Originally published in Arizona Banker - November/December 2011.
Due to the lender liability litigation fad of the late 1980s and early 1990s, most institutional lenders significantly tightened their documentation, particularly in workouts and restructurings. Various provisions such as pre-negotiation agreements, reaffirmations of security and waivers of lender liability claims became common. While lender’s counsel have generally believed these provisions are enforceable in a commercial loan context, it is always interesting to see a court agree.
In the recent case of Interpharm, Inc. v. Wells Fargo Bank, National Association, The U.S. Second Circuit Court of Appeals upheld a lower court decision dismissing various claims made by a defaulted borrower against Wells Fargo. The facts of the case are relatively straightforward and not unusual. Interpharm was a commercial borrower with a revolving credit facility secured by accounts receivable and inventory. As Interpharm’s business deteriorated, there were various defaults on the loan agreement that resulted in workout negotiations and increasingly restrictive credit terms. Throughout the workout, Wells Fargo and Interpharm entered into a series of forbearance agreements, each of which, in addition to other terms, included a waiver by the borrower of any claims against Wells Fargo.
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