U.S. Trust Co. of New York v. First National City Bank
New York Supreme Court, Appellate Division
394 N.Y.S.2d 653 (1977)
- Written by Sean Carroll, JD
Facts
First City National Bank (First City) (defendant) was the indenture trustee under an indenture agreement signed by Equity Funding Corp. of America (Equity Funding). Under the agreement, Equity Funding issued $38,500,000 in 5.5 percent convertible subordinated debentures. Under a revolving-credit agreement, First City and other banks made loans to Equity Funding totaling up to $75 million. When Equity Funding collapsed and ultimately filed a petition for reorganization under Chapter X of the Bankruptcy Act, U.S. Trust Co. of New York (U.S. Trust) (plaintiff) succeeded First City as the indenture trustee. U.S. Trust sued First City for breach of its fiduciary duty as the original indenture trustee, alleging that First City knew of Equity Funding’s potential bankruptcy when it granted the loans and that by doing so First City favored its own interest over that of the indenture holders. First City filed a motion to dismiss for failure to state a claim, arguing that it did not owe the indenture holders a duty of loyalty, but rather owed them only the contractual duties outlined in the indenture agreement. The New York Supreme Court granted First City’s motion to dismiss for failure to state a claim with respect to certain of the claims in the complaint. U.S. Trust appealed.
Rule of Law
Issue
Holding and Reasoning (Silverman, J.)
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