Preview
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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 of ARCHWAY MARKETING
SERVICES, INC., Index No. 650413/2019
Plaintiffs,
-against-
MARBLEGATE ASSET MANAGEMENT, LLC, ANSWER AND
MARBLEGATE SPECIAL OPPORTUNITIES AFFIRMATIVE DEFENSES
MASTER FUND, L.P., P MARBLEGATE, LTD,
MARBLEGATE STRATEGIC OPPORTUNITIES
MASTER FUND I, L.P., MARBLEGATE PARTNERS
MASTER FUND I, L.P., NEW TERACO, INC., FIELD
POINT AGENCY SERVICES, INC., AWM
HOLDINGS, INC., ARCHWAY MARKETING
HOLDINGS, INC., ARCHWAY MARKETING
SERVICES, INC., CORPORATE SERVICES, INC.,
AND JOHN BRECKER,
Defendants.
Defendant John Brecker (“Brecker”), by and through his attorneys, Bracewell LLP, as and
for his Answer and Affirmative Defenses to the Second Amended Complaint of Plaintiffs AEA
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
1
1 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
Canada, individually and derivatively on behalf of Archway Marketing Services, Inc.
(“Plaintiffs”), dated June 21, 2019 [NYSCEF No. 188] (the “Complaint”), alleges as follows:
NATURE OF THE CASE
1. This action arises from a secretive, ultimately successful scheme of Defendants to
strip away rights and value held by Plaintiffs as lenders to Archway. In a series of self-interested
transactions, the Marblegate Defendants, including wholly owned subsidiary Defendant Field
Point Agency Services, Inc. (“Field Point”), converted tens of millions of dollars of Plaintiffs’
secured loans into unsecured, comparatively valueless loans in another Marblegate affiliate,
Defendant New Teraco, Inc. (“Teraco”). This left Marblegate, alone among Archway’s lenders,
with substantial value for its secured loans and other secured lenders with little to no value.
RESPONSE: Brecker denies the allegations contained in paragraph 1 of the Complaint.
2. Marblegate accomplished this scheme through its multiple and conflicted roles: as
a lender to Archway; as purported Required Lenders under the Credit Agreement; as controlling
shareholder, after foreclosure of the loans, of Archway’s parent Archway Marketing Holdings,
Inc. (“Intermediate Holdings”); through its affiliate Field Point, as Administrative Agent under the
Credit Agreement; and with its wholly owned subsidiary Teraco, as recipient of the equity
(“Archway Equity”) in Intermediate Holdings.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 2 of the Complaint and therefore denies the allegations.
3. The loans to Archway are governed by the Credit Agreement, by which it owed to
Plaintiffs and Marblegate approximately $122 million. By the barest of margins, Marblegate
claimed—improperly—to be entitled to exercise authority as “Required Lenders” under the Credit
Agreement, holding approximately 51% of Archway’s outstanding debt. Plaintiffs held all of the
remaining 49%, or approximately $60 million, of the Archway debt.
RESPONSE: Brecker admits that the loans to Archway are governed by the Credit
Agreement, and respectfully refers the Court to the Credit Agreement for the true and correct
contents and terms thereof. Brecker otherwise denies knowledge or information sufficient to form
2
2 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
a response to the allegations contained in paragraph 3 of the Complaint and therefore denies the
allegations.
4. The Agent for the Lenders under the Credit Agreement is Field Point. Field Point
(which replaced the prior Agent, Antares Capital LP) was appointed at Marblegate’s behest. Field
Point is owned, controlled by, and shares personnel and an office with Marblegate. Through Field
Point, on January 28, 2019, Marblegate consummated what it labeled the “Archway Restructuring
Transaction” (“Restructuring Transaction”), which comprised a series of transactions, each of
which involved breaches of contract or fiduciary duties by Defendants. A copy of the December
26, 2018 letter regarding the Restructuring Transaction and exhibits thereto are attached to the
McNally Affidavit filed with Plaintiffs’ Verified Amended Complaint, Dkt. #57, both dated
February 28, 2019 (“McNally Affidavit”) as Exhibit C.
RESPONSE: Brecker admits that the Agent under the Credit Agreement is Field Point,
admits that the Restructuring Transaction occurred on or about January 30, 2019, respectfully
refers the Court to the December 26, 2018 letter for the true and correct contents and terms thereof,
and otherwise denies the allegations contained in paragraph 4 of the Complaint.
5. Because Field Point, despite purporting to be Plaintiffs’ agent, has wrongfully
refused to disclose information about the transactions to Plaintiffs, Plaintiffs are uncertain of their
exact nature and details and can rely only on the descriptions of them in the Restructuring Term
Sheet (attached to the McNally Affidavit as Exh. C (Restructuring Term Sheet attached to Exh. C
as Exh. A, at 48)) to discuss them. According to that document, the scheme carried out by
Defendants purported to involve several key transactions:
(a) First, Marblegate directed and caused Field Point to foreclose on the Archway
Equity.
(b) Second, Marblegate directed Field Point to use the vast bulk (all but $100,000) of
the outstanding Obligations owed by Archway and the other Credit Parties under
the Credit Agreement—in which Plaintiffs held a 49% share—as currency to credit
bid at the public sale on behalf of all the Lenders (“Lender Credit Bid”). Field Point
declared the Lender Credit Bid to be the winning bid and exercised control over
100% of the foreclosed Archway Equity. Marblegate then took steps to determine
the governance of the company, whose equity was being controlled by Field Point,
which had purchased the equity on behalf of all Lenders, including Plaintiffs, using
approximately $60 million in Obligations held by Plaintiffs.
3
3 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
(c) Next, Marblegate caused and directed Field Point to have the rights to 100% of the
foreclosed Archway Equity transferred to a new company, “New Archway,” and
then assign the equity to New Archway as consideration for financing obtained by
New Archway. New Archway, holder of 100% of the foreclosed Archway Equity,
was then 100% acquired by Teraco, a Marblegate portfolio company which is
wholly owned by Marblegate and its affiliates. Despite the fact that almost $60
million of obligations owed by Archway to Plaintiffs were used as currency in
purchasing the foreclosed Archway Equity, Plaintiffs received no equity in Teraco
following Teraco’s acquisition of the Archway Equity that had been purchased
using Plaintiffs’ assets and were offered, at most, grossly inadequate consideration
for their share of the Archway Equity.
RESPONSE: Brecker respectfully refers the Court to the Restructuring Term Sheet for the
true and correct contents and terms thereof, and otherwise denies the allegations contained in
paragraph 5 of the Complaint.
6. These transactions involved breaches of fiduciary duties, tort duties, the Credit
Agreement, and the Security Agreement (defined below), including the following:
Fiduciary Duties: When Field Point used the Obligations held by all Lenders as
currency to purchase the Archway Equity on behalf of all Lenders, each Lender
became a shareholder in proportion to its share of the Obligations. Marblegate
purported to hold a majority of the Obligations and, in any event, exercised control
over Archway, its governance, and its disposition. Controlling shareholders owe
fiduciary duties both to minority shareholders and the company itself. Thus,
Marblegate owed Plaintiffs and the company fiduciary duties, which it breached
by, among other things, effecting the Restructuring Transaction and causing the
commercially unreasonable transfer of 100% of the Archway Equity to its affiliate
Teraco over Plaintiffs’ objections and with Plaintiffs being offered, at most, only
grossly inadequate consideration, and Archway receiving, at most, inadequate
consideration.
Tort Duties: Among other things, Marblegate, Field Point, and Teraco committed
the tort of conversion with respect to, at least, Plaintiffs’ ownership interest in the
Archway Equity. Marblegate caused Field Point to use Plaintiffs’ assets—$60
million in Obligations held by Plaintiffs—to purchase the Archway Equity on
behalf of all Lenders, including Plaintiffs. Defendants then exercised dominion and
control, to the exclusion of Plaintiffs, over the entirety of the Archway Equity,
including Plaintiffs’ share. All equity was ultimately held by Teraco, with Plaintiffs
receiving no consideration in exchange for their share of the equity.
4
4 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
Credit Agreement – Section 7.5 and 8.3(c): Nothing in the Loan Documents
authorized Field Point to re-sell the foreclosed Archway Equity, much less to an
affiliate for far less than its fair value. Under the Credit Agreement, including
explicit provisions in Sections 7.5 and 8.3(c), Field Point was required to exercise
remedies “on behalf of the Secured Parties” and “for the benefit of all the Lenders.”
But Plaintiffs received none of the Collateral on which Field Point foreclosed. That
is, Plaintiffs received neither their pro rata shares of the equity in Intermediate
Holdings nor pro rata ownership of New Archway.
Security Agreement – Sec. 6.1(b): Field Point claimed to possess the authority to
transfer the foreclosed Archway Equity to Teraco pursuant to Section 6.1(b) of the
Guaranty and Security Agreement. Under provision, Field Point (as Agent for the
Lenders) possessed the power only to “sell, assign, convey, transfer, grant option
or options to purchase and deliver any Collateral . . . in one or more parcels at public
or private sale or sales.” After the foreclosure sale, however, the Archway Equity
ceased to be “Collateral” subject to the Agent’s authority. At that point, the Agent
was required to hold whatever it had received at the foreclosure sale in trust for all
of the Lenders.
Credit Agreement – Sec. 9.11(b): Even if the Archway Equity somehow were
“Collateral” after the foreclosure sale, as defined in the Credit Agreement,
Marblegate still would be in breach. Section 9.11(b) of the Credit Agreement
required Marblegate to share with Plaintiffs any excess payments (including but not
limited to payment occurring through receipt of Collateral) it received through its
affiliate Teraco.
Credit Agreement – Sec. 1.10(c): The Credit Agreement requires all amounts
received by the Agent as a result of an exercise of remedies to be distributed pro
rata to each Lender. Field Point did not do so.
RESPONSE: The allegations contained in paragraph 6 of the Complaint constitute legal
conclusions to which no response is required. To the extent a response is required, Brecker denies
knowledge or information sufficient to form a response to the allegations contained in paragraph
6 of the Complaint and therefore denies the allegations.
7. To date Plaintiffs have not received anything approaching the value owed on their
loans to Archway, which were secured by all assets of Archway and its parent Credit Parties,
despite pro rata waterfall provisions of the Credit Agreement. Under the original restructuring plan
described by Marblegate and Field Point, Plaintiffs were to receive in exchange for their secured
5
5 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
Archway loans approximately 13% of face amount recovery in the form of unsecured,
unguaranteed, subordinated replacement term loans from New Archway, and Marblegate, in turn,
through its affiliates received the entire equity of Archway.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 7 of the Complaint and therefore denies the allegations.
8. On January 31, 2019, the Agent Field Point, who is contractually required to act
for the benefit of all Lenders, including Plaintiffs, made a brief announcement that the
restructuring had been “consummated.” It provided no further information in response to
Plaintiffs’ repeated requests for explanations. Teraco contributed only approximately $4 million
in assets (net of cash, goodwill, and current liabilities) in exchange for the foreclosed Archway
Equity from New Archway. Prior to foreclosure, Archway’s operating entities held some $45
million in assets (net of cash, goodwill, and current liabilities). In other words, in exchange for
assets worth about 10% of the value of Archway’s assets, Teraco received 100% of the Archway
Equity.
RESPONSE: Brecker admits a restructuring of Archway occurred on or about January 30,
2019, and otherwise denies knowledge or information sufficient to form a response to the
allegations contained in paragraph 8 of the Complaint and therefore denies the allegations.
9. As a result of the Restructuring Transaction, Plaintiffs lost essentially all of the
security interests that they had held against all assets, were offered at best grossly inadequate
consideration in exchange, and were purportedly stripped of their ownership interests in the
Archway Equity purchased using their assets. In contrast, Marblegate received 100% ownership
of the new company through Teraco.1
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 9 of the Complaint and therefore denies the allegations.
10. Marblegate caused Field Point to orchestrate the foreclosure auction so that no party
except Field Point itself could participate meaningfully. In particular, Field Point’s decision to
1
Prior to the restructuring, Marblegate represented that it intended to transfer certain Archway operating
assets to New Archway, but details of this proposed transfer have not been provided to Plaintiffs.
6
6 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
conduct a public sale of the equity of Intermediate Holding, as opposed to the underlying assets,
was no accident. By auctioning only the equity of Intermediate Holdings, while otherwise leaving
the Lenders’ liens on Archway’s underlying operating assets in place, Field Point ensured that no
cash bid—including any cash bid from Plaintiffs—effectively could compete with Field Point’s
use of the Lender Credit Bid. The credit bid, unlike a cash bid, resulted in a release of essentially
all liens and claims on the underlying assets. In short, the foreclosure auction was a commercially
unreasonable sham, intended not to maximize value for Archway or its lenders and stakeholders,
including Plaintiffs, but to allow Marblegate, through its affiliate Field Point, to seize complete
control of Archway at Plaintiffs’ expense.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 10 of the Complaint and therefore denies the allegations.
11. Field Point purported to justify the foreclosure auction as an exercise of remedies
on behalf of all Archway lenders. In fact, in orchestrating a transfer of all value in Archway to
Teraco, a sister Marblegate affiliate, Field Point, in concert with Marblegate itself, advanced
Marblegate’s interests over those of the other Archway Lenders, converted Plaintiffs’ ownership
interest in the foreclosed Archway Equity, and facilitated the looting of Plaintiffs’ Collateral.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 11 of the Complaint and therefore denies the allegations.
12. Aside from the fact that the use of $60 million of Plaintiffs’ assets to purchase the
Archway Equity on Plaintiffs’ behalf gave rise to Plaintiffs’ ownership of proportionate shares of
that equity and rights attendant to that ownership, the Credit Agreement obligated Field Point to
exercise remedies for the benefit of all Lenders. Thus, Plaintiffs were contractually entitled to
share pro rata as it relates to their Collateral. But Plaintiffs basically were offered, at best, grossly
inadequate consideration for their Archway term loans. Further, Field Point, as Plaintiffs’ agent
under the Credit Agreement, was required to secure Plaintiffs’ consent before releasing their
security interests or treating Plaintiffs on a non-pro rata basis. Field Point did not do so. Further,
under the Credit Agreement, any Lender that receives (directly or through affiliates) more than its
pro rata share under the Credit Agreement—as Marblegate did through Teraco’s receipt of all
foreclosed Archway equity—is obligated to make the other Lenders whole. Marblegate did not do
so.
RESPONSE: The allegations contained in paragraph 12 of the Complaint constitute legal
conclusions to which no response is required. To the extent a response is required, Brecker
7
7 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
respectfully refers the Court to the Credit Agreement for the true and correct contents and terms
thereof. Brecker otherwise denies knowledge or information sufficient to form a response to the
allegations contained in paragraph 12 of the Complaint and therefore denies the allegations.
13. In summary, using blatant self-dealing, Defendants’ scheme wiped out Plaintiffs’
security interests in the Archway Equity, a key part of the Collateral under the Loan Documents;
essentially released all of Plaintiffs’ security interests in the assets of Archway; and eliminated
99.9% of the Archway debt once held by Plaintiffs. Defendants accomplished all of this while
providing nothing to Plaintiffs in exchange for their Archway loans beyond an offer of grossly
inadequate consideration. Plaintiffs’ ownership of Archway Equity gave them rights in the
disposition of that equity and an economic stake in the reorganized company. Instead, Plaintiffs
were offered, at best, grossly inadequate consideration in exchange for their share of the Archway
Equity, and their rights under the Credit Agreement effectively were nullified.
RESPONSE: Brecker denies the allegations contained in paragraph 13 of the Complaint.
14. In pushing through a skewed, opaque, and self-serving Restructuring Transaction
over Plaintiffs’ objections, Defendants willfully breached Plaintiffs’ rights and knowingly caused
substantial injuries to Plaintiffs, totaling tens of millions of dollars.
RESPONSE: Brecker denies the allegations contained in paragraph 14 of the Complaint.
THE PARTIES
15. Plaintiff AEA Middle Market Debt Funding LLC is organized under the laws of
the state of Delaware, with a principal place of business in Stamford, Connecticut.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 15 of the Complaint and therefore denies the allegations.
16. Plaintiff AEA Middle Market Debt II Funding LLC is organized under the laws of
the state of Delaware, with a principal place of business in Stamford, Connecticut.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 16 of the Complaint and therefore denies the allegations.
8
8 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
17. Plaintiff BancAlliance Inc. (“BancAlliance”) is organized under the laws of the
state of Maryland, with a principal place of business in Chevy Chase, Maryland.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 17 of the Complaint and therefore denies the allegations.
18. Plaintiff MidCap Financial Trust is organized under the laws of the state of
Delaware, with a principal place of business in Dublin, Ireland.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 18 of the Complaint and therefore denies the allegations.
19. Plaintiff MidCap Funding XVIII Trust is organized under the laws of the state of
Delaware, with a principal place of business in Dublin, Ireland.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 19 of the Complaint and therefore denies the allegations.
20. Plaintiff Sun Life Assurance Company of Canada is incorporated federally under
the laws of Canada, with a principal place of business in Toronto, Ontario, Canada.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 20 of the Complaint and therefore denies the allegations.
21. Defendant Marblegate Asset Management, LLC (collectively, with other
Marblegate Defendants, “Marblegate”) is organized under the laws of the state of Delaware, with
a principal place of business in Greenwich, Connecticut.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 21 of the Complaint and therefore denies the allegations.
22. Defendant Marblegate Special Opportunities Master Fund, L.P. is organized under
the laws of the Cayman Islands.
9
9 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 22 of the Complaint and therefore denies the allegations.
23. Defendant P Marblegate, LTD is organized under the laws of the British Virgin
Islands.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 23 of the Complaint and therefore denies the allegations.
24. Defendant Marblegate Strategic Opportunities Master Fund I, L.P. is organized
under the laws of the state of Delaware.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 24 of the Complaint and therefore denies the allegations.
25. Plaintiffs lack information concerning the place of organization of Defendant
Marblegate Partners Master Fund I, L.P., but it is managed from Marblegate’s principal place of
business in Greenwich, Connecticut.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 25 of the Complaint and therefore denies the allegations.
26. Defendant New Teraco, Inc. is organized under the laws of the state of Texas.
RESPONSE: Brecker asserts that New Teraco Inc. is no longer a party to this action, see
NYSCEF Doc. No. 210) & (NYSCEF Doc. No. 594), and therefore no response is required. To
the extent an answer is required, Brecker denies knowledge or information sufficient to form a
response to the allegations contained in paragraph 26 of the Complaint and therefore denies the
allegations.
10
10 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
27. Defendant Field Point Agency Services, Inc. is organized under the laws of the state
of Delaware.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 27 of the Complaint and therefore denies the allegations.
28. Defendant AWM Holdings, Inc. is organized under the laws of the state of
Delaware.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 28 of the Complaint and therefore denies the allegations.
29. Defendant Archway Marketing Holdings, Inc. is organized under the laws of the
state of Delaware.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 29 of the Complaint and therefore denies the allegations.
30. Defendant Archway Marketing Services, Inc. is organized under the laws of the
state of Delaware.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 30 of the Complaint and therefore denies the allegations.
31. Defendant Corporate Services, Inc. is organized under the laws of the state of
Indiana.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 31 of the Complaint and therefore denies the allegations.
32. Defendant John Brecker works and resides in this State. He is a member of
Drivetrain LLC in New York City.
11
11 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
RESPONSE: Brecker denies that his full-time place of employment is New York, denies
that he is a resident of New York, and admits he is a member of Drivetrain LLC, which has an
office in New York, New York. Brecker otherwise denies the allegations contained in paragraph
32 of the Complaint.
JURISDICTION AND VENUE
33. The Court has jurisdiction over this matter pursuant to CPLR §301 and §302.
Defendants have continuous and systematic contact with New York. They have consented
contractually, directly or through merger with consenting entities, to the personal jurisdiction of
this Court as to any legal action or proceeding with respect to the Credit Agreement or any Loan
Document. Defendants have committed tortious acts within New York.
RESPONSE: The allegations contained in paragraph 33 of the Complaint constitute legal
conclusions to which no response is required. To the extent a response is required, Brecker admits
that he has consented to the jurisdiction of this Court and otherwise denies knowledge or
information sufficient to form a response to the allegations contained in paragraph 33 of the
Complaint and therefore denies the allegations.
34. Venue is proper in this Court. The parties consented to venue and jurisdiction in
New York Supreme Court in New York County in their agreements, including the Credit
Agreement, Forbearance Agreement, and Cooperation Agreement. By virtue of such consent,
venue is proper in this Court under N.Y. General Obligations Law §5-1402.
RESPONSE: The allegations contained in paragraph 34 of the Complaint constitute legal
conclusions to which no response is required. To the extent a response is required, Brecker denies
knowledge or information sufficient to form a response to the allegations contained in paragraph
34 of the Complaint and therefore denies the allegations.
12
12 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
35. This matter was properly assigned to the Commercial Division. Plaintiffs’ claims
include breach of contract, breach of the implied covenant of good faith and fair dealing, and
business torts. Plaintiffs seek equitable and declaratory relief.
RESPONSE: The allegations contained in paragraph 35 of the Complaint constitute legal
conclusions to which no response is required. To the extent a response is required, Brecker denies
knowledge or information sufficient to form a response to the allegations contained in paragraph
35 of the Complaint and therefore denies the allegations.
BACKGROUND OF ARCHWAY BORROWING
36. Archway was a provider of marketing logistics, fulfillment services, and supply
chain management services. Headquartered in Rogers, Minnesota, it had about 2,000 employees
and operated facilities in the United States and Canada encompassing some 4 million square feet.
In the 2018 fiscal year (eleven months through 11/30/18), it had net sales totaling $160 million
and EBITDA of $6.6 million. In the 2017 fiscal year, it had net sales of $175.4 million and
EBITDA of $20.9 million.2
RESPONSE: Brecker admits that Archway provides marketing logistics, fulfillment
services, and supply chain management services; that Archway’s headquarters are in Rogers,
Minnesota; and that Archway had roughly 2,000 employees. Brecker otherwise denies knowledge
or information sufficient to form a response to the allegations contained in paragraph 36 of the
Complaint and therefore denies the allegations.
37. Until the foreclosure sale, Plaintiffs and Marblegate—who comprise all lenders
under the Credit Agreement (July 2, 2012) (“Credit Agreement”)3–each held loans by and among
2
Although Archway’s operating assets continue to operate through the Archway brand under ownership of
Teraco, in light of the recent Restructuring Transaction, the Complaint refers to the Archway borrower and
its related entities in the past tense.
3
Modern Bank, N.A., a former Plaintiff in this case, assigned its claims to Plaintiff MidCap Funding XVIII
Trust, which continues to prosecute the claims as assignee. Because it assigned its claims, Modern Bank no
longer is a party to this litigation.
13
13 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
Archway, AWM Holdings, Inc. (“AWM”), Intermediate Holdings, and Corporate Services, Inc.,
(“Corporate Services”) (with Archway, AWM, and Intermediate Holdings, “Archway
Defendants”). A copy of the Credit Agreement is attached as Exhibit A to the McNally Affidavit.
RESPONSE: The allegations contained in paragraph 37 of the Complaint constitute legal
conclusions to which no response is required. To the extent a response is required, Brecker
respectfully refers the Court to the Credit Agreement for the true and correct contents and terms
thereof. Brecker otherwise denies knowledge or information sufficient to form a response to the
allegations contained in paragraph 37 of the Complaint and therefore denies the allegations.
38. Pursuant to the Credit Agreement, the Archway entities borrowed $122 million
(including the First Out Revolver) to finance a portion of the purchase price of an acquisition by
AWM of all capital stock of Intermediate Holdings and its subsidiaries, to refinance certain
indebtedness, and to finance working capital needs, capital expenditures, and other general
corporate purposes. As security for the obligations under the Credit Agreement, each Archway
entity granted to the Agent, for the ratable benefit of all Lenders, a lien on substantially all of the
assets of the Archway entity pursuant to the Guaranty and Security Agreement (July 2, 2012)
(“Security Agreement”) made by Archway, AWM, Intermediate Holdings, and Corporate Services
in favor of Field Point, in its capacity as Agent for Plaintiffs and Marblegate. A copy of the Security
Agreement is attached to the McNally Affidavit as Exhibit B.
RESPONSE: The allegations contained in paragraph 38 of the Complaint constitute legal
conclusions to which no response is required. To the extent a response is required, Brecker
respectfully refers the Court to the Credit Agreement for the true and correct contents and terms
thereof. Brecker otherwise denies knowledge or information sufficient to form a response to the
allegations contained in paragraph 38 of the Complaint and therefore denies the allegations.
39. Starting in mid-2018, Archway faced cash flow difficulties, starting with its failure
to make interest and principal payments and pay fees under the Credit Agreement that were due
on July 2, 2018. Numerous additional Archway events of default subsequently occurred, including
failures to make interest installment payments due on August 21, 2018, September 21, 2018,
October 1, 2018, October 22, 2018, November 23, 2018, and December 24, 2018; failures to
14
14 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
maintain required minimum levels of Actual Liquidity; and failures to maintain required Senior
Leverage Ratios and Fixed Charge Coverage Ratios.
RESPONSE: Brecker admits that, starting in mid-2018, Archway faced cash flow
difficulties and that several events of default under the Credit Agreement had occurred. Brecker
otherwise denies knowledge or information sufficient to form a response to the allegations
contained in paragraph 39 of the Complaint and therefore denies those allegations.
THE CREDIT AGREEMENT
40. In response to escalating problems and liquidity needs at Archway beginning with
a missed July 2, 2018 interest payment, the parties and Archway had ongoing discussions over the
course of 2018 in efforts to consensually address the company’s deteriorating condition.
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 40 of the Complaint and therefore denies the allegations.
41. As a result of the discussions, Archway’s lenders, including Plaintiffs (except for
BancAlliance), executed an amendment to the Credit Agreement: a Forbearance Agreement and
Fifth Amendment to Credit Agreement dated September 14, 2018 (“Fifth Amendment”).4
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 41 of the Complaint and therefore denies the allegations.
42. Key provisions of the Credit Agreement include the following (emph. added):
Section 1.10(c): Notwithstanding any provision herein to the contrary, all payments
made by Credit Parties to Agent after any or all of the Obligations have been accelerated
(so long as such acceleration has not been rescinded), and all proceeds of Collateral
received by Agent or any Lender as a result of the exercise of remedies under any
4
The Fifth Amendment provided for the First Out Revolver facility and established certain restructuring
milestone deadlines, which were later amended in a Sixth Amendment to the Credit Agreement (Nov. 9,
2018) by Archway and Field Point.
15
15 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
Collateral Document after the occurrence and during the continuance of an Event
of Default, shall be applied as follows: [waterfall definitions] In carrying out the
foregoing, . . . (ii) each of the Lenders or other Persons entitled to payment shall
receive an amount equal to its pro rata share of amounts available to be applied[.]
Section 8.3(c): Notwithstanding anything to the contrary contained herein or in any
other Loan Document, the authority to enforce rights and remedies hereunder and under
the other Loan Documents against the Credit Parties [Borrowers] 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 Issuer[.]
Section 9.1(a): . . . no amendment or waiver of, or supplement or other modification
(which shall include any direction to the Agent pursuant) to, any Loan Document (other
than the Fee Letter, any Control Agreement, or any letter of credit reimbursement or
similar agreement) or any provision thereof, 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 Required Lenders), and the Borrower . . . ; provided, however, that no
such waiver, amendment, supplement (including any additional Loan Document)
or consent shall, unless in writing and signed by all the Lenders directly affected
thereby (or by Agent with the consent of all the Lenders directly and adversely
affected thereby), in addition to Agent, the Required Lenders (or by Agent with
the consent of the Required Lenders) and the Borrower, do any of the following:.
(i) increase or extend the Commitment of any Lender . . . ;
(ii) postpone or delay any date fixed for, or reduce or waive, any scheduled
installment of principal or any payment of interest, fees, or other amounts (other than
principal) due to the Lenders (or any of them) . . . ;
(iii) reduce the principal of, or the rate of interest specified herein . . . on any Loan .
..;
(iv) (A) change or have the effect of changing the priority or pro rata treatment of any
payments (including voluntary and mandatory prepayments), Liens, proceeds of
Collateral or reductions in Commitments . . . ;
(vii) discharge Borrower or all or substantially all of the Guarantors . . . from their
respective payment Obligations under the Loan Documents, or release all or
substantially all of the Collateral, except as otherwise may be provided in this
Agreement or the other Loan Documents[.]
16
16 of 52
FILED: NEW YORK COUNTY CLERK 03/31/2023 05:35 PM INDEX NO. 650413/2019
NYSCEF DOC. NO. 600 RECEIVED NYSCEF: 03/31/2023
Section 9.11(b): Sharing of Payments, Etc. If any Lender, directly or through an
Affiliate or branch office thereof, obtains any payment of any Obligation of any
Credit Party (whether voluntary, involuntary or through the exercise of any right of
setoff or the receipt of any Collateral or “proceeds” (as defined in the applicable
UCC) of Collateral) . . . and such payment exceeds the amount such Lender would
have been entitled to receive if all payments had gone to, and been distributed by,
Agent in accordance with the provisions of the 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 payment with such Lenders to ensure
such payment is applied as though it had been received by Agent and applied in
accordance with this Agreement . . . .
RESPONSE: Brecker denies knowledge or information sufficient to form a response to
the allegations contained in paragraph 42 of the Complaint and therefore denies the allegations.
43. In short, the Credi