Chicago Business Litigation Lawyer Blog
Many real-estate loans for large transactions include a so called “bad boy” clause which penalizes borrowers for declaring bankruptcy. Many borrowers didn’t take these clauses seriously in the past believing that they could declare bankruptcy and argue that the clauses were uneforcable as violating public policy encourcaging business business reorganizations as permitted by federal bankruptcy laws.
The Wall Street Journal however reports that a federal court following a trial has enforced a “bad boy” clause and penalized Lightstone Holdings LLC $100 million for putting the Extended Stay LLC hotel chain into bankrupcy. The article states:
A New York state judge has ruled that investor David Lichtenstein’s Lightstone Holdings LLC owes lenders $100 million because he violated a clause in his loan documents prohibiting him from seeking bankruptcy protection for the Extended Stay Inc. hotel chain.
The ruling Thursday by New York Supreme Court Judge Melvin L. Schweitzer stands to focus more attention on so-called bad-boy clauses in real-estate loans. Those clauses require the borrower to pay lenders a set penalty for putting the property pledged as collateral on a loan into bankruptcy or otherwise wasting its value. …
The ruling marks a victory for lenders, including Bank of America Corp., Wells Fargo & Co.’s Wachovia Corp. and the Federal Reserve’s Maiden Lane fund as successor to Bear, Stearns & Co. Those lenders collectively provided Lightstone roughly $2 billion of mezzanine loans, but their claims were wiped out after Extended Stay filed for bankruptcy protection in 2009. …
Mr. Lichtenstein had agreed to the “bad boy” clause while arranging for nearly $8 billion of financing for his 2007 purchase of the 660-hotel chain from Blackstone Group LP. The deal was one of the last big, debt-financed real-estate buyouts before the lending markets, and subsequently the global economy, went into one of its worst downturns …
Throughout the bankruptcy, Lightstone’s attorneys argued that the bad-boy clause wasn’t enforceable.
The full article provides additional insights. You can read the full article by clicking here.
a href=”https://www.chicagobusinesslawfirm.com/”>Lubin Austermuehle is a full-service litigation firm based in Chicago and Oakbrook Terrace, Illinois that focuses on handling all of the legal issues confronting businesses in today’s world. Our litigation attorneys represent both plaintiffs and defendants, and we have experience representing clients in matters ranging from non-compete agreement claims, shareholder disputes and class-actions to breach of contract cases. Our attorneys have over two decades of experience in business litigation and have won favorable verdicts in “bet the business” lawsuits. Lubin Austermuehle has a team of Chicago business trial lawyers who can identify and understand the legal issues in a dispute, no matter how complex they may be. We will use our resources and knowledge to formulate a plan of action that will help further your interests, resolve your problems, and get you back to growing your business. Our focus with each client is to resolve the legal issues efficiently and with minimal costs, while still providing outstanding representation. If your business is being sued or you are seeking advice to stay out of court, call our Chicago business trial lawyers to discuss what Lubin Austermuehle can do for you. For a consultation, call 630-333-0333 or send us an email through our website.