Trustees can often be caught in the middle of unpredictable disputes that are not of their own making. A good illustration occurred in May 2020 when two affiliated hotel operators seeking assurances that they could receive loans under the SBA’s Paycheck Protection Program (“PPP loans”) without violating terms of their existing commercial mortgage loans held in CMBS trusts grew frustrated with their attempts to obtain assurances from the servicers and filed suit against the CMBS Trustees. 
According to the complaints, the loan obligors sought assurances from the CMBS loan servicers that the “forgivable” PPP loans would not trigger or be counted against restrictions in the commercial mortgage loans against incurring additional indebtedness or trigger springing recourse covenants. After “numerous attempts” to get clarification or obtain waivers on the issue, and allegedly facing a deadline to decide whether or not to accept the PPP Loans that had been approved, the operators filed suit against the Trustees, requesting emergency court orders to shield them from being placed in default if they chose to move forward with and accepted the PPP loans.
The complaints argued that because PPP loans do not have to be repaid if the proceeds are used to retain and pay the operator’s employees, then the loans function “like grants” and sought a declaration that application of the PPP loans to the indebtedness restrictions contained in the operator’s loan agreements should be declared “null and void as against public policy.”
Interestingly, the complaints did not name the servicers as defendants, and one of the complaints expressly acknowledged that the Trustee had stressed that decision-making authority rested with the servicer.
Both cases reached voluntary settlements quickly, resulting in dismissal of the cases. The settlement terms were not publicly disclosed.
- See Beechwood Lakeland Hotel LLC v. U.S. Bank N.A., No. 20-1022 (M.D. Fla. filed May 1, 2020); Beechwood Plaza Hotel of Appleton, LLC v. Wilmington Trust, N.A., No. 20-3424 (S.D.N.Y. filed May 1, 2020). [Back to reference]