Preview
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
$upreme @ourt of tDe $tsteot ^Deh'porB
9ppetlate Dihision, ! irst lulirf ut Deportment
Dianne T. Renwick, J.P.
Barbara R. Kapnick
Jeffrey K. Oing
Peter H. Moulton
John R. Higgitt, JJ
Appeal No. 16877
Index No. 65o48l19
Case No. 2o22-oo2gs
AEA MIDDLE MARKET DEBT FUNDING LLC, et a1,,
Plaintiffs-Respondents-Appellants,
-against-
MARBLEGATE AssET MANAGEMENT, LLC, et al.,
Defendants-Appellants-Respondents,
NEw TERACo, Inc., et a1.,
Defendants-Respondents.
Certain defendants appeal, and plaintiffs cross-appeal, from an order ofthe
Supreme Court, New York County (Melissa A. Crane, J.), entered on or about December
7, zozr, which, to the extent appealed and cross-appealed from as limited by the briefs,
denied defendants Marblegate Asset Management, LLC, Marblegate Special
Opportunities Master Fund L.P., P. Marblegate Ltd., Marblegate Strategic Opportunities
Master Fund I, L.P., Marblegate Partners Master Fund I, L.P., (the Marblegate
defendants), Field Point Agency Services Inc. and Archway Marketing Services Inc.,
AWM Holdings, Inc., Archway Marketing Holdings, Inc., and Corporate Services, Inc.,
(the Archway defendants), motion for dismissal of claims asserted against them based
upon alleged breach of covenant of good faith and fair dealing. The Archway defendants
also appeal the denial of dismissal of the indemnification claims asserted against them.
Plaintiffs cross-appeal from the dismissal of breach of contract claims asserted against
the Marblegate defendants and Field Point, the breach offiduciary duty claims asserted
against Marblegate defendants and the derivative breach of fiduciary duty claim
asserted against defendant John Brecker on behalf of Archway Marketing Services, Inc.
Herrick Feinstein LLP, New York (Sean E. O'Donnell, Janice I. Goldberg, Christopher
Carty, Kyle J. Kolb and Silvia Stockman of counsel), for Marblegate Asset Management,
1 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
LLC, Marblegate Special Opportunities Master Fund L.P., P. Marblegate Ltd.,
Marblegate Strategic Opportunities Master Fund I, L.P., Marblegate Partners Master
Fund I, L.P., Field Point Agency Seruices, Inc. and New Teraco, Inc., appellants-
respondents/respondent.
Goulston & Storrs PC, New York (Jaclyn H. Grodin and Isabel Sukholitsky ofcounsel),
for AWM Holdings, Inc., Archway Marketing Holdings, Inc., Archway Marketing
Services, Inc. and Corporate Services, Inc., appellants-respondents.
Harris St. Laurnent & Wechsler LLP, New York (Alisha Louise McCarthy and Yonaton
Aronoff of counsel), and Yetter Coleman LLP, Houston, Texas (Tracy N. LeRoy ofthe
bar of the State of Texas, admitted pro hac vice of counsel), for respondents-appellants.
Bracewell LLP, New York (Russell Gallaro and David Ball of counsel), for John Brecker,
respondent.
2 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
RENWICK,J.P.,
This appeal addresses whether plaintiffs,l a group of minority lenders in a
syndicated secured credit facility agreement,2 may proceed on their claimss against a
group of majority lenders and a collateral agent, among others. This intercreditor
dispute stems from the collateral agent's action, at the direction ofthe majority lenders,
to "credit bid"4 the debt of all secured lenders at a nonjudicial foreclosure auction. Upon
acquiring the debtor's assets, the majority lenders then sold the debtor's assets as a
going concern to an entity owned by the majority lenders, thus transforming the sale of
the collateral into a reorganization sale. Plaintiffs minority lenders essentially argue that
after credit bidding at the auction for all secured creditors, the collateral agent's sale of
the debtor's assets to an entity owned by the majority lenders, for consideration issued
by the new corporation in the form ofunsecured noncash debt, effectively compromised
the minority lenders' security interests in the collateral. This, plaintiffs argue, violated
their pro rata rights under the credit and security agreements.
I Plaintiffs are AnA Middle Market Debt Funding LLC, AEA Middle Market Debt II Funding
LLC, Bancalliance Inc., Midcap Financial Trust, Midcap Funding XVIII Trust, and Sun Life
Assurance Company of Canada, individually and derivatively on behalf ofArchway Marketing
Services, Inc.
2 In a multi-lender syndicated credit facility agreement each lender individually has a debtor-
creditor relationship with the borrower, contributes its pro rata share ofloans, and becomes a
party to a loan or credit agreement that provides, among other things, for the designation of an
agent to act for the benefit of the lenders.
s Plaintiffs' claims include breach of contract, breach of fiduciary duty, breach of the covenant of
good faith and fair dealing, and indemnification.
q "Credit
bidding is a mechanism, enshrined in the US bankruptcy legislation, whereby a secured
creditor can 'bid' the amount of its secured debt, as consideration for the purchase of the assets
over which it holds security. In effect, it allows the secured creditor to offset the secured debt as
payment for the assets and to take ownership ofthose assets without necessarily having to pay
any cash for the purchase" (Amy Jacks and Trevor Borthwick, Credit Biddings: A US import
that will be akey part ofa IIK lender's toolkit in the current distressed market (available at:
lrttos: //lwrrv.m:r verbrown.com/en/uersoectives-events /uublications/zozolrol r:r'edit-birldine-
n-r.rs-im pot't-that-llill-be-a -kev-nart-ol-a-uk-lenilels-toolliit-i n-lhe-cu llent-tli stlessetl-nrat ket
ILast accessed 3/ 6 I zo4]).
3 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
Procedural and Factual Background
Plaintiffs' complaint and exhibits referenced herein establish the following: The
debtor corporation in this action is defendant Archway Marketing Services Inc.
(Archway),s 3 Delaware corporation with headquarters in Rogers, Minnesota. It
provides marketing logistics, fulfillment, and supply chain management services.
Plaintiffs and Marblegate defendantso are lenders to a $165 million credit facility
agreement (Credit Agreement), with Archway defendants dated July z, 2o12. Plaintiffs
loaned nearly $6o million of the loan amount. The Credit Agreement was used to
finance AWM's acquisition of all capital stock of AMH and its subsidiaries. The Credit
Agreement loans were secured by a lien on substantially all the Archway defendants'
assets pursuant to a Guaranty and Security Agreement (Security Agreement). The Credit
Agreement and Security Agreement were both executed on July 2, 2012.
Pertinent Sections of the Cledit reement and Security Asreement
Section t.ro(c) ofthe Credit Agreement is a waterfall structure providing that, in
the event ofa default and sale ofthe collateral, the proceeds must first be used to pay all
obligations on the First Out Revolving l,oansz before any other distribution is made.
s The debtor defendants are Archway, A\4M Holdings, Inc' (A14M), Archway Marketing
Holdings, Inc. (AMH), and Corporate Services, Inc. (collectively the Archway
defendants). The Archway defendants are affiliates of the parent company AMH.
o The Marblegate defendants are Marblegate Asset Management, LLC, Marblegate
Special Opportunities Master Fund L.P., P. Marblegate Ltd., Marblegate Strategic
Opportuniiies Master Fund I, L.P., Marblegate Partners Master Fund I, L.P.
7 A First-Out Revolving Facility is one in which the first-out lender is paid before the
other lenders in the context of a syndicated loan, instead of all lenders receiving
proportionate payouts (see Marc P. Hanrahan and Jerome Mccluskey, An ouer-uieut of
4 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
Moreover, it requires pro rata distribution, in that "all proceeds of Collateral received by
Agent or any Lender as a result ofthe exercise of remedies under any Collateral
Document after the occurrence . . . of an Event of Default, shall be applied" in
compliance with the waterfall structure, and, "In carrying out the foregoing, . . . (ii) each
ofthe Lenders or other Persons entitled to payment shall receive an amount equal to its
pro rata share of amounts available to be applied."
Section 9.t(a) of the Credit fureement concerns amendments and waivers. It
precludes the Agent or any other party from overriding a lender's rights without their
consent, including their rights to Archway collateral and pro rata treatment.s Section
9.11(b) addresses the sharing of palments among lenders. Specifically, it provides:
1st-Out Reuoluers, available at: https://www.milbank.com/images/content/8l8l88SZ /
An-Overview-Of-tst-Out-Revolvers.pdf [last accessed z/23/23]).
8 Sections q.r(axii-iv) and (vii), Amendments and Waivers, states, in pertinent part:
"g.r (a) [N]o amendment or waiver of, or supplement or other modification (which shall
include any direction to the Agent pursuant) to, any Loan Document . . ' and no consent
with respect to any departure by any Credit Party from any Loan Document, shall be
effective unless the same shall be in writing and signed by Agent, the Required Lenders
(or by Agent with the consent of the Required Lenders), and the Borrower and then such
waiver shall be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, supplement
(including any additional loan Document) or consent shall, unless in writing and signed
by all the l,enders directly affected thereby (or by Agent with the consent of all the
knders directly and adversely affected thereby), in addition to ABent, the Required
Lenders (or by Agent with the consent of the Required Lenders) and the Borrower, do
any of the following: . . .
"(ii) postpone or delay any date fixed for, or reduce or waive, any scheduled installment
of principal or any palment of interest, fees or other amounts (other than principal) due
to the Lenders . . . hereunder or under any other Loan Document . . . ;
"(iii) reduce the principal of, or the rate of interest specified herein .'. or the amount of
interest payable in cash specified herein on any Loan, or of any fees or other amounts
payable hereunder or under any other Loan Document . . . ;
5 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
"If any Lender Obligation of any Credit Party . . . and
. . . obtains any pa),rnent of any
such payment exceeds the amount such Lender would have been entitled to receive ifall
payments had gone to, and been distributed by, Agent in accordance with the provisions
ofthe Loan Documents, such Lender shall purchase for cash from other Lenders such
participations in their Obligations as necessary for such Lender to share such excess
payrnent with such Lenders to ensure such payrnent is applied as though it had been
received by Agent and applied in accordance with this Agreement"
Under $ rt.r ofthe Credit Agreement, "Required [,enders" are defined as any
lender holding more than So% of the sum of the aggregate revolving loan commitment
plus the aggregate unpaid principal balance ofthe outstanding term loans' Several
provisions ofthe Credit Agreement granted the Required Lenders the authority to
dictate certain actions on behalf of all lenders.
The Credit Agreement designated the "Administrative Agent" (i.e., Agent) as the
entity responsible for handling matters regarding the collateral. Under S 8.9(a), the
Agent could act either under the loan agreements or pursuant to instruction by the
Required Lenders. under s 7.2(c) the Agent may exercise on behalf of itself and the
lenders all rights and remedies available to it under the loan agreements. Upon an event
of default, sections 7.5 and 8.3(c) vest upon the Agent the right to exercise remedies "on
behalf of the Secured Parties" and "for the benefit of a]l the Lenders."s
"(iv) (A) change or have the effect of changing the priority or pro rata treatment of any
pa)rynents . . . Liens, proceeds of Collateral or reductions in Commitments . . ' or (B)
idvance the date fixed for, or increase, any scheduled installment ofprincipal due to any
of the Lenders under any Loan Document; . . .
,.(vii)
discharge Borrower or all or substantially all ofthe Guarantors (as such term is
defined in the Guaranty and Security Agreement) from their respective palnnent
Obligations under the Loan Documents, or release all or substantially all of-the
Colliteral, except as otherwise may be provided in this Agreement or the other Loan
Documents."
e S 7.S states: "Borrower, Agent and each Secured Party hereby agre-e that ao Secured
fart/shall have any right individually to realize upon any ofthe Collateral or to enforce
the [uaranty ofthe Obligations or any provision ofthe Guaranty and Security
6 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
Archwav's Default and the Fifth ndment to the Credit Asreement
The debtor, Archway defendants, began having cashflow problems and defaulted
on loan payments from July zo18 to December 2018. In September eor8, in response to
the ongoing default, the lenders (plaintiffs and the Marblegate defendants) executed a
forbearance agreement and Fifth Amendment to the Credit Agreement. Under section 5
ofthe Fifth Amendment, the lenders agreed to appoint defendant Field Point Agency
Services, Inc. as the agent, replacing nonparty Antares Capital LP.
The Fifth Amendment created a first-out revolving credit facility that increased
the loan commitments of the Marblegate defendants and some of the plaintiffs, resulting
in the Marblegate defendants claiming to hold approximately 5r% of the Archway
defendants' outstanding debt and plaintiffs holding the remaining 49%. (As ofthe date
ofthe reorganization sale, $rzz million had been lent to the Archway defendants). As a
result, the Marblegate defendants claimed they had Required Lender status under the
Credit Agreement. As Required Lenders, the Marblegate defendants were empowered to
instruct Field Point, the agent.
Under the Fifth Amendment the lenders agreed to forbear on exercising their
default-related rights and remedies during the forbearance period to "permit the Credit
parties and the Lenders an opportunity to consummate a Restructuring." The Credit
Agreement also established a tight time period to achieve various restructuring
Agreement, it being understood and agreed that all powers, rights and remedies
hereunder and under the Collateral Documents may be exercised solely by Agent, on
behalf of the Secured Parties in accordance with the terms hereof and thereof."S 8.3(c)
states, in pertinent part: "[T]he authority to enforce rights and remedies hereunder and
under the other Loan Documents against the Credit Parties or any of them shall be
vested exclusively in, and all actions and proceedings at law in connection with such
enforcement shall be instituted and maintained exclusively by, Agent in accordance with
the Loan Documents for the benefit of all the Lenders and the L/C Issue"
7 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
milestones, including (i) agreeing upon a term sheet by October 15, 2o18, (ii) entering
into a Restructuring Support Agreement by November 3o, 2o18, and (iii) consummating
a restructuring by December 28, 2o18. However, each ofthose deadlines was missed.
Archway failed to pay the principal, interest, and fees due on August 21, September zr,
October 1, October 22, November 23, and December 24,2ot8, and failed to maintain the
minimum levels of Actual Liquidity and maintain Senior Leverage Ratios and Fixed
Charge Coverage Ratios as the Credit Agreement required.
The Restructurine}ansaetiaa
On December 26,2078, Field Point circulated a memorandum announcing a
restructuring transaction. The memorandum included a notice of the execution of a
"Restructuring Supporl Agreement" between Archway defendants, Field Point and
Marblegate defendants dated December 24, 2018. At the outset, the Restructuring
Support Agreement distinguished an "Initial Consenting Lender" from other lenders.
The Initial Consenting Lenders collectively owned in the aggregate more than 5o% of
the outstanding amounts due on the Credit Agreement. The Marblegate defendants
comprised all the Initial Consenting Lenders. A lender executing a joinder agreement
would become a party to the Restructuring Support Agreement as a "Consenting
Lender," and, together with the Initial Consenting Lenders, would be referred to as
"Consenting Lenders." Each Consenting Lender would be entitled to receive "on apro
rata basis, an aggregate principal amount of $5.o million additional existing Term
Loans (the 'Additional Loans')" as a "restructuring support agreement fee."
Field Point set Friday, January 4, 2019, as the deadline for each lender to execute
a joinder agreement in order to receive its share of the consent fee. A "Restructuring
Term Sheet" incorporated into the Restructuring Support Agreement explained the
8 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
material terms and conditions ofthe transaction. First, the Consenting Lenders, in
accordance with section 8.3(a) ofthe Credit Agreement, had directed Field Point to act,
as provided under sections Z.S and 8.3(a), and initiate foreclosure proceedings to sell
1oo% of AMH's stock (Foreclosed Assets) at a public auction under Uniform
Commercial Code (UCC) 5 9-6ro(a). Second, the Consenting Lenders had directed Field
Point to submit a credit bid (Lender Credit Bid) at the foreclosure sale. The relevant
section in the Term Sheet reads:
"The Consenting Lenders shall direct the Agent to, and the Agent
shall, on behalf of the Lenders, credit bid all or a portion ofthe
Obligations (consisting of outstanding principal amounts under the
Last Out Revolving Loans and Term Loans (the 'Credit Bid
Obligations')) for the Foreclosed Assets at the Foreclosure Sale (the
'Lender Credit Bid'), and such direction to the Agent shall
acknowledge that the existing indemnity in the Credit Agreement
shall apply to the entire Lender Credit Bid and Foreclosure (as
defined below) process.
"In the event that the Lender Credit Bid is declared the winning bid
at the Foreclosure Sale, a pro rata portion ofthe Credit Bid Obligations held by
each Lender shatl be extinguished, up to the outstanding aggregate amount ofthe
Credit Bid Obligations.
"In the event that the Lender Credit Bid is declared the winning bid
at the Foreclosure Sale, immediately after the Foreclosure Sale, a
new limited liability company ('New Archway') shall (i) purchase
the Agent's right to the Foreclosed Assets and (ii) arrange for and
obtain financing in the form of the Foreclosure Financing (as
defined below). The Consenting Lenders shall direct the Agent, on
behalf of the Lenders, to assign the Foreclosed Assets to New
Archway as consideration for the Foreclosure Financing, as
described below.
"In the event that the Lender Credit Bid is declared the winning bid
at the Foreclosure Sale, the governance of New Archway upon
consummation of the Foreclosure will be as determined by the
Consenting Lenders. . . .
"The 'Foreclosure Financing' shall mean, collectively, the New First
9 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
' Lien Credit Facility and the New Unsecured Credit Facitity ...
The 'Foreclosure' shall mean, taken together, the Foreclosure Sale
and the Foreclosure Financing."
Thus, the Lender Credit Bid encompassed only those amounts due on the Last
Out Revolving Loans and Term Loans, but not the First Out Revolving Loans. The Term
Sheet explained how the existing loans extended to Archway would transfer into new
loans extended to New Archway if the Lender Credit Bid was successful. Holders of
"First Out Revolving Loan Claims" may elect to have their claims paid in full or rolled
over into "New Priority First Lien Term Loans on a pro rata basis" up to gro miltion. A
"First Out Revolving Loan Claim" includes "all claims against the Credit Parties on
account ofthe First Out Revolving Loans under the Credit Agreement." All other
"Existing Credit Agreement Claims (other than the First Out Revolving Loan Claims)
shall be exchanged into New Unsecured Term Ioans on a pro rata basis . . . subject to
the subsequent exchange of New Unsecured Term loans held by Priority Electing
Lenders into New First Lien Term Loans." The "Existing Credit Agreement Claims"
encompassed "all principal amounts owed by the Credit Parties to the Lenders under the
Credit Agreement (including, without limitation, the First Out Revolving Ioans, Last
Out Revolving Loans and Term Loans)."
As for New Archway's debt and equity capital structure, the Term Sheet described
two new credit facilities. The "New First Lien Credit Facility" subsection provides that:
"New Archway will enter into a new first lien credit facility (the
'New First Lien Credit Facility') through which New Archway will
issue (i) new first out first lien term loans (the 'New Priority First
Lien Term Loans') in an original aggregate principal amount of up
to $3o.o million and (ii) new first lien term loans (the 'New First
Lien Term loans') in an original aggregate principal amount of
gr5.o million. All New Unsecured Lenders (as defined below) will
be offered the opportunity to participate in the New First Lien Credit
10 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
Facility as follows: (i) up to gro.o million of the New Priority First
Lien Term Loans shall be funded through the conversion ofthe First
Out Revolving Loan Claims on a pro rata basis (calculated based
on relative holdings of First Out Revolving Loan Claims), (ii) $zo.o
million of the New Priority First Lien Term Loans shall be funded
by a new money investment (the 'New Money Priority First Lien
Term Loans') offered on a pro rata basis (calculated based on
relative holdings of Existing Credit Agreement Claims) (such New
Unsecured Lenders who elect to fund, the 'Priority Electing
Lenders') and (iii) the New First Lien Term Loans shall be funded
by an exchange of each Priority Electing Lenders' New Unsecured
Term Loans into the New First Lien Term Loans on a pro rata basis."
The assets of New Archway and its subsidiaries would be used to guarantee
payment on the New Priority First Lien Term Loans and the New First Lien Term Loans
In addition, "[t]he New Priority First Lien Term Loans shall have waterfall priority and
shall be paid in full in cash prior to the repayment ofany other obligations of New
Archway, including prior to the repa),rnent ofthe New First Lien Term Loans." The
"New Unsecured Credit Facility" subsection states that:
"New Archway will enter into a new unsecured credit facility (the
'New Unsecured Credit Facility') through which New Archway will
issue new unsecured term loans (the 'New Unsecured Term Loans')
in an original aggregate principal amount of $ts.o million. Subject
to the exchange as set forth in 'New First Lien Credit Facility'
above, all current Lenders under the Credit Agreement shall receive
New Unsecured Term Loans on a pro rata basis (calculated based
on relative holdings of Existing Credit Agreement Claims) (such
Lenders, the 'New Unsecured Lenders')."
On December 28, 2018, Field Point sent plaintiffs a notice offoreclosure, with the
public sale to be held on January 28, 2019. Consistent with the Restructuring Support
Agreement, the notice identified the "Auctioned Collateral" as "[a]11 right, title and
interest of AWM Holdings, Inc. .. . in and to stock of Archway Marketing Holdings,
Inc." The Foreclosed Assets would be sold in a single block to a single purchaser. The
11 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
notiee further provided that the assets "shall be sold for cash at such price and on such
other commercially reasonable terms as the Agent (at the direction of the Required
Lenders) may determine in its sole discretion" and that Field Point may submit a credit
bid "against all or a portion of its secured claim and become the purchaser of the
Auctioned Collateral."
On January 28, zor9, Field Point instituted foreclosure proceedings and put forth
the L,ender Credit Bid. On January 3r, 2019, Field Point announced that the
Restructuring Transaction had been consummated. According to a "Transaction
Agreement," dated January 3 o, 2otg, between Field Point, New Archway, New Teraco,
Ine. (a company that is wholly owned by the majority lenders), AWM and Archway, the
Lender Credit Bid was the winning bid for the Foreclosed Assets. The Transaction
Agreement states that Field Point, on behalfofthe ienders in the Credit Agreement,
shall "sell, assign, transfer and deliver" and that New Archway "shall purchase, acquire
and accept" all of Field Point's rights, title and interest in and to the foreclosed Assets at
Field Point's direction. AWM will then transfer, assign, and deliver its right, title, and
interest in the Foreclosed Assets by delivering executed stock powers directly to New
Archway as consideration. New Archway agreed to incur debts comprised of "(i)
$7,o9o,o45 of New Subordinate Term Loans to each Lender that does not elect to
participate in the New First Lien Credit Facility . . . and (ii) $45,ooo,ooo of New First
Lien Term l,oans . . . provided by Lenders who elect to participate in the New First Lien
Credit Facility."
Immediately after the transfer and assignment of the Foreclosed Assets to New
Archway, Teraco and New Archway would complete the transactions described in the
Term Sheet under a separate "Global Contribution Agreement." Archway's operating
12 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
entities held approximately 945 million in assets before the foreclosure sale, and Teraco
contributed assets worth approximately $4 million. Apart from $3.7 million paid to
plaintiffs Midcap and Sun Life under the first out revolving facility, plaintiffs received
"in exchange for their secured loans approximately tg% offace amount recovery in the
form of unsecured, unguaranteed, subordinated replacement term loans from New
Archway, and Marblegate, in turn, received . . . the entire equity of Archway."
n ded Com laint and t
Plaintiffs commenced this action primarily against the majority lenders
(Marblegate defendants), the collateral agent (Field Point), the original debtor (Archway
defendants), and John Brecker, Archway's sole director. As relevant to this appeal,
plaintiffs assert breach of contract claims against the majority lenders, collateral agent,
and original debtor based upon alleged violations ofthe Credit Agreement and the
Security Agreement. Plaintiffs assert breach of fiduciary claims against the majority
lenders, the Collateral Agent, Original Debtor, and John Brecker (derivatively on behalf
of Archway). Plaintiffs also assert a claim of breach of the covenant of good faith and fair
dealing against all defendants. Finally, plaintiffs assert a claim for attorney fees against
the Original Debtor based on the indemnification provision of the Credit Agreement.
AII defendants moved to dismiss the second amended complaint pursuant to
CPLR 3211 (aXr) and (7) based on documentary evidence, including the relevant
agreements. The motion court granted defendants' motion to the extent that it
dismissed all of plaintiffs' claims except the implied covenant and indemnity claims. As
for the fiduciary duty claim against the Majority Lenders, the court found that the
Restructuring Transaction did not create a fiduciary duty between the lenders, and that
plaintiffs were not entitled to a pro rata share of the Archway equity because the
13 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
foreclosed assets were noncash assets. The court also found that Field Point never
possessed the Archway Equity because it transferred its right to acquire the Archway
Equity to New Archway. Further, the court found, as the controlling shareholder
exercising its rights as third-parff lender, the Marblegate defendants' actions were not
subject to fiduciary review.
The court dismissed the breach of contract claim against Field Point, finding that
it was barred by the exculpatory clause in $ 8.9(a) ofthe Credit Agreement and that the
Marblegate defendants had the right under 5 7.2(c) to direct Field Point's actions. It also
dismissed the breach of contract claim against the Marblegate defendants and Archway
defendants, finding that the Restructuring Transaction was conducted in accordance
with the Credit Agreement. The court also dismissed the derivative breach offiduciary
duty claim as to Brecker, finding that plaintiffs failed to sufficiently allege that he iacked
independence or that his judgment was negligent.
The court denied defendants' motion to dismiss the impiied covenant of good
faith and fair dealing claim, finding that plaintiffs had adequately alleged that the
Restructuring Transaction, the exchange of plaintiffs' $6o million in secured loans for
$3S million in secured and unsecured loans, and the sale ofthe Archway Equity to
Teraco, injured their rights to the fruits ofthe Credit Agreement. Finally, the court
found plaintiffs adequately pleaded an indemnification claim against the Archway
defendants based on 5 9.6(a) of the Credit Agreement.
Both defendants and plaintiffs appeal. Defendants majority lenders (Marblegate
defendants), the Cotlateral Agent (Field Point), and the Original Debtor (Archway
defendants) appeal the denial of the dismissal of the claims asserted against them based
on the alleged breach of the covenant of good faith and fair dealing. The Original Debtor
14 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
also appeals the denial ofthe dismissal ofthe indemnification claims asserted against it.
Conversely, plaintiffs appeal the dismissal of the breach of contract claims asserted
against the majority lenders, the collateral agent and the original debtor, breach of
fiduciary duty claims asserted against the Majority Lenders and the derivative breach of
fiduciary claim asserted against defendant John Brecker.
Discusslotl
We first determine whether Supreme Court properly dismissed the various
breach of contract claims asserted against the Majority Lenders, Collateral Agent, and
the Original Debtor. These claims are controlled by the Intercreditor Credit and Security
Agreements, which set out the relative rights and remedies of the secured meditors who
extended financing to the Original Debtor. The governing principles are familiar. First,
on a motion to dismiss pursuant to CPLR 3211, the court may grant dismissal when
"'documentary evidence submitted conclusiveb establishes a defense to the asserted
claims as a matter of law"' (Goldman u Metropolitan Life Ins. Co., 5 NY3d 56r, 577
[zoo5], quoting Held u Kaufman, 91 ].IY2d 425, 430-431 [ISSS]).
Second, Intercreditor Agreements are subject to the rules of contract
interpretation, like any other agreements. Construction ofan 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 (see Vermont Teddy Bear
Co. u fi8 Madison Realty Co., r NY3d 47o , 475lzoo4l; W.W.W. Assoc, u Giancontieri'
77 NYzd tS7, 162 [r9go]). The court should "construe the agreements so as to give full
meaning and effect to the materiai provisions" (Excess Ins, Co. Ltd. u. F(lctorV Mut. Ins.
Co., S NYgd SZZ, S8z [zoo4]). A reading ofthe contract should not render any portion
meaningless (see God's Battalion of Prayer Pentecostal Church, Inc. u Miele Assoc.,
15 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
U-P, 6 NY3d g7t, sT4 [zoo6];Excess /ns. Co., 3 NY3d at sSz). Further, a contract
should be "read as a whole, and every part will be interpreted with reference to the
whole; and ifpossible, it will be so interpreted as to give effect to its general purpose"
(Matter of Westmoreland Coal Co. u Entech,Inc., 1oo I.[Y2d 352, 3S8 [2oo3] finternal
quotations marks omittedl).
As a threshold consideration, the unambiguous terms of the agreement, for which
the Minority knders bargained, show that the Collateral Agent had no discretion but to
credit bid when directed to do so on behalf of all secured creditors (see Beal Sau. Bank u
Sommer, B NY3d 3t8 [zoo7] [finding agent's ability under loan documents to bind a
syndicate lender based on the direction of the majority lendersl). The secured lenders
authorized the Collateral Agent to act on their behalf and the Majority Lenders could
direct the Collateral Agent to credit bid or take other action to exercise remedies with
respect to the collateral. Under I 8,3(a) of the Credit Agreement, the Agent could act
either under the loan documents or pursuant to the instruction ofthe Required Lenders.
Under $ 7.2(c), the Agent may exercise on behalf of itself and the Lenders all rights and
remedies available to it under the loan documents. Upon an event of default sections 7.5
and 8.9(c) vest upon the Agent the right to exercise remedies "on behalf of the Secured
Parties" and "for the benefit of all the Lenders." Thus, upon the occurrence and during
the continuance of an Event of Default, the Collateral Agent, at the request of the
Required Lenders, exercises any rights and remedies provided to the Administrative
Agent under the loan documents and the 1aw, which included all remedies provided
under the UCC (see e.g. In re Metaldyne Corp.,4og BR 671 lBankr SD NY zoog]
[interpreting provisions ofloan documents as allowing agent to credit bid all ofthe
outstanding obligations under the loan facility at the direction of majority lendersl).
16 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
' Instead, plaintiffs minority lenders take issue with the integrity ofthe
reorganization sale beginning with the credit bid becoming the winning bid at an
auction, with no other bidder. As aforementioned, after Field Point foreclosed and won
the credit bid for Archway, Field Point immediately sold Archway's equity to New
Archway, a newly created entity, in exchange for new debt and financing obtained by
New Archway. New Archway was then immediately sold to Teraco. The minority lenders
argue that these transactions extinguished their secured creditors' claims by preventing
them from receiving their ratable share ofthe collateral and instead siphoning the
collateral to defendants' affiliate (Teraco) in an attempt to avoid complying with the
sharing provisions ofthe Credit Agreement. For the reasons that foilow, we find that
these allegations are sufficient to plead claims ofbreach ofcontract against defendants
Majority Lenders, Collateral Agent, and Original Debtor.
There are two "payment provisions" relevant to plaintiffs' breach of contract
claim. Section r.ro(c) of the Credit Agreement provides that "all proceeds of Coliateral
received by Agent or any Lender as a result ofthe exercise of remedies under any
Collateral Document after the occurrence and during the continuance of an Event of
Default, shall be applied as follows: . . . each ofthe tenders or other Persons entitled to
payment shall receive an amount equal to its pro rata share of amounts available to be
applied." Section 9.rr(b) ofthe Credit Agreement is a "payment sharing" provision
whereby the secured lenders have agreed to the process that should occur if some
lenders in the syndication receive payment of a debt, by setoff, or otherwise, in excess of
their ratable share. Specifically, 5 9.rt(b) provides that the lenders receiving the excess
shares are required to "purchase for cash from other Lenders such participations in their
Obligations as necessary for such Lender to share such excess payment with such
17 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
Lenders to ensure such payrnent is applied as though it had been received by Agent and
applied in accordance with this Agreement" (cf. In re Enron Corp.,2ooSWL356985*2,
2oo5 US LEXIS 2134, *27-28 [SD NIY, Feb. r5 zoo5, NO. CtV 1367 [NRB] [quoting
provisions of syndicated lending agreement requiring lenders receiving more than its
pro rata share to purchase participations in the debtl).
A plain reading of these "payrnent sharing" provisions in the Credit fureement
supports plaintiffs'position that all secured lenders agreed to pro rata treatment oftheir
debtor's obligations, and that all lenders that received more than their pro rata share are
required to distribute such excess to the other lenders. Moreover, contrary to the motion
court's conclusions, it cannot be disputed that this "payment sharing" provision applied
to the credit bid. Indeed, section 8.3(c) of the Credit Agreement provides that "the
authority to enforce rights and remedies hereunder and under the other Loan
Documents against the [Borrowers] shall be vested exclusively in, and all actions and
proceedings at law in connection with such enforcement shall be instituted and
maintained exclusively by, Agent in accordance with the loan Documents for the benefit
of all the Lenders." Thus, the end result of the credit bid would be that each secured
lender has a pro rata interest in the debtor's assets, which requires pro rata treatment of
their debt obligations.
Defendant majority lenders do not dispute that plaintiff minority lenders should
have retained their pro rata rights after the credit bid. Instead, they argue that the
minority lenders were accorded "pro rata treatment." Specifically, as Supreme Court
held and defendants Majority Lenders argued, the restructuring transaction satisfied the
pro rata requirements ofthe Credit Agreement because the new debt issued by New
Archway to purchase the Archway Equity foreclosed upon by Field Point was available
18 of 31
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019
NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023
to all lenders. Like Supreme Court, defendants Majority Lenders misconstrue the
interplay ofthe credit bidding transaction with the pro rata requirements ofthe Credit
Agreement.
Essentially, a credit bid converts debt into equity through the exercise of legal
remedies, such as the nonjudicial foreclosure sale that took place in this case pursuant
to the UCC.'o Here, there
Preview
FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 $upreme @ourt of tDe $tsteot ^Deh'porB 9ppetlate Dihision, ! irst lulirf ut Deportment Dianne T. Renwick, J.P. Barbara R. Kapnick Jeffrey K. Oing Peter H. Moulton John R. Higgitt, JJ Appeal No. 16877 Index No. 65o48l19 Case No. 2o22-oo2gs AEA MIDDLE MARKET DEBT FUNDING LLC, et a1,, Plaintiffs-Respondents-Appellants, -against- MARBLEGATE AssET MANAGEMENT, LLC, et al., Defendants-Appellants-Respondents, NEw TERACo, Inc., et a1., Defendants-Respondents. Certain defendants appeal, and plaintiffs cross-appeal, from an order ofthe Supreme Court, New York County (Melissa A. Crane, J.), entered on or about December 7, zozr, which, to the extent appealed and cross-appealed from as limited by the briefs, denied defendants Marblegate Asset Management, LLC, Marblegate Special Opportunities Master Fund L.P., P. Marblegate Ltd., Marblegate Strategic Opportunities Master Fund I, L.P., Marblegate Partners Master Fund I, L.P., (the Marblegate defendants), Field Point Agency Services Inc. and Archway Marketing Services Inc., AWM Holdings, Inc., Archway Marketing Holdings, Inc., and Corporate Services, Inc., (the Archway defendants), motion for dismissal of claims asserted against them based upon alleged breach of covenant of good faith and fair dealing. The Archway defendants also appeal the denial of dismissal of the indemnification claims asserted against them. Plaintiffs cross-appeal from the dismissal of breach of contract claims asserted against the Marblegate defendants and Field Point, the breach offiduciary duty claims asserted against Marblegate defendants and the derivative breach of fiduciary duty claim asserted against defendant John Brecker on behalf of Archway Marketing Services, Inc. Herrick Feinstein LLP, New York (Sean E. O'Donnell, Janice I. Goldberg, Christopher Carty, Kyle J. Kolb and Silvia Stockman of counsel), for Marblegate Asset Management, 1 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 LLC, Marblegate Special Opportunities Master Fund L.P., P. Marblegate Ltd., Marblegate Strategic Opportunities Master Fund I, L.P., Marblegate Partners Master Fund I, L.P., Field Point Agency Seruices, Inc. and New Teraco, Inc., appellants- respondents/respondent. Goulston & Storrs PC, New York (Jaclyn H. Grodin and Isabel Sukholitsky ofcounsel), for AWM Holdings, Inc., Archway Marketing Holdings, Inc., Archway Marketing Services, Inc. and Corporate Services, Inc., appellants-respondents. Harris St. Laurnent & Wechsler LLP, New York (Alisha Louise McCarthy and Yonaton Aronoff of counsel), and Yetter Coleman LLP, Houston, Texas (Tracy N. LeRoy ofthe bar of the State of Texas, admitted pro hac vice of counsel), for respondents-appellants. Bracewell LLP, New York (Russell Gallaro and David Ball of counsel), for John Brecker, respondent. 2 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 RENWICK,J.P., This appeal addresses whether plaintiffs,l a group of minority lenders in a syndicated secured credit facility agreement,2 may proceed on their claimss against a group of majority lenders and a collateral agent, among others. This intercreditor dispute stems from the collateral agent's action, at the direction ofthe majority lenders, to "credit bid"4 the debt of all secured lenders at a nonjudicial foreclosure auction. Upon acquiring the debtor's assets, the majority lenders then sold the debtor's assets as a going concern to an entity owned by the majority lenders, thus transforming the sale of the collateral into a reorganization sale. Plaintiffs minority lenders essentially argue that after credit bidding at the auction for all secured creditors, the collateral agent's sale of the debtor's assets to an entity owned by the majority lenders, for consideration issued by the new corporation in the form ofunsecured noncash debt, effectively compromised the minority lenders' security interests in the collateral. This, plaintiffs argue, violated their pro rata rights under the credit and security agreements. I Plaintiffs are AnA Middle Market Debt Funding LLC, AEA Middle Market Debt II Funding LLC, Bancalliance Inc., Midcap Financial Trust, Midcap Funding XVIII Trust, and Sun Life Assurance Company of Canada, individually and derivatively on behalf ofArchway Marketing Services, Inc. 2 In a multi-lender syndicated credit facility agreement each lender individually has a debtor- creditor relationship with the borrower, contributes its pro rata share ofloans, and becomes a party to a loan or credit agreement that provides, among other things, for the designation of an agent to act for the benefit of the lenders. s Plaintiffs' claims include breach of contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and indemnification. q "Credit bidding is a mechanism, enshrined in the US bankruptcy legislation, whereby a secured creditor can 'bid' the amount of its secured debt, as consideration for the purchase of the assets over which it holds security. In effect, it allows the secured creditor to offset the secured debt as payment for the assets and to take ownership ofthose assets without necessarily having to pay any cash for the purchase" (Amy Jacks and Trevor Borthwick, Credit Biddings: A US import that will be akey part ofa IIK lender's toolkit in the current distressed market (available at: lrttos: //lwrrv.m:r verbrown.com/en/uersoectives-events /uublications/zozolrol r:r'edit-birldine- n-r.rs-im pot't-that-llill-be-a -kev-nart-ol-a-uk-lenilels-toolliit-i n-lhe-cu llent-tli stlessetl-nrat ket ILast accessed 3/ 6 I zo4]). 3 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 Procedural and Factual Background Plaintiffs' complaint and exhibits referenced herein establish the following: The debtor corporation in this action is defendant Archway Marketing Services Inc. (Archway),s 3 Delaware corporation with headquarters in Rogers, Minnesota. It provides marketing logistics, fulfillment, and supply chain management services. Plaintiffs and Marblegate defendantso are lenders to a $165 million credit facility agreement (Credit Agreement), with Archway defendants dated July z, 2o12. Plaintiffs loaned nearly $6o million of the loan amount. The Credit Agreement was used to finance AWM's acquisition of all capital stock of AMH and its subsidiaries. The Credit Agreement loans were secured by a lien on substantially all the Archway defendants' assets pursuant to a Guaranty and Security Agreement (Security Agreement). The Credit Agreement and Security Agreement were both executed on July 2, 2012. Pertinent Sections of the Cledit reement and Security Asreement Section t.ro(c) ofthe Credit Agreement is a waterfall structure providing that, in the event ofa default and sale ofthe collateral, the proceeds must first be used to pay all obligations on the First Out Revolving l,oansz before any other distribution is made. s The debtor defendants are Archway, A\4M Holdings, Inc' (A14M), Archway Marketing Holdings, Inc. (AMH), and Corporate Services, Inc. (collectively the Archway defendants). The Archway defendants are affiliates of the parent company AMH. o The Marblegate defendants are Marblegate Asset Management, LLC, Marblegate Special Opportunities Master Fund L.P., P. Marblegate Ltd., Marblegate Strategic Opportuniiies Master Fund I, L.P., Marblegate Partners Master Fund I, L.P. 7 A First-Out Revolving Facility is one in which the first-out lender is paid before the other lenders in the context of a syndicated loan, instead of all lenders receiving proportionate payouts (see Marc P. Hanrahan and Jerome Mccluskey, An ouer-uieut of 4 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 Moreover, it requires pro rata distribution, in that "all proceeds of Collateral received by Agent or any Lender as a result ofthe exercise of remedies under any Collateral Document after the occurrence . . . of an Event of Default, shall be applied" in compliance with the waterfall structure, and, "In carrying out the foregoing, . . . (ii) each ofthe Lenders or other Persons entitled to payment shall receive an amount equal to its pro rata share of amounts available to be applied." Section 9.t(a) of the Credit fureement concerns amendments and waivers. It precludes the Agent or any other party from overriding a lender's rights without their consent, including their rights to Archway collateral and pro rata treatment.s Section 9.11(b) addresses the sharing of palments among lenders. Specifically, it provides: 1st-Out Reuoluers, available at: https://www.milbank.com/images/content/8l8l88SZ / An-Overview-Of-tst-Out-Revolvers.pdf [last accessed z/23/23]). 8 Sections q.r(axii-iv) and (vii), Amendments and Waivers, states, in pertinent part: "g.r (a) [N]o amendment or waiver of, or supplement or other modification (which shall include any direction to the Agent pursuant) to, any Loan Document . . ' and no consent with respect to any departure by any Credit Party from any Loan Document, shall be effective unless the same shall be in writing and signed by Agent, the Required Lenders (or by Agent with the consent of the Required Lenders), and the Borrower and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, supplement (including any additional loan Document) or consent shall, unless in writing and signed by all the l,enders directly affected thereby (or by Agent with the consent of all the knders directly and adversely affected thereby), in addition to ABent, the Required Lenders (or by Agent with the consent of the Required Lenders) and the Borrower, do any of the following: . . . "(ii) postpone or delay any date fixed for, or reduce or waive, any scheduled installment of principal or any palment of interest, fees or other amounts (other than principal) due to the Lenders . . . hereunder or under any other Loan Document . . . ; "(iii) reduce the principal of, or the rate of interest specified herein .'. or the amount of interest payable in cash specified herein on any Loan, or of any fees or other amounts payable hereunder or under any other Loan Document . . . ; 5 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 "If any Lender Obligation of any Credit Party . . . and . . . obtains any pa),rnent of any such payment exceeds the amount such Lender would have been entitled to receive ifall payments had gone to, and been distributed by, Agent in accordance with the provisions ofthe Loan Documents, such Lender shall purchase for cash from other Lenders such participations in their Obligations as necessary for such Lender to share such excess payrnent with such Lenders to ensure such payrnent is applied as though it had been received by Agent and applied in accordance with this Agreement" Under $ rt.r ofthe Credit Agreement, "Required [,enders" are defined as any lender holding more than So% of the sum of the aggregate revolving loan commitment plus the aggregate unpaid principal balance ofthe outstanding term loans' Several provisions ofthe Credit Agreement granted the Required Lenders the authority to dictate certain actions on behalf of all lenders. The Credit Agreement designated the "Administrative Agent" (i.e., Agent) as the entity responsible for handling matters regarding the collateral. Under S 8.9(a), the Agent could act either under the loan agreements or pursuant to instruction by the Required Lenders. under s 7.2(c) the Agent may exercise on behalf of itself and the lenders all rights and remedies available to it under the loan agreements. Upon an event of default, sections 7.5 and 8.3(c) vest upon the Agent the right to exercise remedies "on behalf of the Secured Parties" and "for the benefit of a]l the Lenders."s "(iv) (A) change or have the effect of changing the priority or pro rata treatment of any pa)rynents . . . Liens, proceeds of Collateral or reductions in Commitments . . ' or (B) idvance the date fixed for, or increase, any scheduled installment ofprincipal due to any of the Lenders under any Loan Document; . . . ,.(vii) discharge Borrower or all or substantially all ofthe Guarantors (as such term is defined in the Guaranty and Security Agreement) from their respective palnnent Obligations under the Loan Documents, or release all or substantially all of-the Colliteral, except as otherwise may be provided in this Agreement or the other Loan Documents." e S 7.S states: "Borrower, Agent and each Secured Party hereby agre-e that ao Secured fart/shall have any right individually to realize upon any ofthe Collateral or to enforce the [uaranty ofthe Obligations or any provision ofthe Guaranty and Security 6 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 Archwav's Default and the Fifth ndment to the Credit Asreement The debtor, Archway defendants, began having cashflow problems and defaulted on loan payments from July zo18 to December 2018. In September eor8, in response to the ongoing default, the lenders (plaintiffs and the Marblegate defendants) executed a forbearance agreement and Fifth Amendment to the Credit Agreement. Under section 5 ofthe Fifth Amendment, the lenders agreed to appoint defendant Field Point Agency Services, Inc. as the agent, replacing nonparty Antares Capital LP. The Fifth Amendment created a first-out revolving credit facility that increased the loan commitments of the Marblegate defendants and some of the plaintiffs, resulting in the Marblegate defendants claiming to hold approximately 5r% of the Archway defendants' outstanding debt and plaintiffs holding the remaining 49%. (As ofthe date ofthe reorganization sale, $rzz million had been lent to the Archway defendants). As a result, the Marblegate defendants claimed they had Required Lender status under the Credit Agreement. As Required Lenders, the Marblegate defendants were empowered to instruct Field Point, the agent. Under the Fifth Amendment the lenders agreed to forbear on exercising their default-related rights and remedies during the forbearance period to "permit the Credit parties and the Lenders an opportunity to consummate a Restructuring." The Credit Agreement also established a tight time period to achieve various restructuring Agreement, it being understood and agreed that all powers, rights and remedies hereunder and under the Collateral Documents may be exercised solely by Agent, on behalf of the Secured Parties in accordance with the terms hereof and thereof."S 8.3(c) states, in pertinent part: "[T]he authority to enforce rights and remedies hereunder and under the other Loan Documents against the Credit Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, Agent in accordance with the Loan Documents for the benefit of all the Lenders and the L/C Issue" 7 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 milestones, including (i) agreeing upon a term sheet by October 15, 2o18, (ii) entering into a Restructuring Support Agreement by November 3o, 2o18, and (iii) consummating a restructuring by December 28, 2o18. However, each ofthose deadlines was missed. Archway failed to pay the principal, interest, and fees due on August 21, September zr, October 1, October 22, November 23, and December 24,2ot8, and failed to maintain the minimum levels of Actual Liquidity and maintain Senior Leverage Ratios and Fixed Charge Coverage Ratios as the Credit Agreement required. The Restructurine}ansaetiaa On December 26,2078, Field Point circulated a memorandum announcing a restructuring transaction. The memorandum included a notice of the execution of a "Restructuring Supporl Agreement" between Archway defendants, Field Point and Marblegate defendants dated December 24, 2018. At the outset, the Restructuring Support Agreement distinguished an "Initial Consenting Lender" from other lenders. The Initial Consenting Lenders collectively owned in the aggregate more than 5o% of the outstanding amounts due on the Credit Agreement. The Marblegate defendants comprised all the Initial Consenting Lenders. A lender executing a joinder agreement would become a party to the Restructuring Support Agreement as a "Consenting Lender," and, together with the Initial Consenting Lenders, would be referred to as "Consenting Lenders." Each Consenting Lender would be entitled to receive "on apro rata basis, an aggregate principal amount of $5.o million additional existing Term Loans (the 'Additional Loans')" as a "restructuring support agreement fee." Field Point set Friday, January 4, 2019, as the deadline for each lender to execute a joinder agreement in order to receive its share of the consent fee. A "Restructuring Term Sheet" incorporated into the Restructuring Support Agreement explained the 8 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 material terms and conditions ofthe transaction. First, the Consenting Lenders, in accordance with section 8.3(a) ofthe Credit Agreement, had directed Field Point to act, as provided under sections Z.S and 8.3(a), and initiate foreclosure proceedings to sell 1oo% of AMH's stock (Foreclosed Assets) at a public auction under Uniform Commercial Code (UCC) 5 9-6ro(a). Second, the Consenting Lenders had directed Field Point to submit a credit bid (Lender Credit Bid) at the foreclosure sale. The relevant section in the Term Sheet reads: "The Consenting Lenders shall direct the Agent to, and the Agent shall, on behalf of the Lenders, credit bid all or a portion ofthe Obligations (consisting of outstanding principal amounts under the Last Out Revolving Loans and Term Loans (the 'Credit Bid Obligations')) for the Foreclosed Assets at the Foreclosure Sale (the 'Lender Credit Bid'), and such direction to the Agent shall acknowledge that the existing indemnity in the Credit Agreement shall apply to the entire Lender Credit Bid and Foreclosure (as defined below) process. "In the event that the Lender Credit Bid is declared the winning bid at the Foreclosure Sale, a pro rata portion ofthe Credit Bid Obligations held by each Lender shatl be extinguished, up to the outstanding aggregate amount ofthe Credit Bid Obligations. "In the event that the Lender Credit Bid is declared the winning bid at the Foreclosure Sale, immediately after the Foreclosure Sale, a new limited liability company ('New Archway') shall (i) purchase the Agent's right to the Foreclosed Assets and (ii) arrange for and obtain financing in the form of the Foreclosure Financing (as defined below). The Consenting Lenders shall direct the Agent, on behalf of the Lenders, to assign the Foreclosed Assets to New Archway as consideration for the Foreclosure Financing, as described below. "In the event that the Lender Credit Bid is declared the winning bid at the Foreclosure Sale, the governance of New Archway upon consummation of the Foreclosure will be as determined by the Consenting Lenders. . . . "The 'Foreclosure Financing' shall mean, collectively, the New First 9 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 ' Lien Credit Facility and the New Unsecured Credit Facitity ... The 'Foreclosure' shall mean, taken together, the Foreclosure Sale and the Foreclosure Financing." Thus, the Lender Credit Bid encompassed only those amounts due on the Last Out Revolving Loans and Term Loans, but not the First Out Revolving Loans. The Term Sheet explained how the existing loans extended to Archway would transfer into new loans extended to New Archway if the Lender Credit Bid was successful. Holders of "First Out Revolving Loan Claims" may elect to have their claims paid in full or rolled over into "New Priority First Lien Term Loans on a pro rata basis" up to gro miltion. A "First Out Revolving Loan Claim" includes "all claims against the Credit Parties on account ofthe First Out Revolving Loans under the Credit Agreement." All other "Existing Credit Agreement Claims (other than the First Out Revolving Loan Claims) shall be exchanged into New Unsecured Term Ioans on a pro rata basis . . . subject to the subsequent exchange of New Unsecured Term loans held by Priority Electing Lenders into New First Lien Term Loans." The "Existing Credit Agreement Claims" encompassed "all principal amounts owed by the Credit Parties to the Lenders under the Credit Agreement (including, without limitation, the First Out Revolving Ioans, Last Out Revolving Loans and Term Loans)." As for New Archway's debt and equity capital structure, the Term Sheet described two new credit facilities. The "New First Lien Credit Facility" subsection provides that: "New Archway will enter into a new first lien credit facility (the 'New First Lien Credit Facility') through which New Archway will issue (i) new first out first lien term loans (the 'New Priority First Lien Term Loans') in an original aggregate principal amount of up to $3o.o million and (ii) new first lien term loans (the 'New First Lien Term loans') in an original aggregate principal amount of gr5.o million. All New Unsecured Lenders (as defined below) will be offered the opportunity to participate in the New First Lien Credit 10 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 Facility as follows: (i) up to gro.o million of the New Priority First Lien Term Loans shall be funded through the conversion ofthe First Out Revolving Loan Claims on a pro rata basis (calculated based on relative holdings of First Out Revolving Loan Claims), (ii) $zo.o million of the New Priority First Lien Term Loans shall be funded by a new money investment (the 'New Money Priority First Lien Term Loans') offered on a pro rata basis (calculated based on relative holdings of Existing Credit Agreement Claims) (such New Unsecured Lenders who elect to fund, the 'Priority Electing Lenders') and (iii) the New First Lien Term Loans shall be funded by an exchange of each Priority Electing Lenders' New Unsecured Term Loans into the New First Lien Term Loans on a pro rata basis." The assets of New Archway and its subsidiaries would be used to guarantee payment on the New Priority First Lien Term Loans and the New First Lien Term Loans In addition, "[t]he New Priority First Lien Term Loans shall have waterfall priority and shall be paid in full in cash prior to the repayment ofany other obligations of New Archway, including prior to the repa),rnent ofthe New First Lien Term Loans." The "New Unsecured Credit Facility" subsection states that: "New Archway will enter into a new unsecured credit facility (the 'New Unsecured Credit Facility') through which New Archway will issue new unsecured term loans (the 'New Unsecured Term Loans') in an original aggregate principal amount of $ts.o million. Subject to the exchange as set forth in 'New First Lien Credit Facility' above, all current Lenders under the Credit Agreement shall receive New Unsecured Term Loans on a pro rata basis (calculated based on relative holdings of Existing Credit Agreement Claims) (such Lenders, the 'New Unsecured Lenders')." On December 28, 2018, Field Point sent plaintiffs a notice offoreclosure, with the public sale to be held on January 28, 2019. Consistent with the Restructuring Support Agreement, the notice identified the "Auctioned Collateral" as "[a]11 right, title and interest of AWM Holdings, Inc. .. . in and to stock of Archway Marketing Holdings, Inc." The Foreclosed Assets would be sold in a single block to a single purchaser. The 11 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 notiee further provided that the assets "shall be sold for cash at such price and on such other commercially reasonable terms as the Agent (at the direction of the Required Lenders) may determine in its sole discretion" and that Field Point may submit a credit bid "against all or a portion of its secured claim and become the purchaser of the Auctioned Collateral." On January 28, zor9, Field Point instituted foreclosure proceedings and put forth the L,ender Credit Bid. On January 3r, 2019, Field Point announced that the Restructuring Transaction had been consummated. According to a "Transaction Agreement," dated January 3 o, 2otg, between Field Point, New Archway, New Teraco, Ine. (a company that is wholly owned by the majority lenders), AWM and Archway, the Lender Credit Bid was the winning bid for the Foreclosed Assets. The Transaction Agreement states that Field Point, on behalfofthe ienders in the Credit Agreement, shall "sell, assign, transfer and deliver" and that New Archway "shall purchase, acquire and accept" all of Field Point's rights, title and interest in and to the foreclosed Assets at Field Point's direction. AWM will then transfer, assign, and deliver its right, title, and interest in the Foreclosed Assets by delivering executed stock powers directly to New Archway as consideration. New Archway agreed to incur debts comprised of "(i) $7,o9o,o45 of New Subordinate Term Loans to each Lender that does not elect to participate in the New First Lien Credit Facility . . . and (ii) $45,ooo,ooo of New First Lien Term l,oans . . . provided by Lenders who elect to participate in the New First Lien Credit Facility." Immediately after the transfer and assignment of the Foreclosed Assets to New Archway, Teraco and New Archway would complete the transactions described in the Term Sheet under a separate "Global Contribution Agreement." Archway's operating 12 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 entities held approximately 945 million in assets before the foreclosure sale, and Teraco contributed assets worth approximately $4 million. Apart from $3.7 million paid to plaintiffs Midcap and Sun Life under the first out revolving facility, plaintiffs received "in exchange for their secured loans approximately tg% offace amount recovery in the form of unsecured, unguaranteed, subordinated replacement term loans from New Archway, and Marblegate, in turn, received . . . the entire equity of Archway." n ded Com laint and t Plaintiffs commenced this action primarily against the majority lenders (Marblegate defendants), the collateral agent (Field Point), the original debtor (Archway defendants), and John Brecker, Archway's sole director. As relevant to this appeal, plaintiffs assert breach of contract claims against the majority lenders, collateral agent, and original debtor based upon alleged violations ofthe Credit Agreement and the Security Agreement. Plaintiffs assert breach of fiduciary claims against the majority lenders, the Collateral Agent, Original Debtor, and John Brecker (derivatively on behalf of Archway). Plaintiffs also assert a claim of breach of the covenant of good faith and fair dealing against all defendants. Finally, plaintiffs assert a claim for attorney fees against the Original Debtor based on the indemnification provision of the Credit Agreement. AII defendants moved to dismiss the second amended complaint pursuant to CPLR 3211 (aXr) and (7) based on documentary evidence, including the relevant agreements. The motion court granted defendants' motion to the extent that it dismissed all of plaintiffs' claims except the implied covenant and indemnity claims. As for the fiduciary duty claim against the Majority Lenders, the court found that the Restructuring Transaction did not create a fiduciary duty between the lenders, and that plaintiffs were not entitled to a pro rata share of the Archway equity because the 13 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 foreclosed assets were noncash assets. The court also found that Field Point never possessed the Archway Equity because it transferred its right to acquire the Archway Equity to New Archway. Further, the court found, as the controlling shareholder exercising its rights as third-parff lender, the Marblegate defendants' actions were not subject to fiduciary review. The court dismissed the breach of contract claim against Field Point, finding that it was barred by the exculpatory clause in $ 8.9(a) ofthe Credit Agreement and that the Marblegate defendants had the right under 5 7.2(c) to direct Field Point's actions. It also dismissed the breach of contract claim against the Marblegate defendants and Archway defendants, finding that the Restructuring Transaction was conducted in accordance with the Credit Agreement. The court also dismissed the derivative breach offiduciary duty claim as to Brecker, finding that plaintiffs failed to sufficiently allege that he iacked independence or that his judgment was negligent. The court denied defendants' motion to dismiss the impiied covenant of good faith and fair dealing claim, finding that plaintiffs had adequately alleged that the Restructuring Transaction, the exchange of plaintiffs' $6o million in secured loans for $3S million in secured and unsecured loans, and the sale ofthe Archway Equity to Teraco, injured their rights to the fruits ofthe Credit Agreement. Finally, the court found plaintiffs adequately pleaded an indemnification claim against the Archway defendants based on 5 9.6(a) of the Credit Agreement. Both defendants and plaintiffs appeal. Defendants majority lenders (Marblegate defendants), the Cotlateral Agent (Field Point), and the Original Debtor (Archway defendants) appeal the denial of the dismissal of the claims asserted against them based on the alleged breach of the covenant of good faith and fair dealing. The Original Debtor 14 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 also appeals the denial ofthe dismissal ofthe indemnification claims asserted against it. Conversely, plaintiffs appeal the dismissal of the breach of contract claims asserted against the majority lenders, the collateral agent and the original debtor, breach of fiduciary duty claims asserted against the Majority Lenders and the derivative breach of fiduciary claim asserted against defendant John Brecker. Discusslotl We first determine whether Supreme Court properly dismissed the various breach of contract claims asserted against the Majority Lenders, Collateral Agent, and the Original Debtor. These claims are controlled by the Intercreditor Credit and Security Agreements, which set out the relative rights and remedies of the secured meditors who extended financing to the Original Debtor. The governing principles are familiar. First, on a motion to dismiss pursuant to CPLR 3211, the court may grant dismissal when "'documentary evidence submitted conclusiveb establishes a defense to the asserted claims as a matter of law"' (Goldman u Metropolitan Life Ins. Co., 5 NY3d 56r, 577 [zoo5], quoting Held u Kaufman, 91 ].IY2d 425, 430-431 [ISSS]). Second, Intercreditor Agreements are subject to the rules of contract interpretation, like any other agreements. Construction ofan 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 (see Vermont Teddy Bear Co. u fi8 Madison Realty Co., r NY3d 47o , 475lzoo4l; W.W.W. Assoc, u Giancontieri' 77 NYzd tS7, 162 [r9go]). The court should "construe the agreements so as to give full meaning and effect to the materiai provisions" (Excess Ins, Co. Ltd. u. F(lctorV Mut. Ins. Co., S NYgd SZZ, S8z [zoo4]). A reading ofthe contract should not render any portion meaningless (see God's Battalion of Prayer Pentecostal Church, Inc. u Miele Assoc., 15 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 U-P, 6 NY3d g7t, sT4 [zoo6];Excess /ns. Co., 3 NY3d at sSz). Further, a contract should be "read as a whole, and every part will be interpreted with reference to the whole; and ifpossible, it will be so interpreted as to give effect to its general purpose" (Matter of Westmoreland Coal Co. u Entech,Inc., 1oo I.[Y2d 352, 3S8 [2oo3] finternal quotations marks omittedl). As a threshold consideration, the unambiguous terms of the agreement, for which the Minority knders bargained, show that the Collateral Agent had no discretion but to credit bid when directed to do so on behalf of all secured creditors (see Beal Sau. Bank u Sommer, B NY3d 3t8 [zoo7] [finding agent's ability under loan documents to bind a syndicate lender based on the direction of the majority lendersl). The secured lenders authorized the Collateral Agent to act on their behalf and the Majority Lenders could direct the Collateral Agent to credit bid or take other action to exercise remedies with respect to the collateral. Under I 8,3(a) of the Credit Agreement, the Agent could act either under the loan documents or pursuant to the instruction ofthe Required Lenders. Under $ 7.2(c), the Agent may exercise on behalf of itself and the Lenders all rights and remedies available to it under the loan documents. Upon an event of default sections 7.5 and 8.9(c) vest upon the Agent the right to exercise remedies "on behalf of the Secured Parties" and "for the benefit of all the Lenders." Thus, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent, at the request of the Required Lenders, exercises any rights and remedies provided to the Administrative Agent under the loan documents and the 1aw, which included all remedies provided under the UCC (see e.g. In re Metaldyne Corp.,4og BR 671 lBankr SD NY zoog] [interpreting provisions ofloan documents as allowing agent to credit bid all ofthe outstanding obligations under the loan facility at the direction of majority lendersl). 16 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 ' Instead, plaintiffs minority lenders take issue with the integrity ofthe reorganization sale beginning with the credit bid becoming the winning bid at an auction, with no other bidder. As aforementioned, after Field Point foreclosed and won the credit bid for Archway, Field Point immediately sold Archway's equity to New Archway, a newly created entity, in exchange for new debt and financing obtained by New Archway. New Archway was then immediately sold to Teraco. The minority lenders argue that these transactions extinguished their secured creditors' claims by preventing them from receiving their ratable share ofthe collateral and instead siphoning the collateral to defendants' affiliate (Teraco) in an attempt to avoid complying with the sharing provisions ofthe Credit Agreement. For the reasons that foilow, we find that these allegations are sufficient to plead claims ofbreach ofcontract against defendants Majority Lenders, Collateral Agent, and Original Debtor. There are two "payment provisions" relevant to plaintiffs' breach of contract claim. Section r.ro(c) of the Credit Agreement provides that "all proceeds of Coliateral received by Agent or any Lender as a result ofthe exercise of remedies under any Collateral Document after the occurrence and during the continuance of an Event of Default, shall be applied as follows: . . . each ofthe tenders or other Persons entitled to payment shall receive an amount equal to its pro rata share of amounts available to be applied." Section 9.rr(b) ofthe Credit Agreement is a "payment sharing" provision whereby the secured lenders have agreed to the process that should occur if some lenders in the syndication receive payment of a debt, by setoff, or otherwise, in excess of their ratable share. Specifically, 5 9.rt(b) provides that the lenders receiving the excess shares are required to "purchase for cash from other Lenders such participations in their Obligations as necessary for such Lender to share such excess payment with such 17 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 Lenders to ensure such payrnent is applied as though it had been received by Agent and applied in accordance with this Agreement" (cf. In re Enron Corp.,2ooSWL356985*2, 2oo5 US LEXIS 2134, *27-28 [SD NIY, Feb. r5 zoo5, NO. CtV 1367 [NRB] [quoting provisions of syndicated lending agreement requiring lenders receiving more than its pro rata share to purchase participations in the debtl). A plain reading of these "payrnent sharing" provisions in the Credit fureement supports plaintiffs'position that all secured lenders agreed to pro rata treatment oftheir debtor's obligations, and that all lenders that received more than their pro rata share are required to distribute such excess to the other lenders. Moreover, contrary to the motion court's conclusions, it cannot be disputed that this "payment sharing" provision applied to the credit bid. Indeed, section 8.3(c) of the Credit Agreement provides that "the authority to enforce rights and remedies hereunder and under the other Loan Documents against the [Borrowers] shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, Agent in accordance with the loan Documents for the benefit of all the Lenders." Thus, the end result of the credit bid would be that each secured lender has a pro rata interest in the debtor's assets, which requires pro rata treatment of their debt obligations. Defendant majority lenders do not dispute that plaintiff minority lenders should have retained their pro rata rights after the credit bid. Instead, they argue that the minority lenders were accorded "pro rata treatment." Specifically, as Supreme Court held and defendants Majority Lenders argued, the restructuring transaction satisfied the pro rata requirements ofthe Credit Agreement because the new debt issued by New Archway to purchase the Archway Equity foreclosed upon by Field Point was available 18 of 31 FILED: NEW YORK COUNTY CLERK 03/13/2023 09:54 AM INDEX NO. 650413/2019 NYSCEF DOC. NO. 594 RECEIVED NYSCEF: 03/13/2023 to all lenders. Like Supreme Court, defendants Majority Lenders misconstrue the interplay ofthe credit bidding transaction with the pro rata requirements ofthe Credit Agreement. Essentially, a credit bid converts debt into equity through the exercise of legal remedies, such as the nonjudicial foreclosure sale that took place in this case pursuant to the UCC.'o Here, there