Emigrant Bank v. SunTr. Bank

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EMIGRANT BANK, and PACIFIC MERCANTILE BANK, Plaintiffs, v. SUNTRUST BANK, TRUIST BANK, and DOES 1 THROUGH 10, Defendants.

No. 20 Civ. 2391 (PGG)

United States District Court, S.D. New York

March 27, 2023

MEMORANDUM OPINION & ORDER

Paul G. Gardephe United States District Judge

Emigrant Bank and Pacific Mercantile Bank (“Pacific”) bring this action against SunTrust Bank and Truist Bank (collectively, “SunTrust”) asserting breach of contract and breach of the implied covenant of good faith and fair dealing. (Am. Cmplt. (Dkt. No. 45) ¶¶ 102-41)

SunTrust has moved to dismiss for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6). (First Def. MTD (Dkt. No. 35); Second Def. MTD (Dkt. No. 51))

For the reasons stated below, SunTrust's motions to dismiss will be granted in part and denied in part.

BACKGROUND

I. FACTS

According to the Amended Complaint, Emigrant is a New York corporation with its principal place of business in New York; Pacific is a California corporation with its principal place of business in California; SunTrust Bank is a Georgia corporation with its principal place of business in Georgia; and Truist Bank is a North Carolina corporation with its principal place of business in North Carolina. (Am. Cmplt. (Dkt. No. 45) ¶¶ 20-23) On December 6, 2019, SunTrust Bank merged with Branch Banking and Trust Company to become Truist Bank. (Id. ¶ 1)

On September 4, 2014, Pacific, SunTrust, and Preferred Bank (“Preferred”) entered into a Revolving Credit and Term Loan Agreement (“Credit Agreement”) with Our Alchemy, LLC (“Alchemy”), an independent film and video distributor. (Id. ¶¶ 2, 32) On July 9, 2015, the Credit Agreement was amended. (Id. ¶¶ 2, 55; see Am. Cmplt., Ex. A (“Credit Agmt.”) (Dkt. No. 45-1)) On July 10 2015, Emigrant entered into a Term Loan Joinder Agreement with Alchemy, SunTrust, Pacific, and Preferred. (Id. ¶ 56; see Am. Cmplt., Ex. D (“Term Loan Joinder Agmt.”) (Dkt. No. 45-4)) Under the Term Loan Joinder Agreement, Emigrant agreed to an Incremental Term Commitment^[1] of $14.5 million, and joined Pacific SunTrust, and Preferred as a lender under the Credit Agreement. (Id. ¶ 56) Together, Emigrant Pacific, SunTrust, and Preferred are the “Lenders” under the “Loan Documents.”^[2] (Id. ¶¶ 2, 4)

In the Credit Agreement, the Lenders established a $59.5 million revolving credit and term loan facility for Alchemy. (Id. ¶¶ 2, 58) SunTrust is the Administrative Agent under the Credit Agreement on behalf of the Lenders, with responsibilities and duties that include enforcing the Loan Documents.^[3] (Id. ¶ 4) The Credit Agreement also grants Emigrant and Pacific certain rights as the Lenders with a majority stake (the “Required Lenders”), such as the right to demand that SunTrust - as the Administrative Agent - exercise all Lender remedies provided in the Loan Documents. (Id. ¶ 5)

The Credit Agreement is secured by a Guaranty and Security Agreement (the “Guaranty”), dated September 4, 2014. (Id. ¶¶ 3, 33; see Am. Cmplt., Ex. B (“Guaranty”) (Dkt. No. 45-2)) The parties to the Guaranty are SunTrust - on behalf of the Lenders - Alchemy, and Calrissian L.P. (Id. ¶¶ 3, 33) Calrissian is the 100% owner of Alchemy, and Calrissian is itself wholly owned by Virgo Investment Group, LLC and its affiliates (collectively, “Virgo”). (Id. ¶¶ 3, 30-31) In the Guaranty, Calrissian guarantees Alchemy's obligations under the Credit Agreement, including full repayment of the loans when due, whether by acceleration or otherwise, and Alchemy's timely performance of all obligations under the Credit Agreement. (Id. ¶¶ 3, 34, 36-37, 57) At the time that it executed the Guaranty, however, Calrissian had virtually no assets and had no ability to repay Alchemy's loan obligations. (Id. ¶ 40)

In early 2016, Alchemy did not pay amounts due under the Credit Agreement, which Plaintiffs allege constitutes an event of default under the Credit Agreement. (Id. ¶¶ 6, 63) On January 19, 2016, SunTrust sent Alchemy a reservation of rights letter, notifying Alchemy of the occurrence and continuation of certain events of default under the Credit Agreement and reserving its right to exercise its rights and remedies under the Loan Documents. (Id. ¶¶ 62, 64) On March 3, 2016, SunTrust sent a second reservation of rights letter to Alchemy. (Id. ¶¶ 65-66)

On April 20, 2016, SunTrust - as the Administrative Agent - the Lenders, Alchemy, and Calrissian entered into a Forbearance Agreement. (Id. ¶ 67; see Am. Cmplt., Ex. E (“Forbearance Agmt.”) (Dkt. No. 45-5)) Under the Forbearance Agreement, SunTrust and the other Lenders agreed not to take certain legal action against Alchemy and Calrissian relating to existing or anticipated defaults during the forbearance period. (Id. ¶ 68) Upon expiration of that period, however, SunTrust, on behalf of the Lenders, would be entitled to exercise all remedies under the Credit Agreement. (Id.)

On May 5, 2016, SunTrust sent Alchemy a third reservation of rights letter (id. ¶¶ 69-70), and on May 18, 2016, SunTrust sent Alchemy a fourth reservation of rights letter, notifying Alchemy that the forbearance period had expired, that the existing defaults were continuing, that anticipated defaults had occurred, and that SunTrust - as the Administrative Agent - was entitled to exercise any and all rights and remedies under the Credit Agreement, the Guaranty, the Forbearance Agreement, and “all other documents, instruments or agreements executed in connection therewith.” (Id. ¶¶ 71-72; Am. Cmplt., Ex. F (Dkt. No. 45-6) at 3)

On June 15, 2016, SunTrust sent Alchemy and Calrissian a debt acceleration notice, notifying them that they had not cured any of the existing defaults and that all obligations owed under the Credit Agreement were immediately due and payable, accelerating the debt due to approximately $46 million. (Am. Cmplt. ¶¶ 6, 73-74) Neither Alchemy nor Calrissian has made any payment. (Id. ¶¶ 6, 76)

On July 1, 2016, Alchemy filed a Chapter 7 bankruptcy petition in U.S. Bankruptcy Court for the District of Delaware (the “Alchemy bankruptcy”), which Plaintiffs allege triggered an additional event of default. (Id. ¶¶ 7, 75) The bankruptcy proceeding remains pending. (Id.) On August 5, 2016, SunTrust - as Administrative Agent - filed a lawsuit against Calrissian in Supreme Court of the State of New York, New York County, alleging a breach of the Guaranty. (Id. ¶ 8)

On February 16, 2017, Calrissian filed a Chapter 11 bankruptcy petition, which was converted to a Chapter 7 petition, in U.S. Bankruptcy Court for the District of Delaware. (Id. ¶ 9) This bankruptcy proceeding closed on January 9, 2020. (Id.)

According to Plaintiffs, SunTrust performed all of its duties and obligations under the Guaranty, but Calrissian and Virgo - as Calrissian's principal and alter ego - breached the Guaranty by failing to satisfy the guaranteed obligations. (Id. ¶¶ 79-80) According to Plaintiffs, as of the date of the debt acceleration notice, Virgo was required to pay SunTrust all amounts owed under the Loan Documents, but has not done so. (Id. ¶ 80) Plaintiffs further allege that the Lenders have been damaged by Virgo's breach, and that SunTrust - as Administrative Agent on behalf of the Lenders - has a claim for relief against Virgo. (Id.)

On September 28, 2016, SunTrust retained Hemming Morse, LLP to assist in an investigation of potential claims against Alchemy, Calrissian, Virgo, and other entities. (Id. ¶ 83)

The Lenders contributed to the payment of Hemming Morse's fees. (Id.) On March 23, 2017, Plaintiffs - as the Required Lenders - requested that SunTrust disclose the results of Hemming Morse's investigation. (Id. ¶ 84) SunTrust denied that request on April 27, 2017. (Id.)

Based on Hemming Morse's investigation and other information, however, SunTrust concluded that the Lenders have colorable claims against Virgo. (Id. ¶ 85) Although Plaintiffs discussed with SunTrust the Lenders' potential claims against Virgo - including a claim for breach of the Guaranty - those discussions did not lead to an agreement that SunTrust would bring claims against Virgo. (Id. ¶ 86) SunTrust instead insisted that Plaintiffs give SunTrust a general release of all claims, known and unknown, before it would proceed or cooperate with Plaintiffs in filing a lawsuit against Virgo. (Id.)

On December 13, 2019, Plaintiffs made a formal demand on SunTrust - pursuant to Section 8.1 of the Credit Agreement - that it sue Virgo for breach of the Guaranty on behalf of all of the Lenders. (Id. ¶¶ 10, 87-88) In the demand, Plaintiffs assert that Virgo acted as the alter ego and principal of Calrissian, and that as a result, Virgo owes the Lenders more than $50 million, pursuant to the Guaranty. (Id. ¶¶ 10, 12, 88) Plaintiffs further point out that Section 9.13 of the Credit Agreement authorizes SunTrust, as the Administrative Agent, to enforce the Guaranty (id. ¶¶ 12, 88; see Credit Agmt. (Dkt. No. 45-1) § 9.13), and that Section 8.1 of the Credit Agreement provides that, following an event of default, SunTrust - as the Administrative Agent - “‘may, and upon the written request of the Required Lenders shall, by notice to the Borrower, . . . exercise all remedies contained in any other Loan Document, and . . . exercise any other remedies available at law or in equity.'” (Id. ¶¶ 13, 81 (emphasis omitted) (quoting Credit Agmt. (Dkt. No. 45-1) § 8.1)) Although Plaintiffs presented a written proposal to SunTrust in which Emigrant offered to finance and manage the litigation against Virgo, SunTrust refused to initiate suit, stating that it would cooperate in a litigation against Virgo only if Plaintiffs gave SunTrust a full release of all claims, known and unknown. (Id. ¶¶ 10-12, 88-90)

In a December 19, 2019...