Avenue CLO Fund Ltd. v. Bank of America, N.A.

Avenue CLO Fund Ltd. v. Bank of America, N.A., Case No. 11-10468 (11th Cir. Feb. 20, 2013)
Affirming the district court's rulings, the 11th Circuit concluded that (A) the plaintiff Term Lenders lacked standing to enforce the defendant Revolving Lenders' promise to lend to Borrowers under Credit Agreement; and (B) summary judgment on the issue of whether the Revolving Lenders were required to fund under the Credit Agreement was inappropriate where the relevant contractual language was ambiguous such that consideration of extrinsic evidence of the parties' intent would be necessary. (A) With respect to the first issue, under New York law, a party may enforce a promise in a contract if either the contractual language clearly evidences an intent to permit enforcement by such party or if no other party may recover for the alleged breach. Here, the 11th Circuit rejected the Term Lenders' argument that they were intended beneficiaries of the Credit Agreement because (1) broad language that "[t]he provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto" did not clearly show the parties' intent to permit the Term Lenders to enforce or benefit from the funding provision they sought to enforce; and (2) the fact that the Term Lenders held security interests in the proceeds of the Revolving Loans and therefore indirectly benefited from the Revolving Lenders' promise to fund merely made the Term Lenders incidental beneficiaries -- and not intended beneficiaries -- under the Credit Agreement. (B) With respect to the second issue, the 11th Circuit concluded that the meaning of the funding provision of the Credit Agreement was ambiguous because a reasonable basis for disagreement existed. The Revolving Lenders argued that the structure of the Credit Agreement established a "sequential funding process" by which the Revolving Lenders were the last loans to be funded to the Borrowers; therefore, the Borrowers' request to draw both Term Loans and Revolving Loans did not need to be honored. In contrast, the Borrowers argued that the Credit Agreement created a "continuous flow-of-funds" structure, which was intended to provide a steady flow of funds to the Borrowers. Because the Credit Agreement was ambiguous, extrinsic evidence of the parties' actual intent was relevant and the meaning of the words become an issue of fact. As such, summary judgment was inappropriate.
Procedural context:
Appeal from two rulings by the District Court for the Southern District of Florida, from two separate cases brought against the Revolving Lenders to enforce the funding provisions of the Credit Agreement -- the first from a consolidated multi-district litigation action commenced by the Term Lenders, and the other from the Borrowers' litigation. The issues underlying each of the rulings (standing and contract interpretation) were reviewed by the 11th Circuit under a de novo standard of review.
Borrowers were the owners and developers of the Fountainebleu development in Las Vegas, Nevada, which was funded through a series of agreements including a Credit Agreement and Disbursement Agreement. The Credit Agreement provided, in relevant part, that the Revolving Lenders would make Revolving Loans provided that certain conditions were met -- specifically, that aggregate outstanding principal of the Revolving Loans and Swingline Loans did not exceed $150 MM unless certain Total Delay Draw Commitments were "fully drawn." Borrowers requested $350 MM in Delay Draw Term Loans and $670 MM in Revolving Loans simultaneously. The Revolving Lenders refused to comply on the grounds that the Total Delay Draw Commitments had not been "fully drawn" because the request for both loans was made at the same time.
Tjoflat, Martin and Bucklew (sitting by designation)

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