Loan agreements aren’t our thing at The Am Law Litigation Daily, so we’re not going to beat ourselves up for not knowing about so-called “bad boy” guaranty provisions. We’re told that they were commonplace in most complex finance transactions between 2005 and 2007. In such agreements, borrowers can be held liable for certain “bad boy” acts like fraud or intentional waste.
Apparently another accused bad boy act is filing for bankruptcy. Just ask David Lichtenstein. As chairman of the hotel company Extended Stay, he approved a Chapter 11 filing on June 15, 2009. A day later, he and one of his affiliated entities were sued in New York state court by lenders seeking $100 million. Here’s a copy of an affidavit filed by plaintiffs in support of summary judgment(pdf). Lichtenstein’s lawyers at Kasowitz, Benson, Torres & Friedman argue that Lichtenstein was merely fulfilling his fiduciary duties by attempting to stabilize Extended Stay’s assets for the benefit of its creditors, including the plaintiffs now suing him. The Kasowitz team suspects that the plaintiffs — junior mezzanine lenders in a transaction that allowed Lichtenstein and others to buy Extended Stay two years ago —have other motives for filing the suit.
