Prospect Capital Corp. v. Morgan Lewis & Bockius LLP

The following e-filed documents, listed by NYSCEF document number (MS 005) 63, 64, 65, 66, 67, 68, 71, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89 were read on this motion to/for REARGUMENT/RECONSIDERATION. DECISION+ ORDER ON MOTION On October 21, 2022, Plaintiff Prospect Capital Corporation (Prospect or plaintiff) commenced this action against Defendants Morgan Lewis & Bockius LLP (Morgan Lewis) and Matthew Schernecke (together, defendants), alleging a claim for legal malpractice in connection with legal services rendered by defendants while negotiating the terms of a debt subordination agreement on plaintiff’s behalf (NYSCEF # 2 — compl). Defendants thereafter moved pursuant to CPLR 3211(a)(1) and (a)(7) for an order dismissing plaintiff’s complaint, and by Decision and Order, dated May 2, 2023, this court granted defendants’ motion (NYSCEF # 61). Plaintiff now moves for reargument pursuant to CPLR 2221 or, in the alternative, for leave to file a First Amended Complaint pursuant to CPLR 3025 (NYSCEF # 63). For the following reasons, plaintiff’s motion for reargument is granted, and upon reargument, defendants’ motion to dismiss is denied.¹ Background The court assumes the parties’ familiarity with the background of this case, which was detailed in the court’s prior order dated May 2, 2023 (NYSCEF # 61 — Prior Order). In short, Prospect retained Morgan Lewis for transactional legal services, including Prospect’s $17 million senior secured term loan (the Prospect Loan) to non-party Venio LLC (Venio) (compl

5-7). After Prospect extended the Prospect Loan to Venio, Venio’s parent company, Keane Holdings, Inc. (KHI) obtained a $12 million loan from nonparty Silicon Valley Bank (SVB) (the SVB Loan) (id. 9). Given that Venio’s parent company was obtaining the SVB Loan, Prospect engaged defendants to negotiate a debt subordination agreement to protect its rights as a senior lender to Venio (the Subordination Agreement) (see id. 9). Under the terms of the Subordination Agreement, the SVB Loan would be subordinate to the Prospect Loan (id. 9). Specifically, in the event of a default by Venio, section 1 of the Subordination Agreement prohibited SVB from receiving payments on the SVB Loan before Prospect was paid in full on the Prospect Loan (NYSCEF # 23 at 31). The parties to the Subordination Agreement also negotiated the inclusion of a turnover provision (section 5 of the subordination agreement), pursuant to which a junior lender (i.e. SVB) would be required to disgorge and pay to a senior lender (i.e. Prospect) any payments received from a “Keane Entity” (compl 12). The turnover provision had originally provided Prospect with a turnover right against SVB for any payment SVB received from KHI by virtue of KHI being included in the definition of “Keane Entity” (see id.