Beal Savings Bank v. Sommer

In February 1998, a 13-member lending syndicate (lenders) made a construction loan to Aladdin Gaming, LLC (Aladdin). The loan involved credit and keep-well agreements. The keep-well agreement provided for certain sponsors to make equity contributions to Aladdin and required the sponsors to guarantee Aladdin’s payments in the event of a loan acceleration. The keep-well agreement stated that it was to be construed in accordance with the credit agreement. The credit agreement’s title page identified Aladdin as the borrower and “various financial institutions” (which were not individually identified) as the lenders. Section 8.3 of the credit agreement empowered the administrative agent to act for lenders holding a supermajority of the outstanding debt to pursue litigation to enforce the keep-well and credit agreements. The credit agreement also authorized the administrative agent to decide whether to accelerate the loan upon default. The credit agreement further required any lender that received more than its proportional share of loan payments to distribute the excess amount to the other lenders. Aladdin filed for bankruptcy protection in September 2001. Beal Savings Bank (Beal), which was not an original credit-agreement lender, acquired a portion of the bank debt after Aladdin’s bankruptcy. In August 2005, Beal sued the Sommer Trust (Sommer) (defendant), which was a keep-well agreement sponsor, alleging that Sommer breached the keep-well agreement. Beal sought $90 million, which Beal said it would distribute pro rata to the other lenders or, in the alternative, for Beal’s proportionate share. Sommer moved to dismiss the complaint, arguing that Beal lacked standing because only the administrative agent, with the consent of a supermajority of the lenders, had standing. Beal responded that although the credit and keep-well agreements empowered the administrative agent to sue, the agreements did not bar Beal from suing individually. In support of its position, Beal cited § 18(b) of the keep-well agreement, which stated that the keep-well agreement would inure to the benefit of, and be enforceable by, the administrative agent and each lender. The trial court granted Sommer’s motion. The intermediate appellate court affirmed. Beal appealed.