United States: District Court Upholds Damage Limitations For Lender's Refusal To Fund: Lyondell Revisited

In the August 2017 issue of Debt Dialogue, we discussed the recent decision by Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York with respect to claims brought by the litigation trust (the Trust) established in the bankruptcy case of LyondellBasell Industries AF S.C.A. (LBI) against Access Industries, Inc. (Access) for its failure to fund a draw request under a revolving credit facility in the immediate run up to LBI's chapter 11 filing. Judge Glenn ruled that damages against Access were limited to restitutionary damages as a result of a waiver contained in the underlying credit agreement. Judge Glenn also ruled that the quantum of the restitutionary damages was $7.2 million, based on the revolver commitment fee and percentage of the revolver that was never used by Lyondell. The Bankruptcy Court's decision was appealed by the Trust to Judge Denise Cote of the District Court for the Southern District of New York. 

In this issue, we revisit Lyondell to discuss Judge Cotes' opinion upholding the validity of the damages waiver but ruling that the Trust was entitled to recover the entire commitment fee of $12 million in restitutionary damages.1


The dispute between the Trust and Access stems from the circumstances leading up to LBI's bankruptcy filing.2 In the run up to the bankruptcy filing, LBI, which was suffering from the adverse financial effects of natural disasters, work accidents, and the global economic slump, negotiated an increase to its existing credit facilities, but its lenders insisted on entry into an additional revolving credit facility with Access as lender (the Access Revolver) as a liquidity increasing measure. The Access Revolver provided for a $750 million unsecured revolving line of credit, and LBI paid Access a $12 million commitment fee in connection with the Access Revolver.

In response to its deteriorating financial condition, LBI drew down $300 million on the Access Revolver in October 2008, but repaid the borrowed amounts that same month. On Dec. 30, 2008, LBI requested a full draw down on the Access Revolver. Access, aware of LBI's imminent bankruptcy, including its retention of bankruptcy counsel and entry into forbearance agreements for its other indebtedness, refused to fund the draw request, citing its belief that a material adverse change had occurred. On Jan. 6, 2009, LBI filed for bankruptcy.

Bankruptcy Proceedings

Following its establishment as part of LBI's bankruptcy plan, the Trust sued Access, alleging, among other things,3 that its refusal to fund the revolver constituted a breach of contract under the Access Revolver, while Access argued that LBI's financial condition excused it from its commitment. 

In connection with pretrial motion practice, Judge Gerber4 had upheld the enforceability of a damages waiver provision in the Access Revolver, but ruled that the Trust may still be entitled to restitutionary damages.5

Following a trial, Judge Glenn determined that Access breached the Access Revolver, and that the Trust was entitled to restitutionary damages in the amount of the commitment fee received by Access in connection with the Access Revolver, which was $12 million. However, because LBI was able to draw down $300 million or 40% of the facility, Judge Glenn reduced the award to 60% of the commitment fee, or $7.2 million.

The District Court's Decision

Reviewing the validity of the damages waiver provision in the Access Revolver credit agreement de novo, Judge Denise Cote upheld Judge Gerber's ruling that the damages waiver was valid. Under New York law, damage waivers are generally enforceable unless they are (i) unconscionable at their inception, or (ii) invalid as a result of subsequent intentional wrongdoing.6

The Trust argued that the damages waiver in the Access Revolver was unconscionable as a result of unequal bargaining power between LBI and Access. Judge Cote found that "mere inequality in bargaining power, without any consideration of the underlying fairness of the challenged clause, cannot suffice to invalidate a limitation-of-liability provision." Thus, to be unconscionable, the damages waiver would have to meet the other indicia of an adhesion contract, such as procedural unfairness, substantive unfairness (i.e., the terms are not within the reasonable expectations of the disadvantaged party), or that the terms are contrary to public policy. 

The District Court distinguished the Lyondell case from other instances where New York law was applied to invalidate a damages waiver in which the borrower essentially had no recourse against the lender.7Judge Cote ruled that not only did entry into the Access Revolver not harm LBI, LBI actually benefited from the additional liquidity it provided, and that the ability to pursue restitutionary damages was sufficient a remedy such that the damages waiver was not unconscionable.

The Trust argued that Access' conduct following entry into the Access Revolver, such as permitting LBI to draw on the Access Revolver in emergencies only and requiring early payment of any drawn amounts, should have rendered the damages waiver invalid. Judge Cote ruled that the allegations of misconduct were unrelated to the actual breach of the credit agreement, i.e., the refusal to lend. Holding that New York law required a demonstration of misconduct related to the breach itself, and that the failure to lend alone was insufficient to show misconduct, Judge Cote found no basis to invalidate the damages waiver. "Merely deciding not to perform the Access Revolver because it became economically disadvantageous to do so does not constitute the type of intentional misconduct required to invalidate [the damages waiver]."

With respect to the measure of restitutionary damages, Judge Cote placed the burden on Access to demonstrate that LBI had some benefit from the Access Revolver. Otherwise, LBI should be entitled to the full amount of the commitment fee as restitutionary damages which are generally measured as the benefit conferred on the breaching party, which in this case was the commitment fee paid to Access. Judge Cote found that Access did not meet its burden (as no evidence was actually submitted on this issue) to demonstrate that LBI enjoyed any benefits under the Access Revolver. Accordingly, the Trust was entitled to recover the entirety of the commitment fee.


Although it is unlikely that Lyondell is the last word on the issue, Judge Cotes' decision should provide some comfort to lenders that are faced with the prospect of a bankrupt borrower. So long as the credit agreement provides for a limitation on damages, under New York law such a provision would likely be upheld absent misconduct by the lender. A lender acting in its own rational self-interest in breaching a credit agreement by refusing to lend into an insolvent situation could rely on a damage waiver to limit its exposure to its commitment fee. Moreover, to the extent the lender can demonstrate benefit to the borrower, the lender may be able to further limit its exposure. 


See Weisfelner v. Blavatnik (In re Lyondell Chemical Co.), 2018 WL 565272, Case No. 17cv4375 (S.D.N.Y. Jan. 29, 2019).

2 Additional background information regarding the merger can be found in prior articles on Lyondell in the May 2017 and August 2017 issues of Debt Dialogue.

3 The Trust also sought the return of the Access Revolver repayments as a preference under section 547 of the Bankruptcy Code. This article does not address that aspect of the Trust's claims.

4 The Lyondell case was initially before Judge Gerber. Following his retirement, the case was reassigned to Judge Glenn.

See In re Lyondell Chemical Co., 544 B.R. 75 (Bankr. S.D.N.Y. 2016) (Lyondell I). Specifically, the Access Revolver provided as follows: "No [lender] shall have any liability for any special, punitive, indirect or consequential damages related to this Agreement ... or arising out of its activities in connection herewith or therewith."

6 The doctrine for invalidating a damages waiver as a result of subsequent wrongdoing is referred to as the "Kalisch-Jarcho" doctrine after the case Kalisch-Jarcho, Inc. v. City of New York, 448 N.E.2d 413 (NY 1983).

See Blackrock Capital Investment Corp. v. Fish, 799 S.E.2d 520 (W. Va. 2017).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions