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Keywords

contractbreach of contractplaintiffdefendantliabilityappealbad faith

contractbreach of contractplaintiffdefendantmotionbad faithappellant

Related Cases

Eaton Vance Management v. Wilmington Savings Fund Society, FSB, 171 A.D.3d 626, 99 N.Y.S.3d 28, 2019 N.Y. Slip Op. 03143

Facts

The plaintiffs filed an action against several defendants, including J. Crew entities and Wilmington Savings Fund Society, alleging fraud and breach of contract related to a Term Loan Agreement (TLA). The dispute arose from claims that the collateral under the TLA was transferred without unanimous approval, which the plaintiffs argued constituted fraud. The defendants moved to dismiss the claims, leading to the appeal.

Issue

The main legal issues were whether the no-action clause in the TLA barred the fraud claims and whether the breach of contract claim against Wilmington Savings Fund Society could proceed.

1 no-action clause in amendment to term loan agreement (TLA) barred plaintiffs' fraud claims but not breach of contract claims as against certain defendants, and 2 breach of contract claim against defendant, which was administrative agent and collateral agent pursuant to exculpatory provision of TLA, would be dismissed with prejudice.

Rule

The court applied the principle that a no-action clause in a loan agreement can bar certain claims, but exceptions exist for breach of contract claims alleging improper transfer of collateral without unanimous approval.

The motion court correctly found that the no-action clause in the amendment to the Term Loan Agreement (TLA) barred all but the breach of contract claims, which allege that all or substantially all of the TLA collateral was transferred without unanimous approval; claims alleging the transfer of substantially all of the collateral without unanimous approval are a specifically delineated exception to the no-action clause.

Analysis

The court found that the no-action clause effectively barred the fraud claims because they were based on the same transaction as the breach of contract claims, which fell under a specific exception to the clause. However, the breach of contract claim against Wilmington Savings Fund Society was dismissed with prejudice due to the exculpatory provision in the TLA, which protected the agent from liability absent a showing of bad faith, which the plaintiffs failed to demonstrate.

Pursuant to the exculpatory provision of the TLA, Wilmington Savings Fund Society, as administrative agent and collateral agent, cannot be held liable for any action taken by it at the request of the required lenders, absent bad faith.

Conclusion

The Appellate Division affirmed the lower court's order, dismissing the fraud claims and the breach of contract claim against Wilmington Savings Fund Society with prejudice.

We have considered plaintiffs-appellants' remaining contentions and find them unavailing.

Who won?

The defendants, including J. Crew and Wilmington Savings Fund Society, prevailed because the court upheld the no-action clause and found no basis for liability against Wilmington under the TLA's exculpatory provision.

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