In re Meridian Sunrise Village, LLC, 2014 WL 909219 (W.D. Wash. 2014).
In April 2008, Meridian Sunrise Village, LLC (“Meridian”) borrowed $75,000,000 from U.S. Bank for the construction of Sunrise Village, a shopping center. Meridian specifically limited the definition of “Eligible Assignees” to commercial banks, insurance companies, financial institutions or institutional lenders to avoid future assignments to predatory investors. U.S. Bank soon assigned portions of the loan to Bank of America, Citizens Business Bank, and Guaranty Bank and Trust Company (collectively, the “Lender Group”). Subsequently, in early 2012, the Lender Group forced Meridian into a nonmonetary default. Meridian, unable to pay the default interest, filed for protection under Chapter 11 of the Bankruptcy Code.
As part of its Chapter 11 reorganization, Meridian created a reorganization plan (the “Plan”) that categorized the Lender Group as a specific class for the purpose of voting on the Plan. Prior to the vote, and in defiance of Meridian’s repeated objections, Bank of America transferred its interest to NB Distressed Debt Limited Fund, which subsequently assigned one-half of its interest to Strategic Value Special Situations Master Fund II, L.P., and another part of its interest to NB Distressed Debt Master Fund LP. These three entities (collectively, the “Funds”) focused on acquiring distressed debt, and were precisely the types of entities to which Meridian claimed the loan agreement prohibited assignment.
May 23, 2013, Meridian asked the Bankruptcy Court to enjoin the Funds from exercising “Eligible Assignee” rights, including most importantly, voting on the Plan. The Bankruptcy Court subsequently granted the injunction and confirmed the Plan, and the Funds appealed.
The district court held that the loan agreement limited loan assignments to “Eligible Assignees,” which included (only) “commercial banks, insurance companies, financial institutions, or institutional lenders,” and that the plain language of the loan agreement’s limitations, the specific text surrounding “financial institutions,” and the parties’ actions all proved that the parties intended “financial institutions” to exclude entities like the Funds. The Funds had argued that both the common and legal definitions of the term “financial institutions” included “any and all institutions that handle and invest funds”, and thus, the term was broad enough to include the Funds. However, the court disagreed. It found that under the Fund’s interpretation, any member of the Lender Group would have been free to assign to “virtually any entity that has some remote connection to the management of money – up to and including a pawnbroker”, which would essentially “drain” the assignment provisions of their intended limiting effect.
Because the Funds were not “financial institutions” under the loan agreement, they were not “Eligible Assignees.” The loan agreement permitted only “Eligible Assignees” to vote on the Plan. Thus, the district court held that the Funds were rightfully precluded from voting. Furthermore, even if the Funds were eligible to vote, their one vote would not have changed the outcome of the Plan’s vote. Accordingly, the district court affirmed the Bankruptcy Court’s confirmation of the Plan.