SPV LLC v. LLC ACTIVATION NATION LLC ACTIVE CREATIONS LLC ACTIVE GOODS LLC ACTIVE HARDWARE LLC ACTIVE INK REFILL LLC ACTIVE ITEMS LLC ACTIVE PAPER LLC ACTIVE PRODUCTION LLC ACTIVE SUBLIMATION LLC AGILE CREATIONS LLC BAMBOO HIGHWAY LLC BOAT OCEAN LLC BOLD ADVENTURE LLC BOX TECHNOLOGIES LLC BOXED GOODS LLC BUILDING PREMIUM LLC COVENTURE VANTAGE CREDIT OPPORTUNITIES GP LLC CREATIVE CABLES LLC CREATIVE ELECTRONICS LLC CREATIVE HOME PRODUCTS LLC CUBE ENTITY LLC FLOATING ROOF LLC FREEWAY TECHNOLOGIES LLC FRONT MISSION LLC GENERAL TRADITION LLC HIGHWAY TRIANGLE LLC ITEM BUILD LLC KITE TECHNOLOGIES LLC LIFELONG INC MOUNTAIN ORG LLC NATIONWIDE MOUNTAIN LLC PAPER AMBITION LLC PATIO HILL LLC PREMIUM ITEMS LLC PRODUCT SELECT LLC PRODUCTION GOODS LLC PROJECT QUANTICO LLC PROPELIO LLC RECTANGLE ORG LLC ROOFTOP ORG LLC SPORTS FANATICS LLC SQUARE TECHNOLOGIES LLC SQUARED ENTITY LLC VANTAGE BORROWER SPV LLC (2025)

The following e-filed documents, listed by NYSCEF document number (Motion 002) 28, 29, 30, 31, 32, 33, 39, 40, 41, 44, 45, 46, 53, 55, 56, 57, 58, 59, 61, 62, 63, 64 were read on this motion to/for SEAL.

The following e-filed documents, listed by NYSCEF document number (Motion 003) 23, 24, 25, 26, 27, 42, 43, 48, 52 were read on this motion to/for DISMISS.

The following e-filed documents, listed by NYSCEF document number (Motion 004) 11, 12, 13, 14, 34, 35, 36, 47, 50, 51 were read on this motion to/for DISMISS.

This is a lawsuit involving an undisputed maturity default where the parties agreed pursuant to Section 11.2 of the Loan Agreement that "without the prior written consent of each Lender directly affected thereby, no modification shall be effective to any Transaction Document that would (i) increase or extend the maturity of the Commitment of such Lender or (ii) reduce the amount of, or waive or delay payment of, any principal, interest or fees payable to such Lender" (NYSCEF Doc. No. 31 § 11.2 [emphasis added]).

As alleged in the well-pled complaint, this is exactly what has occurred and is continuing — i.e., a maturity default and an extension of the term of the plaintiff's loan without obtaining the plaintiff's (a Lender) prior written consent (including the plaintiff).¹ The de facto Required Lender (i.e., CoVenture Fund who holds over 81.1% of the loan) is alleged to have done nothing because it owns part of the Borrower and is concerned that if it seeks to collect the monies due or to direct the Deal Agent to seize the collateral pursuant to Section 7.2, the Borrower is going to declare bankruptcy.² In fact, the Borrower has stopped paying default interest and informed the plaintiff that the Deal Agent would "not be enforcing any remedies on the Termination Date" (NYSCEF Doc. No. 2 ¶ 42). The Deal Agent too has indicated that it will not do anything notwithstanding its agreement set forth in Section 9.1(c) of the Loan Agreement to "take such action with respect to such Event of Default . . . as the Deal Agent shall deem advisable or in the best interest of the Lenders" (NYSCEF Doc. No. 31 § 9.1 [c] [emphasis added]):

45. After engaging in extensive negotiations with CoVenture and the Borrower, Arena concluded that a consensual resolution was not feasible and terminated the discussions. On July 11, 2024, Arena wrote to the Deal Agent informing it that the parties were no longer discussing a consensual resolution and demanding that it promptly initiate enforcement proceedings, including by among other things, taking steps to foreclose on collateral. In response, the Deal Agent asserted that it would not take any enforcement steps because CoVenture had not directed it to and because it would likely push the Borrower into bankruptcy. However, the Deal Agent did not propose any alternative course of action. Instead, the Deal Agent made clear that its only plan is to do nothing.

46. Thus, although Arena has indicated that it will not agree to CoVenture's proposed "covenant holiday," it appears that the Deal Agent is attempting to reach the same result by simply doing nothing, thus creating a de facto extension of the maturity date in a length of its choosing without the Lenders' unanimous consent. CoVenture appears to have self-interested motives for that approach.

(NYSCEF Doc. No. 2 ¶¶ 45-46).

In fact, as alleged, the conflicted Deal Agent is alleged to have conspired with its affiliates to deprive the Lenders of the benefit of their bargain and sacred rights to seek payment on a maturity default:

6. The Loan Agreement gives Arena "sacred rights" that ensure the Deal Agent and other Lenders cannot agree to extend the maturity date or waive or forbear on a principal or interest payment default without Arena's consent. However, that is exactly what happened. Following months of good faith negotiations between the parties on a potential amendment and extension transaction, which ultimately failed, Arena wrote to the Borrower and the Deal Agent in early May to inform them that it did not, and would not, agree to extend the maturity date and that it expected to be repaid in full on May 15. In subsequent communications and discussions held prior to May 15, a representative of the Borrower indicated to Arena that the Deal Agent would not institute any enforcement proceedings upon a maturity default. The meaning behind that message was clear: it did not matter if Arena agreed to forbear because the Deal Agent already had. On information and belief, the agreement between the Deal Agent and the Borrower was made in accordance with a protocol the Borrower and CoVenture established to coordinate and work together to resolve any issues that may arise under the Loan Agreement. That protocol, and the forbearance agreement made pursuant to it, violate Arena's "sacred rights" under the Loan Agreement.

7. The Deal Agent's decision to forbear also violates its contractual duty to respond to an Event of Default by taking actions that "the Deal Agent shall deem advisable or in the best interests of Lenders." The reason for the Deal Agent's failure to act is obvious. It is operating under a material conflict of interest. Its direct affiliate, CoVenture Fund, holds 81.1% of the debt outstanding under the Loan Agreement and is the Required Lender, but CoVenture Fund, together with certain affiliated investment funds (collectively, "CoVenture"), has also made substantial investments in the Borrower's equity. Importantly, the CoVenture partner who is in charge of making decisions for the Deal Agent is also in charge of making decisions for CoVenture Fund. Thus, although the Deal Agent and CoVenture Fund are technically separate legal entities, they are controlled by the same person.

8. CoVenture currently owns well over 15% of the company's outstanding voting stock on a fully diluted basis, which is significant enough to give it the right to appoint one member of the company's board of directors. Its current appointee is Christopher Ryan, who is a partner at Moelis Asset Management, L.P. ("Moelis"). Moelis, in turn, is a significant partner in several of CoVenture's equity investment funds, and several Moelis partners have individually invested in the Borrower's equity. However, as it turns out, Moelis is also acting as the Borrower's investment banker and has taken a leading role in discussions between the Borrower, Arena, and the other Lenders. Thus, the economic interests of the Deal Agent are inextricably intertwined with the economic interests of one of the Borrower's most significant equity investors, and one of the equity partners is acting as a key advisor to the Borrower.

9. The Borrower's financial condition has swiftly deteriorated since it first entered into the Loan Agreement in December 2020, and the Deal Agent knows that enforcement action would eviscerate CoVenture's equity investments. As points of reference, the Borrower has consistently failed to meet the financial projections set by its management, and key assets on its balance sheet, including cash and inventory, have plummeted by more than 50% in the last twelve months alone. The debt outstanding under the Loan Agreement, which totals $219,406,000, is not serviceable and, although it is secured by a first-priority lien on substantially all of the company's assets, the Lenders may well be undersecured — that is, the value of their collateral may be worth materially less than the amount of debt they are owed.

10. In recent correspondence with Arena, the Deal Agent expressed concern that lender enforcement proceedings would push the Borrower into bankruptcy. As CoVenture is aware from its experience in a recent bankruptcy involving one of the Borrower's competitors, there would undoubtedly be a sizeable recovery for secured creditors in a bankruptcy, but there would likely be no recovery for equity holders. A bankruptcy would also have negative reputational consequences for CoVenture. On information and belief, in January 2023, CoVenture raised approximately $20 million for a new equity issuance on the proposition that the Borrower had a total enterprise value well in excess of the $219,406,000 outstanding under the Loan Agreement. A bankruptcy, filed just over one year later, would put the lie to that value proposition and could cause investors to question whether CoVenture solicited their investments based on accurate information. Thus, while the Lenders, in their capacity as Lenders, would benefit from enforcement action (even if it led to bankruptcy), CoVenture's equity interests and its reputation as an investment manager would suffer.

(Id. ¶¶ 6-10).

As relevant, pursuant to Section 10 of the Loan Agreement, the Guarantor agreed to pay all outstanding principal and interest at maturity to the Lenders and otherwise agreed that their absolute and unconditional obligations were not affected by (i) any failure to assert a demand as against the Borrower, (ii) delay of any kind by the Lenders or any other Person or (iii) any other circumstance whatsoever that might (other than payment in full in cash of the Aggregate Unpaids) constitute a discharge:

Section 10.1 The Guaranty.

To induce the Lenders to provide the credits described herein and in consideration of benefits expected to accrue to the Borrower by reason of the Commitments and for other good and valuable consideration, receipt of which is hereby acknowledged, each Guarantor hereby unconditionally and irrevocably guarantees to the Lenders, the due and punctual payment of all present and future Aggregate Unpaids, including, but not limited to, the due and punctual payment of principal of and interest on the Advances and the due and punctual payment of all other Aggregate Unpaids now or hereafter owed by the Borrower to the Lenders, in each case, as and when the same shall become due and payable, whether at stated maturity, by acceleration, or otherwise, according to the terms hereof (including all interest, costs, fees, and charges after the entry of an order for relief against the Borrower or such other obligor in any bankruptcy, insolvency, arrangement, reorganization, receivership, assignment for the benefit of creditors or similar proceedings under any federal or state law, whether or not such interest, costs, fees and charges would be an allowed claim against the Borrower or any such obligor in any such proceeding). In case of failure by the Borrower or other obligor punctually to pay any Aggregate Unpaids guaranteed hereby, each Guarantor hereby unconditionally agrees to make such payment or to cause such payment to be made punctually as and when the same shall become due and payable, whether at stated maturity, by acceleration, or otherwise, and as if such payment were made by the Borrower or such obligor.³

Section 10.2 Guaranty Unconditional.

The obligations of the Guarantors under this Article X shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged, or otherwise affected by:

(a) any extension, renewal, settlement, compromise, waiver, or release in respect of any obligation of the Borrower or other obligor or of any other guarantor under this Agreement or any of the other Transaction Documents or by operation of law or otherwise;

(b) any modification or amendment of or supplement to this Agreement or any of the other Transaction Documents;

(c) any change in the corporate existence, structure, or ownership of, or any insolvency, bankruptcy, reorganization, or other similar proceeding affecting, the Borrower or any other obligor, any other guarantor, or any of their respective assets, or any resulting release or discharge of any obligation of the Borrower or any other obligor or of any other guarantor to the Lenders;

(d) the existence of any claim, set-off, or other rights which the Borrower or any other obligor or any other guarantor may have at any time against the Lenders or any other Person, whether or not arising in connection herewith;

(e) any failure to assert, or any assertion of, any claim or demand or any exercise of, or failure to exercise, any rights or remedies against the Borrower or any other obligor, any other guarantor, or any other Person or property;

(f) any application of any sums by whomsoever paid or howsoever realized to any obligation of the Borrower or any other obligor, regardless of what obligations of the Borrower or such other obligor remain unpaid;

(g) any invalidity or unenforceability relating to or against the Borrower or any other obligor or any other guarantor for any reason of this Agreement or of any of the other Transaction Documents or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower or any other obligor or any other guarantor of the principal of or interest on any Advance or any other amount payable to the Lenders;

(h) any other act or omission to act or delay of any kind by the Lenders or any other Person or any other circumstance whatsoever that might (other than payment in full in cash of the Aggregate Unpaids), but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of the Borrower and the Guarantors under this Article X; or

(i) any other action or inaction (other than payment in full in cash of the Aggregate Unpaids) shall occur that might constitute a surety defense.

(NYSCEF Doc. No. 31 §§ 10.1-10.2). For clarity, and as discussed below, the Court notes that the rights of the Deal Agent set forth in the Remedies Section (i.e., Section 7.2) does not refer to the Guaranty set forth in Section 10.⁴

Thus, the plaintiff brought this lawsuit with claims sounding in (i) breach of contract pursuant to Section 7.1(k) of the Loan Agreement against the Borrower, (ii) breach of contract in violation of Section 10.1 of the Loan Agreement against the Guarantors, (iii) breach of contract in violation of Section 9.1 of the Loan Agreement against the Deal Agent, and (iv) breach of the implied covenant of good faith and fair dealing as to all defendants.

I. The Breach of Contract Claims Against the Borrower are Dismissed

Relying principally on Beal, the defendants argue that the plaintiff lacks standing to assert these claims because the Loan Agreement reflects a "collective design" and that, as such, allowing the plaintiff Lender to bring this lawsuit would render the provision requiring the Deal Agent to act upon written request of its Required Lenders (or with its consent) meaningless. Upon further review following oral argument, it would appear that the Court is compelled to grant the branch of the motion seeking dismissal of the breach of contract claim as against the Borrower but not as against the Guarantor.

As discussed, nothing in the plain language of the Loan Agreement that the defendants rely on indicate an agreement among the Lenders that "no suit will be brought unless a majority or supermajority of the lenders agreed to take action" (id. at 332). Despite the defendants' arguments to the contrary, Section 7.2 is not a delegation section. It is, as titled, a "Remedies" section. Indeed, the language the defendants rely on provides for circumstances pursuant to which the Deal Agent is authorized to act. To wit, in that section, the parties agreed that the Deal Agent was authorized to act either (i) with the consent of the Required Lenders (meaning after going to them and soliciting their consent presumably pursuant to its obligation set forth in Section 9.1 to act in the best interests of the Lenders) or (ii) at the direction of the Required Lenders to declare the Notes to be due and payable or to foreclose on the collateral. In that section, however, the Lenders did not agree that only the Deal Agent could act to enforce their right to be repaid at maturity (cf. Emigrant Bank v. Virgo Inv. Grp., 211 AD3d 526 [1st Dept 2022]). Section 7.2 does not say that or anything like that:

Section 7.2 Remedies.

(a) Upon the occurrence of any Event of Default, the Deal Agent may with the consent of the Required Lenders, or at the direction of the Required Lenders shall, by notice to the Borrower and the Servicer, declare the Termination Date to have occurred; provided that in the case of the event described in Section 7.1(a) the Termination Date shall be deemed to have occurred automatically upon the occurrence of such event. At all times after the declaration or automatic occurrence of the Termination Date pursuant to this Section 7.2(a), the Deal Agent may, with the consent of the Required Lenders, and shall, at the direction of the Required Lenders, (i) declare the Notes (if any) to be immediately due and payable in full (without presentment, demand, protest or notice of any kind all of which are hereby waived by the Borrower) and any other Aggregate Unpaids to be immediately due and payable and (ii) foreclose upon and/or exercise any and all remedies in respect of all or any part of the Collateral.

(b) Upon the occurrence of an Event of Default, the Term shall automatically cease, and no further Advances shall be made hereunder. In addition, on and after the occurrence of any Event of Default hereunder and the declaration or automatic occurrence of the Termination Date pursuant to Section 7.2(a), the Deal Agent, as agent for the Secured Parties, shall have, in addition to all other rights and remedies under this Agreement or otherwise, all of the rights and remedies provided to a secured creditor under the Relevant UCC of each applicable jurisdiction and other Applicable Laws, which rights shall be cumulative. The Deal Agent may, with the consent of the Required Lenders, and shall, at the request of the Required Lenders, require the Borrower and Servicer to, and the Borrower and Servicer hereby agree that they will, at the Servicer's expense and upon request of the Deal Agent forthwith, (i) assemble all or any part of the Collateral as directed by the Deal Agent and make the same available to the Deal Agent at a place to be designated by the Deal Agent, (ii) bring suit, in the name of the Borrower Parties (or any of them), the Lenders or the Deal Agent on behalf of the Lenders, and generally shall have all other rights respecting the Accounts, including the right to (A) accelerate or extend the time of payment, (B) settle, compromise, release in whole or in part any amounts owing on any Accounts and (C) issue credits in the name of the Borrower Parties (or any of them) or the Deal Agent, and (iii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at a public or private sale, at any of the Deal Agent's offices or elsewhere, for cash, on credit or for future delivery, and otherwise upon such terms as are commercially reasonable. The Borrower agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Deal Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Deal Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. All cash Proceeds received by the Deal Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral (after payment of any amounts incurred in connection with such sale) shall be deposited into the Collection Account to be applied pursuant to Section 2.5.

(c) Upon the occurrence of an Event of Default, the Borrower Parties hereby authorize the Deal Agent, or any person or agent which the Deal Agent may designate, at the Borrower's cost and expense, to exercise all of the following powers, which authority shall be irrevocable until the termination of this Agreement and the full and final payment and satisfaction of the Aggregate Unpaids: (a) to receive, take, endorse, sign, assign and deliver, all in the name of the Deal Agent or the Borrower Parties (or any of them), any and all checks, notes, drafts, and other documents or instruments relating to the Collateral; (b) to receive, open and dispose of all mail addressed to the Borrower Parties (or any of them), and to notify postal authorities to change the address for delivery thereof to such address as the Deal Agent may designate; (c) to request from Obligors indebted on Accounts at any time, in the name of the Deal Agent, information concerning the amounts owing on the Accounts; (d) to request from Obligors indebted on Accounts at any time, in the name of the Borrower Parties (or any of them), any certified public accountant designated by the Deal Agent or any other designee of the Deal Agent, information concerning the amounts owing on the Accounts; (e) to transmit to Obligors indebted on Accounts notice of the Deal Agent's interest therein and to notify Obligors indebted on Accounts to make payment directly to the Deal Agent for the Borrower Parties' account; and/or (f) to take or bring, in the name of the Deal Agent, the Lenders, or the Borrower Parties (or any of them), all steps, actions, suits or proceedings deemed by the Deal Agent necessary or desirable to enforce or effect collection of the Accounts.⁵

(NYSCEF Doc. No. 31 § 7.2).

The Lenders' delegation itself is set forth in Section 9 of the Loan Agreement. The rights delegated in that Section are rights with respect to securing and enforcing the Lenders' rights with respect to the collateral and "powers reasonably incidental thereto." Indeed, the closest the language comes in that section to delegating the right to enforce the payment obligation of the Borrower or the Guarantor or collecting monies due from the Borrower or Guarantor at maturity is in the language "each Secured Party hereby appoints the Deal Agent as its agent to . . . take all further action, a Secured Party may reasonably request . . . to exercise or enforce any of their respective rights hereunder" (id. § 9.1 [a]). But that language too does not delegate the Deal Agent exclusive rights of enforcement or otherwise provide for a forfeiture of rights by the Lenders to enforce their sacred right to be repaid the monies that they loaned at maturity:

Section 9.1 The Deal Agent.

(a) Appointment. Each Lender and each Secured Party hereby appoints and authorizes the Deal Agent as its agent and bailee for purposes of perfection pursuant to the applicable UCC and hereby further authorizes the Deal Agent to appoint additional agents and bailees to act on its behalf and for the benefit of each of the Lenders and each Secured Party. Each Lender and each Secured Party further authorizes the Deal Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to the Deal Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. In furtherance, and without limiting the generality, of the foregoing, each Secured Party hereby appoints the Deal Agent as its agent to execute and deliver all further instruments and documents, and take all further action, that the Deal Agent may deem necessary or appropriate or that a Secured Party may reasonably request in order to perfect, protect or more fully evidence the security interests granted by the Borrower hereunder, or to enable any of them to exercise or enforce any of their respective rights hereunder, including, without limitation, the filing by the Deal Agent as secured party/assignee of such financing or continuation statements, or amendments thereto or assignments thereof, relative to all or any of the Collateral now existing or hereafter arising, and such other instruments or notices, as may be necessary or appropriate for the purposes stated hereinabove. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Transaction Document, the Deal Agent shall not have any obligations, duties or responsibilities, except those expressly set forth in this Agreement, nor shall the Deal Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Transaction Document or otherwise exist against the Deal Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Deal Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

(b) Deal Agent's Reliance, Etc. Notwithstanding any provision of this Agreement, in no event shall the Deal Agent be liable to any Secured Party under or in connection with this Agreement for indirect, special, or consequential losses or damages of any kind, including lost profits, even if advised of the possibility thereof and regardless of the form of action by which such losses or damages may be claimed. Neither the Deal Agent nor any of its directors, officers, agents or employees shall be liable to any Secured Party for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any of the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Each Lender hereby waives any and all claims against the Deal Agent or any of its Affiliates for any action taken or omitted to be taken by the Deal Agent or any of its Affiliates under or in connection with this Agreement or any of the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Deal Agent: (i) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable to any Secured party for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (ii) makes no warranty or representation to any Secured Party and shall not be responsible to any Secured Party for any statements, warranties or representations made in or in connection with this Agreement or the other Transaction Documents, (iii) shall not have any duty to any Secured Party to ascertain or inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, any of the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto or on the part of the Borrower or the Servicer or to inspect the property (including the books and records) of the Borrower or the Servicer, (iv) shall not be responsible to any Secured Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any of the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto; and (v) shall incur no liability to any Secured Party under or in respect of this Agreement or the other Transaction Documents by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by facsimile) believed by it to be genuine and signed or sent by the proper party or parties.

(c) Notice of Event of Default, Potential Event of Default, Servicer Default or Potential Servicer Default. The Deal Agent shall not be deemed to have knowledge or notice of the occurrence of an Event of Default, Potential Event of Default, Servicer Default or Potential Servicer Default, unless the Deal Agent has received written notice from a Lender, the Borrower or the Servicer referring to this Agreement, describing such Event of Default, Potential Event of Default, Servicer Default or Potential Servicer Default and stating that such notice is a "Notice of Event of Default", "Notice of Potential Event of Default", "Notice of Servicer Default" or "Notice of Potential Servicer Default", as applicable. The Deal Agent shall forward any such notice of an Event of Default, Potential Event of Default, Servicer Default, or Potential Servicer Default to all of the Lenders promptly upon receipt thereof. The Deal Agent shall take such action with respect to such Event of Default, Potential Event of Default, Servicer Default or Potential Servicer Default as may be requested by the Required Lenders, or as the Deal Agent shall deem advisable or in the best interest of the Lenders.

(d) Credit Decision with Respect to the Deal Agent. Each Lender acknowledges that none of the Deal Agent or any of its Affiliates has made any representation or warranty to it, and that no act by the Deal Agent hereinafter taken, including any consent to and acceptance of any assignment or review of the affairs of the Borrower, the Servicer or any of their respective Affiliates or review or approval of any of the Collateral, shall be deemed to constitute any representation or warranty by any of the Deal Agent or its Affiliates to any Lender as to any matter, including whether the Deal Agent has disclosed material information in its possession. Each Lender acknowledges that it has, independently and without reliance upon the Deal Agent, or any of the Deal Agent's Affiliates, and based upon such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and the other Transaction Documents to which it is a party. Each Lender also acknowledges that it will, independently and without reliance upon the Deal Agent, or any of the Deal Agent's Affiliates, and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement and the other Transaction Documents to which it is a party. Each Lender hereby agrees that the Deal Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower, the Servicer or their respective Affiliates which may come into the possession of the Deal Agent or any of its Affiliates, other than any notice of Event of Default, Potential Event of Default, Servicer Default, or Potential Servicer Default forwarded pursuant to Section 9.1(c).

(e) Indemnification of the Deal Agent. Each Lender agrees to indemnify the Deal Agent (to the extent not reimbursed by the Borrower), ratably in accordance with its Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Deal Agent in any way relating to or arising out of this Agreement or any of the other Transaction Documents, or any action taken or omitted by the Deal Agent hereunder or thereunder; provided that the Lenders shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Deal Agent's gross negligence or willful misconduct; provided further that no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Article IX. Without limitation of the foregoing, each Lender agrees to reimburse the Deal Agent, ratably in accordance with its Pro Rata Share, promptly upon demand for any out-of-pocket expenses (including counsel fees) incurred by the Deal Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Transaction Documents, to the extent that such expenses are incurred in the interests of or otherwise in respect of the Lenders hereunder or thereunder and to the extent that the Deal Agent is not reimbursed for such expenses by the Borrower.

(Id. § 9.1 [emphasis added]).

Additionally, pursuant to Section 11.2, the parties agreed that "[t]he rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by Applicable Law" (id. § 11.2 [emphasis added]).

Thus, it would appear based on the plain meaning of the Loan Agreement that the defendants' arguments fail because nothing in the plain language of the Loan Agreement prohibits individual suit by a Lender who has not been repaid.

However, these arguments were rejected by the Court of Appeals in Beal and appear to be exactly the points made by Hon. Robert S. Smith in his dissenting opinion:

A bank that lends money to a borrower and is not repaid is entitled to sue to get its money back. That is, at least, the assumption that most banks make when they enter into loan agreements. A bank that is part of a lending group can, of course, agree that no suit will be brought unless a majority or supermajority of the lenders agree to take action, but if that agreement is made, it should be stated in plain language in the document. It is not hard to say: "No suit shall be brought except by the Administrative Agent, acting upon the written instructions of the Required Lenders." No such language, or anything equivalent can fairly be read as its equivalent, appears in this Credit Agreement or Keep-Well Agreement and I dissent from the majority's decision to read it in.

(Beal, 8 NY3d at 332-33 [Smith, J., dissenting]).

Beal like the transaction at issue in the case at nisi prius involved a series of separate loans where the lenders agreed in Section 2.1 of the credit agreement at issue in that case that "each Lender severally agrees to make Loans" (id. at 333, § 2.1 [a] [emphasis added]).⁶ As Justice Smith aptly explained, the "normal expectation of the parties to such a transaction is that each lender may sue separately" (id., citing Commercial Bank of Kuwait v. Rafidain Bank, 15 F3d 238, 243 [2d Cir 1994]; New Bank of New England N.A. v. Toronto-Dominion Bank, 768 F Supp 1017, 1023 [SDNY 1991]).

The agreement in Beal like the Loan Agreement in this case discussed above also provided for (i) certain specific powers to be exercised by the Deal Agent at the direction of a supermajority and where the language did not indicate that those powers were "surrendered by the lenders" (Beal, 8 NY3d at 333) and (ii) otherwise provided certain authorization for the Deal Agent to act. As Justice Smith explained, the language appears to be:

an authorization, not an exclusion. If the authors of the document meant the authorization to be exclusive, the words with which to say so were readily available . . . In short, I think it clear that nothing in these agreements deprives the lenders of their rights to sue separately. I would reach this conclusion even if the Credit Agreement did not say, as it does in section 10.20: "No right or remedy conferred upon the Administrative Agent . . . in this Agreement is intended to be exclusive of any other right or remedy contained in the other Loan Documents or at law and equity."⁷ Surely this language should remove all doubt about the matter.

The Commercial Bank and New Bank cases, cited above, show that a provision in a loan agreement authorizing an agent to act upon direction of a specified number of lenders does not defeat the rights of lenders to act for themselves to collect their loans. The Second Circuit Court of Appeals said in Commercial Bank "While the participation agreement . . . authorizes the 'Confirming Bank' to sue 'only if requested to do so by the Majority Banks, this provision does not abrogate the rights of participating banks to sue on their own" (15 F.3d at 243). That observation is squarely applicable here; the majority has identified no important distinction between the language at issue in Commercial Bank and the language it relies on.

The majority mistakenly cites New Bank as supporting its position (majority op. at 326, 834 N.Y.S.2d at 49, 865 N.E.2d at 1215), because New Bank held that a right under a loan agreement to accelerate loan payments was enforceable only by collective action; but that issue is not the one we have in this case. A right of acceleration, unlike the basic right to sue for money that is already due, does not exist except to the extent that a contract provides for it. The New Bank court itself pointed out this distinction: "although acceleration and foreclosure are contractual remedies which may not be exercised without a majority vote of the Lenders, NBNE is free to pursue its own remedies at law by suing Noble to collect on its debt to NBNE (768 F.Supp. at 1023). Beal should be no less free to pursue its own collection remedy here.

(Id. at 334 [Smith, J., dissenting] [emphasis added]).

Thus, and based solely on Beal, the claims sounding in breach of contract as against the Borrower are dismissed.

The claims against the Guarantor however are not ripe for dismissal. Nothing in any of the provisions relied on by the Guarantor reflects a collective design as to enforcement as against the Guarantor. Indeed, and as discussed above, in Section 10.1 of the Loan Agreement, the Guarantor guaranteed payment to the Lenders directly (and not to the Deal Agent on behalf of the Lenders), the Guaranty itself provides that the failure to assert claims as against the Borrower does not affect the Guarantor's obligations and the Remedies section of the Loan Agreement which provide for the Deal Agent to act upon consent of the Required Lenders or at their direction allows for them to declare the Notes due and payable and to otherwise realize on the collateral. The Remedies section does not however mention the Guaranty.

Thus, inasmuch as the well-pled complaint alleges that: (i) a contract exists; (ii) the plaintiff performed in accordance with the contract; (iii) the defendant breached its contractual obligations; and (iv) the defendant's breach resulted in damages (34-06 73, LLC v Seneca Ins. Co., 39 NY3d 44, 52 [2022]), the breach of contract claim as against the Guarantor is not dismissed and the plaintiff has standing to assert this separate claim.

II. The Breach of Contract Claim against the Deal Agent is Also Not Dismissed

On a motion to dismiss, "the pleading is to be afforded a liberal construction . . . .accept the facts as alleged as true, accord plaintiffs the befit of every possible inference, and determine whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87—88 [1994] [citations omitted]). As discussed above, the conflicted Deal Agent agreed pursuant to Section 9.1 of the Loan Agreement to take such action as the Deal Agent shall "deem advisable or in the best interest of the Lenders" and that the "Lenders shall not be liable for . . . losses . . . resulting from the Deal Agent's gross negligence or willful misconduct" but that "no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct." In the complaint, the plaintiff alleges that the conflicted Deal Agent (NYSCEF Doc. No. 2 ¶¶ 6-10) has refused to take any steps to protect the Lenders' best interest and is instead protecting its affiliate, CoVenture's equity interest, which amounts to willful misconduct and/or gross negligence (id. ¶¶ 64-67).

The Deal Agent is simply not correct that it has no obligation pursuant to Section 9.1 of the Loan Agreement other than sending notice of an Event of Default to the Lenders. Section 9.1(c) of the Loan Agreement does not say that. It is true that Section 9.1(c) requires the Deal Agent to provide notice of an Event of Default, but Section 9.1(c) says more than that. It also says that "[t]he Deal Agent shall take such action with respect to such Event of Default . . . as the Deal Agent shall deem advisable or in the best interest of the Lenders." Despite the Deal Agent's assertion to the contrary, this may well include, among other things, bringing an enforcement action as against the Guarantor. Thus, taking the allegations as true as the Court must at this stage of the litigation (Leon at 87-88), this states a claim for breach of contract as against the Deal Agent.

III. Breach of the Covenant of Good Faith and Fair Dealing

The Deal Agent, Borrower and Guarantor are also not entitled to dismissal of the breach of the covenant of good faith and fair dealing claim based on its argument that the claim is duplicative of the breach of contract claim (AEA Middle Mkt. Debt Funding LLC v Marblegate Asset Mgt., LLC, 214 AD3d 111 [1st Dept 2023]). The well-pled complaint alleges in sum and substance that the conflicted Deal Agent, Borrower, Guarantor and the Required Lenders have conspired to frustrate the parties' agreement to not permit the term of the loan to be extended without the written consent of all Lenders. This is different than the allegations underlying the alleged breaches of the Loan Agreement. As such, dismissal of this claim is not appropriate.

IV. The Motion to Seal is Granted

The motion to seal Exhibit B (NYSCEF Doc. No. 27) to the Affirmation of Guy Jack Matthews in Support of Borrower's and Guarantors' Motion to Dismiss dated September 30, 2024 (NYSCEF Doc. No. 25), is granted for good cause shown pursuant to Part 216 of the Uniform Rules for the Trial Courts, because the interest in the confidentiality of the document outweighs the public interest in the sealed information, because the document contains confidential financial information, proprietary business information, and other confidential information and communications, the disclosure of which might be harmful to the relevant party's competitive standing, and as to which there is no overring public interest in disclosure.

The Court has considered the parties' remaining arguments and finds them unavailing.

Accordingly, it is hereby ORDERED that the motion to seal (Mtn. Seq. No. 002) is GRANTED; and it is further

ORDERED that the Clerk of the Court is directed, upon service on him of a copy of this order with notice of entry, to seal NYSCEF Doc. No. 27, and to separate this document and to keep it separate from the balance of the file in this action; and it is further

ORDERED that thereafter, or until further order of the court, the Clerk of the Court shall deny access to the said sealed document to anyone (other than the staff of the Clerk or the court) except for counsel of record for any party to this case and any party; and it is further

ORDERED that service upon the Clerk of the Court shall be made in accordance with the procedures set forth in the Protocol on Courthouse and County Clerk Procedures for Electronically Filed Cases (accessible at the "E-Filing" page on the court's website);

ORDERED that the motion to dismiss (Mtn. Seq. No. 003) is GRANTED to the extent that the breach of contract claim as against the Borrowers is dismissed; and it is further

ORDERED that the motion to dismiss (Mtn. Seq. No. 004) is GRANTED to the extent that the breach of contract claim as against the Deal Agent is dismissed; and it is further

ORDERED that the defendants shall file an answer within 30 days of this decision and order.

DATE 1/21/2025

ANDREW BORROK, J.S.C.

FOOTNOTES

1.   Pursuant to Section 7.1(k) of the Loan Agreement, the parties agreed that an Event of Default occurred upon the failure to pay the Aggregate Unpaids on or before the Termination Date. Aggregate Unpaids means "[a]t any time, an amount (as determined by the Deal Agent and the Lenders) equal to the sum of (i) the aggregate and unpaid Interest at such time, (ii) the Advances Outstanding at such time and (iii) all fees and other amounts owed (whether due or accrued) hereunder (including, without limitation, indemnities) and under the Transaction Documents to the Secured Parties at such time" (NYSCEF Doc. No. 31 at 4).

2.   The parties agreed however under the Loan Agreement, that a bankruptcy was an Event of Default pursuant to Section 7.1(a) and pursuant to Section 7.2 if a bankruptcy occurs, the Termination Date is deemed to have occurred.

3.   This is different than the language in the Keep-Well agreement in Beal Sav. Bank v Sommer (8 NY3d 318, 328 [2007] that the Court of Appeals found significant in holding that there was a collective enforcement scheme. The Court of Appeals noted that the language in that agreement provided:"In the event that the Obligations of the Borrower under the Credit Agreement shall be accelerated pursuant to the provisions of Section 8.2 or 8.3 thereof, the Sponsors guarantee and agree to pay the Accelerated Payment Amount to the Administrative Agent for the benefit of the Lenders not later than forty (40) days following the date of such acceleration."The only entity section 4 mentions as having the right to pursue default remedies is the Administrative Agent. Thus, this section actually underscores the collective enforcement scheme envisioned by the signatories of the Loan Documents.The guaranty section in the Loan Agreement makes no mention of the Deal Agent and does not provide for payment to the Deal Agent for the benefit of the Lenders.

4.   Although the parties could have drafted the Loan Agreement to provide that the Guarantor would make payment to the Deal Agent on behalf of the Lenders (as in the agreement in Beal), this is not what the Loan Agreement says.

5.   To the extent that this provision reflects evidence of a collective design as to the Notes, it does not mention the Guaranty.

6.   Pursuant to Section 2.1 of the Loan Agreement, the parties agreed that provided that no Event of Default shall have occurred, the Borrower may request that the Lenders make an Advance of funds and the Lenders agreed "severally but not jointly" to make such advances in the respective proportions specified by the Deal Agent on an Advance Date.

7.   As discussed at oral argument, the majority opinion appears to omit the language "or at law and equity" from its recitation of the relevant section of the Credit Agreement; however, review of Justice Smith's dissent makes clear that Section 10.20 of the Credit Agreement in fact included that language (as the defendants indicated at oral argument).

Andrew Borrok, J.