Stroock Special Bulletin
“First Circuit Declines to Expand Lender Liability”
On June 12, 2009, the United States Court of Appeals for the First Circuit issued its decision in FAMM Steel, Inc. v. Sovereign Bank (Case No. 08-1955), affirming the district court’s summary judgment in favor of the bank and thwarting the borrower’s assertion of various lender liability claims alleged to have caused the demise of the company. The continued increase of delinquent and undercollateralized commercial loans is producing a resurgence of “lender liability” claims by borrowers. This Stroock Special Bulletin looks at the FAMM Steel case, which should be of particular interest to lenders, as it carefully examines many of the common forms of lender liability claims. Although a sweeping victory for the lender, the decision underscores the fact-intensive nature of these claims, reinforces the importance of lenders exercising caution in the monitoring and enforcement of their loan facilities, and provides some comfort that at least the First Circuit is not prepared readily to accept arguments blaming lenders for the travails of their borrowers.