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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., Debtors. ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered
RESPONSE OF FIVE MILE CAPITAL REAL ESTATE ADVISORS LLC TO THE DEBTORS OBJECTION TO GUARANTY CLAIM ASSERTED BY MIDLAND LOAN SERVICES, INC. AGAINST GRAND PRIX HOLDINGS LLC
Lenard M. Parkins (NY Bar #4579124) Mark Elmore (admitted pro hac vice) 30 Rockefeller Plaza, 26th Floor New York, New York 10112 Telephone No.: (212) 659-7300 Facsimile No.: (212) 884-8211 - and John D. Penn (NY Bar # 4847208) Haynes and Boone, LLP 201 Main Street, Suite 2200 Fort Worth, Texas 76102 Telephone No.: (817) 347-6610 Facsimile No.: (817) 348-2300 Attorneys for Five Mile Capital Real Estate Advisors LLC
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TABLE OF CONTENTS Preliminary Statement..................................................................................................................... 2 Factual Background ........................................................................................................................ 8 A. B. C. D. E. F. G. The Fixed Rate Mortgage Loan ...................................................................................... 8 The Guaranty By Holdings ............................................................................................. 8 The Cash Collateral Orders........................................................................................... 10 The Bar Date Order....................................................................................................... 13 The Auction Process ..................................................................................................... 14 The Plan Process ........................................................................................................... 17 Additional Pleadings Regarding the Guaranty Claim................................................... 19
Argument ...................................................................................................................................... 20 A. B. Summary Judgment Standards...................................................................................... 20 The controlling documents and the relevant case law support the validity and allowance of the Guaranty Claim........................................................................... 20 1. The Special Servicer has already made the necessary showing to support the Guaranty Claim under the governing law.............................................................................................. 21 2. The clear terms of the Plan and Confirmation Order preserved the Guaranty Claim ..................................................................................................................................... 25 3. The various commitment letters did not affect the Guaranty Claim...................... 26 C. Modifications of the Fixed Rate Debtors Loan Obligations Did Not Extinguish the Guaranty Claim ............................................................................................................... 29 1. Full and Final Satisfaction ..................................................................................... 29 2. The Commitment Letters Are Not Ambiguous ..................................................... 32 3. 11 U.S.C. 524(e) ..................................................................................................38 4. Release or Waiver ...................................................................................................38 D. The arguments identified by the Debtors in the Objection fail..................................... 39 1. The Guaranty Claim does not fail for lack of a proof of claim.............................. 39 2. The Special Servicer was never required to file a proof of claim in connection with the Guaranty Claim..............................................................................................40
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3. Failure to file a proof of claim does not require claim disallowance......................43 Additional Issues and Defenses to Objection to Claim ................................................................ 43 Summary and Conclusion .............................................................................................................45
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TABLE OF AUTHORITIES Page(s) CASES Beth Israel Medical Center, et. al v. Horizon Blue Cross and Blue Shield of New Jersey, Inc., 448 F.3d 573 (2d Cir. 2006).....................................................................................................28 Bickerstaff v. Vassar Coll., 196 F.3d 435 (2d Cir. 1999).....................................................................................................20 Brand v. RMM, 2011 U.S. Dist. LEXIS 42599 (S.D.N.Y. Apr. 18, 2011)........................................................20 Celotex Corp. v. Catrett, 477 U.S. 317 (1986).................................................................................................................20 Champion Spark Plug Co. v. Automobile Sundries Co., 273 F. 74 (2d Cir. 1921)...........................................................................................................28 Citibank, N.A. v. Plapinger, 485 N.E.2d 974 (N.Y. 1985)....................................................................................................23 Citicorp Leasing, Inc. v. United Am. Funding, Inc., 2005 U.S. Dist. Lexis 15901 (S.D.N.Y. Aug. 5, 2005) .....................................................21, 23 Compagnie Financiere de CIC et de LUnion Europeenne v. Merrill Lynch, Pierce, Fenner & Smith Inc., 188 F.3d 31 (2d Cir. 1999).................................................................................................22, 23 Credit Suisse First Boston Mortgage Capital LLC v. Cohn, 2004 U.S. Dist. LEXIS 16577 (S.D.N.Y. Aug. 19, 2004) .......................................................37 EMI Music Mktg. v. Avatar Records, Inc., 317 F.Supp. 2d 412 (S.D.N.Y. 2004).......................................................................................23 Gannett Co. v. Tesler, 577 N.Y.S.2d 248 (N.Y.App.Div. 1991) .................................................................................23 HSH Nordbank AG NY Branch v. Street, 2011 U.S. App. Lexis 9316 (S.D.N.Y. Aug. 5, 2005) .............................................................21 In re Adelphia Recovery Trust, 634 F.3d 678 (2d Cir. 2011).....................................................................................................30 In re Asia Global Crossing, Ltd., 326 B.R. 240 (Bankr. S.D.N.Y. 2005).....................................................................................24
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In re Houbigant, Inc., 190 B.R. 185 (Bankr. S.D.N.Y. 1995).....................................................................................38 Indianapolis Morris Plan Corp. v. Karlen, 28 N.Y.2d 30 (N.Y. 1971) .......................................................................................................23 J. Remora Maintenance LLC v. Efromovich, 2012 N.Y. Misc. LEXIS (N.Y.Sup.Ct. Jan. 4, 2012)...............................................................23 Jefpaul Garage Corp. v. Presbyterian Hosp., 61 N.Y.2d 442 (N.Y. 1984) .....................................................................................................28 Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d 175 (N.Y. 1982) .....................................................................................................28 Ocean Group LLC v. Marcal Mfg., LLC, 2010 U.S. Dist. LEXIS 130468 (S.D.N.Y. Dec. 2, 2010) .......................................................20 Sterling Natl Bank v. Biaggi, 849 N.Y.S.2d 521 (N.Y.App.Div. 2008) .................................................................................23 United Orient Bank v. Lee, 637 N.Y.S.2d 96 (N.Y.App.Div. 1996) ...................................................................................23 STATUTES 11 U.S.C. 361, 362 and 363 ......................................................................................................11 11 U.S.C. 361, 362, and 363, and (B).......................................................................................10 11 U.S.C. 524(e) .........................................................................................................................37 OTHER AUTHORITIES 63 N.Y. Jur. 2d, Guaranty and Suretyship, 89 (1987) ................................................................22 Federal Rule of Bankruptcy Procedure 7056 and 9014 .................................................................20 Federal Rule of Bankruptcy Procedure 9014...................................................................................2 Federal Rules of Bankruptcy Procedure 7056 and 7012 .................................................................2 Federal Rule of Civil Procedure 56(c) ...........................................................................................20
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Non-Evidentiary Hearing Date: March 28, 2012 at 10:00 a.m. (ET) Reply Deadline: March 9, 2012 at 4:00 p.m. (ET)
Lenard M. Parkins (NY Bar No. 4579124) John D. Penn (NY Bar No. 4847208) Mark Elmore (admitted pro hac vice) HAYNES AND BOONE, LLP 30 Rockefeller Plaza, 26th Floor New York, New York 10112 Telephone: (212) 659-7300 Facsimile: (212) 918-8989 Attorneys for Five Mile Capital Real Estate Advisors LLC UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., Debtors. ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered
RESPONSE OF FIVE MILE CAPITAL REAL ESTATE ADVISORS LLC TO THE DEBTORS OBJECTION TO GUARANTY CLAIM ASSERTED BY MIDLAND LOAN SERVICES, INC. AGAINST GRAND PRIX HOLDINGS LLC Five Mile Capital Real Estate Advisors LLC (Five Mile), 1 in its capacity as the special servicer of the New Fixed Rate Mortgage Loan, hereby files this Response (the Response) to the Debtors Objection to Guaranty Claim Asserted by Midland Loan Services, Inc. Against
Effective as of October 28, 2011, the special servicing of that certain secured loan described below has been transferred from Midland Loan Services (a division of PNC Bank, NA) (Midland) to Five Mile. The secured loan, in the amount of not less than $675,000,000 (the New Fixed Rate Mortgage Loan) is owed by certain of the above-captioned Debtors as provided for under the Debtors Plans of Reorganization to l (with Modifications to the Fixed/Floating Plan) dated October 19, 2011. For consistency, this Response will refer to either Midland or the Special Servicer when addressing events that occurred before the special servicing role was transitioned to Five Mile after the Effective Date of the Fixed/Floating and Remaining Debtor Plans in the above-referenced cases. These jointly administered cases are referred to herein as the Cases. F-301186 Page 1
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Grand Prix Holdings LLC (the Objection), 2 and in support hereof, respectfully states as follows: Preliminary Statement 3 1. Preliminarily, and consistent with the Courts instructions at the January 18, 2012
status conference in this matter, this Court should hear argument, consider documents and rule upon the legal issues presented below with respect to the guaranty (the Guaranty) 4 executed by Grand Prix Holdings LLC (Holdings), that the Debtors acknowledged in the first day hearings in the Cases. 5 As noted in the January 18, 2012 status conference, the legal issues may be considered as if a motion for summary judgment or motion for judgment on the pleadings had been filed under Federal Rules of Bankruptcy Procedure 7056 and 7012 (and applicable to contested matters under Federal Rule of Bankruptcy Procedure 9014), respectively. Accordingly, Five Mile requests that the Court consider this Response as a request for summary judgment or judgment on the pleadings and grant judgment in favor of Five Mile that: A. The Guaranty Claim is an allowed claim against Holdings since the
Guaranty is enforceable against Holdings in accordance with its terms.
2 3 4
Docket No. 1867. Capitalized terms used, but not defined, in the Preliminary Statement are defined below.
The Guaranty is attached to the Declarations of Scott Leitman and Mark Elmore filed as Ex. 1 & 2 to the Document Appendix filed herewith. The filing of such Declarations was noted during the January 18, 2012 status conference (see transcript, p. 30, line 8). The claim based on the Guaranty is referred to herein as the Guaranty Claim.
The color organizational chart the Debtors (including Holdings) presented to the Court in the first day hearing (see page 15, line 15 of the first day hearings transcript, July 20, 2010) noted with respect to Grand Prix Holdings LLC that 2. Guarantor of (i) Non-Recourse Carve Out Obligations under all Loan Pools, (ii) Capital Expenditures under the Anaheim HS Mortgage Loan and (iii) Payment and Performance under the Anaheim HS Mezzanine Loan. A copy of the color organizational chart is Ex.3 to the Document Appendix and was also included as Ex. 22 to Docket No. 368, Midlands Appendix of Evidence in Support of Objection of Midland Loan Services, Inc. to Debtors Motion for an Order (A) Authorizing the Debtors to Assume the Plan Support Agreement and (B) Granting Related Relief. Bates # APP 00680. Page 2
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B. timely manner. C.
The Special Servicer asserted the Guaranty Claim against Holdings in a
The Bar Date Order excused the Special Servicer from any obligation to
file a proof of claim against any of the Debtors in these Cases, including Holdings. D. The provision that, the Representatives will not be required to file proofs
of claim in any of the Chapter 11 Cases or Successor Cases for the claims relating to their respective Loan Obligations, found in 23 of the Cash Collateral Orders, as well as the numerous amended and restated versions of the Final Cash Collateral Order relieved the Special Servicer from any obligation to file any proof of claim against Holdings and any of the other Debtors in these Cases. E. The provision that, Any order entered by the Court in relation to the
establishment of a bar date for any claim (including, without limitation, administrative claims) in any Chapter 11 Cases or Successor Cases shall not apply to the Representatives, found in 23 in the Cash Collateral Orders, and ratified in the numerous amended and restated versions of the Final Cash Collateral Order, relieved the Special Servicer from any obligation to file any proof of claim against Holdings and any of the other Debtors in these Cases. F. The provision of the Debtors Plans confirmed in these Cases recognized
the existence of claims that were neither specifically allowed in the Plans nor required a proof of claim to be filed with respect thereto: 7. Allowed means with reference to any Claim or Interest, as may be applicable, . . . (b) . . . and (2) any Claim that is not subject to any applicable Claims Bar Date, as to which no objection or other challenge has been or is interposed in accordance with the Plan or such other applicable period of limitation fixed by the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy Court, if any, . . .
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G.
The only consequence provided in the Bar Date Order for not filing a
required proof of claim for a claim identified in the schedules filed by one of the Debtors is the limitation of such claim to the amount noted in the schedules and not the disallowance of the claim. 6 H. Holdings was not released from its obligations under the Guaranty by the
plan treatment provided for the Fixed Rate Mortgage Loan because New York law, which is applicable to the Guaranty, enforces the provisions of a guaranty waiving the defense of release by modification of the guaranteed obligation. I. The Initial Commitment Letter, describing an enterprise-level
transaction that was never consummated, was neither a release nor a waiver of Holdings obligations under the Guaranty according to the Guarantys provisions and applicable New York law. J. With respect to the Guaranty and Holdings obligations thereunder, the
Commitment Letters for the Fixed/Floating Plan are not ambiguous such that extrinsic evidence would be admissible regarding the Commitment Letters. 2. Holdings liability on the Guaranty has been acknowledged by the Debtors.
Notwithstanding this Courts Final Cash Collateral Order, the Plans and Confirmation Order, the clear and unambiguous language of the Five Mile/Lehman Commitment Letter and the Cerberus/Chatham Commitment Letter reserving the Special Servicers rights against Holdings, and the broad waivers of defenses contained in the Guaranty itself, the Debtors persist in
The Guaranty Claim was listed in Holdings schedules as two separate claims in the amount of $419,780,817.38 each.
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challenging the Guaranty Claim to benefit Apollo Investment Corporation (Apollo), Holdings sole equity holder. 7 3. The Objection raises the following primary arguments: a. allowed; b. c. modified. As will be more fully discussed below, each of the arguments fails. They will be addressed in reverse order. 4. The applicable documents make it clear that only the claims against the Fixed the Guaranty Claim was waived in the Initial Commitment Letter; and, the Guaranty Claim was waived when the Fixed Rate Mortgage Loan was the failure to file a proof of claim prevents the Guaranty Claim from being
Rate Debtors were addressed when the Fixed Rate Mortgage Loan was modified in the Fixed/Floating Plan. Consistent with the Guarantys terms that preserve the Guaranty if the underlying loan is modified, collateral is released or a number of other events occur, the treatment of the Fixed Rate Debtors obligations did not affect Holdings independent obligations on the Guaranty Claim. Holdings has no defense to the Guaranty Claim under applicable New York law. 5. The Initial Commitment Letter, while interesting from a historical perspective, It was amended and the amended commitment letter (the Five
was never implemented.
Mile/Lehman Commitment Letter) specifically reserved and preserved all claims against Holdings. Both the Debtors and Apollo (which had agreed to forgo all recoveries under the
See 24 of the Objection, (In addition, allowance of the Guaranty Claim would eliminate the possibility that Apollo Investment Corporation (Apollo) would receive any recovery on account of its preferred and common equity interests in Grand Prix Holdings.) Page 5
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Initial Commitment Letter) concurred that all claims against Holdings and its assets were reserved and preserved. 6. The Cash Collateral Orders, which both pre-dated and post-dated the Bar Date
Order, were clear that all claims related to the Fixed Rate Mortgage Loan regardless of the nature of the claim or the Debtor against which it was asserted were exempt from filing proofs of claim by the Bar Date. It is beyond imagination for the Debtors to argue that the Guaranty Claim is not, at the very least, related to the Fixed Rate Mortgage Loan. 8 The Cash Collateral Orders then went further to exempt the Special Servicer and the other Representatives (as defined therein) from the Bar Date Order for any claim in any Chapter 11 case. 7. The defined terms used in the Bar Date Order are clear that only claims that are a
different type or an amount greater than listed in the Debtors schedules are affected by the Bar Date Order. Neither is true with respect to the Guaranty Claim. Accordingly, even if the Special Servicer was not exempt from any requirement to file a proof of claim for the Guaranty Claim, the Bar Date Order neither affects, nor precludes, a recovery upon the Guaranty Claim. 8. The Objection shows that the Debtors, while reciting general legal concepts, fail
to acknowledge that those concepts do not apply to the facts before the Court. Bar date orders can require proofs of claim to be filed and distributions to be precluded except when this Courts orders require a different outcome. A release in a commitment letter can result in released (or waived) claims except when the transaction described in that commitment letter is either neither
As noted above, the provisions of 23 of both the Interim and Final Cash Collateral Orders and the Bar Date Order exempt Representatives (including the Special Servicer) from filing proofs of claim for claims related to their mortgage debt. The Debtors have yet to allege, much less provide any support for the theory that, the Guaranty is not related to the Fixed Rate Mortgage Loan. F-301186 Page 6
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consummated or is superseded and revised to provide for a different transaction and outcome (or both). Modifying the underlying loan can release a guaranty, except when the guaranty agreement provides otherwise. The parties acknowledgement that all claims against guarantors and their assets were not affected by modifying the underlying loan preserves the guaranty. The inclusion of integration language in the Commitment Letters and the Debtors pleadings in related litigation more forcefully demonstrate that the integration clause expressly prohibits reliance on early versions of the Commitment Letters that were never approved by the Court. 9. Finally, the Debtors argument that the Special Servicer waived the Guaranty
Claim flies in the face of the repeated reservations of rights included in the Commitment Letters throughout the Cases and the explicit requirements of the Guaranty itself regarding how waiver may be accomplished. The Debtors have yet to craft a theory whereby a reservation of all of the Representatives respective rights, claims and interests with respect to the Excluded Debtors would not reserve the right to pursue Holdings for the Guaranty Claim. Arguing that the Guaranty Claim is not included within all of their respective rights, claims and interests is as creative as it is baseless. 10. This is not the first time this Court has faced many of these issues. In fact, the
Fixed/Floating Debtors dispute with Cerberus Series Four Holdings, LLC, et. al raised many of the same issues. The Debtors there argued that (a) the Cerberus/Chatham Commitment Letter controlled over provisions in both the Bid Procedures Order and the Initial Commitment Letter and (b) extrinsic evidence could not be used to vary the terms of the controlling document because it was (y) the final expression of the highly negotiated agreement of sophisticated parties
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and (z) included an integration clause that was strictly enforced under New York law (the choice of law stated in the Cerberus/Chatham Commitment Letter). 11. For these reasons, as more thoroughly described below and with the right to adopt
arguments made in response to other claim objections, Five Mile requests that this Court overrule the Debtors Objection and confirm that the Guaranty Claim is an allowed claim against Holdings since there are neither cognizable defenses nor valid objections to the Guaranty Claim. Factual Background 12. On July 19, 2010 (the Petition Date), each of the Debtors filed a petition with
this Court under chapter 11 of the Bankruptcy Code. A. The Fixed Rate Mortgage Loan 13. Midland was named as the initial special servicer pursuant to the Pooling and
Servicing Agreement dated as of August 13, 2007 (the Pooling and Servicing Agreement) for that certain secured loan in the amount of not less than $825,402,542 plus interest, costs and fees (the Fixed Rate Mortgage Loan) owed by certain of the Debtors. The Fixed Rate Mortgage Loan was secured by cross-collateralized and cross-defaulted first priority mortgages, liens and security interests on forty-five hotel properties and their contents and assets related thereto (collectively, the Midland Collateral) and the other collateral, including all cash collateral as such term has meaning under section 363 of the Bankruptcy Code, generated by the Fixed Rate Debtors hotel and business operations with respect to the Midland Collateral, as set forth in the Fixed Rate Mortgage Loan. B. The Guaranty By Holdings 14. In connection with the Fixed Rate Mortgage Loan, Holdings executed the
Guaranty dated as of June 29, 2007 for the benefit of Lehman ALI Inc. (Lehman), the initial lender. The Fixed Rate Mortgage Loan was subsequently assigned for securitization pursuant to
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the Pooling and Servicing Agreement (along with the note evidencing the Fixed Rate Mortgage Loan.) 9 Under the Guaranty, Holdings irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guaranty at 1.1. Guaranteed Obligations means the obligations or liabilities of Borrower to Lender for which Borrower shall be liable pursuant to Section 9.4(b) and (c) of the Loan Agreement. Guaranty at 1.2. 10 15. The Guaranty is an irrevocable, absolute, continuing guaranty of payment and
performance and not a guaranty of collection. Guaranty at 1.3. Further, Holdings expressly agreed that it would remain liable for the Guaranteed Obligations regardless of any modifications or adjustments of the underlying obligations or releases granted to the underlying borrowers. The Guaranty also contains a broad waiver of defenses. Specifically, Holdings expressly agreed that: Article II Guarantor hereby consents and agrees to each of the following and agrees that Guarantors obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following and waives any common law, equitable, statutory or other rights (including without limitations rights to notice) relating to Guarantors obligations hereunder which Guarantor might otherwise have as a result of or in connection with any of the following: Modifications. Any renewal, extension, increase, modification, 2.1 alteration or rearrangement of all or any part of the Guaranteed Obligations . . . . 2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor . . . .
9
A copy of the Guaranty is attached to the Declarations of Scott Leitman and Mark Elmore. Ex. 1 & 2 to the Document Appendix.
Section 9.4(c) of the Fixed Rate Mortgage Loan provides in part that the Fixed Rate Mortgage Loan is a recourse obligation upon the Borrowers bankruptcy filing. Copies of the Fixed Rate Mortgage Loan Agreement are attached to each of the proofs of claim filed by Apollo against the Fixed Rate Debtors in the Cases. F-301186 Page 9
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2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations or any document or agreement executed in connection with the Guaranteed Obligations . . . it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other person be found not liable on the Guaranteed Obligations or any part thereof for any reason. 2.5 Release of Obligors. Any full or partial release of the liability of Borrower on the Guaranteed Obligations or any part thereof, or of any coguarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof (except for the express release in writing by Lender of any or all of Guarantors obligations under this Guaranty), it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations . . . . . . . 2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Borrower against Lender, or any other party, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. Guaranty, pages 4 6 (emphasis added). C. The Cash Collateral Orders 16. On July 20, 2010, the Court entered the Interim Order (A) Authorizing the
Debtors to (i) Use the Adequate Protection Parties' Cash Collateral and (ii) Provide Adequate Protection to the Adequate Protection Parties Pursuant to 11 U.S.C. 361, 362, and 363, and (B) Scheduling a Final Hearing Pursuant to Rule 4001(b) (the Interim Cash Collateral Order, Ex. 4 to the Document Appendix). The Interim Cash Collateral Order provided the following: 23. Proofs of Claim. The Representatives will not be required to file proofs of claim in any of the Chapter 11 Cases or Successor Cases for the claims relating to their respective Loan Obligations. Any order entered by the Court in
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relation to the establishment of a bar date for any claim (including, without limitation, administrative claims) in any Chapter 11 Cases or Successor Cases shall not apply to the Representatives. Interim Cash Collateral Order at p. 45 (emphasis added). 17. On September 2, 2010, the Court entered the Final Order Authorizing the Debtors
to (i) Use the Adequate Protection Parties Cash Collateral and (ii) Provide Adequate Protection to the Adequate Protection Parties Pursuant to 11 U.S.C. 361, 362 and 363 (the Final Cash Collateral Order and, together with the Interim Cash Collateral Order, the Cash Collateral Orders). 11 (The Final Cash Collateral Order is Ex. 5 to the Document Appendix.) Pursuant to the findings in the Final Cash Collateral Order, this Court determined that the Fixed Rate Debtors acknowledged the validity of the Fixed Rate Mortgage Loan and the Guaranty: (i) The Debtors listed on Schedule 1 hereto (collectively, the Fixed Rate Debtors) acknowledge and agree that they are party to that certain Loan Agreement, dated as of June 29, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, and together with such supporting and ancillary documents thereto, the Fixed Rate Mortgage Loan Agreement), among the Fixed Rate Debtors, as borrowers thereunder, Grand Prix Fixed Lessee LLC, as operating lessee, Grand Prix Holdings, LLC, as guarantor, and Lehman ALI Inc., as the original lender thereunder (the Fixed Rate Lender). The Fixed Rate Mortgage Loan Agreement provides for loan to the Fixed Rate Debtors in the aggregate principal amount of $825,402,542 (the Fixed Rate Mortgage Loan Obligations). The Fixed Rate Mortgage Loan Agreement is evidenced by a certain Replacement Promissory Note A-1 (the Fixed Rate Note A-1) and a certain Replacement Promissory Note A-2 (the Fixed Rate Note A-2), each in the principal amount of $412,701,271 and each dated as of August 9, 2007 (emphasis supplied). .... (v) The Fixed Rate Debtors further acknowledge and agree that (a) the Fixed Rate Mortgage Loan Obligations are valid, binding, and enforceable obligations of the Fixed Rate Debtors in accordance with the terms set forth in the Fixed Rate Mortgage Loan Documents, and (b) the Fixed Rate Mortgage and other liens and security interests granted to the Fixed Rate Lender with respect to the Fixed Rate Collateral, as security for the Fixed Rate Mortgage Loan Obligations are valid,
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Docket No. 402. Page 11
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perfected and enforceable liens, mortgages, deeds of trust, and security interests in accordance with the terms set forth in the Fixed Rate Mortgage Loan Documents. See Final Cash Collateral Order at pp. 3-5 (emphasis added). The Guaranty was included among the documents comprising the Fixed Rate Mortgage Loan Agreement (as defined in the Final Cash Collateral Order to include the Fixed Rate Mortgage Loan and such supporting and ancillary documents thereto as well as being included in the description of the Fixed Rate Mortgage Loan Agreement itself). 18. The Final Cash Collateral Order also imposed specific procedures by which
claims could be challenged: If no such Adversary Proceeding is properly and timely filed and served by such date the liens and security interests of, and payments made on account thereof to, the Adequate Protection Parties shall not be subject to any other or further Challenge and shall not be determined to have been, as of the Petition Date, valid binding, perfected, enforceable, unavoidable, and having the priority asserted, and the Debtors, their estates and creditors, and any trustee in a Successor Case shall be bound by Debtors acknowledgements, stipulations, and agreements set forth in this Order. See Final Cash Collateral Order at p. 43 (emphasis added). The Challenge Period for any party to challenge the Courts findings in the Final Cash Collateral Order has expired, 12 and the Courts findings regarding the same are now final. provided the following: Proofs of Claim. The Representatives will not be required to file 23. proofs of claim in any of the Chapter 11 Cases or Successor Cases for the claims relating to their respective Loan Obligations. Any order entered by the Court in relation to the establishment of a bar date for any claim (including, without limitation, administrative claims) in any Chapter 11 Cases or Successor Cases shall not apply to the Representatives. The Final Cash Collateral Order also
The numerous extensions of the Challenge Period for other types of potential disputes does not affect the outcome of this issue. F-301186 Page 12
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Final Cash Collateral Order at p. 47 (emphasis added). The Final Cash Collateral Order was modified a number of times, 13 each time ratifying the terms of the Order that were not modified, including paragraph 23. D. The Bar Date Order 19. On September 16, 2010, the Bankruptcy Court entered the Order Establishing
Deadlines and Procedures for Filing Proofs of Claim and Approving the Form and Manner of Notice Thereof (the Bar Date Order, Ex. 6 to the Document Appendix). In addition to the provisions of the Cash Collateral Orders, the Bar Date Order identifies certain claims that do not require the filing of a proof of claim, including any claim made by the Representatives relating to their respective Loan Obligations (each as defined in the [Final Cash Collateral Order]). See Bar Date Order at p. 6. 20. The Bar Date Order also specified the consequences of a creditor not filing a
claim if an Unscheduled Claim was required. 11. Pursuant to Bankruptcy Rule 3003(c)(2), any Entity that is required to
file a proof of Claim in the Chapter 11 Cases but that fails to do so by the applicable Bar Date shall be forever barred, estopped, and enjoined from: (a) asserting any Claim against any of the Debtors that such Entity has that (i) is in an amount that exceeds the amount, if any, that is set forth in the Schedules or (ii) is of a different nature or in a different classification than is set forth in the Schedules (any such Claim referred to as an Unscheduled Claim); and (b) voting upon, or receiving distributions under, any chapter 11 plan in the Chapter 11 Cases in respect of an Unscheduled Claim; and the Debtors and their property shall be forever discharged from any and all indebtedness or liability with respect to all such Unscheduled Claims.
See, e.g., Docket Nos. 441, 539, 744, 788, 875, 953, 1008, 1060, 1502, 1870, 2074, and 2141. Many of these were entered after the Bar Date Order was entered and after the Bar Date for others to file claims had passed. F-301186 Page 13
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Bar Date Order, p. 6 (emphasis added). E. The Auction Process 21. On January 14, 2011, the Debtors filed a motion asking the Court to approve
certain commitment letters entered into between the Debtors, Lehman, the Special Servicer, and Five Mile (the Initial Commitment Letter). 14 Those documents contemplated one transaction covering all of the Debtors including Holdings and was described as an enterprise-level transaction. Pursuant to the Initial Commitment Letter, only upon consummation of the
transaction described therein, would claims against Holdings have been waived by both the Special Servicer and Apollo. The Initial Commitment Letter was neither implemented nor became effective because it was never approved by this Court and was superseded by subsequent agreements that specifically excluded Holdings assets and obligations. While the Initial
Commitment Letter contemplated a release of the Guaranty Claim if the enterprise-level transaction was consummated, it never purported to be a present release of the Guaranty Claim. 22. On March 11, 2011, the Bankruptcy Court entered the Bidding Procedures
Order, 15 approving the Debtors entry into the Amended and Restated Binding Commitment Agreement Regarding the Acquisition and Restructuring of Certain Subsidiaries of Innkeepers USA Trust (the Five Mile/Lehman Commitment Letter) under which the Debtors were authorized to conduct an auction for the Debtors equity interests. The first page of the Five Mile/Lehman Commitment Letter (which attached to the Objection) stated: Reference is made to that certain Binding Commitment Agreement Regarding the Acquisition and Restructuring of Innkeepers USA Trust dated January 14, 201 1 (the Original Commitment Letter). This Amended Commitment Letter amends
14 15
Docket No. 820. Docket No. 1009. Page 14
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and restates the Original Commitment Letter, subject to the terms of Section 12 below. 23. The agreement embodied in the Five Mile/Lehman Commitment Letter was
tailored to address the treatment of the Fixed Rate Mortgage Loan with respect to only the Fixed/Floating Debtors. 16 See Five Mile/Lehman Commitment Letter, Term Sheet at
Treatment of Fixed Rate Mortgage Loan. Additionally, the Special Servicers agreement to provide a general release with respect to certain Releasing Parties under the Fixed/Floating Plan was limited to the Fixed/Floating Debtors. The Five Mile/Lehman Commitment Letter neither contained nor contemplated a release of Holdings or a waiver of the Guaranty Claim. See Five Mile/Lehman Commitment Letter, Term Sheet at Releases. Finally, the Special Servicer expressly reserved its rights, claims and interest against the Debtors that were not among the Fixed/Floating Debtors. See Five Mile/Lehman Commitment Letter, Term Sheet at Releases (Additionally, the Releasing Parties reserve all of their respective rights, claims, and interests with respect to the Excluded Debtors and all assets of the Excluded Debtors.). See Five Mile/Lehman Commitment Letter, Term Sheet at Reservation of Rights. (emphasis added). Holdings was, and remains, an Excluded Debtor. 24. This reservation was specifically noted by the Debtors in their Omnibus Reply in
Support of Stalking Horse Motion (the Omnibus Reply, Ex. 7 to the Document Appendix). 17 The Omnibus Reply described the change from an enterprise-level transaction and makes that abundantly clear in footnote 55, p. 29 where the Debtors stated:
55
As the Court is aware, in connection with the original Five Mile/Lehman
enterprise-level bid, Apollo had previously agreed to waive certain recoveries in furtherance of a global settlement.. Given that the modified Five Mile/Lehman
16 17
Holdings was never one of the Fixed/Floating Debtors. Docket No. 986. Page 15
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Bid no longer covers all of the Debtors, all parties, including Apollo and Series C Preferred Shareholders, retain their rights with respect claims and interests against the Debtors not subject to the modified bid. (emphasis added). 25. Fixed/Floating On May 2, 2011, the Debtors commenced the auction to sponsor a plan for the Debtors with competitive bidding between Five Mile/Lehman and
Cerberus/Chatham. The Debtors closed the auction for the equity of the Fixed/Floating Debtors after Cerberus/Chatham submitted a bid valued by the Debtors at $1.1187 billion. 26. In connection with the Cerberus/Chatham winning bid, the Fixed/Floating
Debtors entered into the Amended and Restated Binding Commitment Agreement Regarding the Acquisition and Restructuring of Certain Subsidiaries of Innkeepers USA Trust dated May 16, 2011 (the Cerberus/Chatham Commitment Letter, and together with the Five Mile/Lehman Commitment Letter, the Commitment Letters). The Cerberus/Chatham Commitment Letter contains the same reservation of rights with respect to the Guaranty Claim as contained in the Five Mile/Lehman Commitment Letter. To that end, the Cerberus/Chatham Commitment Letter provides that [t]he Releasing Parties reserve all of their respective rights, claims, and interests with respect to the Excluded Debtors and all assets of the Excluded Debtors. (emphasis added). See Cerberus/Chatham Commitment Letter, Amended and Restated Term Sheet at Reservation of Rights. From the outset of the defined term Excluded Debtors, Holdings was and always remained an Excluded Debtor. The only material changes between the Five
Mile/Lehman and Cerberus/Chatham Commitment Letters was the insertion of the winning bidder, the successful bid amount, and minimal conforming changes. There were no other material changes because the substantive terms of the agreement had already been fully negotiated.
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27.
Additionally, the parties to the Cerberus/Chatham Commitment Letter agreed that
the [Cerberus/Chatham Commitment Letter] and the Amended and Restated Term Sheet, together with the Appendices and Exhibits thereto, represent the entire understanding and agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings among parties hereto, both written and oral, with respect to the subject matter hereof, including without limitation the Commitment Letter and Term Sheet dated April 25, 2011 by the Plan Sponsors and New Holdco. 18 Cerberus/Chatham Commitment Letter at 5. 28. As a result, the Guaranty Claim remained unaffected by the Initial Commitment
Letter, the Five Mile/Lehman Commitment Letter, and the Cerberus/Chatham Commitment Letter. F. The Plan Process 29. On April 8, 2011, the Debtors filed plans and a disclosure statement. The plans
and disclosure statement were amended on May 9, 2011. On May 9, 2011, the Special Servicer filed its Limited Objection to the Disclosure Statement for the Debtors Plans of Reorganization 19 (the Limited Disclosure Statement Objection, Ex. 8 to the Document Appendix) objecting that, among other things, the May 9 versions of the plans and disclosure statement had not been approved by the Special Servicer, those documents did not comply with the Five Mile/Lehman Commitment Letter and that the Debtors attempt to disallow the Guaranty Claim through the plan process was improper. The plans and disclosure statement were amended on May 19, 2011 to include revised language regarding the issues identified in the Limited Disclosure Statement Objection.
18 19
This integration clause tracks the same provision found in the Five Mile/Lehman Commitment Letter. Docket No. 1231. Page 17
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30.
On May 19, 2011, the Debtors filed their Disclosure Statement for Debtors Plans
of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (the Disclosure Statement) 20 and on June 29, 2011, the Debtors filed the final Debtors Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (collectively, as amended, the Plans). 21 The Special Servicers claims against the Fixed/Floating Debtors under the Fixed Rate Mortgage Loan were classified in Class FF3A of the Fixed/Floating Plan, and the Special Servicer was to receive a new mortgage note in the amount of $723,797,283.03 and cash in the amount of $12,802,450.37. See Plan at Art. III.B, p. 30. The Guaranty Claim was classified in Class R4B as a General Unsecured Claim of Holdings and was supposed to receive the available proceeds from the Chatham Hotel Sale Transaction Purchase Consideration and other assets in accordance with the Distribution Waterfall under the Plan. See Plan at Art. III.B, p. 45. 31. The Plans classified the Guaranty Claim against Holdings in Class R4B and was
temporarily allowed in an amount not less than $83,956,000, 22 which represented 10% of the approximate principal balance due under the Fixed Rate Mortgage Loan on the Petition Date. 32. On June 29, 2011, the Court entered its Findings of Fact, Conclusions of Law,
and Order Confirming Debtors Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (the Confirmation Order). 23
On May 19, 2011, the Court entered its Order Approving (A) Adequacy of the Disclosure Statement; (B) Certain Dates Related to Confirmation of the Plan; (C) Certain Voting Procedures and the Form of Certain Documents to be Distributed in Connection with Solicitation of the Plan; and (D) Proposed Voting and General Tabulation Procedures [Docket #1441].
21 22
20
Docket No. 1799.
$83,956,000 represents 10% of the amount reflected on the Ballot the Claims Agent provided to the Special Servicer to vote on the Fixed/Floating Plan. One interpretation of the Fixed Rate Mortgage Loan Agreement would limit the Guaranty Claim to 10% of the amount owed by the Fixed Rate Debtors. The Special Servicer has not agreed to limit the Guaranty Claim to that amount and reserves the right to show that its Guaranty Claim is actually greater. See Stipulation Providing Certain Guaranty Claimants Ballots And Voting Rights, Docket No. 1639. F-301186 Page 18
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33.
The Plans did not become effective for the Fixed/Floating Debtors as planned
because Cerberus/Chatham terminated their commitment to purchase the Fixed/Floating Debtors hotels. In response to this termination, the Debtors filed a complaint commencing adversary proceeding number 11-02557 (SCC) (the Cerberus Adversary Proceeding) seeking specific performance of this agreement and citing, among other reasons, the impact of the integration clause in the Cerberus/Chatham Commitment Letter. 24 34. In settlement of the Cerberus Adversary Proceeding, on October 19, 2011, the
Debtors filed a motion asking the Court to approve (1) a second amended commitment letter with Cerberus/Chatham regarding the sale of the Fixed/Floating Debtors hotels and (2) a modification of the Plans and Confirmation Order, 25 which the Court granted on October 21, 2011. 26 The Fixed/Floating Plan and the Remaining Debtor Plan (insofar as Holdings and InnkeepersUSA Trust were concerned) became effective shortly thereafter. G. Additional Pleadings Regarding the Guaranty Claim 35. On May 24, 2011, the Special Servicer filed its Motion for an Order Determining
its Guaranty Claim Against Grand Prix Holdings LLC to be Allowed in Full (the Midland Guaranty Motion). 27 The Debtors and Apollo objected to the Midland Guaranty Motion. 28 36. On July 13, 2011, the Debtors filed the Objection, requesting that the Court
disallow the Guaranty Claim.
23 24 25 26 27 28
Docket No. 1804. Docket No. 2045. Docket No. 2169. Docket No. 2181. Docket No. 1482. Docket Nos. 1609 and 1611. Page 19
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Argument A. Summary Judgment Standards 37. Rule 56(c) of the Federal Rules of Civil Procedure (applicable in bankruptcy
cases pursuant to Federal Rule of Bankruptcy Procedure 7056 and 9014) provides that summary judgment should be granted if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. See also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Brand v. RMM, 2011 U.S. Dist. LEXIS 42599, at *7 (S.D.N.Y. Apr. 18, 2011). A party opposing summary judgment must show sufficient evidence upon which a reasonable fact finder could return a verdict in its favor. See Ocean Grp. LLC v. Marcal Mfg., LLC, 2010 U.S. Dist. LEXIS 130468, at *28 (S.D.N.Y. Dec. 2, 2010). Statements that are devoid of specifics, but replete with conclusions, are insufficient to defeat a properly supported motion for summary judgment. Bickerstaff v. Vassar Coll., 196 F.3d 435, 452 (2d Cir. 1999). B. The controlling documents and the relevant case law support the validity and allowance of the Guaranty Claim. 38. In arguing that the Guaranty Claim was either waived or has no value, the Debtors
focus myopically on prior commitment letters that were never implemented and do not include the provisions the Debtors describe. The Debtors fail to acknowledge the actual documents that will control the determination are the Cash Collateral Orders, the Bar Date Order, the Guaranty, and the Plans and Confirmation Order, as modified. An inquiry into the impact on an agreement by subsequent events must begin with an examination of the agreement itself, the Guaranty. The Commitment Letters are themselves limited to agreements regarding what the ultimate binding documents would provide if and when they were approved. The Commitment Letters are not the ultimate agreement. Commitment Letters.
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The Plan and Confirmation Order are the binding culmination of the
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1. The Special Servicer has already made the necessary showing to support the Guaranty Claim under controlling documents and governing law. 39. A creditor seeking to enforce a written unconditional guaranty under New York
law need prove no more than an absolute and unconditional guaranty, the underlying debt, and the guarantors failure to perform under the guarantee. HSH Nordbank AG NY Branch v. Street, 2011 U.S. App. Lexis 9316, **3-4 (2d Cir. May 4, 2011). Where the guaranty is absolute and contains sufficiently broad waivers of rights and defenses, a court may find for the creditor upon a bare showing of the prima facie elements. Id. (noting that despite the defendants assertions of various defenses, that the broad waiver provisions of the Guaranties make clear that Defendants would remain liable irrespective of the defenses); Citicorp Leasing, Inc. v. United Am. Funding, Inc., 2005 U.S. Dist. Lexis 15901, *18 (S.D.N.Y. Aug. 5, 2005) (granting motion for summary judgment finding defendants liability under guaranties where prima facie showing of liability was made despite various defenses asserted by defendants because even if the evidence present[ed] a genuine issue as to the defenses, the defendants had waived their right to bring any such defenses pursuant to the broad waiver provisions in the guaranty). 40. The Guaranty contains broad agreements and waivers of rights (recited above)
and explicitly states that it is an unconditional obligation: Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guaranty 1.1. (emphasis added). This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. . . . The fact that at any time or from time to time the Guaranteed Obligations may be increased or
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reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. Guaranty 1.3. (emphasis added). 41. The Guaranty and the Findings of Fact in the Final Cash Collateral Order
constitute prima facie evidence of Holdings liability under the Guaranty, and no further proof is required under controlling case law. 29 42. Insofar as the prima facie showing is concerned, the findings regarding the Fixed
Rate Mortgage Loan being valid and unpaid obligations became binding on all parties (including the Fixed/Floating Debtors and Holdings) and uncontestable when the Challenge Period expired without objection. The allowance of the Fixed Rate Mortgage Loan in the Fixed/Floating Plan ratified that determination. Holdings failure to perform is undisputed and is reflected in the Remaining Debtor Plan. The execution and delivery of the Guaranty is not disputed and the Guarantys terms are noted therein. 43. The agreement between the Special Servicer and the Fixed Rate Debtors,
including the treatment of the claims against the Fixed Rate Debtors neither constitutes a waiver of the Special Servicers right to pursue Holdings under the Guaranty nor frees Holdings from liability under the Guaranty. The Guaranty is governed by New York Law (a fact overlooked in the Objection.) Under New York law, guarantee agreements are construed strictissimi juris. Compagnie Financiere de CIC et de LUnion Europeenne v. Merrill Lynch, Pierce, Fenner & Smith Inc., 188 F.3d 31, 34 (2d Cir. 1999). Thus, a guarantor is not entitled to any particular tenderness in the interpretation of the language of his contract. 63 N.Y. Jur. 2d, Guaranty and Suretyship, 89 (1987) (as quoted in Merrill Lynch, 188 F.3d at 34). Unconditional guaranties
While the Debtors have argued that the Guaranty is not part of the Loan Obligations, they do not dispute that the Fixed Rate Debtors liability upon the Fixed Rate Mortgage Loan was conclusively established pursuant to the Final Cash Collateral Order and the expiration of the Challenge Period therein. Five Mile does not concede that the Guaranty is not part and parcel of the Loan Obligations.
29
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are enforceable when written in clear and unambiguous terms. EMI Music Mktg. v. Avatar Records, Inc., 317 F.Supp.2d 412, 419 (S.D.N.Y. 2004). This rule reflects the notion that when parties have expressly allocated risks, the judiciary shall not intrude into their contractual relationship. Citicorp Leasing, Inc. v. United Am. Funding, Inc., 2005 U.S. Dist. Lexis 15901, *12 (S.D.N.Y. Aug. 5, 2005) (citations and quotations omitted). 44. A guarantor cannot assert defenses that it expressly waived in the guaranty
agreement. See CFC v. Merrill Lynch, 188 F.3d at 34-35; see also Sterling Natl Bank v. Biaggi, 849 N.Y.S.2d 521, 522 (N.Y.App.Div. 2008); United Orient Bank v. Lee, 637 N.Y.S.2d 96, 96 (N.Y.App.Div. 1996); Gannett Co. v. Tesler, 577 N.Y.S.2d 248, 249 (N.Y.App.Div. 1991); J. Remora Maint. LLC v. Efromovich, 2012 N.Y. Misc. LEXIS 36 (N.Y.Sup.Ct. Jan. 4, 2012). Likewise, advance consent provisions in a guaranty may render a guarantor liable even after a release of the principal borrower or modification of the underlying loan. See CFC v. Merrill Lynch, 188 F.3d at 34-35; Korea First Bank, 687 N.Y.S.2d at 126; United Orient Bank, 637 N.Y.S.2d at 96. 45. Where a guaranty states that it is absolute and unconditional, guarantors are
generally precluded from raising any affirmative defense. See CFC v. Merrill Lynch, 188 F.3d at 35; accord Citibank, N.A. v. Plapinger, 485 N.E.2d 974, 977 (N.Y. 1985). See also J. Remora Maint. LLC v. Efromovich, 2012 N.Y. Misc. LEXIS 36. 46. Thus, in Merrill Lynch, the Second Circuit held that under New York law, a
guarantee agreement containing a general waiver of defenses prevents a guarantor from being discharged of its payment obligations by virtue of the principal debtors release. 188 F.3d at 33; see also Indianapolis Morris Plan Corp. v. Karlen, 28 N.Y.2d 30, 32 (N.Y. 1971) (holding that a guarantor remained liable after the principals release because the promissory note stipulated that no release of any or all of the security . . . shall release any other maker, comaker, surety,
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guarantor or other party hereto in any capacity); In re Asia Global Crossing, Ltd., 326 B.R. 240, 248 n.14 (Bankr. S.D.N.Y. 2005) (Where a debtor filed for bankruptcy and its creditor subsequently released the debtor from liability under a contract, the guarantor remained liable under the Guaranty because it expressly agreed in the Guaranty that the release of [the debtor] would not affect its liability. In addition, [the creditor] expressly reserved its rights under the Guaranty against [the guarantor] in the Settlement Agreement.). 47. Thus, based on the clear and unambiguous provisions of the Guaranty itself and
the rules under the governing law 30 for giving effect to those provisions, defenses raised against the Guaranty Claim must be rejected. The Guaranty provides that [n]o modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. Guaranty at 5.1. The Plan and Confirmation Order represent the final
consummated agreements between the Special Servicer, the Fixed/Floating Debtors, Holdings and the other parties in the Cases. Both of those documents make it clear that the Guaranty Claim was never waived. 48. The Objection improperly relies on inapplicable law and ignores the extensive
waivers that are part and parcel of the Guaranty itself. The Objection cites case law from Illinois and Oregon applying their respective law to disputes involving primary obligors. See Objection at p. 14, n. 9. The cases are wholly irrelevant to the issue of enforcing a guaranty under New York law, particularly where the guaranty includes extensive waivers of the very defenses being asserted.
In 5.3 of the Guaranty, the parties agreed that New York law would govern the Guaranty. Despite this clear choice of law provision, the Debtors chose not to cite controlling New York case law regarding the enforcement of unconditional guaranties. F-301186 Page 24
30
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2. The clear terms of the Plan and Confirmation Order preserved the Guaranty Claim. 49. Far from providing a waiver of the Guaranty Claim, the Confirmation Order states
that [n]othwithstanding anything to the contrary in the Plan, the rights of the Special Servicer, Lehman, LCPI, TriMont, and SASCO to assert the Grand Prix Holdings Guaranty Claims are expressly preserved for resolution by the Bankruptcy Court pursuant to the Voting Stipulation and the Global Confirmation Settlement. Confirmation Order at 222. The Global
Confirmation Settlement is embodied in the Confirmation Order and similarly states that the Guaranty Claim is expressly preserved for resolution by the Court in connection with any litigation or settlement of guaranty claims against Grand Prix Holdings pursuant to the Stipulation Providing Certain Guaranty Claimants Ballots and Voting Rights [Docket No. 1639] (the Voting Stipulation). Confirmation Order at 117. The Voting Stipulation also provides for no adjudication and no waiver of the Guaranty Claim at the time of confirmation, stating that [n]othing contained in this Stipulation shall be construed as an admission or a determination with respect to the amount, validity and/or allowance of the Guaranty Claims for purposes of distributions under the Plan or the validity of any dispute regarding any Guaranty Claim. Voting Stipulation at 3. 50. While the provisions of the Confirmation Order preserving the Special Servicers
rights with respect to the Guaranty Claim certainly control over the Plan, 31 the Plan also demonstrates that the Guaranty Claim was not waived. Consistent with the Cerberus/Chatham Commitment Letter, both the Fixed Rate Pool Mortgage Loan Claims and the Fixed Rate Pool Mortgage Loan Deficiency Claims were limited to include only claims against the
31
See Plan at p. 21 (. . . if there is determined to be any inconsistency between any Plan provision and any provision of the Confirmation Order that cannot be so reconciled, then, solely to the extent of such inconsistency, the provisions of the Confirmation Order shall govern and any such provision of the Confirmation Order shall be deemed a modification of the Plan and shall control and take precedence.). F-301186 Page 25
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Fixed/Floating Debtors, and the treatment for those claims under Classes FF6 and FF3A was clearly stated to provide treatment for claims against the Fixed/Floating Debtors. See Plan at p. 9 (defining Fixed Rate Pool Mortgage Loan Claims and Fixed Rate Pool Mortgage Loan Deficiency Claims); see also Plan at 30-31 (providing the classification and treatment of the Special Servicers claims against the Fixed/Floating Debtors). Holdings was included in the Plan definition of Remaining Debtors, which the Plan begins defining by stating that the Remaining Debtors are the Debtors that are not Fixed/Floating Debtors. Plan at p. 17. The treatment that the Special Servicer accepted under Classes FF6 and FF3A related solely to the Special Servicers claims against Debtors other than Holdings. 51. The Guaranty Claim was an allowed claim under the Remaining Debtor Plan
when it was confirmed and remains the same today. Each of the Plans defined Allowed to include with reference to any Claim or Interest . . . any Claim that is not subject to any applicable Claims Bar Date, as to which no objection or other challenge has been or is interposed in accordance with the Plan or such other applicable period of limitation fixed by the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy Court . . . . At the time that the Plan was originally confirmed, no objections had been filed with respect to the Guaranty Claim, and (as noted above) the Guaranty Claim was not subject to a claims bar date. 3. 52. The various commitment letters did not affect the Guaranty Claim.
The various commitment letters that parties entered into during the course of the
Cases were, at most, agreements to agree to treatment to be included in a confirmed and binding plan of reorganization. Only the commitment letter that was actually implemented in a If the Special Servicer
confirmed, effective and consummated plan actually took effect.
indicated that it would agree to waive its Guaranty Claim upon closing a transaction subject to all of the terms and conditions of a commitment letter, such an agreement would never become
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effective unless all of the conditions stated therein had been met and the transaction was embodied in a confirmed plan that was ultimately consummated. This reality is underscored by the many agreements in commitment letters throughout the Cases that were superseded and that never became a part of the Plan or Confirmation Order. In addition, the Plan itself recognized that a commitment letter is not self-effectuating when it states that if the effective date regarding the Fixed/Floating Debtors does not occur on or before the outside date, the commitment letter shall be null and void in all respects . . . . Plan at p. 79. Only the Cerberus/Chatham Commitment Letter was implemented when the Fixed/Floating Plan became effective. 53. The Initial Commitment Letter never took effect. If the Debtors truly believed
that the Initial Commitment Letter is somehow a final, binding and enforceable agreement, they must also concede that Apollo also irrevocably waived any right to receive distributions on any basis whatsoever when the following language was included in the Initial Commitment Letter: Apollo, on account of its holdings of the Series A Preferred Shares, common shares, or other equity in the Company or otherwise, shall agree to (i) waive all rights to receive any recovery or distribution under the Plan, including the right to participate in the Co-Investment Right; and (ii) settle and provide a complete general release and waiver or any of its claims against the Releasing Parties. Term Sheet to Initial Commitment Letter, p. 18. 54. The Debtors have never attempted to explain the irreconcilable inconsistency of
how the they treat Apollo as compared to their objection to the Guaranty Claim. It is more than somewhat disingenuous for the Debtors to argue that the Special Servicers execution of the Initial Commitment Letter was a permanent waiver of the Guaranty Claim but was not a similar waiver by Apollo. The Debtors position that Apollo has a right to distributions in the face of the language quoted above, precludes any reliance on the Commitment Letters as a basis for the Objection.
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55.
The Debtors position is also contrary to what they stated in their Omnibus Reply
when the Initial Commitment Letter was amended and replaced by the Five Mile/Lehman Commitment Letter as will be more fully illustrated below. Their statements at that time are a more accurate reflection of the parties intent and understanding that all rights with respect to Debtors other than the Fixed/Floating Debtors survived and were not affected by the Initial Commitment Letter. 56. The classic definition of a waiver is the voluntary abandonment or
relinquishment of a known contractual right. Beth Israel Medical Center, et. al v. Horizon Blue Cross and Blue Shield of New Jersey, Inc., 448 F.3d 573, 585 (2d Cir. 2006). 32 Nothing in the Initial Commitment Letter would lead to the conclusion that a present waiver occurred simply upon the execution of those documents and before they had ever been presented to, or approved by, this Court. The Initial Commitment Letter was subject to Court approval (see 1) and the Term Sheet included therein included extensive provisions regarding its termination if, among other things, the Initial Commitment Letter was neither approved nor a plan including their provisions confirmed. Accordingly, there is no credible argument that any portion of the Initial Commitment Letter waived the Guaranty Claim for all time when it was executed.
The New York Court of Appeals has held that waiver of a contract right is the voluntary abandonment or relinquishment of a known [contract] right. It is essentially a matter of intent which must be proved. Jefpaul Garage Corp. v. Presbyterian Hosp., 61 N.Y.2d 442, 446 (N.Y. 1984) (citations omitted); Nassau Trust Co. v. Montrose Concrete Prods. Corp., 56 N.Y.2d 175, 184 (N.Y. 1982) ([W]aiver requires . . . the voluntary and intentional abandonment of a known [contract] right which, but for the waiver, would have been enforceable. (citation omitted)); see also Champion Spark Plug Co. v. Automobile Sundries Co., 273 F. 74, 79-80 (2d Cir. 1921) (Waiver [of a contract right] depends upon the intention of the party who is charged with the waiver. It is an intentional abandonment or relinquishment of a known right or advantage.). Beth Israel Med. Ctr., 448 F.3d at p. 585. F-301186 Page 28
32
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C.
Modifications of the Fixed Rate Debtors Loan Obligations did not extinguish the Guaranty Claim. 1. Full and Final Satisfaction 57. The Debtors argument that the full and final satisfaction of claims against the
Fixed/Floating Debtors released the Guaranty Claim is baseless. As noted above, modifying the underlying debt did not affect, release or modify the Guaranty Claim. As will be demonstrated below, when the Initial Commitment Letter was modified, its link to Holdings and the Guaranty Claim was unambiguously severed. The position taken in the Objection is wholly unsupported by both the documents and applicable law. 58. The Initial Commitment Letter contemplated an enterprise-level transaction that
would have included Holdings as one of the parties thereto. All of the value in each and every one of the Debtors entities including Holdings would have been included within such an enterprise-level transaction. 33 As such, dealing with Holdings obligations in one transaction where all of its assets were likewise included was understandable. That linkage was broken when the Initial Commitment Letter was amended to remove Holdings and the Guaranty Claim from the contemplated transaction. 59. The document trail clearly reflects that the linkage was broken. To understand
how the Debtors and Apollo viewed the change from an enterprise-level proposal to one with only the Fixed/Floating Debtors, the Court need only look at the Omnibus Reply where they described the change. Specifically, footnote 55, p. 29 stated:
This is contrary to the following statement in the Objection, There is no dispute that under the original Five Mile/Lehman bid in January 2011 Midland agreed that it would not receive any recovery from Grand Prix Holdings on account of the Fixed Rate Mortgage Loan. (Objection, p. 3, 6). As a proposed enterprise-level bid, the recovery attributable to any specific Debtor was never separately identified. However, whatever value was included within Holdings would have been included within that transaction if it had closed. F-301186 Page 29
33
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55
As the Court is aware, in connection with the original Five Mile/Lehman
enterprise-level bid, Apollo had previously agreed to waive certain recoveries in furtherance of a global settlement.. Given that the modified Five Mile/Lehman Bid no longer covers all of the Debtors, all parties, including Apollo and Series C Preferred Shareholders, retain their rights with respect claims and interests against the Debtors not subject to the modified bid. (emphasis added). 34 60. All parties certainly included the Special Servicer as one of the parties
retaining its rights. The Debtors not subject to the modified bid included Holdings because the modified bid included only the Fixed Rate Debtors and the Floating Rate Debtors. The Debtors Omnibus Reply also noted (on p. 3) that: 2. Global peace, however, has proven difficult to achieve. Nonetheless, the
Debtors have reached an agreement with Five Mile, Lehman, and Midland to modify the Five Mile/Lehman Bid as follows: The Debtors and Five Mile/Lehman and Midland have agreed to modify the Commitment Letter to remove the Seven Sisters from the Five Mile/Lehman Bid. The Five Mile/Lehman Bid will cover only the properties securing the Fixed Rate Loan and the Floating Rate Loan (the Fixed Rate Pool and Floating Rate Pool, respectively). (emphasis added). 35 61. By the time the Cerberus/Chatham Commitment Letter was signed, the severance
of Holdings and the Guaranty Claim became even more pronounced. That agreement was
34 35
In the Omnibus Reply, Debtors meant all of the Debtors in these Chapter 11 Cases.
Changing the proposed transaction from an enterprise-level transaction to one that involved only the Fixed/Floating Debtors was at the core of the Omnibus Reply. That change formed the basis for the Courts approval of the Bidding Procedures thereby satisfying the elements of judicial estoppel. Typically, judicial estoppel will apply if: 1) a party's later position is clearly inconsistent with its earlier position; 2) the partys former position has been adopted in some way by the court in the earlier proceeding; and 3) the party asserting the two positions would derive an unfair advantage against the party seeking estoppel. In re Adelphia Recovery Trust, 634 F. 3d 678, 695-6 (2d Cir. 2011) (internal citations omitted). F-301186 Page 30
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tailored to apply just to the Fixed/Floating Debtors and stated, In full and final satisfaction of the Fixed Rate Pool Mortgage Loan Claims against the Fixed/Floating Debtors . . . . (Term Sheet to Cerberus/Chatham Commitment Letter, p. 2, Objection p. 275, Treatment of Fixed Rate Mortgage Loan, emphasis added). That document, signed by the Fixed/Floating Debtors and Apollo (as noted elsewhere) included these additional provisions: 12. Assignments; No Third Party Beneficiaries. This Amended and
Restated Commitment Letter (i) . . . (ii) is intended to be solely for the benefit of the Parties hereto; and (iii) is not intended nor shall be construed to confer any benefits upon, or create any rights in favor of any person or entity other than the Parties hereto. . . . . Cerberus/Chatham Commitment Letter, p. 4 (Objection, p. 264).
The Releasing Parties reserve all of their respective rights, claims, and interests with respect to the Excluded Debtors and all assets of the Excluded Debtors. Whatever rights, claims, and interests the Excluded Debtors may have with respect to the Fixed/Floating Debtors and their assets are also preserved. Term Sheet, p. 11 attached to the Cerberus/Chatham Commitment Letter (Objection, p. 284) (emphasis added). 62. The language used in the Cerberus/Chatham Commitment Letter (and that was
ultimately used in the Fixed/Floating and Remaining Debtor Plans) unambiguously shows that the such document was intended to be completely independent of and from Holdings and Holdings was independent of and from the Cerberus/Chatham Commitment Letter. More
importantly, it shows that the Cerberus/Chatham Commitment Letter was a very different agreement than those in the Initial Commitment Letter. In short, the Cerberus/Chatham
Commitment Letter and Fixed/Floating Plan addressed only the Fixed/Floating Debtors obligations to the Special Servicer. Neither included any language that evidences a waiver of the
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Guaranty Claim. To the contrary, the Cerberus/Chatham Commitment Letter expressly reserves all claims the Special Servicer had against Holdings (as an Excluded Debtor) and the Remaining Debtor Plan discussed the treatment of the Guaranty Claim. 2. 63. The Commitment Letters Are Not Ambiguous. One of the Debtors core arguments is that the Court should enforce some of the
Initial Commitment Letters terms notwithstanding the fact that the parties, terms and transaction it contemplated transitioned many times and in many different ways until a transaction was finally closed. The Debtors want to argue that the Commitment Letters are ambiguous
because of these changes particularly when it comes to the relationship of Holdings and the Guaranty Claim. Instead of showing ambiguity, the changes show that the deal changed, Holdings ceased being a party, and the Special Servicers claims against Holdings were reserved. 64. The chronology would not be complete without noting the Special Servicers
Limited Disclosure Statement Objection, which explicitly stated that the Special Servicer had neither waived its Guaranty Claim nor had it agreed to take nothing for such claim. The Cerberus/Chatham Commitment Letter approved by this Court without objection from Holdings was voluntarily signed by Debtors and Apollo after the Limited Disclosure Statement Objection advised the Court and confirmed to the parties that the Special Servicer did not agree to release the Guaranty Claim. 65. A comparison of specific provisions of the Initial Commitment Letter and the
Cerberus/Chatham Commitment Letter shows how language was changed to reflect that the Initial Commitment Letters terms had been abandoned as the transaction advanced.
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Initial Commitment Letter January 14, 2011 . . . Innkeepers USA Trust and its wholly owned direct and indirect subsidiaries (collectively with Grand Prix Holdings, LLC, Innkeepers or the Company) . . . Debtor Parties All 92 Debtors
Cerberus/Chatham Commitment Letter May 16, 2011 . . . certain wholly owned direct and indirect subsidiaries of Innkeepers USA Trust (together with all of its wholly owned direct and indirect subsidiaries, Innkeepers or the Company), that are identified on Exhibit A attached hereto (collectively, the Fixed/Floating Debtors), Fixed/Floating Debtors (70 Total Debtors)
(Not segregated for separate treatment.)
Remaining Debtors
For the avoidance of doubt, the Anaheim Plan, the Ontario Plan and the Reorganizing Debtor Plan are not subject to this Amended and Restated Commitment Letter, the Amended and Restated Term Sheet or the other Investment Documents. In full and final satisfaction of the Fixed Rate Pool Mortgage Loan Claims against the Fixed/Floating Debtors outstanding under the Fixed Rate Mortgage Pool Loan Agreement, on the Effective Date the holder of the Fixed Rate Mortgage Loan Claims shall receive the following treatment:
Full satisfaction language
In full and final satisfaction of all claims arising under or in connection with the Fixed Rate Mortgage Loan against the Company, subject to receipt of further consideration as a result of the Auction contemplated herein, the holder of the Fixed Rate Mortgage Loan shall receive the following treatment: 36
The recapitalization and debt restructuring (the Transaction) of Grand Prix Holdings, LLC, Innkeepers USA Trust, and its wholly owned direct and indirect subsidiaries (collectively Innkeepers or the Company) . . . .
36
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Reservation of Rights
Cerberus/Chatham Commitment Letter May 16, 2011 Reservation of Rights. Reservation of Rights. Except as otherwise The Releasing Parties provided in the Commitment reserve all of their respective Letter and Term Sheet with rights, claims, and interests respect to the Company, the with respect to the Excluded Plan Sponsors, and the Special Debtors and all assets of the Servicer, the Releasing Excluded Debtors. Parties, including Apollo, Whatever rights, claims, and interests the reserve all of their rights to object to any releases by the Excluded Debtors may have with respect to the Releasing Parties of other parties if the terms of the Plan Fixed/Floating Debtors and their assets are also differ materially from those preserved. 37 set forth in the Commitment Letter and Term Sheet. Initial Commitment Letter January 14, 2011
66.
In the Objection, the Debtors also argue that the Commitment Letters were
ambiguous and imply that extrinsic evidence is appropriate. Fortunately, the Debtors have already staked out positions both factually and legally that there is no ambiguity in the Cerberus/Chatham Commitment Letter. The quotations that follow taken from the Debtors pleadings AFTER they filed the Objection are admissions that contradict the positions taken in the Objection. 67. The Debtors, in their Motion in Limine to Exclude Expert Testimony of Eric
Talley and Robert Manzo (the Motion in Limine, Ex. 9 to the Document Appendix) 38 in the Cerberus Adversary Proceeding, noted:
. . . the Anaheim Hotel Debtors, the Ontario Hotel Debtors or the Reorganizing Debtors (collectively, the Excluded Debtors) and All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Debtors Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code, dated May 12, 2011, (the Fixed/Floating Plan). The April 8, 2011 Plan defined Reorganizing Debtors as the Debtors that are not Fixed/Floating Debtors, Anaheim Hotel Debtors, or Ontario Hotel Debtors: . . . (b) Grand Prix Holdings LLC . . . .
38
37
Docket No. 67. Page 34
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Second, under New York law, a court may not consider extrinsic evidence to vary, contradict, supplement, or explain the terms of an unambiguous and integrated contract. See, e.g., W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642-43 (N.Y. 1990) ([E]xtrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face. (citation omitted)); Muze, Inc. v. Digital On-Demand, Inc., 123 F. Supp. 2d 118, 128 n.9 (S.D.N.Y. 2000). . . . Because the terms of the May 16, 2011 Commitment Letter and Term Sheet are complete and unambiguous, evidence of the alleged custom and practice used to draft or evaluate different contracts from different deals involving different parties is inadmissible. See generally Pl.s Pre-Trial Brief [Dkt. No. 59]. (p. 4) Motion in Limine, p. 3-4. 68. Importantly, the Debtors alleged and argued extensively (in the Cerberus
Adversary Proceeding) that the Cerberus/Chatham Commitment Letter completely superseded the Five Mile/Lehman Commitment Letter, the Bid Procedures Order and everything that had been included in the Initial Commitment Letter. The Debtors choice of words in its litigation with Cerberus is quite informative and is binding on them in the instant case. The Debtors PreTrial Brief (the Pre-Trial Brief, Ex. 10 to the Document Appendix) filed in the Cerberus Adversary Proceeding provides a stark contrast for the arguments in the Objection. Excerpts from the Pre-Trial Brief are provided in Exhibit A attached to this Response. 69. The Debtors statements in the Pre-Trial Brief are wholly inconsistent with the
positions taken in the Objection and confirm that the Initial Commitment Letter fell by the wayside with no ongoing force or effect. Examples include where the Pre-Trial Brief argues: a. The Bidding Procedures and Five Mile Lehman Commitment Letter
ceased to have effect (pp. 5, 58-60) and was superseded by the Cerberus/Chatham Commitment Letter (including because of negotiated changes to the fiduciary out, breakF-301186 Page 35
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up fee and liquidated damages provisions) yet the Objection argues that one provision of the Initial Commitment Letter still applies; b. The Cerberus/Chatham Commitment Letter is a complete document that
embodies the entire agreement (p. 4) while the Objection looks to the Initial Commitment Letter; c. A waiver of rights and the implementation of liquidated damages as a
restriction of remedies must be specific (pp. 47-49) while the Objection claims that remedies for the Guaranty Claim were limited by implication; d. It is improper to use the superseded Bidding Procedures to inject
ambiguity into the applicable agreement (pp. 52-54) while the Objection argues that the superseded Initial Commitment Letter can be used to inject ambiguity into the final agreements; e. If commercially sophisticated parties (represented by counsel) had
intended to make the liquidated-damages clause of the Bidding Procedures part of their agreement, they could have easily drafted the document to include that provision (pp. 5657) while the Objection argues that a release of the Guaranty Claim exists when the operative document does not include such a release (and actually includes a reservation of all rights against Debtors other than the Fixed/Floating Debtors); f. A document that was negotiated by and agreed to by sophisticated parties
represented by able counsel is not ambiguous (pp. 52-54) while the Objection argues that the Commitment Letters (negotiated by the same sophisticated parties that were represented by the same able counsel) are ambiguous; and,
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g.
Deleting the liquidated damages provision manifests the intent of the
parties (pp. 55-57) while the Objection argues that deleting parties (specifically Holdings) is not a manifestation of the parties intent regarding non-parties to the document. 3. 70. 11 U.S.C. 524(e) The Debtors ignore the effect of 524(e) of the Bankruptcy Code. The liability
upon the Guaranty existed when the Cases were filed. The Fixed/Floating Plan relieved the Fixed Rate Debtors of liability to the Special Servicer beyond the plan treatment of the secured claims. However, their discharge never released Holdings from its obligations under the
Guaranty. Mere confirmation and discharge pursuant to the Fixed/Floating Plan is not enough to discharge the obligations of Holdings a completely different debtor that is governed by a different plan of reorganization. A discharge of liability pursuant to the bankruptcy laws generally does not affect a guarantors liability and leaves a creditor free to pursue collection from a guarantor. Credit Suisse First Boston Mtg. Capital LLC v. Cohn, 2004 US. Dist. LEXIS 16577, at *24 (S.D.N.Y. Aug. 19, 2004). 4. 71. Release or Waiver It is significant to note that the Debtors waiver argument fails to allege
precisely when the waiver occurred or identify the precise language they rely upon. In addition to being an essential element the Debtors must prove, articulating when the waiver occurred would allow the Court and parties to determine if the waiver is consistent with the Guarantys provisions. At most, the Debtors imply that the Initial Commitment Letter operated as a release or waiver of the Guaranty Claim. 72. As noted above, the Omnibus Reply makes it abundantly clear that when the
Initial Commitment Letter, and its enterprise-level bid, were abandoned and replaced by a new
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agreement, neither the Special Servicer nor Apollo remained bound to the provisions that were set aside. As such, no waiver occurred. 73. The Debtors waiver argument is also as curious as it is erroneous. As described
above, there is no dispute that under the Original Commitment Letter Midland agreed that it would not receive any recovery from Grand Prix Holdings on account of the Fixed Rate Mortgage Loan. This is consistent with Midlands decision not to file a proof of claim against Grand Prix Holdings on account of the Guaranty Claim. Objection, 35, p. 16. As noted elsewhere herein, if the Initial Commitment Letter had been implemented, the Special Servicer would have received benefit from any value in Holdings because the agreement contemplated an enterprise-level transaction that included Holdings. That being said, the second statement (that a waiver explains why no proof of claim was filed) is a non-sequitur since the Bar Date for those required to file claims was October 29, 2010 months before the Initial Commitment Letter (the Original Commitment Letter in the Objection) came into existence. The Objection would lead one to believe that the Initial Commitment Letter preceded October 29, 2010. D. The arguments identified by the Debtors in the Objection fail. 1. 74. The Guaranty Claim does not fail for lack of a proof of claim. The Limited Disclosure Statement Objection and the Midland Guaranty Motion
each satisfy all of the requirements for an informal proof of claim. An informal proof of claim, to be recognized, includes the following aspects, a document: (a) filed with the bankruptcy court that is part of the record; (b) stating the existence and nature of the debt; (c) stating the amount of the claim; and (d) evidencing the intent to hold the debtor liable. In re Houbigant, Inc., 190 B.R. 185, 188 (Bankr. S.D.N.Y. 1995). 39
39
The timeliness element would not apply since the Guaranty Claim was not subject to the Bar Date. Page 38
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2. The Special Servicer was never required to file a proof of claim in connection with the Guaranty Claim. 75. The Debtors concede that the Special Servicer was a Representative but base
their argument solely on whether the Guaranty Claim fits within the definition of Loan Obligations as defined in the Final Cash Collateral Order. Objection, 22. The exemptions from the Bar Date Order exempt any claim relating to the Loan Obligations. The Guaranty Claim only needs to be related to the Loan Obligations to be included in the exemption in the first sentence in 23 of the Cash Collateral Orders. It is difficult to imagine a claim that could be much more related to a loan obligation than a guaranty of that loan obligation. 40 76. As a further indication of how broadly 23 was intended to apply, the paragraph
specifies that the exemption applies in any of the Chapter 11 Cases. 41 The reference to any of the Chapter 11 Cases, specifically includes Holdings. 77. The Cash Collateral Orders, as well as the Bar Date Order, exempted the Special
Servicer from any requirement that it file a proof of claim for the Guaranty Claim. With respect to proofs of claim, the Cash Collateral Orders state: The Representatives will not be required to file proofs of claim in any of the Chapter 11 Cases or Successor Cases for the claims relating to their respective Loan Obligations. Any order entered by the Court in relation to the
establishment of a bar date for any claim (including, without limitation, administrative claims) in
The Debtors in the Objection itself described the Guaranty Claim as being related to the Loan Obligations. The Objection states, By agreeing that its treatment under the commitment letters is in full and final satisfaction of all claims arising under or in connection with its liens, Midland made clear its intent to forego any deficiency owing on any claims under the related loan. Objection, p. 15, 34 (emphasis added). While Five Mile disagrees with the Debtors conclusion and their argument that a waiver occurred, the Objection highlights how the Debtors are more than a little fast and loose in their allegations. In addition, the Final Cash Collateral Order is binding upon all Debtors: The provisions of this Order shall be binding upon and inure to the benefit of the Adequate Protection Parties, the Debtors, and their respective successors and assigns, including any trustee or fiduciary hereafter appointed in the Chapter 11 Cases or any Successor Cases as a legal representative of the Debtors of the Debtors estates. Cash Collateral Orders at pp. 45 and 47, respectively (emphasis added). F-301186 Page 39
41
40
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any Chapter 11 Cases or Successor Cases shall not apply to the Representatives. See Cash Collateral Orders at pp. 45 and 47, respectively (emphasis added). 42 Thus, the Cash Collateral Orders unmistakably provide that the Special Servicer was not required to file a proof of claim because the Bar Date Order never applied to the Special Servicer. 78. The Bar Date Order itself likewise excuses the Special Servicer from any
requirement to file a proof of claim for the Guaranty Claim. Consistent with the Final Cash Collateral Order, the Bar Date Order clearly exempts holders of any claim made by the Representatives relating to their respective Loan Obligations (each as defined in the [Final Cash Collateral Order]) from the requirement to file proofs of claim on account of such claims. See Bar Date Order at p. 6. (emphasis added). As discussed above, at the very least, the Guaranty Claim is related to the Loan Obligations and therefore exempt from any requirement to file a proof of claim with respect to the Guaranty Claim. 79. Isolating the specific text found in paragraph 23 of the Cash Collateral Orders
and paragraph 8 of the Bar Date Order for analysis makes it abundantly clear that there was never a requirement to file a proof of claim for the Guaranty Claim. 23, Final Cash Collateral Order Text The Representatives will not be required to file proofs of claim Analysis of the Language The Special Servicer, as a Representative, was not required to file a proof of claim. The exemption from filing a proof of claim applied to every Chapter 11 case in the Cases. It specifically was not limited to just property level cases (for the Fixed Rate Debtors). Chapter 11 Cases is defined in the Cash Collateral Order to include all of the Cases. Holdings case is specifically included among the Chapter 11 Cases in footnote 1 of that Order.
in any of the Chapter 11 Cases or Successor Cases
Notably, Chapter 11 Cases is defined in both orders to include all of the jointly administered cases. Holdings case is specifically included among the Chapter 11 Cases in footnote 1 of each order. F-301186 Page 40
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23, Final Cash Collateral Order Text for the claims relating to their respective Loan Obligations.
Analysis of the Language The relating to language takes it beyond just the obligations of the Fixed Rate Debtors. Otherwise, it would have said for their respective Loan Obligations claims or for the claims for their Loan Obligations.
Any order entered by the Court in relation to the establishment of a bar date for any claim (including, without limitation, administrative claims)
This applies to bar date orders entered in any of the Cases.
This expands the scope beyond secured and unsecured deficiency claims and would include guaranty claims since it refers to any claim. The exemption from filing a proof of claim applied to every Chapter 11 case in Cases. It specifically was not limited to just property level cases (for the Fixed Rate Debtors). Chapter 11 Cases is defined in the Cash Collateral Order to include all of the Cases. Holdings case is specifically included among the Chapter 11 Cases in footnote 1 of that Order. The Special Servicer, as a Representative, was not required to file a proof of claim.
in any Chapter 11 Cases or Successor Cases
shall not apply to the Representatives.
8(i), Bar Date Order Text Entities with the following types of Claims are not required to a file a proof of Claim on or before the applicable Bar Dates: any Claim made by the Representatives relating to their respective Loan Obligations (each, as defined in the Final [Cash Collateral Order])
Analysis of the Language General exemption language in an order applicable to all Debtors, including Holdings.
Any is an expansive term that does not limit the type of Claim. The relating to language takes it beyond just the direct obligations of their borrowers. Otherwise, it would have said for their respective Loan Obligations. Carries forward the definitions above.
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80.
If there had been a conflict in the language of the Bar Date Order and Final Cash
Collateral Order on this point, the Final Cash Collateral Order would control as a reflection of the Courts final pronouncements on the issue of whether the Special Servicer was required to file a proof of claim for the Guaranty Claim. 3. 81. Failure to file a proof of claim does not require claim disallowance. Contrary to the Debtors theory, the Bar Date Order never provided that all
unfiled claims were forever precluded. Instead, the Bar Date Order provided exactly what the Bar Date Motion requested a preclusion from asserting a claim in a greater amount or different type than was set forth in the Schedules. The Bar Date Order creates the defined term Unscheduled Claim for claims that (a) exceed the amount set forth in the Schedules or (b) are of a different nature or classification than noted in the Schedules. The Schedules of Assets and Liabilities for Holdings describes the Special Servicers claims under the Guaranty (that is, one that is the same nature as being asserted) in the total amount of over $835 million (that is, in an amount that exceeds the amount being requested). 82. The consequence of being barred from receiving plan distributions only applies to The Guaranty Claim is not an Unscheduled Claim because the
Unscheduled Claims.
Guaranty Claim is the same type of claim that is scheduled and is less than the scheduled amount. The Guaranty Claim is not barred and Five Mile is not precluded from receiving distributions thereon. 83. The cases cited in the Objection, while interesting in how they disallow claims
filed after a bar date, are inapplicable to the instant case for a number of reasons. First, those cases dealt with orders that required proofs of claim to be filed (as opposed to the exemption for the benefit of the Representatives). Second, those orders specified that claims that had not been
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filed would be disallowed (rather than merely being limited by the amount stated in the schedules). Finally, those cases involved situations where disallowed claims would increase distribution among creditors. As noted above and conceded in the Objection, the purpose for the Objection is for funds to flow to equity not to increase distributions to creditors. No creditor of Holdings has objected to the Guaranty Claim or otherwise asserted that it should be disallowed. Additional Issues and Defenses to Objection to Claim 84. If, and only if, the Court determines that either (a) extrinsic evidence is admissible
with respect to the Commitment Letters or (b) that the Initial Commitment Letter supports an assertion of the existence of a waiver of the Guaranty Claim notwithstanding it being amended and ultimately superseded, such a determination would necessarily also open the door to discovery, evidence and argument regarding the (x) numerous statements in the Initial Commitment Letter, pleadings and other documents filed in these Cases that Apollo owned substantially all of the InnkeepersUSA Trust 12.0% Series A Cumulative Preferred Shares (the Series A Preferred Shares) and (y) both the Schedules and Statement of Financial Affairs that failed to accurately show the Series A Preferred Shares to be owned by Holdings such that equitable relief should be permitted as a result of inaccurate statements in pleadings and other documents filed in these Cases. 85. Such discovery, evidence and argument would relate to defenses of estoppel,
judicial estoppel, laches, relief from an agreement as a result of the inducement employed to enter into the same, as well as similar theories of relief. Such discovery would likely include discovery from counsel to various parties since the inaccurate statements in pleadings and language in the Initial Commitment Letter regarding the entity that owned the equity interests in Holdings would preclude the those parties from relying on the attorney-client or joint defense privileges to protect their communications from discovery.
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86.
The Initial Commitment Letter and motion filed by the Debtors to approve the
same 43 stated unequivocally and repeatedly that Apollo was the holder of substantially all of the Series A Preferred Shares. (Initial Commitment Letter, p. 18.) Additionally, the statement on p. 41 of the April 8, 2011 disclosure statement that Apollo owns 100% of the common equity interests in Debtor Grand Prix Holdings, LLC and the majority of the Innkeepers USA Trust Series A Preferred Interests. 87. The schedules filed in the Holdings bankruptcy case (as well as the case filed by
Innkeepers USA Trust) never disclosed that any of the Series A Preferred Shares in Innkeepers USA Trust were owned by Holdings. The statements in the Motion and Initial Commitment Letter remained uncorrected until August 5, 2011 with the filing of the Stipulation Regarding Ownership of Innkeepers USA Trust 12% Series A Cumulative Preferred Shares, Docket No. 1991. Summary and Conclusion 88. New York law recognizes that sophisticated parties who negotiate an agreement
should expect that agreement to be enforced. Accordingly, the Guarantys provisions that waive defenses and permit the underlying debt to be freely modified without releasing the Guaranty should be enforced. 89. One common theme in the Objection is how the Debtors twist the interpretation of
the English language. For example:
See Motion to Authorize / Debtors Motion for Entry of an Order (I) Authorizing the Debtors to Enter Into the Commitment Letter With Five Mile Capital II Pooling REIT LLC, Lehman ALI Inc., and Midland Loan Services, (II) Approving the New Party/Midland Commitment Between the Debtors and Midland Loan Services, (III) Approving Bidding Procedures, (IV) Approving Bid Protections, (V) Authorizing an Expense Reimbursement to Bidder D, and (VI) Modifying Cash Collateral Order to Increase Expense Reserve, Docket No. 820 at Preliminary Statement on p. 7, footnote 19, and Summary on pp 38, 44. F-301186 Page 44
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a.
They argue that changing the Initial Commitment Letter from applying to
all Debtors to only applying to the Fixed/Floating Debtors affected Holdings liability to the Special Servicer; b. They argue that their statement (in their Omnibus Reply) that all parties .
. . retain their rights with respect claims and interests against the Debtors not subject to the modified bid would allow Apollo to retain rights but that same language would not recognize the preservation of the Special Servicers rights; c. They argue that the exemption from Representatives being required to file
proofs of claim in any Chapter 11 Cases did not apply in Holdings Chapter 11 case; d. They argue that the Guaranty is related to the Fixed Rate Mortgage
Loan when the Debtors argue that it was released yet is not related to the same debt in determining whether the exemption from the requirement to file a proof of claim for the claims relating to their respective Loan Obligations applies; and e. They argue that none of the multiple, specific waivers of defenses agreed
to and actually included in an operative document (the Guaranty) are binding on Holdings yet a potential waiver in a superseded document that was never implemented (the Initial Commitment Letter) is somehow binding on the Special Servicer. 90. If the Debtors intended to carve out either the Special Servicer or the Guaranty
Claim from provisions addressed to all or any, the Debtors could have negotiated for the language to accomplish that result. Having failed to do so, the Objection is nothing more than a post hoc attempt to rewrite history and the parties agreement. 91. This Courts Orders made it clear that the Special Servicer was never required to
file any proof of claim against any Debtor including Holdings. The language of the Bar Date Order is unambiguous that if the Special Servicer had been required to file a proof of claim
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before the Bar Date, the Guaranty Claim would not be disallowed as long as the amount being claimed was less than the amount listed in Holdings Schedules (which it was). The fact that an informal proof of claim predated plan confirmation completely removes the issue from dispute. WHEREFORE, Five Mile respectfully requests that the Court overrule the Debtors Objection, confirm that the Guaranty Claim is an allowed claim against Holdings and grant the Special Servicer such other and further relief to which it might show itself justly entitled. Dated: February 24, 2012 New York, New York HAYNES AND BOONE, LLP /s/ John D. Penn Lenard M. Parkins (NY Bar #4579124) Mark Elmore (admitted pro hac vice) 30 Rockefeller Plaza, 26th Floor New York, New York 10112 Telephone No.: (212) 659-7300 Facsimile No.: (212) 884-8211 - and John D. Penn (NY Bar # 4847208) Haynes and Boone, LLP 201 Main Street, Suite 2200 Fort Worth, Texas 76102 Telephone No.: (817) 347-6610 Facsimile No.: (817) 348-2300 Attorneys for Five Mile Capital Real Estate Advisors LLC
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Filed 02/24/12 Entered 02/24/12 15:44:48 Pg 1 of 8 EXHIBIT A
Exhibit A
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Exhibit A to Response filed by Five Mile Capital Real Estate Advisors LLC Excerpts from [Debtors] Plaintiffs Pre-Trial Brief in Cerberus Adversary Proceeding (Adv. Pro. Docket No. 59)
p. 4 As a fully integrated agreement, the Commitment Letter,1 the Term Sheet, and the attached exhibits and appendices embody the complete terms of the agreement between Cerberus/Chatham and Innkeepers. p. 5 Moreover, the parties bargaining history shows that Cerberus and Chatham were well aware that the Bidding Procedures no longer applied after the execution of the Commitment Letter. In negotiating the terms of the Commitment Letter, Cerberus and Chatham and Innkeepers agreed to certain terms that either directly conflict with or substantially modify those in the Bidding Procedures. . . . Additionally, the Bidding Procedures and the Five Mile/Lehman Commitment Letter contained a broad fiduciaryout provision that granted Innkeepers wide discretion to terminate the deal to pursue a more favorable transaction. Cerberus/Chatham and Innkeepers, however, negotiated a new fiduciary-out provision that imposed greater restrictions on Innkeepers ability to terminate in favor of alternative transactions. By continuing to negotiate over various deal terms, and by explicitly including those terms in the Term Sheet, Cerberus and Chatham affirmed their understanding that it was the Commitment Letter, the Term Sheet, and their attachments that reflected the entirety of the parties agreement. pp. 16-17 7. Post-Auction Negotiations Led to Execution of the Commitment Letter with Cerberus and Chatham After the Auction closed, Innkeepers and Cerberus/Chatham continued to negotiate the specific terms of the commitment letter that would govern their acquisition of the Fixed/Floating hotels. In doing so, Innkeepers and Cerberus/Chatham chose to depart from the Bidding Procedures by contract in several ways. First, the parties substantially changed the fiduciary out provision. . . . Second, the parties negotiated a break-up fee and expense reimbursement provision. . . . . . . 8. Innkeepers and Cerberus/Chatham Execute the Binding and Irrevocable Commitment Letter On May 16,2011, Innkeepers executed the Commitment Letter with Cerberus, Chatham, INK I, and INK I1 setting forth the terms pursuant to which Cerberus and Chatham committed to purchase the 64 Fixed/Floating hotels. Along with the Term Sheet
As used in the Pre-Trial Brief, the Commitment Letter refers to the Cerberus/Chatham Commitment Letter dated May 16, 2011.
D-Pre-Trial Brief Excerpts.doc
1
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Exhibit A
accompanying it, the Commitment Letter constituted a binding and irrevocable commitment to provide equity capital . . . for the restructuring of the debt and equity of Innkeepers and represented the entire understanding and agreement among the parties related to the acquisition of the Fixed/Floating hotels. (PX 1, Commitment Letter at 1 (emphasis added); id. at 5.) pp. 18-19 . . . And importantly, the Commitment Letter, governed by New York law, included an Entire Agreement clause whereby Cerberus and Chatham and Innkeepers expressly agreed that the Commitment Letter, together with the Appendices and Exhibits thereto, represent the entire understanding and agreement among the parties hereto with respect to the subject matter hereof and super[s]edes all prior and contemporaneous agreements and understandings among the parties hereto, both written and oral, with respect to the subject matter hereof (PX 1, Commitment Letter at 5 (emphasis added).) pp. 47-49 A. The Commitment Letter Is A Fully Integrated Agreement That Does Not Limit Innkeepers Remedies A familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. W. W. W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990); Terwilliger v. Terwillger, 206 F.3d 240,245 (2d Cir. 2000) (Under New York Law, a written contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language they have employed.). There can be no dispute here that the Commitment Letter and Term Sheet (and their attachments) constitute the complete and entire agreement among the parties. The Entire Agreement clause in paragraph 15 of the Commitment Letter makes that fact abundantly clear: Entire Agreement. This Amended and Restated Commitment Letter and the Amended and Restated Term Sheet, together with the Appendices and Exhibits thereto, represent the entire understanding and agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings among the parties hereto, both written and oral, with respect to the subject matter hereof. (emphasis added). New York law strictly enforces integration and merger clauses such as the Entire Agreement clause here. See, e.g., Montefiore Med. Ctr. v. Crest Plaza LLC, 889 N.Y .S.2d 506, at * 12 (Sup. Ct. 2009) (New York courts strictly enforce such merger clauses.). And the presence of an integration clause evinc[es] the parties intent that the agreement is to be considered a completely integrated writing and bar[s] the introduction of extrinsic evidence to alter, vary or contradict the terms of the writing. Jarecki v. Shung Moo Louie, 745 N.E.2d 1006, 1009 (N.Y. 2001) (quotations omitted);
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Exhibit A
Muze, Inc. v. Digital On-Demand, Inc., 123 F. Supp. 2d 118, 128 n.9 (S.D.N.Y. 2000) ([Ilf a contract is an unambiguous and integrated writing, a court may not consider extrinsic evidence to vary, contradict, add to, or explain its terms.) . . . As a fully integrated agreement, the Commitment Letter, the Term Sheet, and the attached exhibits and appendices embody the complete terms of the agreement between Cerberus and Chatham and Innkeepers. And looking within the four corners of that agreement leads to only one conclusion: the parties did not restrict their remedies in the event of breach. Well-established New York law provides that a limitation on remedies will not be implied and that it must be clearly, explicitly and unambiguously expressed in a contract. Terminal Cent., Inc. v. Henry Mode1l & Co., Inc., 212 A.D.2d 213, 218-19 (N.Y. Sup. Ct. App. Div. 1995); see also Crow & Sutton Assocs., Inc. v. Welliver McGuire, Inc., 32 A.D.3d 651, 651 (N.Y. Sup. Ct. App. Div. 2006) (A provision purporting to limit damages must be clear to be enforceable.). Here, however, there is no provision in the Commitment Letter, the Term Sheet, or any of the attached exhibits or appendices that even purports to limit Innkeepers remedies in the event of breach, much less one that does so clearly, explicitly and unambiguously. Terminal Cent., 212 A.D.2d at 218; see also In re Food Mgmt Group, LLC, No. 04-22880, 2007 WL 4352225, at 4 (Bankr. S.D.N.Y. Dec. 10, 2007) (A liquidated damages provision may not be implied and must be agreed to.). pp. 52-54 C. The Commitment Letter Is Not Ambiguous, And Thus Extrinsic Evidence Cannot Be Used To Vary Or Add To Its Terms Given the absence of any language in the Commitment Letter that purports to directly, or by incorporation, limit Innkeepers remedies in the event of breach, Cerberus and Chathams real argument is that this Court should rely on extrinsic evidence to modify the terms of the parties agreement. It is well established, however, that extrinsic evidence is admissible notwithstanding an integration clause only when used in aid of resolving ambiguities in the contract. Muze, Inc., 123 F. Supp. 2d at 128 n.9. (emphasis added); id. ([I]f a contract is an unambiguous and integrated writing, a court may not consider extrinsic evidence to vary, contradict, add to, or explain its terms.). There is no ambiguity in need of resolution in this case. [T]he language of a contract is ambiguous if it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement. Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d Cir. 2011) The Commitment Letter and the Term Sheet, however, simply leave no room for reasonable disagreement about whether those documents impose a limitation on remedies: neither contains a liquidated damages clause or any other provision purporting to restrict the availability of remedies in the event of breach. The only way Cerberus and Chatham even argues ambiguity is by pointing to the terms of the Bidding Procedures-a document that, as explained, was not made part of the
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Exhibit A
agreement between Defendants and Innkeepers. But, as the New York Court of Appeals has emphasized, extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face. W. W. W. Assocs., 566 N.E.2d at 642. Indeed, any analysis that begins with consideration of extrinsic evidence of what the parties meant, instead of looking first to what they said and reaching extrinsic evidence only when required to do so because of some identified ambiguity, unnecessarily denigrates the contract and unsettles the law. Id. (reversing lower court decision that considered extrinsic evidence because, inter alia, before looking to evidence of what was in the parties minds, a court must give due weight to what was in their contract); see also, e.g., DDS Partners, LCC v. Celenza, 6 A.D.3d 347, 349 (N.Y. Sup. Ct. App. Div. 2004) (holding that lower court erred in relying on extrinsic evidence . . . to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face) (quotations omitted); Mitchell v. Leahey, 289 A.D.2d 1002, 1003 (N.Y. Sup. Ct. App. Div. 2001) (holding that lower court erred in considering extrinsic evidence where contract was unambiguous). This Court should thus reject Cerberus and Chathams attempt to use the Bidding Procedures to inject ambiguity into an otherwise unambiguous agreement.2 A finding of ambiguity is particularly unjustified in this case given that the Commitment Letter and Term Sheet were negotiated and agreed to by sophisticated parties represented by able counsel. The normal presumption that a deliberately prepared and executed written instrument manifests the true intention of the parties applies with even greater force when the instrument is between sophisticated, counseled businessmen. Quantum Chem. Corp. v. Reliance Grp., Inc., 180 A.D.2d 548,548-49 (N.Y. Sup. Ct. App. Div. 1992); Millgard Corp., 2003 WL 22741664, at 8 ([W]here contracts are drafted by skilled attorneys, courts are required to treat the written contract as giving expression to the intentions of the parties . . . [and] [t]he omission of [terms] . . . must be understood as a conscious decision not to include such terms.). Such commercially experienced parties as Cerberus and Chatham surely would have included a liquidated damages clause in the Commitment Letter or Term Sheet if they had intended to impose such a limitation on remedies. p. 55 Cerberus and Chatham cannot avoid the one piece of extrinsic evidence that completely undermines their arguments: It was Cerberus and Chatham themselves that deleted a liquidated damages clause from the draft Commitment Letter they submitted to Innkeepers. In submitting a bid for the sponsorship and funding of the Fixed/Floating
2
Just as New York law does not permit parties to use extrinsic evidence to create an ambiguity in an otherwise clear agreement, it also does authorize parties to rely on a purported omission in arguing ambiguity. See, e.g., Millgard Corp. v. E.E. Crw/Fronier-Kemper, No. 99 Civ. 2952, 2003 WL 22741664, at *3 (S.D.N.Y. Nov. 18, 2003) ([Ulnder New York law, the omission of terms in a contract does not create ambiguity.). Thus any argument by Defendants that the omission of a liquidated damages provision in the Commitment Letter somehow creates ambiguity is foreclosed as a matter of law.
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Exhibit A
Plan, each bidder was required to submit a marked copy of the [Five Mile/Lehman] Commitment Letter and Term Sheet that reflects all changes proposed by the Competing Bidder. (PX 88 at 5.) The Five Mile/Lehman Commitment Letter included a limitation on remedies that provided: In the event that a Plan Sponsor breaches this Amended Commitment Letter and fails to close the Transaction . . . the Companys sole remedy at law and in equity against the Plan Sponsors shall be receipt and retention of the deposit . .. as liquidated damages. (PX 52.1 7.) pp. 56-57 But there is nothing in New York law or common sense to support the proposition that Cerberus and Chatham can avoid the consequences of their own decision to delete a contract term by arguing that the parties did not make a big enough deal about it. It is undisputed that Cerberus and Chatham removed the liquidated damages clause and that Innkeepers accepted that proposed change by not objecting to it and leaving the language as proposed in the final contract. With both parties in agreement, Innkeepers was under no obligation to discuss the issue. That is especially true in this context, where one would naturally expect the parties to remain focused on those terms that are relevant to the completion of a transaction, not on those that are triggered when a party reneges on a deal at the eleventh hour. The bottom-line is this: if commercially sophisticated parties (represented by counsel) such as Cerberus and Chatham had intended to make the liquidated-damages clause of the Bidding Procedures part of their agreement, they could easily have accomplished that purpose by drafting the Commitment Letter to include that provision. See, e.g., Schron v. Grunstein, 917 N.Y.S.2d 820, 826 (Sup. Ct. 2011); Millgard Corp, 2003 WL 22741664, at 8 ([W]here contracts are drafted by skilled attorneys, courts are required to treat the written contract as giving expression to the intentions of the parties.). pp. 58-60 Cerberus and Chathams argument reflects a fundamental misunderstanding of the purpose and nature of the Bidding Procedures. The Bidding Procedures described the terms that governed the auction and the submission of bids. (See, e.g., PX 88 at 3 ([T]he Bankruptcy Court . . . approved the following procedures (the Bidding Procedures), pursuant to which the Debtors will continue to solicit such Bids, including Qualified Bids, from Competing Bidders.).) Once the auction was over, however, Cerberus and Chatham were required to and did execute and agree to the Commitment Letter, the Term Sheet, and other related documents, each as modified to incorporate the results of the Fixed/Floating Auction. (PX 88 at 12.) This Court then approved the Commitment Letter in its May 19, 201 1 Order, by authorizing Innkeepers to enter into the Commitment Letter and all other documents related thereto . . . and to take all actions necessary to perform their obligations thereunder and consummate the transactions contemplated thereby. (PX 4 30.)
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Exhibit A
From that point forward, the Commitment Letter, Term Sheet, and their attachments identified the exclusive terms governing the relationship between the parties. The Bidding Procedures no longer applied. That is precisely why the other bidders for the Fixed/Floating hotels included a liquidated damages clause in their proposed commitment letters, notwithstanding the fact that such a clause was also mentioned in section 8 of the Bidding Procedures. (See PX 315; PX 52.1; PX 55.) And it is presumably why the July 29, 2011 Confirmation Order Court referred to the Commitment Letter-not the Bidding Procedures-as the controlling document. (See PX 5 140 (This Confirmation Order, the Plan, the Commitment Letter, and all other documents related thereto, reflecting the terms of the Fixed/Floating Successful Bid, shall be binding in all respects.); id. 227 (identifying Commitment Letter as among documents approved in their entirety and, . . . shall be in full force and effect and valid, binding and enforceable in accordance with their terms without the need for any further notice or action.); see also 137-38.) There is simply no merit to Cerberus and Chathams argument that the Bidding Procedures continued to apply after the parties had executed the Commitment Letter. . . . No one in this case disputes that the Bidding Procedures existed. But once a successful bid was chosen and the parties executed a new contract (with the liquidated damages provision deleted and other provisions in conflict with the Bidding Procedures included) that represent[ed] the entire understanding and agreement among the parties, (PX 1, 15), the Bidding Procedures no longer applied, and the parties relationship was governed by the terms of the contract into which they entered and which this Court approved. And even at the Auction itself, it was agreed that both parties [we]re bidding . . . on the terms that they have submitted to the debtors. (PX 46 at 30:24-3 1 :5.) The parties bargaining history further shows that Cerberus and Chatham were well aware that the Bidding Procedures would not apply once the Commitment Letter was executed and approved by this Court. In negotiating the terms of the Commitment Letter, Cerberus and Chatham sought and Innkeepers agreed to certain terms that either directly conflict with or substantially modify those in the Bidding Procedures. For example, the Bidding Procedures expressly prohibited any Bid from including any break-up fee, expense reimbursement, or similar type of payment. (PX 88 at 6.) Yet Cerberus/Chatham and Innkeepers agreed to and included in the Term Sheet-via an express incorporation by reference of this Courts May 19, 2011 Order-a $12 million break-up fee and a $3 million expense reimbursement. (See PX 1, Term Sheet at 6; PX 4 733.) Additionally, the Bidding Procedures and the Five Mile/Lehman Commitment Letter contained a broad fiduciary-out provision that granted Innkeepers wide discretion to terminate the deal to pursue a more favorable transaction. (See PX 88 at 15.) Defendants and Innkeepers, however, negotiated over a new fiduciary-out provision for several days, and ultimately included in the Term Sheet a fiduciary-out provision that imposes greater restrictions on Innkeepers ability to terminate in favor of alternative transactions. (See PX 1, Term Sheet at 6; PX 4 34.) By continuing to negotiate over
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Exhibit A
various deal terms, and by explicitly including those terms in the Term Sheet, Cerberus and Chatham affirmed their understanding that it was the Commitment Letter, the Term Sheet, and their attachments that reflected the entirety of the parties agreement. p. 61 Cerberus and Chatham allege in their Answer that Innkeepers did not raise the absence of a limitation on remedies until Innkeepers filed its Complaint in this case-which occurred six days after Cerberus and Chatham submitted their revised bid. (See Cerberus Answer at 3 (Plaintiffs newly contrived position that the Defendants do not enjoy the benefits of . . . the liquidated damages provision . . . was raised for the very first time in the Complaint.).) In short, REDACTED that their arguments in this case are nothing more than post hoc attempts to rewrite the terms of the parties agreement to include a limitation on which they did not agree.
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Guaranty is enforceable against Holdings in accordance with its terms.

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The Special Servicer asserted the Guaranty Claim against Holdings in a

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was never implemented.

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Docket No. 402. Page 11

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Docket No. 820. Docket No. 1009. Page 14

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As the Court is aware, in connection with the original Five Mile/Lehman

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Additionally, the parties to the Cerberus/Chatham Commitment Letter agreed that

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Docket No. 1799.

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disallow the Guaranty Claim.

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confirmed, effective and consummated plan actually took effect.

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As the Court is aware, in connection with the original Five Mile/Lehman

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(Not segregated for separate treatment.)

Full satisfaction language

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Docket No. 67. Page 34

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Deleting the liquidated damages provision manifests the intent of the

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in any of the Chapter 11 Cases or Successor Cases

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