The opinion of the court was delivered by: ROBERT GETTLEMAN, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff LaSalle Bank National Association has brought a four count
complaint against defendant Bank of America National Association alleging
breach of contract (Counts I and III), breach of fiduciary duty (Count
II), and gross negligence and misrepresentation (Count IV). Defendant has
moved to dismiss portions of Count II, all of Count III, and a portion of
Count IV. For the reasons set forth below, the motion is granted in part
and denied in part.
Plaintiff claims that defendant breached various duties owed to it in
connection with a "Participation Agreement" under which plaintiff
participated in some, but not all of defendant's loans to Trendmasters,
Inc., a toy manufacturer and distributor. Defendant was Trendmasters'
lender under three separate lines of credit: (1) a $32 million line of
credit consisting of a Revolving Loan, a Sub facility Letter of Credit
Commitment and Term Loan (the "General Line of Credit); (2) a $10 million
Interest Hedge Agreement; and (3) a $10 million line of credit designed
to support Trendmasters' Hong Kong operations (the "Trade Line of
Credit"). The General Line of Credit was created pursuant to a Loan Agreement
("Loan Agreement") executed between defendant's predecessor, Nations
Bank, and Trendmasters. In conjunction with the Loan Agreement, the
parties executed a general security agreement which identifies
Trendmasters' assets serving as collateral for the General Line of Credit
to include essentially all personal property of Trendmasters, including
all present and future accounts, general intangibles, notes, drafts,
acceptances, documents, instruments, bank deposits, inventory, goods, and
all proceeds of the foregoing.
Shortly after entering into the Loan Agreement, the parties executed a
Trade Finance Agreement which created the Trade Line of Credit. The Trade
Line of Credit was designed to provide Trendmasters with funds necessary
to purchase toys from Chinese and other foreign manufacturers for later
distribution to retailers in the United States. The Trade Finance
Agreement authorized defendant to extend credit to Trendmasters under six
different loan and credit line facilities, one of which was known as the
"Packing Loans." The Trade Finance Agreement authorized defendant to
extend up to $2.5 million in Packing Loans to Trendmasters to enable the
company to make required payments to the Chinese and other foreign
manufacturers. Up to that $2.5 million cap, the amount of Packing Loans
defendant could extend to Trendmasters was limited to 45% of the value of
valid and acceptable original export letters of credit from Trendmasters'
toy retailers that were lodged with defendant (the "advanced rate"). The
collateral for the Trade Line of Credit, including the Packing Loans, was
included in the collateral described in the general security agreement
that secures all the loans under the Loan Agreement, specifically the
General Line of Credit. The Trade Line of Credit Agreement specifically
provides that the credit facilities established under that agreement "at all times will remain
cross-collateralized and cross-guaranteed with the Loan Agreement."
On June 18, 1999, plaintiff and defendant executed a "Participation
Agreement" through which plaintiff purchased a 40% participation share in
the loans under the Loan Agreement (the General Line of Credit).
Plaintiff did not purchase any interest in the Interest Hedge Agreement
or the Trade Line of Credit Agreements, including the Packing Loans.
Under the Participation Agreement plaintiffs interest in the General Line
of Credit loans was secured by the Trendmasters assets that comprised the
collateral securing the loans under the Loan Agreement and general
Beginning sometime in April 2001, defendant increased the Packing Loans
beyond the $2.5 million cap and in excess of the "advance rate" stated in
the Packing Loan documentation. Defendant did this without plaintiffs
consent and, apparently, without a written amendment to the Trade Finance
The Revolving Loan under the General Line of Credit was not paid when
due on August 15, 2002. An event a default was not declared, however,
until October 17, 2002. After the event of default was declared defendant
set-off amounts in Trendmasters' Hong Kong bank account, but did not
share the proceeds with plaintiff. During the two month period between
the maturation of the revolving note on August 15, 2002, and the
declaration of an event of default on October 17, 2002, Trendmasters paid
down an accumulated total of over $6 million in Packing Loans and other
obligations under the Trade Line of Credit.
After the declared default, Trendmasters' loan obligations were
accelerated and defendant set-off additional monies held in Trendmasters'
bank account. Thereafter, much of Trendmasters' remaining assets were sold pursuant to a consensual foreclosure
sale. After recovering its costs for collection of the collateral,
defendant paid itself the entire amount of proceeds set-off from
Trendmasters' Hong Kong bank accounts to satisfy a portion of
Trendmasters' obligations to defendant under the Trade Line of Credit.
Defendant did not distribute the collateral in accordance with the
provisions of the Participation Agreement.
Although the complaint was brought in four counts, some counts have
multiple claims. As defendant correctly notes, plaintiffs asserted claims
allege three forms of wrongdoing: (1) defendant's failure to share the
proceeds of the set-off from Trendmasters' Hong Kong bank account (the
"set-off claims"); (2) defendant's alleged improper handling of the
Packing Loans ("Packing Loan claims"); and (3) defendant's allegedly
wrongful delay in declaring an event of default on the General Line of
Credit (the "default declaration claims"). Defendant's motion attacks the
Packing Loan claims and the default declaration claims only.
The Packing Loan claims are set forth in part of Count II, all of Count
III, and part of Count IV. In those counts, plaintiff alleges that
defendant, without plaintiffs consent and without written amendment,
increased the amount of the Packing Loans beyond the $2.5 million cap, in
excess of the original 45% advance rate. In Count II, plaintiff alleges
that defendant's actions breached a fiduciary duty owed to plaintiff
created by the Participation Agreement. Specifically, plaintiff alleges
that prior to Trendmasters' default on the General Line of Credit,
defendant increased the Packing Loans, thereby increasing the risk of
default of those loans, and increasing the risk that Trendmasters'
collateral would be paid to defendant only, without any sharing with
plaintiff. Plaintiff also claims that defendant increased the advance rate
without consulting plaintiff or obtaining plaintiffs consent.
In Count III, plaintiff alleges that defendant's actions breached §
3.1 of the Participation Agreement, which provides that subject to two
inapplicable exceptions, "any amendment to the Loan Agreement or any of
the other Loan Documents shall require the affirmative vote of both Lead
Bank [defendant] and Participant [plaintiff]." The parties appear to
agree that the term "Loan ...