No Standing Room: How Lender Collective Action Subverts Basic Principles of Contract Interpretation
Michael R. Miller, No Standing Room: How Lender Collective Action Subverts Basic Principles of Contract Interpretation, 2012 Colum. Bus. L. Rev. 330.
Large, predominately asset-backed financings are seldom undertaken by a single lender. Most commonly, a lead lender will distribute the risk associated with such ventures by selling interests in the loan to other lenders. If the loan is “syndicated,” an administrative agent will usually be elected to manage the loan on behalf of the lenders. In the wake of the 2008 financial crisis, and in particular, with the rise of commercial mortgage defaults, bank syndicates have faced increasing opposition from member lenders seeking to challenge the decisions of the administrative agent.
In response to these challenges, the doctrine of Lender Collective Action has arisen. In New York, Lender Collective Action has been asserted to compel unified action and quash minority dissent. In essence, the doctrine has stripped member lenders of their standing to assert rights or remedies under the credit documents. Unfortunately, in applying the doctrine, courts have abandoned traditional principles of contract interpretation.
This Note argues that the doctrine, although appealing, should not be asserted in order to undermine a member lender’s traditional rights and remedies at law. To the extent that New York courts have used the doctrine to reason that lenders may impliedly waive such rights, this Note will take the position that Beal Savings Bank v. Sommer should be overturned.
Volume 2013 | Issue 1
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