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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: September 17, 2021

No-Action Provisions Did Not Mandate Dismissal Of Plaintiffs’ Claims

On August 16, 2021, Justice Joel M. Cohen issued a decision in Audax Credit Opportunities Offshore Ltd. v TMK Hawk Parent, Corp., 2021 NY Slip Op 50794(U), holding that No-Action provisions did not mandate dismissal of Plaintiffs’ claims.  The Court concluded:

[N]o-action clauses typically are “not unenforceable as violative of public policy, given [their] salutary purpose of preventing undue expense to certificate holders and inconvenience to the investment vehicle in general,” and are “not unconscionable” (Anato Opportunity Fund I, LP v Wells Fargo Bank, N.A., 153 AD3d 1161, 1162 [1st Dept 2017]).

This is not, however, a typical case. The parties have not cited, and the Court has not found, any case in which a no-action provision was strategically deployed in the manner alleged here — by a subset of lenders, without notice or consent, as part of a larger scheme to breach and then exit the agreement. The amended no-action provisions were, according to Plaintiffs, purpose-built to prevent these Plaintiffs from suing these Defendants in connection with this transaction — a preemptive self-pardon, of sorts. Subtle this was not.

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Posted in Commercial, Contracts
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