A New York appellate court declined to hear a lender's new arguments in a high-value construction loan dispute
A commercial loan dispute between FPG Maiden Lane, LLC and Bank Leumi USA involving approximately $120 million in construction financing will proceed, after a New York appellate court declined to consider new breach arguments introduced by the bank on appeal.
In 2015, FPG Maiden Lane entered into a credit agreement with Bank Leumi USA and Harel Maiden Lane-General Partnership. The deal was formalized in May 2016 through a Building Loan Agreement and a Project Loan Agreement, with an anticipated project completion date of April 3, 2018.
After FPG failed to meet that deadline, the lenders extended the project timeline on three separate occasions - in September 2018, June 2019, and finally on March 13, 2020, when the deadline was moved to November 30, 2020.
Just weeks later, on March 31, 2020, FPG sent a letter to Bank Leumi asserting that the COVID-19 pandemic had inflicted severe disruption on the real estate industry. The letter warned that it was likely “impossible to complete construction . . . on schedule and on budget,” and that “so long as the Pandemic continues, we may be unable to engage in sales activities and therefore may be unable to repay the Loan within the planned timeframe.” FPG requested a suspension of interest payments and an extension of all deadlines.
One week after sending that letter, FPG submitted a request for additional funding. Bank Leumi responded with an offer to renegotiate deadlines. FPG subsequently executed a pre-negotiation agreement as part of discussions around a potential restructuring and made further funding requests. However, Bank Leumi declined additional loan advances, except from FPG’s equity contribution.
FPG filed suit on August 4, 2020. After an amended complaint and several court rulings, only three causes of action remained. Bank Leumi moved for summary judgment, which the Supreme Court, New York County (Justice Barry R. Ostrager) denied in an order entered November 16, 2023.
On appeal, Bank Leumi argued that (1) the March 31, 2020 letter constituted an anticipatory breach of the loan agreements, and (2) that Section 1.3(d)(iii) of the 2016 Building Loan Agreement permitted the bank to decline further loan advances. However, the Appellate Division, First Department, in a unanimous decision entered April 3, 2025, refused to consider either argument.
The appellate panel noted that neither contention had been presented before the trial court, rendering them unpreserved for appellate review. The court further held that these arguments were not purely legal and related to facts not on the face of the record, which meant plaintiffs were deprived of the opportunity to offer rebuttal proof.
Key takeaways for lenders
The ruling underscores the importance of preserving legal arguments during trial court proceedings and highlights how courts are likely to handle loan restructuring conflicts that emerged during the COVID-19 pandemic. The case involves significant issues surrounding borrower communications, lender discretion, and the interpretation of loan agreement provisions in times of crisis.
With the motion for summary judgment denied and the appeal resolved, the litigation will move forward on the surviving claims.
