On March 26, 2010, JPMorgan, as administrative agent, received $661,024.85 to distribute in partial satisfaction of sums owed to the Lenders under the Revolving Loan. These funds were proceeds from a sale of certain assets (the "Sale Proceeds") and are separate from the Revolving Loan Distribution at issue in the instant case. JPMorgan distributed the Sale Proceeds in proportion to each Lenders' respective share of each tranche, in reverse chronological order. Thus, JPMorgan first fully satisfied the sums owed to each Lender, including Luxor, under the 2010 Letter of Credit. JPMorgan then distributed the balance of the Sale Proceeds to the Lenders in proportion to their funding of the 2008 Drawdown. Luxor did not receive any portion of the Sale Proceeds, allegedly because CIC did not fund the 2008 Drawdown. JPMorgan refers to this as a "tiered" distribution method. Id., ¶¶ 28-34 (admitted[FN1]).

In motion sequence 002, JPMorgan moves for summary judgment granting a declaration that JPMorgan is permitted by the Credit Agreement to utilize its tiered method in distributing the Revolving Loan Distribution among the Lenders.

In motion sequence 004, Luxor moves for summary judgment against CIC on Luxor's causes of action for indemnification and breach of contract and dismissing CIC's counterclaim for sanctions.

ANALYSIS

I. Standard of Law

"The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such a prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers." Alvarez v. Prospect Hosp., 68 NY2d 320, 324 (1986). Once the movant has made such a showing, the [*4]burden of proof shifts to the opposing party. Id.; CPLR 3212. The opposing party "must produce evidentiary proof in admissible form sufficient to require a trial of material questions of fact on which he rests his claim" or an acceptable reason for his failure to do so in order to defeat the motion. Zuckerman v. City of New York, 49 NY2d 557, 562 (1980).

II. JPMorgan's Motion for Summary Judgment

a. Luxor's Equitable Arguments are Not Persuasive

In its opposition to JPMorgan's motion, Luxor contends that the tiered distribution method is fundamentally unfair. Luxor argues, first, that JPMorgan's proposed method "punishes" Luxor for "essentially having been misled about the nature of the loan it was purchasing from CIC" and, second, it is unfair because the tiered distribution method allegedly treats Luxor's stake in the revolving loan differently than those of other Lenders. See Luxor's Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment ("Luxor Opp. Memo"), pp. 14-16.

The court does not find Luxor's claim that the tiered distribution method punishes it for "having been misled" persuasive. As an initial matter, Luxor does not allege fraud against CIC in its third-party action. See Third-Party Complaint. Further, Luxor is a sophisticated business entity that, in purchasing CIC's stake in the Revolving Loan from Cantor Fitzgerald, represented that it possessed "such [ ] documents and information as it has deemed appropriate to make its own credit analysis and decision to . . . purchase the [loan] on the basis of which it has made such analysis independently and without reliance on [JPMorgan] or any other Lender." Luxor Loan Assignment, Annex 1, § 1.2 (a).Neither does the court find Luxor's argument that it is being treated differently than the other Lenders persuasive. Luxor alleges that JPMorgan represented during the course of the Delaware bankruptcy action that it "intended to treat CIC's loan the same as all other" Lenders' claims under the Revolving Loan. JPMorgan's alleged representations consist of (a) two JPMorgan communications to the Lenders dated December 11, 2009 and January 29, 2010 confirming that Luxor had an outstanding claim against the revolving loan for $1,383,071.55 and (b) one January 28, 2010 disclosure statement filed with the Delaware bankruptcy court that allegedly "provided for uniform treatment" of the Lenders. Luxor Opp. Memo, pp. 14-15. Luxor concludes that, following these three representations, "just ten days before the effective date of the Plan, JPMorgan reversed course and indicated that it would not be making any distribution to Luxor because of CIC's failure to fund" the 2008 Drawdown. Id., p. 15.

Contrary to Luxor's assertion that JPMorgan "reversed course," it appears that JPMorgan proposed to utilize the same method in administering the Revolving Loan Distribution that it had used to distribute the April 2009 Distribution: to distribute funds by tranche in reverse chronological order. The critical difference between the April 2009 Distribution and Revolving Loan Distribution is that the latter purports to take into account [*5]CIC's failure to fund the 2008 Drawdown by explicitly imputing a recovery on that tranche of borrowing to Luxor. That difference does not clearly constitute a reversal by JPMorgan of a prior position.

Additionally, the JPMorgan's three cited representations do not amount to affirmative representations that Luxor was to receive the full value of its claim. None of these representations, all of which preceded the bankruptcy court's approval of the Plan, indicate how JPMorgan intended to distribute funds approved by the Delaware bankruptcy court.

Next, Luxor claims that the tiered distribution method treats Luxor differently than the other Lenders and is thereby fundamentally unfair. Luxor claims it is being treated differently because the tiered distribution method "takes into account that [Luxor] is not similarly situated to the other [Lenders] because only [CIC] failed to" fund the 2008 Drawdown. Deutsche Bank AG v. JPMorgan Chase Bank, 2007 WL 2823129, 22 (S.D.NY 2007).[FN2]However, whether or not Luxor will actually be treated differently depends on the final outcome of the instant case. If JPMorgan ultimately demonstrates as a matter of law that it is contractually entitled to utilize its offered tiered distribution method, then it is difficult to comprehend how the alleged disparate treatment associated therewith would be fundamentally unfair. Nor does the court find any merit in Luxor's unsubstantiated contention that JPMorgan's tiered distribution method punishes Luxor. Thus, to the extent that Luxor's claims of fundamental unfairness are rooted in disparate treatment under the tiered distribution method, such claims do not raise a material issue of fact upon which summary judgment may be denied.b. The Bankruptcy Plan is Not Decisive of JPMorgan's Motion

JPMorgan contends that the Credit Agreement is determinative of its declaratory judgment action against Luxor and therefore summary judgment must be granted. Luxor disagrees. Luxor alleges that "it is impossible to determine the obligations and expectations of the parties to this dispute without referring to the Plan, because these obligations and expectations changed the moment Freedom filed for bankruptcy." Luxor's Opp. Memo, p. 9. Luxor argues that the Plan precludes JPMorgan's use of the tiered distribution method. See id., pp. 9-15.

JPMorgan replies that Luxor's claims regarding the relationship between the tiered [*6]distribution method and the Plan are barred by collateral estoppel and, nonetheless, fail on the merits.

i. Collateral Estoppel

Collateral estoppel "precludes a party from relitigating in a subsequent action or proceeding an issue raised in a prior action or proceeding and decided against that party or those in privity." Buechel v. Bain, 97 NY2d 295, 303 (2001); see also Ryan v. New York Tel. Co., 62 NY2d 494, 500 (1984).

On June 10, 2010, Luxor moved to have the bankruptcy court rule that Luxor's recovery was to be determined by the Plan. See Affirmation of Sam Lowery in Support of Plaintiff JPMorgan's Reply Memorandum of Law in Further Support of its Motion For Summary Judgment ("Lowery Reply Affirm."), Exs. 2, 3. JPMorgan opposed, contending that the issue was an intercreditor dispute without effect on debtors Freedom and related entities. See Lowery Reply Affirm., Ex. 5. The bankruptcy court denied Luxor's motion, finding, inter alia, that "the real dispute lies between [JPMorgan] and Luxor over the parties' respective rights and duties under the Credit Agreement, a matter currently sub judice" in the action before this court. Lowery Reply Affirm., Ex. 6 (August 30, 2010 Decision and Order, Linehan Shannon, J.).

The court agrees. Luxor had full and fair opportunity before the bankruptcy court to litigate whether the Plan is determinative of the method by which JPMorgan may distribute the Revolving Loan Distribution. Because the bankruptcy court decided that the Credit Agreement determines Luxor's recovery, and not the Plan, Luxor is collaterally estopped from relitigating that issue.

Luxor is not, however, collaterally estopped from opposing JPMorgan's tiered distribution method pursuant to the terms of the Credit Agreement.

c. JPMorgan has Not Demonstrated Entitlement to Judgment as a Matter of Law

JPMorgan alleges that its tiered distribution method is ratable. On that basis, JPMorgan seeks a declaration that its use of the tiered distribution method in administering the proceeds of the Revolving Loan Distribution would not constitute a breach of the Credit Agreement. JPMorgan has not shown that this court may grant JPMorgan's sought declaratory judgment.

JPMorgan and Luxor agree that, pursuant to section 2.18 (b) of the Credit Agreement, JPMorgan is compelled to distribute funds it receives in connection with the Revolving Loan "ratably." Specifically, that section requires that:

[I]f at any time insufficient funds are received by and available to [JPMorgan] from [Freedom] to pay fully the amounts of principal, unreimbursed [letter of credit disbursements], interests and fees then due from [Freedom] hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due . . . ratably among the parties [*7]entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal and unreimbursed [letter of credit disbursements] then due . . . ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed [letter of credit disbursements] then due[.][FN3] Credit Agreement, § 2.18 (b).

Neither "ratable" nor "ratably" is defined in the Credit Agreement.

Black's Law Dictionary defines ratable to mean "(1) [p]roportionate[,] (2) [c]apable of being estimated, appraised, or apportioned [and] (3) [t]axable." 9th ed. 2009. The language of section 2.18, coupled with the fact that section 2.18 is entitled "Payments Generally; Pro Rata Treatments; Sharing of Set-Offs," indicates that the Credit Agreement uses "ratably" to mean "proportionally."

JPMorgan's tiered distribution method would distribute the Revolving Loan Distribution by tranche in reverse chronological order. Because the sums owed under the 2010 Letter of Credit have been fully repaid (see pp. 4-5, infra), the first tranche of borrowing to be repaid is the 2008 Drawdown. The total value of the Revolving Loan Distribution is insufficient to fully repay sums owed thereunder. See JPMorgan's Reply Memorandum of Law in Further Support of its Motion for Summary Judgment ("JPMorgan's Reply Memo"), p. 2. Thus, if JPMorgan's proposed tiered distribution method is used, no portion of the Revolving Loan Distribution will be applied against sums owed under the Legacy Borrowing tranche, the first tranche of borrowing. Luxor's claim for monies recoverable from the Revolving Loan Distribution originates from CIC's funding of the Legacy Borrowing tranche.

JPMorgan contends that, because CIC did not fund any portion of the 2008 Drawdown, CIC and its successor, Luxor, effectively "already enjoyed an instant, risk-free 100% recovery on the 2008 Drawdown." Id., p. 6. JPMorgan therefore seeks to impute to Luxor a 100% recovery on CIC's share of the 2008 Drawdown. JPMorgan wishes to distribute the full Revolving Loan Distribution amongst the other Lenders, each of whom funded the 2008 Drawdown, in partial satisfaction of amounts each is owed pursuant to their lent amounts.

Because JPMorgan's imputation of recovery to Luxor precludes Luxor's collection of any of the Revolving Loan Distribution, Luxor argues that imputation and the tiered distribution method are not ratable and are therefore not permitted under the Credit Agreement. Luxor Opp. Memo, pp. 14-20. Luxor further argues that JPMorgan must show that CIC was obligated to fund the 2008 Drawdown in order to impute a recovery on that [*8]tranche to Luxor. Luxor contends that JPMorgan has shown no such obligation. Id., pp. 7-9.

i. JPMorgan is Obligated to Distribute Funds Ratably

JPMorgan argues that using the tiered distribution method is within the "broad discretion" to which it is allegedly entitled in discharging its duties as administrative agent pursuant to the Credit Agreement. See JPMorgan's Memorandum of Law in Support of Summary Judgment ("JPMorgan's Memo"), pp. 13-14 (citing Credit Agreement, § 8.01, Beal Sav. Bank v. Sommer, 8 NY3d 318, 329 [2007]); see also JPMorgan's Reply Memo, pp. 6, 8-9. JPMorgan basis its claimed broad discretion on section 8.01 of the Credit Agreement. The pertinent language of that section states that JPMorgan is authorized to exercise "such actions and powers as are reasonably incidental" to its authority to "receive . . . all payments of [principal, interest, and letter of credit disbursements from the Revolving Loan] and promptly to distribute to each Lender . . . its proper share of each payment so received."

It is clear that JPMorgan must use its discretion to distribute funds "ratably" under the plain meaning of that term. Thus, the tiered distribution method must be ratable for proper use. However, questions of fact exist as to the ratable nature of JPMorgan's tiered distribution method.

ii. JPMorgan Must Impute Recovery to Luxor for its Tiered Distribution

Method to be Ratable as Applied to the Instant Case

JPMorgan structures its argument in favor of the tiered distribution method on the assumption that it may impute a 100% recovery on the 2008 Drawdown to Luxor. If JPMorgan does not impute a recovery to Luxor, the tiered distribution method ceases to be ratable as applied to the instant case.

Under JPMorgan's proposed tiered distribution method, the Lenders (not including Luxor) will recover 70.6% of the total amount due under the Revolving Loan. This recovery is unaffected by whether or not a 100% recovery is imputed to Luxor.

By contrast, the effect that imputation has on Luxor under the tiered distribution method is dramatic. If 100% recovery is imputed to Luxor on the 2008 Drawdown, Luxor would recover 76.6% of its total share[FN4] of the Revolving Loan. See JPMorgan's Memo, pp. 7-11, 13-15; JPMorgan's Reply Memo, pp. 6-7. However, if no recovery is imputed to Luxor, then, under the tiered distribution method, Luxor's recovery is less than 1% of its total claim — hardly ratable as against the other Lenders' 70.6% recovery.

In order for the tiered distribution method to be ratable, JPMorgan therefore must [*9]impute recovery on the 2008 Drawdown to Luxor. JPMorgan thus must show that it is entitled to impute recovery to Luxor in order for the court to consider whether the tiered distribution method is ratable within the meaning of the Credit Agreement.

iii. Whether CIC Was Obligated to Fund the 2008 Drawdown is an Issue of Fact

Luxor contends that JPMorgan must show that CIC was obligated to fund the 2008 Drawdown. Luxor contends that JPMorgan has not made such a showing.

JPMorgan, relying entirely on Deutsche Bank A.G. v. JPMorgan Chase Bank, 2007 WL 2823129 (S.D.NY 2007), aff'd 331 Fed. Appx. 39 (2d Cir. 2009), repeatedly proclaims that courts have found the tiered distribution method ratable. See JPMorgan's Memo, pp. 18-20; JPMorgan's Reply Memo, pp. 9-11, 15.

The core facts of Deutsche Bank AG are exceptionally similar to those underlying the instant case. In Deutsche Bank AG, a single lender, Deutsche Bank A.G. ("Deutsche Bank"), failed to fund its share of one tranche of a revolving loan. The relevant loan agreement specified that funds recovered were to be distributed ratably. JPMorgan, also the administrative agent on the Deutsche Bank AG loan, sought to employ its tiered distribution method and impute to Deutsche Bank a 100% recovery on the tranche it failed to fund. JPMorgan contended that the tiered distribution method was ratable, and the court agreed. See Deutsche Bank AG, 2007 WL 2823129, * 22.

The Second Circuit found that Deutsche Bank had been contractually obligated to fund the tranche which it did not fund. Id., * 9. That fact was pertinent to JPMorgan's argument in that case that ratability must take into account "a [l]ender's performance of its commitments and failure to perform its obligations" and the court's acceptance thereof. Id., * 19 (emphasis supplied), * 20. Indeed, the Second Circuit's finding that it was within JPMorgan's discretion to impute to Deutsche Bank a 100% recovery on the tranche it failed to fund followed directly from the court's conclusion that Deutsche Bank was in fact obligated to fund that tranche. Id., * 22 (finding that JPMorgan "appropriately imputed to Deutsche Bank as part of its recovery the $127.5 million that Deutsche Bank was contractually obligated to fund to Genuity in the July Advance." [emphasis added]). The only apparent reason that the court found it permissible under the relevant contract for JPMorgan to impute a 100% recovery to Deutsche Bank on an unfunded tranche of borrowing was that Deutsche Bank was contractually obligated to fund that tranche. Thus, to the extent that JPMorgan relies on Deutsche Bank AG, JPMorgan must show that CIC was obligated to fund the 2008 Drawdown.

JPMorgan disputes that it must show that CIC was obligated to fund the 2008 Drawdown. However, JPMorgan contends that, regardless, it has done so.

JPMorgan states that CIC justified not funding the 2008 Drawdown by alleging that Freedom had not satisfied conditions precedent that were required prior to funding. The conditions precedent are allegedly established by section 4.01 of the Credit Agreement. See [*10]JPMorgan's Reply Memo, pp. 11-12; see also Lowery Reply Affirm., Ex. 4 (September 17, 2008 Letter from CIC to Freedom). JPMorgan argues that CIC waived whatever conditions Freedom allegedly had not met in section 2 (g) of the April 2009 Waiver. JPMorgan thus asserts that sections 2 (g) and 20 of the April 2009 Waiver show that CIC was obligated to fund the 2008 Drawdown. JPMorgan also contends that it is notable that every other Lender but one, non-party Comerica Bank, funded its share of the 2008 Drawdown on or shortly after Freedom made its borrowing request, therefore showing that no other Lenders had issues with conditions precedent not being met. JPMorgan's Reply Memo, pp. 11-12.

Section 20 of the April 2009 Waiver is a release of all claims and causes of action as between the Lenders, Freedom and JPMorgan existing at that time. Section 20 thus does not show that CIC was obligated to fund the 2008 Drawdown.

Section 2 (g) of the April 2009 Waiver states:

In addition, in order to facilitate the funding by [CIC and Comerica Bank]. . . of its ratable share of the [2008 Drawdown], the Lenders hereby waive the conditions set forth in Section 4.01 of the Credit Agreement solely with respect to the [2009 Drawdown] and the borrower hereby requests that [CIC and Comerica Bank] fund their ratable share of the [2008 Drawdown].

JPMorgan's argument based on sections 20 and 2 (g) relies on the assumption that the April 2009 Waiver was binding upon CIC. JPMorgan has not shown that to be true. The first page of the April 2009 Waiver states "the undersigned Lenders are willing to waive and amend such provisions of the Credit Agreement subject to the conditions and agreements set forth herein." The April 2009 Waiver, as provided to the court by JPMorgan, contains signature pages executed by numerous parties, including Comerica Bank. Conspicuously absent is a signature page executed by CIC. See Lowery Reply Affirm., Ex. 5. JPMorgan therefore provides the court with no basis upon which the court could find that the April 2009 Waiver created obligation in CIC.

The fact that Lenders other than CIC funded their shares of the 2008 Drawdown does not show that CIC was similarly obligated.

JPMorgan has not demonstrated as a matter of law that CIC was obligated to fund the 2008 Drawdown, and an issue of fact as to that obligation therefore exists.

iv. JPMorgan Has Not Demonstrated Entitlement to Impute Recovery on the

2008 Drawdown to Luxor on the Basis of Differing Levels of Risk

JPMorgan argues that its case is "not premised on CIC's breach of its contractual obligations. Rather, what drives the tiered distribution method is the fact that CIC failed to fund . . . the 2008 Drawdown. The tiered distribution method . . . reflects the amounts that each lender funded and failed to fund and the relative risks borne by the . . . Lenders." Id., pp. 11, 9 (alleging that the tiered distribution method seeks to "minimize prejudice to the [*11]funding lenders, who have borne more risk than the non-funding lender by funding greater portion of their commitments.").

Section 2 (b) of the Credit Agreement dictates that JPMorgan is to distribute the Revolving Loan Distribution "ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and . . . ratably among the parties in accordance with the amounts of principal and unreimbursed [letter of credit disbursements] then due to such parties" (emphasis added). Section 2 (b) thus dictates that JPMorgan is to distribute funds ratably according to sums owed, not according to relative risks borne by each party.

JPMorgan cites no authority for its argument that its alleged broad discretion under the Credit Agreement permits it to impute recovery to Luxor on the 2008 Drawdown on the basis of relative risk. JPMorgan is empowered to take such actions as are reasonably incidental to its authority to receive and distribute funds, but it nonetheless must distribute funds ratably according to sums due the Lenders. Credit Agreement, §§ 2.18 (b), 8.01. JPMorgan has not shown that conducting comparative risk analysis notwithstanding the Lenders' contractual obligations is reasonably incidental to its authority to distribute funds ratably according to sums due to the Lenders.

Issues of fact exist as to whether JPMorgan may, under the Credit Agreement, impute a 100 percent recovery on the 2008 Drawdown to Luxor. Because such imputation is critical to JPMorgan's tiered distribution method, JPMorgan has not demonstrated as a matter of law that the Credit Agreement permits it to use that method. Therefore, JPMorgan's motion for summary judgment for declaratory judgment is denied.

The court's decision is based on JPMorgan's failure to carry its burden for summary judgment as imposed by the CPLR, not on whether the tiered distribution method is, in fact, ratable.

III. Luxor's Motion for Summary Judgment

Luxor moves for summary judgment granting its two causes of action against CIC and dismissing CIC's counterclaim.

The Cantor Fitzgerald Agreement[FN5] incorporates the Loan Syndications and Trading Association's Standard Terms and Conditions. See Affirmation of Peter Gallagher in Support of Luxor's Motion for Summary Judgment (the "Gallagher Supporting Affirm."), Ex. C ("LSTA Standard Terms"). Luxor's first cause of action seeks indemnification for the alleged breaches forming the basis of Luxor's second cause of action pursuant to section 6.1 [*12]of the LSTA standard terms. Complaint, ¶¶ 30-39. Luxor's second cause of action alleges breach of sections 4.1 (g), 4.1 (h) and 4.1 (i) of the LSTA Standard Terms.[FN6] Id., ¶¶ 40-45.

CIC's counterclaim seeks reasonable attorneys' fees and expenses on the ground that Luxor's third-party action is meritless and was brought in bad faith. Third-Party Answer, ¶¶ 1-12. Luxor seeks to dismiss the counterclaim on the basis that it fails to state a cause of action.

a. Issues of Fact Preclude Summary Judgment for Each of Luxor's Causes of Action

Luxor alleges that CIC's failure to fund the 2008 Drawdown constitutes a breach of the representations made in sections 4.1 (g), (h) and (i) of the LSTA Standard Terms. Luxor further alleges that sections 2 (g) and 20 of the April 2009 Amendment obligated CIC to fund the 2008 Drawdown.[FN7] Luxor's Memorandum of Law in Support of its Motion for Summary Judgment ("Luxor Memo in Support"), p. 14.

CIC disputes that it was obligated to fund the 2008 Drawdown. CIC argues that the fact that it did not fund that tranche cannot form the basis of the breach of Luxor's causes of action for breach of contract and indemnification.

On reply, Luxor submits that the court should "first resolve the issue of whether CIC was obligated to fund the [2008 Drawdown]." Reply Memorandum of Law in Support of Luxor's Motion for Summary Judgment ("Luxor Reply Memo"), p. 6. That issue is only before the court to the extent the parties have briefed it in connection with the pending motions for summary judgment. Luxor, as does JPMorgan, relies entirely on sections 2 (g) and 20 of the April 2009 Waiver. Those sections, standing alone, are insufficient to permit the court to find that CIC was obligated to fund the 2008 Drawdown as a matter of law. See pp. 17-19, infra.

Because Luxor has not shown that CIC was obligated to fund the 2008 Drawdown, an issue of fact exists which precludes summary judgment insofar as each cause of action is premised on undisclosed obligations. Regardless of whether CIC was actually obligated to fund the 2008 Drawdown, Luxor has not shown that sections 4.1 (g) and 4.1 (i) of the LSTA Standard Terms misrepresent the nature of CIC's obligations under the Credit Agreement.[FN8] [*13]

Nor has Luxor demonstrated any misrepresentation in section 4.1 (h) upon which it can claim entitlement to judgment as a matter of law on its causes of action for breach of contract and indemnification. Section 4.1 (h) states that CIC has not engaged in acts or omissions that "will result in [Luxor] receiving proportionably less in payments or distributions under, or less favorable treatment (including the timing of payments or distributions) for" the loan rights Luxor purchased. Luxor has not shown that it will receive proportionally less of the Revolving Loan Distribution or other unfavorable treatment as against the other Lenders because of CIC's failure to fund the 2008 Drawdown. That issue is at the heart of the first party action and is unresolved. Furthermore, the disputed portion of the Revolving Loan Distribution has not yet been distributed to any Lender, not only Luxor. Lowery Reply Affirm., Ex. 1 (Supplemental Affidavit of Charles Freedgood), ¶¶ 6-7. To be clear, this is not to say that if JPMorgan prevails in the first-party action for a declaratory judgment against Luxor, the court will necessarily find that CIC breached section 4.1 (g), (h) or (i).

Luxor's causes of action for breach of contract and indemnification against CIC are premised on alleged misrepresentations by CIC in the LSTA Standard Terms. Luxor has not demonstrated any such misrepresentation as a matter of law. Therefore, Luxor's motion for summary judgment must be denied.

b. Luxor Has Demonstrated Entitlement to Dismissal of CIC's Counterclaim

CIC counterclaims against Luxor for reasonable attorneys' fees and expenses on the ground that Luxor's third-party action is meritless and was brought in bad faith. Third Party Answer, ¶¶ 1-12.

Luxor seeks dismissal of CIC's counterclaim on the basis that it is a plea for relief, not an independent cause of action. Luxor Memo in Support, pp. 20-22. In opposition, CIC clarifies that its counterclaim seeks sanctions on the alleged basis that Luxor's action is frivolous. CIC's Memorandum of Law in Opposition to Luxor's Motion for Summary Judgment, pp. 24-25. CIC neither states nor implies that it intended that its cause of action was for abuse of process.

New York does not recognize a separate cause of action to impose sanctions. Greco v. Christoffersen, 70 AD3d 769, 771 (2d Dep't 2010); Schwartz v. Sayah, 72 AD3d 790, 792 (2d Dep't 2010); Santo v. Rose Associates, Inc., 28 Misc 3d 1225 (A), 4 (Sup. Ct. NY County 2010); Murphy v. Smith, 4 Misc 3d 1029 (A), 1 (Sup. Ct. NY County 2004). Accordingly, CIC's counterclaim must be dismissed. [*14]

Accordingly, it is

ORDERED that JPMorgan Chase Bank, N.A.'s motion for summary judgment on its request for a declaratory judgment, motion sequence 002, is DENIED; and it is further

ORDERED that Luxor Capital, LLC's motion for summary judgment on its causes of action for breach of contract and indemnification against third party defendant Credit Industriel Et Commercial, motion sequence 004, is DENIED; and it is further

ORDERED that Luxor Capital, LLC's motion for summary judgment dismissing third party defendant Credit Industriel Et Commercial's counterclaim, motion sequence 004, is GRANTED.

This constitutes the decision and order of the court.

Dated: New York, New York

July 25, 2011

E N T E R

/s/

Hon. Eileen Bransten, J.S.C. Footnotes

Footnote 1: To the extent that Luxor qualifies its admissions to JPMorgan's 19-A Statement ¶¶ 28-29 and 32-33, such qualifications are not relevant to the court's recitation of the facts or analysis herein.

Footnote 2: Luxor contends that Deutsche Bank AG is inapposite because, in that case, Deutsche was the party that failed to fund its commitment whereas here Luxor is the successor to the party that failed to fund. Luxor does not explain why this distinction is meaningful and, indeed, the court finds that it is not. Our conclusion is further buttressed by the fact that Luxor expressly assumed all of the rights and obligations that CIC transferred to Cantor Fitzgerald. See Luxor Loan Assignment, p. 1; Cantor Fitzgerald Agreement, § 2. Additionally, the court finds Deutsche distinguishable on other grounds. See c.f. pp.15-18, infra.

Footnote 3: The parties do not characterize whether the Revolving Loan Distribution comprises interest, fees or letter of credit distributions, nor does that issue affect the court's analysis on the instant motions.

Footnote 4: Luxor funded, and recovered $6,572.64 under the 2010 Letter of Credit. CIC did not fund its share of the 2008 Drawdown, amounting to $4,371,315.21. CIC fully funded its share of Legacy Borrowing, amounting to $1,338,461.54. Thus, the total of CIC/Luxor's share of the Revolving Loan is $5,716,349.39.

Footnote 5: Cantor Fitzgerald purchased CIC's interest in the Revolving Loan on February 17, 2010 pursuant to the Cantor Fitzgerald Agreement, and, the same day, transferred that interest to Luxor. See pp. 3-4, infra.

Footnote 6: CIC concedes that Luxor purchased all of the rights and obligations that CIC transferred to Cantor Fitzgerald pursuant to the Luxor Loan Assignment. Luxor's Rule 19-A Statement in Support of Summary Judgment, ¶ 14.

Footnote 7: The court notes that Luxor's argument stands in contrast to its opposition to JPMorgan's motion for summary judgment, wherein Luxor argued that JPMorgan had not shown that CIC was obligated to fund the 2008 Drawdown.

Footnote 8: CIC represented in section 4.1 (g) and (i), respectively, that, other than those obligations disclosed therein, "there is no funding obligation of any kind . . . that [CIC] or [Luxor] is or shall be required to pay or otherwise perform that [CIC] has not paid or otherwise performed in full" and that it has performed "all obligations required to be complied with or performed by it under the [Credit Agreement]."