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).

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