By Daniel S. Shamah, Jeff Norton, Jennifer Taylor, Sung Pak, and Joshua Chow (O’Melveny & Myers LLP)
“Lender liability” is an umbrella term often used to describe claims against lenders who overstep their boundaries when seeking to enforce a loan. It embraces both contractual and tort-based theories of liability, including claims for breach of contract, breach of the covenant of good faith and fair dealing, and fiduciary duty claims, as well as bankruptcy-based theories like equitable subordination. While courts have historically held that lender liability claims are difficult to sustain, there are cases that give guidance on how lenders cross the line and the consequences of doing so. In this recent article, the authors highlight one recent Texas bankruptcy court decision in which a court determined that a lender engaged in the kind of egregious conduct that could lead to disallowance of a loan and an award of damages and interest. Lenders in particular should study this case closely for tips on how to avoid these landmines.
The full article is available here.