Southern Case Summary-Beck-Ford Constr., LLC v. TCA Glob. Credit Master Fund, LP, No. 1:15-CV-61706-UU, 2017 WL 2366472 (S.D. Fla. Mar. 6, 2017)

Broad release and waiver provisions are enforceable;  Borrowers could not sue a lender for misconduct which occurred prior to the execution of an agreement containing the broad release and waiver provisions. Beck-Ford Constr., LLC v. TCA Glob. Credit Master Fund, LP, No. 1:15-CV-61706-UU, 2017 WL 2366472 (S.D. Fla. Mar. 6, 2017).

Plaintiff entities entered into a credit agreement which contained broad release, waiver and ratification provisions.  The lender received a first-priority lien on the borrowers’ assets, and the facility included a lockbox arrangement by which all revenues from the borrowers were deposited into a lockbox controlled by the lender.  The lender failed to timely transfer the difference between the total amount of revenues deposited into the lockbox and the payments owed to the lender, which caused the borrowers to become insolvent and lead to the resignation of employees, the termination of business relationships with contractors, bonding companies, and suppliers and the lawsuits against the borrowers.  The lender’s first lien position required the borrowers to obtain the lender’s consent to obtain financing from another lender.  The first credit agreement was subsequently amended twice and the borrowers entered into a second credit agreement with the lender.  Each amendment and the second credit agreement also contained broad release and waiver provisions releasing “any and all” claims relating to or arising out of any financing transactions, credit facilities and other agreements among the borrowers and lenders through the effective date of such agreement.  The borrowers claimed that they lost millions of dollars in profits as a result of the lender’s conduct. The borrowers sued the lender, its general partner and its investment manager alleging predatory lending practices involving mail and wire fraud in violation of Racketeer Influenced Corrupt Organizations Act (RICO) and state laws. 

The Southern District Court of Florida rejected all of the borrowers’ claims against the lender that were based on alleged misconduct that occurred prior to execution of the agreements.   The court found that plaintiffs effectively waived and released defendants from any and all claims that arose prior to the execution of each agreement.  The court found that ten of plaintiffs’ eleven claims included allegations of conduct that occurred prior to the execution of the final agreement containing release and waiver provisions.  The only alleged misconduct that pertained to defendants’ conduct subsequent to the signing of the final agreement was a claim for violation of the implied covenant of good faith under the second credit agreement.  The court found that plaintiffs failed to state a claim for a breach of the second credit agreement because the lender maintained the sole and absolute discretion to transfer funds of the lockbox to a plaintiff and the plaintiff failed to allege that it complied with the conditions precedent.