On December 22, 2021, a New York trial court dismissed a guarantor’s lender liability claims for lack of standing. Gerald Katzoff, the manager and co-owner of restaurant group Il Mulino, was a guarantor under a credit agreement between Il Mulino and lender Benefit Street Partners (“BSP”) to finance the expansion of the restaurants. The borrower defaulted on the loans in 2020 and filed for bankruptcy shortly thereafter. Katzoff commenced an action to stop collection under the guarantees and, in doing so, alleged that BSP “misleadingly papered” the credit agreement and “engaged in [a] so-called ‘loan-to-own scheme’” by using a mixture of personal guarantees and “fraudulently induced loans” to obtain ownership interest in Il Mulino. For example, plaintiffs claimed that BSP coerced Katzoff to pledge II Mulino’s most valuable assets and directed the banks holding accounts on behalf of Il Mulino to remove Katzoff as a signatory. The defendants moved to dismiss the claims, asserting that Katzoff lacked standing.

The court agreed with BSP, holding that Katzoff lacked standing to assert the lender liability claims. Standing requires that the party requesting relief have a “sufficiently cognizable stake” in the outcome. Katzoff lacked that stake, the court held, because (i) he was not a party to the credit agreement, (ii) he did not suffer an injury distinct from the injury suffered by the borrowers, and (iii) he failed to show that he was a third-party beneficiary to the credit agreement. The court explained that a party must show that the “benefit to [him] is sufficiently immediate, rather than incidental” to claim third-party beneficiary status.

This case is Katzoff v. BSP Agency, LLC, No. 655823/2020 (N.Y. Sup. Ct. Dec. 22, 2021). The plaintiff is represented by Westerman Ball Ederer Miller Zucker & Sharfstein, LLP. The defendants are represented by Goodwin Procter LLP. The order is available here.