Motion for Writ in Regions Bank, Bankunited, N.A., First Horizon Bank, Trustmark National Bank, Santander Bank, N.A. v. Vativorx, Llc| Trellis.Law

On May 13, 2019 a Motion-Secondary was filed involving a dispute between Bankunited, N.A., First Horizon Bank, Regions Bank, Santander Bank, N.A., Trustmark National Bank, and Vativorx, Llc, for Commercial - Contract - Commercial Division in the District Court of New York County.

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FILED: NEW YORK COUNTY CLERK 09/01/2023 05:00 PM INDEX NO. 654741/2022
NYSCEF DOC. NO. 213 RECEIVED NYSCEF: 09/01/2023

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK

REGIONS BANK, BANKUNITED, N.A., FIRST
HORIZON BANK, TRUSTMARK NATIONAL
BANK, AND SANTANDER BANK, N. A., Index No. 654741/2022
(Hon. Melissa Crane)
Plaintiffs,
IAS Part 60
-against-

VATIVORX, LLC,
Motion Sequence No. 10
Defendant.

MEMORANDUM OF LAW IN OPPOSITION TO
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

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TABLE OF CONTENTS
PAGE

PRELIMINARY STATEMENT .....................................................................................................1

ARGUMENT ..................................................................................................................................2

A. The Legal Standard ..................................................................................................2

B. Defendant’s Motion Fails as a Matter of Law .........................................................3

1. Defendant Admits Multiple Breaches Constituting Defaults
Under the Credit Agreement ........................................................................3

2. Plaintiffs Were Entitled to Accelerate the Loans Pursuant to
the Credit Agreement ...................................................................................5

3. Equity Should Not Intervene to Preclude Acceleration of the Loans
Pursuant to the Credit Agreement ................................................................6

4. Other Cases Cited by Defendant Demonstrate that Defendant is
Not Entitled to Summary Judgment .............................................................9

C. Defendant’s Breaches of the Credit Agreement Were Material ............................11

D. Defendant’s “Immateriality Defense” Is Not a Basis for Summary Judgment .....12

1. Record Evidence Supports a Finding that Defendant Could Not Have
Obtained a Clean Audit ..............................................................................13

2. Defendant Claimed that it Had Governmental Account Debtors ..............17

CONCLUSION ..............................................................................................................................17

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TABLE OF AUTHORITIES

CASES Page(s)

ABS P’ship v. AirTran Airways,
1 A.D.3d 24 (1st Dep’t 2003) ..................................................................................................11

Andre v. Pomeroy,
35 N.Y.2d 361 (1974) ................................................................................................................2

Beal Sav. Bank v. Sommer,
8 N.Y.3d 318 (2007) ................................................................................................................11

Canterbury Realty & Equip. Corp. v. Poughkeepsie Sav. Bank,
135 A.D.2d 102 (3rd Dep’t 1988)............................................................................................10

Chiampou Travis Besaw & Kershner, LLP v. Pullano,
194 A.D.3d 1480 (4th Dep’t 2021) ............................................................................................8

Di Matteo v. North Tonawanda Auto Wash, Inc.,
101 A.D.2d 692 (4th Dep’t 1984) ............................................................................................10

Empbanque Capital Corp. v. Geathers,
224 A.D.2d 238 (1st Dep’t 1996) ............................................................................................10

Fifty States Mgmt. Corp. v. Pioneer Auto Parks, Inc.,
46 N.Y.2d 573 (1979) ......................................................................................................... 7; 10

Freedom Mortg. Corp. v. Engel,
37 N.Y.3d 1, reh’g denied, 37 N.Y.3d 926 (2021) ....................................................................4

Hyundai Capital Am. v. Nemet Motors, LLC,
No. 19-CV-5506, 2019 U.S. Dist. LEXIS 188441
(E.D.N.Y. Oct. 29, 2019) ...........................................................................................................8

In re In Rem Tax Foreclosure Action No. 31, Borough of Manhattan,
136 Misc. 2d 522 (Sup. Ct. N.Y. Cnty. 1987) .........................................................................10

Key Int’l Mfg., Inc. v. Stillman,
103 A.D.2d 475 (2d Dep’t 1984) ...............................................................................................8

Last v. New York Inst. of Tech.,
219 A.D.2d 620 (2d Dep’t 1995) ...............................................................................................6

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Natixis, N.Y. Branch v. 20 TSQ Lessee LLC,
No. 850272/2019, 2021 N.Y. Misc. LEXIS 1197
(Sup. Ct. N.Y. Cnty. Mar. 4, 2021.)....................................................................................... 7-9

Suits v. Suits,
266 A.D.2d 813 (4th Dep’t 1999) ............................................................................................10

Tunnell Publishing Co. v. Straus Communications, Inc.,
169 A.D.2d 1031 (3rd Dep’t 1991) ............................................................................................6

West 44th St. Hotel, LLC v. Sam Tell & Son, Inc.,
No. 651215/2012, 2013 N.Y. Misc. LEXIS 4036
(Sup. Ct. N.Y. Cnty. Sept. 4, 2013) .........................................................................................11

Zuckerman v. City of New York,
49 N.Y.2d 557 (1980) ................................................................................................................3

STATUTES AND RULES

CPLR 3212................................................................................................................................... 2-3

N.Y. Comp. Codes, R. & Regs. tit. 22, § 130-1.1............................................................................2

iii

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Plaintiffs Regions Bank1, BankUnited, N.A., First Horizon Bank, Trustmark National

Bank, and Santander Bank, N. A. (collectively, “Plaintiffs”), by their undersigned counsel, submit

this memorandum in opposition to Defendant’s Motion for Partial Summary Judgment (NYSCEF

Doc. No. 201) (“Defendant’s Motion”) and accompanying Memorandum of Law in Support of

Defendant VativoRx, LLC’s Motion for Partial Summary Judgment (NYSCEF Doc. No. 202)

(“Defendant’s Memo” or “Def. Memo”) filed by Defendant VativoRx, LLC (“Defendant”).

PRELIMINARY STATEMENT

Defendant’s Motion is as meritless as it is misguided. Although it purports to be a “Motion

for Partial Summary Judgment,” the motion merely re-hashes Defendant’s arguments from

January 2023 when it sought a Temporary Restraining Order and Preliminary Injunction.

(NYSCEF Doc. Nos. 33–49, Motion Seq. No. 002.) Indeed, the Affidavit of Keith Heffron in

Support of Defendant’s Motion for Partial Summary Judgment (NYSCEF Doc. No. 210) (“Heffron

Aff.”) purports to be in support of Defendant’s “application for temporary restraining order and

preliminary injunctive relief.” (Heffron Aff. ¶ 2.) In denying Defendant’s request for a

Preliminary Injunction, the Court found that “it is unlikely that defendant will prevail on the merits

to demonstrate that plaintiffs do not have the right to exercise any and all remedies the Credit

Agreement allows in the event of a default.” (See Decision + Order on Motion (NYSCEF Doc.

No. 88) (“Decision”) at 1-2).) The Court should deny Defendant’s Motion for the same reasons it

denied Defendant’s prior request.

1
In addition to being a lender, Regions Bank is the administrative agent (in such capacity, the
“Administrative Agent”), Collateral Agent, Swingline Lender, and Issuing Bank under a Credit
Agreement between Plaintiffs and Defendant dated December 29, 2021 (the “Credit Agreement”).
Plaintiff Regions Bank was, in each of its interactions with Defendant discussed in this brief, acting
in its capacity as the Administrative Agent in accordance with the Credit Agreement. Actions
taken by the Administrative Agent for the benefit and on behalf of the lenders are sometimes
attributed herein to Plaintiffs.

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Even if the Court were addressing Defendant’s arguments for the first time, it should reject

them as legally and factually meritless. Where sophisticated commercial actors aided by

competent counsel enter into an unambiguous contract, the law mandates enforcement of such

contract in accordance with its terms. Defendant ignores the contractual provisions in the Credit

Agreement that expressly define particular Event of Defaults that occurred here (Section 9.1) and

gave Plaintiffs the right to accelerate the Loans upon such Events of Default (Section 9.2). Further,

Defendant’s invocation of equity to avoid the consequences of its defaults is unavailing here

because (i) this is not an equitable foreclosure action that could result in the loss of real property

and (ii) the very limited circumstances under which equity allows a court to excuse a de minimis

contractual default have not been alleged, much less proven as a matter of law.

The issues raised in Defendant’s Motion are entirely duplicative of those being

simultaneously briefed in connection with Plaintiffs’ pending Motion for Summary Judgment

(NYSCEF Doc. Nos. 187-200, Mot. Seq. 009). Despite clear contractual language to the contrary,

Defendant asks the Court to intervene, as a matter of equity, and decide, as a matter of law, that

Plaintiffs were not entitled to accelerate the Loans in September 2022. (Def. Memo at 1–2.) This

Court should follow well-established precedent honoring the plain language of acceleration clauses

in commercial loan documents and deny Defendant’s Motion.2

ARGUMENT

A. The Legal Standard

“[W]hen there is no genuine issue to be resolved at trial, the case should be summarily

decided.” Andre v. Pomeroy, 35 N.Y.2d 361, 364 (1974). CPLR 3212 provides that “[a]ny party

2
During a pre-motion conference on August 15, 2022, the Court cautioned Defendant that the
Court could award fees if Defendant filed a frivolous motion. The court, in its discretion, may
award such fees. See N.Y. Comp. Codes, R. & Regs. tit. 22, § 130-1.1.

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may move for summary judgment in any action,” and the motion “shall be supported by affidavit,

by a copy of the pleadings and by other available proof, such as depositions and written

admissions.” CPLR 3212(a), (b). To withstand such a motion, “one opposing a motion for

summary judgment must produce evidentiary proof in admissible form sufficient to require a trial

of material questions of fact on which he rests his claim . . . .” Zuckerman v. City of New York, 49

N.Y.2d 557, 562 (1980).

B. Defendant’s Motion Fails as a Matter of Law.

Defendant claims to seek summary judgment “on the narrow issue of whether Plaintiffs . . .

have the right to accelerate the Loan[s] at issue.” (Def. Memo at 1.) In support of its motion,

Defendant argues that its defaults under the Credit Agreement were “non-material.” (Id.) While

equity may intervene to prevent the acceleration of loans in rare circumstances, it should not do so

here for several reasons. First, Defendant has admitted multiple breaches that constituted defaults

under the Credit Agreement. Second, the Credit Agreement explicitly gives Plaintiffs the right to

accelerate the Loans based upon such defaults. Third, Plaintiffs are not alleged to have engaged

in any conduct that justifies interference with their rights under the Credit Agreement. Fourth,

Defendant’s breaches are neither minor nor inadvertent.

1. Defendant Admits Multiple Breaches Constituting Defaults Under the Credit Agreement.

Pursuant to Section 7.12(d)(i) of the Credit Agreement, Defendant was required to cause

all deposit accounts and all securities accounts (other than certain Excluded Accounts as defined

in the Credit Agreement) to be subject to Account Control Agreements within 120 days after the

Closing Date. (Affirmation in Support of Defendant’s Motion for Partial Summary Judgment,

NYSCEF Doc. No. 203 (“Bloom Aff.”) Exh. 1 (Credit Agreement), § 7.12(d)(i); Def. Memo at 4-

5.) Defendant admits that, as of the April 29, 2022 deadline, it had not complied with Section

7.12(d)(i) of the Credit Agreement. (Def. Memo at 4 & n.4; Heffron Aff. ¶ 34.) Defendant’s

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proffered excuses for this admitted default are irrelevant.3 See, e.g., Freedom Mortg. Corp. v.

Engel, 37 N.Y.3d 1, 21-23, reh’g denied, 37 N.Y.3d 926 (2021) (recognizing noteholders’ right to

accelerate amounts due by an unequivocal, overt act).

Section 7.1(b) of the Credit Agreement required Defendant to deliver annual audited

financial statements without a qualification as to going concern to the Administrative Agent for

the fiscal year ended December 31, 2021, along with related certifications and accompanying

documentation, within 150 days of the end of such fiscal year. (Bloom Aff. Exh. 1 (Credit

Agreement), § 7.1.) Defendant admits that:

 Defendant was required to deliver an unqualified audit to Plaintiffs pursuant to
Section 7.1 of the Credit Agreement;

 Plaintiffs granted Defendant two extensions of time to deliver an unqualified
audit;

 Defendant failed to deliver an unqualified audit, despite receiving an additional 60
days to do so; and

 Now that Defendant is in default under the Credit Agreement, Defendant can
never “deliver a clean audit as required under Section 7.1(b).”

(Def. Memo at 16.)4

3
Defendant complains that it was not given notice or an opportunity to cure this admitted default
and that it later “cured” the default on July 26, 2023. (Def. Memo at 5; Heffron Aff. ¶¶ 36-37.)
Defendant concedes that it came into compliance pursuant to a Consent Order entered by the
Appellate Division (NYSCEF Doc. No. 142) and even then, only after Plaintiffs moved to enforce
compliance with the Consent Order (Def. Memo at 5; see NYSCEF Doc. Nos. 162-172). But the
Consent Order was “without prejudice to Lenders’ claims against Borrower.” (NYSCEF Doc. No.
142 at 9.) Compliance with the Consent Order, therefore, cannot constitute cure that deprives
Plaintiffs of their contractual rights and remedies. Indeed, the Loans were accelerated in
September 2022—ten months before such purported “cure” was purportedly effectuated in
July 2023.
4
It is irrelevant whether the going concern language in the draft audit was a “matter of emphasis”
or a “qualification” under GAAP. (Def. Memo at 4 & n.4; Heffron Aff. ¶¶ 30-33.) Defendant
admits that it never delivered any final audit to Plaintiffs as required by the Credit Agreement.

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It is undisputed that Defendant did not timely deliver audited financial statements without

a going concern qualification for the year ending December 31, 2021, as required by the Credit

Agreement. (Def. Memo at 3-4, 16.) Indeed, Defendant never delivered any final audited financial

statements. (Id.) As this Court previously observed, Defendant’s admission regarding the draft

audit opinion raises “serious questions about whether [D]efendant can ever obtain an audited

financial statement that satisfies the requirements of the Credit Agreement.” (Decision at 1.)

Defendant now admits that, unless Plaintiffs waive the long-past deadline to deliver a clean audit

opinion, it can never do so. (Def. Memo at 16.) Regardless of whether Defendant could have ever

complied with its contractual obligation to deliver clean audited financial statements, it is

undisputed that Defendant did not comply by the twice-extended deadline.5

2. Plaintiffs Were Entitled to Accelerate the Loans Pursuant to the Credit Agreement.

The Credit Agreement was negotiated by sophisticated parties aided by competent counsel.

Section 9.2 thereof provides that upon the occurrence and during the continuance of any

specifically enumerated Events of Default, the Administrative Agent may call all revolving and

term loans due at the request of (or with the consent of) the Required Lenders. (Bloom Aff. Exh. 1

(Credit Agreement), § 9.2.) Section 9.1(c) of the Credit Agreement expressly lists the Events of

Default that permit Plaintiffs to accelerate the Loans. Included among those enumerated defaults

that permit acceleration are (i) Defendant’s failure to deliver a clean audit opinion as required by

5
Defendant suggests, without evidentiary support, that but for Plaintiffs’ refusal to further extend
the delivery deadline, its auditor would have been able to deliver a clean final audit opinion. (See
Def. Memo at 16.) First, Plaintiffs were under no obligation to further extend a twice-extended
deadline (and their refusal to do so is not inequitable overreaching). Second, there is no evidence
whatsoever that, if given more time, the auditor would have been willing and able to issue a clean
audit opinion. Tellingly, Defendant’s Motion is not supported by an affidavit from the auditor or
any other evidence explaining the basis for the auditor’s inability to issue a clean final audit
opinion.

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Section 7.1 and (ii) Defendant’s failure to timely enter into Account Control Agreements as

required by Section 7.12. (Id. § 9.1(c).)

Defendant does not dispute that it was required to—but failed to—comply with both

Section 7.1 and Section 7.12 of the Credit Agreement. (Def. Memo at 1 (“Vativo is not asking

this Court to find that Vativo did not breach the Credit Agreement.”) (emphasis in original).) The

Credit Agreement specifically contemplated such a scenario and gave Plaintiffs certain rights upon

an Event of Default. Plaintiffs’ exercise of their unambiguous contractual right to accelerate the

Loans upon admitted Events of Default cannot constitute a breach of the Credit Agreement. See,

e.g., Last v. New York Inst. of Tech., 219 A.D.2d 620, 622 (2d Dep’t 1995) (dismissing employee’s

breach of contract claim where the employer “was within its contractual rights to terminate the

plaintiff’s employment”). Based on the undisputed facts and well-settled law, not only must the

Court deny Defendant’s Motion, but the Court should (i) grant Plaintiffs’ Motion for Summary

Judgment on their breach of contract claim to recover the full amount of the indebtedness and

(ii) dismiss Defendant’s counterclaims against Plaintiffs. (See generally Mot. Seq. No. 009.)

3. Equity Should Not Intervene to Preclude Acceleration of the Loans Pursuant to the Credit
Agreement.

Defendant contends that the Court should deprive Plaintiffs of their bargained-for remedies

because Defendant’s admitted defaults are not sufficiently material to justify acceleration of the

Loans. The dated Third Department case upon which Defendant relies for this argument, Tunnell

Publishing Co. v. Straus Communications, Inc., 169 A.D.2d 1031, 1032–33 (3rd Dep’t 1991), is

the exception, not the rule. In fact, the court in Tunnell acknowledged that “[a]greements providing

for the acceleration of the entire debt upon the default of the obligor are often enforced in

accordance with their terms.” 169 A.D.2d at 1032. The Tunnell case is also inapposite. There,

the court observed that because the new, reorganized borrower was “a viable, financially stable

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entity,” “the security bargained for by plaintiffs ha[d] not been impaired[.]” 169 A.D.2d at 1032.

Here, Plaintiffs’ security consists of Defendant’s accounts receivable and that security is materially

impaired when an auditor is unwilling or unable to certify Defendant’s viability as a going concern.

Defendant’s attempt to distinguish the case of Natixis, N.Y. Branch v. 20 TSQ Lessee LLC,

is unavailing. See No. 850272/2019, 2021 N.Y. Misc. LEXIS 1197 (Sup. Ct. N.Y. Cnty. Mar. 4,

2021.) In Natixis, the borrower “acknowledged defaults” and failed to cure despite receiving

extensions of time to do so. (See Def. Memo at 11). Similarly, here Defendant has acknowledged

its defaults and failed to provide compliant audited financial statements despite receiving multiple

extensions from Plaintiffs. As Commercial Division Justice Cohen explained in granting summary

judgment to a foreclosing lender, “‘[i]n the vast majority of instances,’ ‘[a]bsent some element of

fraud, exploitive overreaching or unconscionable conduct on the part of the [creditor] . . . there is

no warrant, either in law or equity, for a court to refuse enforcement of the agreement of the

parties.’” Natixis, 2021 N.Y. Misc. LEXIS 1197, at *19 (quoting Fifty States Mgmt. Corp. v.

Pioneer Auto Parks, Inc., 46 N.Y.2d 573, 577 (1979)). Applying the rule, Justice Cohen rejected

an “immaterial default” defense and held that the rare circumstances in which equity can intervene

to prevent a lender from accelerating a loan did not exist. Id. at *20–21. Rather, Justice Cohen

rejected the notion that “a court in equity may refuse to enforce a complex commercial agreement

even in the absence of fraud, mistake, or bad faith if, in the court’s own estimation, the breached

provision is not sufficiently important.” Id. at *22. Justice Cohen reasoned that “[s]uch meddling

flouts long-standing precedent, and flips the burden on to the non-breaching party to prove that a

default merits enforcement of contractual remedies.” Id. The Natixis case is on all fours with this

case, and the same result should occur here.

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Indeed, the outcome in Natixis is well supported by other cases. See, e,g., Chiampou Travis

Besaw & Kershner, LLP v. Pullano, 194 A.D.3d 1480, 1483 (4th Dep’t 2021); Key Int’l Mfg., Inc.

v. Stillman, 103 A.D.2d 475, 477–78 (2d Dep’t 1984); Hyundai Capital Am. v. Nemet Motors,

LLC, No. 19-CV-5506, 2019 U.S. Dist. LEXIS 188441, at *13 (E.D.N.Y. Oct. 29, 2019). Time

and again, courts have rejected arguments where a party sought to avoid its agreement with another

party based on equity and “inconsequential breach.” For example, in Chiampou Travis Besaw &

Kershner, LLP v. Pullano, the Fourth Department found that the breaching party “did not promptly

cure or attempt to cure the entire default” where the breaching party “paid the money that would

have been due . . . had the correct amortization method been used” but failed to “pay any of the

late charges or any other amounts due as a result of its default and litigation.” 194 A.D.3d at 1483.

Because “the note imposed a late charge for ‘any’ delinquent payment of principal or interest,”

which the breaching party failed to pay, the Fourth Department held that “equity should not

intervene to relieve [the breaching party] of enforcement of the acceleration clause of the note.”

Id. Similarly, in Key International Manufacturing, Inc. v. Stillman, the Second Department

rejected a claim that the borrower’s breach was “trivial or inconsequential” where the borrower

failed to renew letters of credit securing the loan, which was an “essential component of the

agreement” protected by an acceleration clause. 103 A.D.2d at 477–78. Instead, the court held

the borrower “to the consequences of its bargain.” Id. at 478. Finally, in Hyundai Capital

America v. Nemet Motors, LLC, the Eastern District of New York concluded that “the ‘technical’

nature of a default does not change the fact that Defendants defaulted under the Agreements, and

therefore Plaintiff is entitled to certain rights.” 2019 U.S. Dist. LEXIS 188441, at *12-13.

Here, there was no “fraud, exploitive overreaching or unconscionable conduct” by

Plaintiffs. Cf. Natixis, 2021 N.Y. Misc. LEXIS 1197, at *20. Nor were Defendant’s defaults

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merely technical or the result of a good faith mistake, promptly cured without prejudice to

Plaintiffs. Defendant was unable to comply with the Credit Agreement despite multiple extensions

of time to do so. Defendant offers no record evidence to suggest that it could have provided audited

financial statements without a qualification as to going concern had they been granted further

extensions of time. (See Def. Memo at 17 (claiming that the audit was delayed due to “the

Auditor’s difficulties in independently verifying [Defendant’s] internal financial records”).) Nor

does Defendant cite to any provision of the Credit Agreement or law suggesting that Plaintiffs had

any obligation to grant a further extension of time. (Id.) Defendant offers no explanation for its

months-long failure to implement Account Control Agreements as required by the Credit

Agreement. (See Def. Memo at 17 (claiming only that Plaintiffs “knew [Defendant’s] account

migration was in process”).)6 For these reasons, equity should not intervene to excuse Defendant’s

admitted defaults under the Credit Agreement.

4. Other Cases Cited by Defendant Demonstrate that Defendant is Not Entitled to Summary
Judgment.

Defendant cites cases that involve foreclosures, mortgages, or leases—none of which are

applicable here—in support of its contention that “where a lender premises the acceleration of a

loan solely on non-monetary and non-material alleged breaches of a credit agreement . . . equity

will intervene and courts will bar the acceleration.” (Def. Memo at 8.) For instance, as Justice

Cohen observed in his opinion in Natixis, the denial of summary judgment to the foreclosing lender

in Adelphi was based on the existence of questions of fact regarding whether the lender’s conduct

had negatively affected the borrower’s efforts to comply with loan terms and thus unfairly caused

the default upon which acceleration was based. See Natixis, 2021 N.Y. Misc. LEXIS 1197, at *23

6
Defendant admits that as of September 2022, when Plaintiffs accelerated the Loans, it still had
not complied with this requirement, which had a deadline in April 2022.

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(discussing Metropolitan National Bank v. Adelphi Academy, 23 Misc. 3d 1132(A), 2009 WL

1477998 (Sup. Ct. Kings Cnty. May 27, 2009)). Further, unlike in Empbanque Capital Corp. v.

Geathers, another mortgage foreclosure action, here there are no allegations pertaining to

cancelled checks or other actions by Plaintiffs that may have caused Defendant’s default. 224

A.D.2d 238, 239 (1st Dep’t 1996) (cited by Def. Memo at 14).

Fifty States Management Corp. v. Pioneer Auto Parks, Inc., cited in Defendant’s Memo (at

9, 14, 16) actually supports Plaintiffs’ position. There, the Court of Appeals recognizes that only

in “rare cases” would acceleration agreements in contracts be “circumscribed or denied

enforcement by utilization of equitable principles.” 46 N.Y.2d 573, 577 (1979). Even further,

“[a]bsent some element of fraud, exploitive overreaching or unconscionable conduct on the part

of the [creditor] . . . there is no warrant, either in law or equity, for a court to refuse enforcement

of an agreement providing for the acceleration of the entire debt . . .” Id. at 573. None of these

factors are applicable here.

Defendant’s additional reliance upon cases in which the creditor’s actions have led to the

amount in controversy being at issue should be disregarded by this Court. For instance, unlike in

Canterbury Realty & Equip. Corp. v. Poughkeepsie Sav. Bank, there is no issue of fact pertaining

to the debt limit here. 135 A.D.2d 102, 102 (3rd Dep’t 1988). Further, the court in Suits v. Suits,

was considering a “trivial or inconsequential” amount – vastly differing from the $105 million at

issue here. 266 A.D.2d 813, 813 (4th Dep’t 1999). In fact, none of the cases relied upon by

Defendant have facts applicable to this matter. See Di Matteo v. North Tonawanda Auto Wash,

Inc., 101 A.D.2d 692, 692 (4th Dep’t 1984) (noting that default was based on one missed payment

due to an error in the balancing of a checking account); In re In Rem Tax Foreclosure Action No.

31, Borough of Manhattan, 136 Misc. 2d 522, 523 (Sup. Ct. N.Y. Cnty. 1987) (discussing a missed

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payment for a water and sewage bill that was an oversight where cure was attempted almost

immediately).

Defendant’s reliance on these inapposite cases exemplifies its attempts to skirt

responsibility for failing to abide by the clear terms of the Credit Agreement.

C. Defendant’s Breaches of the Credit Agreement Were Material.

Defendant repeatedly claims that its admitted defaults were “non-material” and “trivial or

inconsequential.” (See, e.g., Def. Memo at 1-2, 5-9, 12-14.) This is not true.

As a preliminary matter, the Court need not evaluate the materiality of Defendant’s

breaches of the Credit Agreement because the clear and unambiguous terms of that agreement

establish that the parties intended such defaults to be sufficiently material to expressly provide for

acceleration upon their occurrence. “Construction of an unambiguous contract is a matter of law,

and the intention of the parties may be gathered from the four corners of the instrument and should

be enforced according to its terms.” Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324 (2007). “[I]f

the court determines that the defendant breached a clear and unambiguous term of a written

agreement between the parties, then the plaintiff is entitled to summary judgment on a breach of

contract claim as a matter of law.” West 44th St. Hotel, LLC v. Sam Tell & Son, Inc., No.

651215/2012, 2013 N.Y. Misc. LEXIS 4036, at *7–8 (Sup. Ct. N.Y. Cnty. Sept. 4, 2013) (granting

summary judgment on plaintiff’s breach of contract claim “as the Contract between the parties

unambiguously provides that defendant is responsible for the payment of all sales tax and it is

undisputed that defendant failed to make such payments”); see also ABS P’ship v. AirTran

Airways, 1 A.D.3d 24, 29 (1st Dep’t 2003) (finding summary judgment appropriate where “there

is no dispute as to the sequence of events” where defendant did not cancel certain orders “in the

manner provided for in the Agreement”). Here, it is undisputed that Defendant failed to comply

with Section 7.1 and Section 7.12 of the Credit Agreement, and Defendant’s failures constitute

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Events of Default under the Credit Agreement that give rise to Plaintiffs’ right to accelerate the

Loans.

Even if the Court were to consider the materiality of Defendant’s breaches, Defendant’s

defaults are neither minor nor inadvertent. A borrower’s failure to provide audited financial

statements and Account Control Agreements are absolutely material requirements in the context

of a $105 million syndicated credit facility. Those types of requirements protect lenders by giving

visibility into a borrower’s financial condition and permitting a lender to exercise remedies as

quickly as possible in the event of a downturn in the borrower’s business. There is no inadvertent

or mere technical default here. The inability to provide compliant audited financial statements –

after multiple extensions from the Plaintiffs – is the predictable and non-curable result of

Defendant’s poor financial condition. The failure to implement required cash management

accounts was likewise intentional. Neither Event of Default was caused by Plaintiffs. Here,

Defendant’s denial of those protections to the Lenders is a material breach of the Credit Agreement

and clearly justified the exercise of remedies thereunder.

D. Defendant’s “Immateriality Defense” Is Not a Basis for Summary Judgment.

For the reasons shown above, Defendant’s Motion should be denied as a matter of law.

Furthermore, as discussed in Plaintiffs’ Motion for Summary Judgment, the undisputed language

of the Credit Agreement (NYSCEF Doc. No. 2) and Defendant’s admissions in its Answer &

Counterclaims (NYSCEF Doc. No. 25) successfully prove each element of Plaintiffs’ breach of

contract claim and demonstrate that Defendant’s counterclaims fail. Thus, the Court should

(i) award Plaintiffs summary judgment on their breach of contract claim, (ii) dismiss Defendant’s

counterclaims, and (iii) deny Defendant’s Motion. Nevertheless, in the event the Court considers

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Defendant’s immaterial breach argument, existing evidence demonstrates that Defendant’s

position is factually meritless.

1. Record Evidence Supports a Finding that Defendant Could Not Have Obtained a Clean
Audit.

Defendant claims that had Plaintiffs “grant[ed] a final, fifteen-day extension to the Audit

deadline” (Def. Memo at 16), Grant Thornton would have been able to provide a clean final audit

opinion. However, Defendant cites no documentary evidence that it requested such an extension

and provides no authority for the proposition that Plaintiffs had any legal or equitable obligation

to grant such a request. (Id.; see also Heffron Aff. ¶¶ 28-29.) Instead, Defendant claims that “[o]n

July 15, 2022, Grant Thornton, representatives of Regions Bank, and [Heffron] had a telephone

conference to discuss the delays in obtaining [necessary] records and the impossibility of

completing the Audit by the July 29, 2022 deadline.” (Heffron Aff. ¶ 26.) In fact, notes from a

Regions employee that were apparently taken contemporaneously with that July 15, 2022 call paint

a very different picture. (Manning Aff. Exh. A.)7 According to those notes, the auditor reported

that they “[s]hould be done by the[] end of next week” and that the delay was on the auditor’s end

“getting everything signed off on and an illness.” (Id. at p. 2.)

There is no dispute that the audit was not completed on time; rather, after the July 29, 2022

deadline—more than two weeks after the July 15, 2022 call—Grant Thornton provided a draft

audit opinion to Plaintiffs. That draft audit opinion, for the first time, revealed the significant

scope of the dispute between Defendant and Optum. Specifically, in a paragraph titled,

“Substantial doubt about the Company’s ability to continue as a going concern,” Grant Thornton

noted:

7
Citations to “Manning Aff. Exh.” refer to the exhibits appended to the accompanying Affirmation
of James C. Manning dated September 1, 2023 (the “Manning Aff.”).

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 “[T]he Company entered into a dispute with its principal PBM [pharmacy benefits
manager] (‘Optum’) and transferred its business to an alternative PBM.”

 “As of December 31, 2021, the Company had a net receivable balance of $106.9
million that remains outstanding from Optum . . . .”

 “For the year ended December 31, 2021, $182.0 million of the Company’s
revenues were processed through Optum representing 95.6% of total revenues.”

 “[T]here can be no assurances that the Company will be able to execute on this
strategic shift to an alternative PBM and the ultimate resolution of the legal matter
with Optum.”

(See Bloom Aff. Exh. 5 (NYSCEF Doc. No. 208) at 3; see also id. at 13 (Note 2 – Going Concern).)

In other words, Defendant’s auditor explained that Optum refused to pay Defendant more than

$105 million—the full amount of the Loans—as a result of the dispute between Defendant and

Optum. This amount, that Optum refused to pay, represented approximately 92% of Defendant’s

accounts receivable as of December 31, 2021. (See Bloom Aff. Exh. 5 at 6 (showing $116,816,655

in “Rebates receivable” on Defendant’s balance sheet).) The dispute with Optum clearly impacted

Defendant’s ability to obtain a clean audit in a timely manner as required by the Credit Agreement.

Making matters worse, Defendant never disclosed the extent of its ongoing dispute with

Optum, and when seeking extensions of time to deliver an audit as required by Section 7.1(b) of

the Credit Agreement, Defendant misrepresented the reasons for the delay. Defendant had initially

represented that an extension of time was needed because its auditor was “short-staffed.”

(Manning Aff. Exh. B at p. 2.) In its April 20, 2022 extension request, Defendant did not reveal,

as it now claims, that the delay was “a result of Optum’s lack of cooperation.” (Heffron Aff. ¶ 22.)

The evidence now shows that throughout the audit process, while receiving two extensions

of time to deliver a clean audit opinion, Defendant concealed the extent of its dispute with Optum.

Prior to Defendant’s April 20, 2022 extension request, Optum formally accused Defendant of

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(Manning Aff. Exh. C at p. 1.) In Optum’s March 4,

2022 letter noticing the breach of contract and its intent to seek indemnification, Optum indicated

that it communicated the basis of the breach “

” (Id.)

On March 22, 2022, Optum sent Defendant an amended notice of breach and intent to seek

indemnification. (Manning Aff. Exh. D.) Optum wrote that Defendant “has yet to provide a

substantive response” and that it had not “

” (Id. at p. 1.) On March 30, 2022, Vativo wrote back to Optum

in response to the March 4 and March 22, 2022 Letters. (Manning Aff. Exh. E.) Rather than

denying that it was in breach of the applicable contract, Defendant wrote that the agreement

“ ” (Id. at p. 2.)

Defendant failed to provide these communications to the Administrative Agent prior to the first

extension, dated May 5, 2022. (Bloom Aff. Exh. 3.)

Then, on May 31, 2022, Optum terminated its agreement with Defendant effective

“immediately.” (Manning Aff. Exh. F at p. 1.) In its termination notice, Optum wrote that

Defendant breached its contract with Optum by “among other things,

” (Id. at p. 1.) The letter also

referenced a “dispute resolution call on May 27,

Case Info

Judge

Melissa Anne Crane Track Judge’s New Case

Case No.

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Document Filed Date

September 01, 2023

Case Filing Date

May 13, 2019

County

Parties

BankUnited, N.A. Plaintiff
BRYDGES, JERAULD EARL Attorney for the Plaintiff
First Horizon Bank Plaintiff
GOLDBERG, DANIEL PETER Attorney for the Defendant
GRAY, CHRISTOPHER NEIL Attorney for the Plaintiff
HALE, KEVIN JAMES Attorney for the Plaintiff
KERNER, ZACHARY ADAM Attorney for the Defendant
MANNING, JAMES CHAPMAN Attorney for the Plaintiff
MILSTEIN, DANIEL R Attorney for the Plaintiff
OptumRx, Inc. Non Party
PACCIONE, ANTHONY L. Attorney for the Plaintiff
Regions Bank Plaintiff
Santander Bank, N.A. Plaintiff
SCHATZ, PHILIP RANSOM Attorney for the Plaintiff
SINATRA, STEVEN Attorney for the Plaintiff
THROO, KATHRYN MARIE Attorney
TrustMark National Bank Plaintiff
Vativorx, LLC Defendant
WEICK, GABRIELLA ANN Attorney for the Plaintiff
WINTERS, JULIA MARIE Attorney for the Plaintiff
JOHN FLYNN Attorney

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Motion-Secondary: Regions Bank, Bankunited, N.A., First Horizon Bank, Trustmark National Bank, Santander Bank, N.A. v. Vativorx, Llc

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