Lehman Brothers Holdings Inc.

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	:
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LEHMAN BROTHERS HOLDINGS INC., et al., 	: 	Case No. 08-13555 (SCC)
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Debtors. 	:
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MEMORANDUM DECISION GRANTING PLAN ADMINISTRATOR’S MOTION FOR
SUMMARY JUDGMENT REGARDING CLAIM 67707 FILED BY SPANISH
BROADCASTING SYSTEM, INC.
A P P E A R A N C E S:
WEIL, GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, NY 10153
By: 	Ralph I. Miller, Esq.
Jacqueline Marcus, Esq.
Attorneys for Lehman Brothers Holdings Inc.
KAYE SCHOLER LLP
250 West 55 th Street
New York, NY 10019
By: 	Madlyn Gleich Primoff, Esq.
Attorneys for Spanish Broadcasting System, Inc.
SHELLEY C. CHAPMAN
UNITED STATES BANKRUPTCY JUDGE
Before the court is the Motion of Lehman Brothers Holdings Inc. (“LBHI”), as Plan
Administrator under the Modified Third Amended Joint Chapter 11 Plan of Lehman Brothers
Holdings Inc. and its Affiliated Debtors, for Summary Judgment Regarding Claim 67707 Filed
by Spanish Broadcasting System, Inc. (the “Motion”) [ECF No. 50032].
Spanish Broadcasting System, Inc. (“Spanish Broadcasting”) filed proof of claim number
67707 (the “Claim”) against Lehman Commercial Paper Inc. (“LCPI”) on November 3, 2011.
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See LBHI Facts1 Ex. B. The Claim amends proof of claim number 15941, filed on September
18, 2009.2 The Claim arises from that certain Credit Agreement, dated as of June 10, 2005,
among Spanish Broadcasting, as borrower; LCPI, as lender and administrative agent; and certain
other lenders (the “Credit Agreement”). See LBHI Facts Ex. C. By the Claim, Spanish
Broadcasting seeks damages of $55,462,228.33 allegedly arising from the failure of LCPI, as
lender under the Credit Agreement, to fund $10 million pursuant to a draw request made by
Spanish Broadcasting on October 3, 2008. On July 10, 2012, LBHI, as Plan Administrator,
objected to the Claim via its Three Hundred Twenty-Eighth Omnibus Objection to Claims (No
Liability Claims) [ECF No. 29323] (the “Claims Objection”).
On February 13, 2013, at a “Sufficiency Hearing”3 on the Claim, the Honorable James M.
Peck,4 declined to disallow the Claim.5 Thereafter, pursuant to a Claims Litigation Schedule
with Respect to Claim No. 67707 Filed by Spanish Broadcasting System, Inc. and the Objection
Interposed by Lehman Brothers Holdings Inc. [ECF No. 46498] (the “Scheduling Order”), as
amended, the parties engaged in a discovery process. At an April 27, 2015 discovery conference
before the Court, LBHI proposed that it should be permitted to file a summary judgment motion
1 References to “LBHI Facts” are to that certain Statement of Undisputed Material Facts Pursuant to Local Rule
7056-1 in Support of Motion for Summary Judgment Regarding Claim 67707 Filed by Spanish Broadcasting
System, Inc. [ECF No. 50032].
2 The Court disallowed and expunged proof of claim number 15941 on January 26, 2012 by entry of its Order
Granting Debtors’ Two Hundred Thirty-Seventh Omnibus Objection to Claims (Amended and Superseded Claims)
[ECF No. 24682].
3 Pursuant to the Court’s April 19, 2010 Order Pursuant to Section 105 of the Bankruptcy Code, Bankruptcy Rule
9014, and General Order M-390 Authorizing the Debtors to Implement Claims Hearing Procedures and Alternative
Dispute Resolution Procedures for Claims Against Debtors [ECF No. 8474], all hearings “to address the legal
sufficiency of [a] particular Contested Claim and whether the Contested Claim states a claim against the asserted
Debtor under Bankruptcy Rule 7012” shall be “Sufficiency Hearings,” unless LBHI, as Plan Administrator serves
the holder of a contested claim with a Notice of ADR Procedure or Notice of Merits Hearing. Id. ¶ 4(a). The
standard of review for a Sufficiency Hearing is “equivalent to the standard applied by the Court upon a motion to
dismiss for failure to state a claim.” Id.
4 The Honorable James M. Peck retired from the bench on January 31, 2014. These cases were transferred to the
Honorable Shelley C. Chapman on February 1, 2014.
5 Despite having ruled that Spanish Broadcasting “will get [its] day in court,” Judge Peck noted that “the claims
being asserted here are bloated, excessive, and probably not allowable.” 2/13/13 Tr. 143:25-144:1; 143:17-18
(Peck).
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on the issue of whether section 10.12(e) of the Credit Agreement, which comprised a waiver by
Spanish Broadcasting of “any special, exemplary, punitive or consequential damages,” survived
termination of the Credit Agreement pursuant to that certain payoff letter, dated February 7, 2012
between LCPI and Spanish Broadcasting (the “Payoff Letter”). LBHI Facts Ex. C § 10.12(e);
Miller Decl.6 Ex. 4. The parties subsequently exchanged discovery with respect to the
negotiation of the Payoff Letter, and, on May 22, 2015, the Court entered a Stipulated Order
Regarding Briefing Schedule Regarding Claim 67707 of Spanish Broadcasting System, Inc.
[ECF No. 49706], thereby granting LBHI’s request to file the Motion.
In accordance with the terms of the parties’ agreement, LBHI filed the Motion together
with a Memorandum of Law of Lehman Brothers Holdings Inc. in Support of Motion for
Summary Judgment Pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure
Regarding Claim 67707 [ECF No. 50033] on June 26, 2014. Spanish Broadcasting filed its
Memorandum of Law in Opposition to Motion by Lehman Brothers Holdings Inc. for Summary
Judgment Pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure Regarding Claim
67707 Filed by Spanish Broadcasting System, Inc. [ECF No. 50415] (the “Opposition”) on July
23, 2015. LBHI filed a Reply Memorandum of Law in Further Support of Motion for Summary
Judgment Pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure Regarding Claim
67707 Filed by Spanish Broadcasting System, Inc. [ECF No. 50596] (the “Reply”) on August 13,
2015. The Court heard oral argument on September 21, 2015, at which time it took the matter
under advisement.
6 References to “Miller Decl.” are to that certain Declaration of Ralph I. Miller in Support of Motion for Summary
Judgment Regarding Claim 67707 Filed by Spanish Broadcasting System, Inc., which document is attached as
Exhibit A to the LBHI Facts.
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For the reasons set forth in this Memorandum Decision, the Court will grant the Motion.
Accordingly, the Claim, to the extent not already withdrawn, and with the exception of the Fee
Damages (as defined below), shall be disallowed and expunged from the claims register.
I. Factual Background
A. Credit Agreement
The Credit Agreement, pursuant to which LCPI served as administrative agent and as
lender, provided for a term loan of $325 million (the “Term Loan”) and a revolving credit
facility of $25 million (the “RCF”), which Spanish Broadcasting could draw upon at its election
following closing. LBHI Facts ¶¶ 2, 3. LCPI was committed to fund $10 million of the $25
million RCF. LBHI Facts ¶ 4. The lenders under the Credit Agreement, including LCPI, fully
funded the Term Loan in the amount of $325 million on June 10, 2005. LBHI Facts ¶ 10.
Section 2.5(b) of the Credit Agreement required Spanish Broadcasting to submit a draw request
on the RCF one business day prior to the borrowing date of the proposed loan. LBHI Facts Ex.
C § 2.5(b). The Credit Agreement further provided, in section 10.12(e) (the “Damages
Waiver”), that
[Spanish Broadcasting] hereby irrevocably and unconditionally . . . waives, to the
maximum extent not prohibited by law, any right it may have to claim or recover
in any legal action or proceeding [relating to the Credit Agreement or other loan
documents] any special, exemplary, punitive or consequential damages.
LBHI Facts Ex. C § 10.12(e).
B. Swap Agreement
On or about June 28, 2005, Spanish Broadcasting entered into a 1992 form ISDA Master
Agreement and schedule governing swap transactions (the “Master Agreement”) with Lehman
Brothers Special Financing Inc. (“LBSF”). See Miller Decl. Ex. 3. On June 29, 2005, Spanish
Broadcasting and LBSF entered into a confirmation whereby LBSF agreed to pay Spanish
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Broadcasting a floating rate of interest on a notional principal amount of $324,187,500 (which
amount would decline by amortization payments through June 2010), and Spanish Broadcasting
agreed to pay LBSF a fixed rate of 4.23% on the same notional principal amount (the “Swap”).
See id.
LBHI served as Credit Support Provider under the Master Agreement. Id. at Sched. Pt.
4(g). On September 15, 2008, LBHI and certain of its subsidiaries7 each filed a voluntary
petition under chapter 11 of title 11 of the United States Code. See ECF No. 1. LBHI’s
bankruptcy entitled Spanish Broadcasting to terminate all outstanding transactions under the
Master Agreement, including the Swap. Miller Decl. Ex. 3 §§ 5(a)(vii), 6. Spanish
Broadcasting, however, did not terminate the Swap until June 17, 2010, upon its entry into that
certain Hedge Amendment and Settlement Agreement with LBSF. LBHI Facts Ex. D at 1.
Spanish Broadcasting estimates that, had it terminated the Swap on October 3, 2008, the date of
the Draw Request (as defined below), Spanish Broadcasting would have owed LBSF a close-out
payment of $6,008,991.58. Garcia Decl.8 ¶ 31. When Spanish Broadcasting ultimately
terminated the Swap on June 17, 2010, it paid a close-out payment of $10,311,965.00. Id.
C. LCPI’s Failure to Fund
As of September 30, 2008, Spanish Broadcasting held approximately $34 million in cash.
Garcia Decl. ¶ 13. At that time, Spanish Broadcasting was guarantor under a note, dated January
4, 2007, between SBS Miami Broadcast Center, Inc. and Wachovia Bank (the “MBC
Guaranty”). Id. ¶ 11, Ex. F. Under the terms of the MBC Guaranty, as of September 30, 2008,
7 LBSF and LCPI are subsidiaries of LBHI, but did not file their own respective chapter 11 petitions until October 3
(LBSF) and October 5 (LCPI), 2008.
8 References to “Garcia Decl.” are to the Declaration of Joseph A. Garcia in Support of Spanish Broadcasting
System, Inc.’s Opposition to Motion by Lehman Brothers Holdings Inc. for Summary Judgment Pursuant to Rule
7056 of the Federal Rules of Bankruptcy Procedure Regarding Claim 67707 Filed By Spanish Broadcasting System,
Inc. [ECF No. 50418].
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Spanish Broadcasting was required to hold $8.5 million in cash. Id. ¶ 11, Ex. F at 6; that
requirement left Spanish Broadcasting with $25.5 million of available cash on September 30,
2008. Id. ¶ 13.
At that time, the impending obligations of Spanish Broadcasting included (i) the maturity
of its obligations under a secured promissory note, dated March 1, 2006, among Spanish
Broadcasting, as maker, and BC Medic Funding Company II, LLC, as holder and assignee (the
“Mega TV Note”) in the amount of $18.5 million; (ii) a $5 million interest payment on the Term
Loan payable in December 2008; and (iii) a $2.5 million dividend on preferred stock, payable in
cash or in kind at Spanish Broadcasting’s discretion. Opp’n at 7; Garcia Decl. ¶ 13.
On October 3, 2008, Spanish Broadcasting submitted a draw request for the full amount
of the $25 million RCF (the “Draw Request”). Miller Decl. Ex. 1. Spanish Broadcasting
intended to use the funds, plus a portion of cash on hand, to (i) pay off the $18.5 million Mega
TV Note; (ii) terminate the Swap with LBSF and make a close-out payment of approximately $6
million; (iii) fund $4 million in advertising and marketing expenses; and (iv) pay the $5 million
December 2008 interest payment on the Term Loan. Garcia Decl. ¶ 14. The Draw Request
stated that the borrowing date for the proposed $25 million loan would be October 6, 2008. Id.
As noted, LCPI commenced its chapter 11 case on October 5, 2008; it did not fund its $10
million portion of the Draw Request. See Miller Decl. Ex. 2. As administrative agent, LCPI
facilitated the funding of the $15 million due from other lenders to Spanish Broadcasting. Id.
Thus, Spanish Broadcasting received $15 million of the $25 million it requested pursuant to the
Draw Request.
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D. The Claim and Damages Alleged
The Claim seeks damages of $55,462,228.33. LBHI Facts Ex. B. Spanish Broadcasting
filed the Credit Agreement and a report of Capstone Advisory Group, LLC (the “Capstone
Report”), Spanish Broadcasting’s financial advisor, as exhibits to the Claim. LBHI Facts Exs. C,
D. According to the Capstone Report, Spanish Broadcasting’s asserted damages are comprised
of the following:
 	$39.6 million in damages stemming from the expected decline in Spanish
Broadcasting’s “total invested capital … as defined by the market value of
common equity, preferred equity, long-term debt, cash, and minority interest,
versus the actual decline … that [Spanish Broadcasting] experienced”;
 	$9,886,745 in damages as a result of Spanish Broadcasting’s alleged inability to
terminate the Swap;
 	$273,333.33 in fees paid to LCPI, as administrative agent, over the life of the
Credit Agreement (the “Fee Damages”); and
 	$5,702,150 in costs Spanish Broadcasting allegedly incurred in replacing LCPI’s
$10 million commitment to fund the RCF (“Replacement Cost Damages”).
LBHI Facts Ex. D at 1, 2, 16, 17. The parties have agreed that the Fee Damages are not a subject
of the Motion. Moreover, subsequent to the filing of the Claim, Spanish Broadcasting withdrew
the portion of the Claim seeking Replacement Cost Damages.
Despite the fact that Spanish Broadcasting has not formally amended the Claim, its
iteration of alleged damages has varied throughout these proceedings. In its response to
Interrogatory No. 13, which was served on Spanish Broadcasting by LBHI pursuant to the
Scheduling Order, Spanish Broadcasting asserted that “[a] detailed computation of damages is
premature at this time,” but nonetheless asserted damages in excess of $47.8 million, as follows:
 	$30.3 million in impacted EBITDA 9 resulting from LPCI’s failure to fund its
portion of the Draw Request (the “EBITDA Damages”);
 	$17.2 million in damages relating to Spanish Broadcasting’s inability to terminate
the Swap on October 3, 2008 (the “Swap Damages”);
9 EBITDA is “earnings before interest, taxes, depreciation, and amortization, and is “used as an indicator of a
company’s profitability and ability to service its debt.” BLACK’ S LAW D ICTIONARY (10 th ed. 2014).
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 	$273,333.33 in fees paid to LCPI, as administrative agent, on account of the
portion of the Draw Request that LCPI failed to fund;
 	Interest on the foregoing; and
 	Spanish Broadcasting’s costs, expenses and reasonable attorneys’ fees relating to
[this dispute], including, without limitation, all costs, expenses, and fees relating
to Spanish Broadcasting’s testifying and non-testifying experts.
Miller Decl. Ex. 6 at 23-24.
In the Opposition, Spanish Broadcasting asserts damages in the aggregate amount of
$41.9 million, as follows:
 	EBITDA Damages: $24.5 million, resulting from Spanish Broadcasting’s lack of
$4 million in funds needed for marketing expenses;
 	Swap Damages: $17,054,558, resulting from Spanish Broadcasting’s inability to
terminate the Swap on October 3, 2008; and
 	Fee Damages: $343,333 in fees paid to LCPI, as administrative agent, on account
of the portion of the Draw Request that LCPI failed to fund.
Opp’n at 10.
E. Payoff Letter
Spanish Broadcasting had agreed to repay the aggregate outstanding principal balance of
the Term Loan no later than the Term Loan Maturity Date, defined as June 10, 2012. LBHI
Facts Ex. C § 1.1. Pursuant to the Payoff Letter, Spanish Broadcasting and LCPI terminated the
Credit Agreement on February 7, 2012. Miller Decl. Ex. 4. Section 1(a) of the Payoff Letter
provided, in relevant part, that, as of the effective date of the Payoff Letter
all outstanding Loans and all other amounts owing by [Spanish Broadcasting]
under the Credit Agreement (including all principal, accrued interest and fees)
shall be paid in full and the Credit Agreement and all obligations of [Spanish
Broadcasting] and the other Loan Parties thereunder and under the other Loan
Documents shall be terminated other than contingent obligations which expressly
survive the terms of the Credit Agreement or such other Loan Documents,
including without limitation, Section 10.5 of the Credit Agreement.
Miller Decl. Ex. 4 § 1(a).
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The Payoff Letter also contains a broad release by Spanish Broadcasting of any claims
“to the extent arising out of or in connection with the [Credit Agreement and other loan
documents] including, without limitation, any failure by the Lehman [sic] or any of its affiliates
to fund any Loan required to be funded by it under the Credit Agreement” (the “Release”).
Miller Decl. Ex. 4 § 4. The Claim is excluded from the Release. Id. The Payoff Letter does not
contain a release of claims or defenses by LCPI. LBHI Facts ¶ 31; see generally Miller Decl.
Ex. 4.
II. Applicable Standard of Review
Summary judgment is appropriate where there is “no genuine dispute as to any material
fact,” and the moving party is entitled to “judgment as a matter of law.” Fed. R. Civ. P. 56(a);
see NML Capital v. Republic of Argentina, 621 F.3d 230, 236 (2d Cir. 2010) (citing Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Redd v. Wright, 597 F.3d 532, 535-36 (2d Cir.
2010)). The court must view the facts in the light most favorable to the non-moving party, and
must resolve all ambiguities and draw all inferences against the moving party. See NetJets
Aviation, Inc. v. LHC Communs., LLC, 537 F.3d 168, 178 (2d Cir. 2008) (citing Liberty Lobby,
477 U.S. at 255; Coach Leatherware Co. v. AnnTaylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991)).
In determining whether to grant a motion for summary judgment, the court is not to “weigh the
evidence and determine the truth of the matter but to determine whether there is a genuine issue
for trial.” Cioffi v. Averill Park Cent. Sch. Dist. Bd. of Educ., 444 F.3d 158, 162 (2d Cir. 2006)
(quoting Liberty Lobby, 477 U.S. at 249 (internal quotation marks omitted)).
By the Motion, LBHI seeks a ruling that (i) the Damages Waiver was a waiver of all
consequential and special damages and (ii) the EBITDA Damages and the Swap Damages are
barred by the Damages Waiver. In order to determine whether LBHI should be granted
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summary judgment, the Court must examine (i) whether, as is asserted by LBHI, the Damages
Waiver is enforceable in light of the Payoff Letter and (ii) if so, whether the EBITDA Damages
and Swap Damages constitute consequential damages.
III. Discussion
A. The Damages Waiver
1. There Is No Issue of Fact with Respect to the Existence of the Damages Waiver
LBHI asserts that the Damages Waiver is part of the parties’ bargain that should be
enforced according to its terms. Spanish Broadcasting argues, however, that the existence of a
waiver is itself a question of fact that depends on the intent of the parties, and, therefore,
summary judgment is inappropriate. Opp’n at 20 (citing NetTech Solutions L.L.C. v.
ZipPark.com, No. 01 Civ. 2683 (SAS), 2001 WL 1111966 (S.D.N.Y. Sept. 20, 2001); In re
Caldor, 217 B.R. 121 (Bankr. S.D.N.Y. 1998)). The Court agrees with LBHI.
A waiver is an “intentional relinquishment of a known right.” Voest-Alpine International
Corp. v. Chase Manhattan Bank, N.A., 707 F.2d 680, 685 (2d Cir. 1983). “The intention to
relinquish a right may be established either as a matter of law or [as a matter of] fact.” Id.; see
also Semtex Corp. v. UBAF Arab Am. Bank, 51 F.3d 13, 14 (2d Cir. 1995) (quoting Voest-
Alpine). Waiver is established as a matter of law where a party’s “express declarations … are so
inconsistent with his purpose to stand upon his rights as to leave no opportunity for a reasonable
inference to the contrary.” Voest-Alpine, 707 F.2d at 685 (internal quotation marks and citation
omitted).
Spanish Broadcasting’s reliance on NetTech Solutions and Caldor in support of its
argument is misplaced inasmuch as those cases involved implied waivers, thereby necessitating
an examination of the parties’ conduct and making summary judgment inappropriate. See
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NetTech Solutions, 2001 WL 1111966 at *6 (explaining that “[moving] defendants argue that
plaintiffs’ correspondence and actions establish plaintiffs[’] waiver of” certain claims at issue);
Caldor, 217 B.R. at 133 (addressing alleged implied waiver of right to recover overpayments
under a lease agreement). Here, by contrast, Spanish Broadcasting clearly manifested its intent
to relinquish its right to consequential damages when it agreed to include language in the Credit
Agreement stating that it “irrevocably and unconditionally … waives … any special, exemplary,
punitive or consequential damages.” LBHI Facts Ex. C § 10.12(e). Because there was no
implied waiver here, but rather, an explicit written damages waiver, the Court need not examine
the parties’ intent.
Limitation on liability provisions routinely are agreed upon by parties to contracts and
enforced by courts inasmuch as they “represent[] the parties’ [a]greement on the allocation of the
risk of economic loss in the event that the contemplated transaction is not fully executed … .”
Metro Life Ins. Co. v. Noble Lowndes Int’l, Inc., 643 N.E. 2d 504, 507 (N.Y. 1994); see also My
Play City, Inc. v. Conduit Ltd., 589 Fed. App’x 559, 562 (2d Cir. 2014). While parties “may
later regret their assumption of the risks of non-performance in this manner … the courts let
them lie on the bed they made.” Metro Life Ins., 643 N.E. 2d at 507 (quoting 5 CORBIN ON
CONTRACTS § 1086). The Court finds that, by entering into the Credit Agreement containing the
Damages Waiver, as of June 10, 2005, Spanish Broadcasting waived its right to, among other
things, seek consequential damages on account of the Credit Agreement and its related loan
documents.
2. The Damages Waiver Survived the Termination of the Credit Agreement
Spanish Broadcasting next argues that the plain language of the Payoff Letter as well as
communications between counsel to the parties to the Payoff Letter surrounding its negotiation
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and execution establish that the Damages Waiver did not survive termination of the Credit
Agreement. Opp’n at 21. Alternatively, Spanish Broadcasting submits that those
communications give rise to an issue of fact as to whether the parties intended for the Damages
Waiver to survive termination of the Credit Agreement via the Payoff Letter. Id.
Pursuant to the express language of the Payoff Letter, which provides that “all obligations
of [Spanish Broadcasting] and the other Loan Parties [under the Credit Agreement] and under the
other Loan Documents shall be terminated,” the parties terminated all of Spanish Broadcasting’s
“obligations” under the Credit Agreement, save for those contingent obligations that expressly
survived under the Credit Agreement or other loan documents. See Miller Decl. Ex. 4 § 1(a).
Spanish Broadcasting asserts, without support, that the Damages Waiver constitutes an
“obligation” of Spanish Broadcasting under the Credit Agreement because it “required Spanish
Broadcasting to waive its right to claim or recover consequential damages.” Opp’n at 12.
Accordingly, Spanish Broadcasting contends that section 1(a) of the Payoff Letter terminated the
Damages Waiver because it was an obligation of Spanish Broadcasting under the Credit
Agreement that did not expressly survive termination under the terms of the Credit Agreement or
other loan documents. Id.
The Damages Waiver is not, on its face, a continuing “obligation,” and Spanish
Broadcasting has offered no legal support for its argument that it should be considered one under
the Payoff Letter. Rather, the Damages Waiver is, by its terms, an irrevocable and unconditional
relinquishment of rights that was complete and required no further action from Spanish
Broadcasting upon execution of the Credit Agreement in June 2005. By the Payoff Letter, the
parties did not revoke or undo the Damages Waiver. See generally Miller Decl. Ex. 4. The
Payoff Letter terminated only “obligations” and does not affect the enforceability of the
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Damages Waiver; accordingly, there is no material issue of fact as to whether the parties
intended the Damages Waiver to survive.10 The Damages Waiver remains an unconditional and
enforceable waiver of Spanish Broadcasting’s right to bring suit for consequential damages that
was effective as of the execution of the Credit Agreement in 2005.11
3. Characterization of Damages as Direct or Consequential Does Not
Raise an Issue of Fact
The parties do not dispute that the Damages Waiver, if enforceable, bars suits for
consequential damages, but not direct damages, resulting from LCPI’s failure to fund its portion
of the RCF. Direct damages are “those which are the natural and probable consequence of the
breach.” Am. List Corp. v. U.S. News and World Report, Inc., 549 N.E.2d 1161, 1164 (N.Y.
1989), while consequential damages “compensate a plaintiff for additional losses (other than the
value of the promised performance) that are incurred as a result of the defendant’s breach.”
Global Crossing Telecommuns., Inc. v. CCT Communs., Inc. (In re CCT Communs., Inc.), 464
B.R. 97, 117 (Bankr. S.D.N.Y. 2011) (quoting Schonfeld v. Hilliard, 218 F.3d 164, 175 (2d Cir.
2000)).
Spanish Broadcasting asserts that the characterization of damages is an issue of fact that
must be reserved for trial. Opp’n at 28-29. That assertion is incorrect. See PNC Bank, N.A. v.
Wolters Kluwer Fin. Servs., Inc., 73 F.Supp. 3d 358, 372 (S.D.N.Y. 2014) (finding that “to the
extent PNC argues that the characterization of its damages request is a question of fact that may
not be resolved on summary judgment … it is wrong”). Indeed, “[c]ourts in this District have
10 The Court finds that, for the reasons described in the Reply, the cases cited by Spanish Broadcasting for the
proposition that a survival provision was required to preserve the Damages Waiver are inapposite. See Reply at 9-
11.
11 Moreover, Spanish Broadcasting, by its reliance on the history of negotiations of the Payoff Letter, essentially
asks the Court to disregard the plain language of the agreement. The Court declines to do so. See Hickman v.
Saunders, 645 N.Y.S.2d 49, 51 (App. Div. 1996) (explaining that, under New York law, “if the language of [a
written] agreement is free from ambiguity, its meaning may be determined as a matter of law on the basis of the
writing alone without resort to extrinsic evidence”).
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often determined, at the summary judgment stage, whether damages claims are general12 or
consequential.” Id. (citing Phoenix Warehouse of Calif., LLC v. Townley, Inc., No. 08 Civ. 2856
(NRB), 2011 U.S. Dist. LEXIS 37206, 2011 WL 1345134 (S.D.N.Y. Mar. 29, 2011); Compania
Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 650 F. Supp. 2d 314 (S.D.N.Y. 2009); E.
Brass & Copper Co. v. Gen. Elec. Supply Corp., 101 F. Supp. 410 (S.D.N.Y. 1951)).
4. The Alleged Damages are Consequential and, Therefore, Have Been Waived
Spanish Broadcasting has submitted purported expert reports13 of James Trautman and
Christopher J. Kearns.14 Both reports contain statements that Spanish Broadcasting submits
“expressly state, based on an in-depth analysis of Spanish Broadcasting’s damages,” that such
damages “are the natural and probable consequence of [LCPI’s] failure to fund the [Draw
Request].” Opp’n at 30. Spanish Broadcasting relies on these reports in support of its position
that its asserted damages, including the EBITDA Damages and the Swap Damages, constitute
direct damages rather than consequential damages.
Specifically, with respect to the EBITDA Damages, Spanish Broadcasting, relying on the
Trautman Report, asserts that, as a result of the decline in marketing and promotional
expenditures in the affected markets caused by LCPI’s failure to fund, Spanish Broadcasting
experienced declines in audience ratings and, therefore, a decline in advertising revenue. Opp’n
at 30; Trautman Report ¶¶ 7, 12-22. Mr. Trautman states that the decline in advertising revenue
12 General damages are synonymous with “direct” damages. See BLACK’ S LAW D ICTIONARY (10th ed. 2014) (noting
that “general damages” are also termed “direct damages”).
13 The Court adopts LBHI’s characterization of Messrs. Trautman and Kearns as “purported” experts because neither
has been qualified as an expert under the Federal Rules of Evidence. See Reply at 19; Fed. R. Evid. 702.
14 The reports are annexed as Exhibits 1 (Expert Report of James Trautman (the “Trautman Report”)) and 2 (Expert
Report of Christopher J. Kearns (the “Kearns Report”)) to the Declaration of Madlyn Gleich Primoff in Support of
Spanish Broadcasting System, Inc.’s Opposition to Motion by Lehman Brothers Holdings Inc. for Summary
Judgment Pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure Regarding Claim 67707 Filed By
Spanish Broadcasting System, Inc. [ECF No. 50421].
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was the natural and probable consequence of the reduction in marketing and promotional
expenditures. Trautman Report ¶¶ 7-9.
With respect to Swap Damages, Spanish Broadcasting asserts that, as a direct result of
LCPI’s failure to fund its $10 million portion of the RCF, Spanish Broadcasting did not have
sufficient funds to terminate the Swap and make an approximately $6 million close-out payment.
Opp’n at 8. Mr. Kearns concludes that (i) Spanish Broadcasting could not have obtained
replacement financing; (ii) the intended uses of the Draw Request are consistent with the
permitted use of revolving credit facility proceeds under the Credit Agreement; and (iii) Spanish
Broadcasting’s alleged damages were the natural and probable consequence of LCPI’s failure to
fund the Draw Request. Kearns Report at 3-7, 8, 15.
A close examination of the Trautman Report and the Kearns Report reveals, however,
that both reports are replete with unsupported conclusory statements and legal conclusions and,
in some instances, sheer speculation. For example, Mr. Trautman states that he bases his report
in part on (i) advice he received from Spanish Broadcasting’s counsel that direct damages are
“the natural and probable consequence of a breach of contract;” and (ii) Spanish Broadcasting’s
representation that it would have used $4 million of the $10 million requested from LCPI for
marketing and promotional expenses. Trautman Report ¶¶ 4, 5. Mr. Kearns, on the other hand,
concludes that Spanish Broadcasting could not have obtained replacement financing,
notwithstanding Spanish Broadcasting’s failure to provide evidence that it actually sought
replacement financing. Kearns Report at 3-7; Reply at 22 n. 14. Neither the Trautman Report
nor the Kearns Report supports the conclusion that the damages alleged by Spanish Broadcasting
constitute direct damages.
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LBHI correctly asserts that Spanish Broadcasting essentially seeks lost profits through its
claim for EBITDA Damages, which may be recovered as direct damages only when they
represent amounts a breaching party agreed to pay under the contract at issue. The Second
Circuit has explained, however, that lost profits constitute consequential damages when “the
non-breaching party suffers loss of profits on collateral business arrangements.” Tractebel
Energy Marketing, Inc. v. AEP Power Marketing, Inc., 487 F.3d 89, 109 (2d Cir. 2007). In
Compania Embotelladora, cited by LBHI in support of is position, the plaintiff sought “to
recover lost profits from lost sales to third-parties that [were] not governed” by the parties’
contract. 650 F. Supp. 2d at 322. The court held that the damages were “properly characterized
as consequential damages, because, as a result of [the defendant’s alleged] breach, [plaintiff]
suffered lost profits on collateral business arrangements.” Id. See also In re Vivaro Corp., No.
12-13810, 2014 WL 486288 at *4 (Bankr. S.D.N.Y. Feb. 6, 2014) (characterizing as
consequential damages plaintiff’s “lost profits from unmade sales to third-parties in collateral
transactions, none of which would have been governed by the contract between” the parties).
Here, Spanish Broadcasting, like the plaintiffs in Compania Embotelladora and Vivaro
Corp., is essentially seeking lost profits on collateral business arrangements through its claim for
EBITDA Damages. Relying on the Trautman Report, Spanish Broadcasting attempts to
characterize the EBITDA Damages as “diminution in value” damages allegedly resulting from
Spanish Broadcasting’s inability to spend $4 million on marketing expenses. See Opp’n at 29-
33. In fact, the Trautman Report demonstrates that the EBITDA Damages are properly
characterized as lost profits. Specifically, Mr. Trautman concludes:
I 	estimate 	that 	the 	aggregate 	loss 	in 	gross 	advertising 	sales 	for 	[Spanish
Broadcasting] in calendar year 2010 attributable to the reduced marketing and
promotional spending (i.e., compared to the position [Spanish Broadcasting]
would have been in had [LCPI] performed under the contract) amounted to on the
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order of $13 million. Moreover, it is my opinion that the effects of the reduction
in spending on [Spanish Broadcasting’s] market position and advertising sales
performance have been ongoing, since lost awareness and/or loyalty would only
be “recoverable” as a result of an exceptional (and costly) promotional effort to
recapture it.
Trautman Report ¶ 7 (emphasis in original). In other words, Mr. Trautman characterizes the
EBITDA Damages as lost advertising revenue, i.e., lost profits. The EBITDA Damages are thus
consequential damages and would be recoverable only if LCPI had agreed to pay them pursuant
to the Credit Agreement. LCPI did not do so. Accordingly, the EBITDA Damages are
consequential damages subject to the Damages Waiver.
LBHI also correctly asserts that the Swap Damages are not the “natural and probable
consequence” of LCPI’s failure to fund such that the Swap Damages could be considered direct
damages. See, e.g., Am. List Corp. v. U.S. News and World Report, Inc., 549 N.E.2d 1161, 1164
(N.Y. 1989) (holding that direct damages are “those which are the natural and probable
consequence of the breach”). Rather, the Swap Damages comprise losses resulting from a
collateral business relationship with LBSF, and, as such, bear no relationship to LCPI’s failure to
fund the Draw Request. The Swap Damages, like the EBITDA Damages, are consequential
damages.
Moreover, as LBHI argues, in order to demonstrate as a factual matter that the Swap
Damages are the natural and probable consequence of LCPI’s failure to fund, Spanish
Broadcasting would need to show not only that it would have terminated the Swap had it
received the $10 million from LCPI but also that without the $10 million from LCPI, Spanish
Broadcasting had no alternative but to keep the Swap in place. See Mem. Supp. Mot. at 28.
Such a showing is not possible on the basis of the record before the Court.
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As of October 6, 2008, when LCPI failed to fund its $10 million portion of the RCF and
Spanish Broadcasting received $15 million from the RCF, its available cash and impending
payment obligations were as follows:
 	$49 million of cash ($34 million plus $15 million RCF);
 	$8.5 million required to be kept pursuant to the MBC Guaranty;
 	$18.5 million payable on the Mega TV Note on January 2, 2009;
 	$5 million interest payment on the Term Loan, payable in December 2008;
 	$2.5 million dividend on preferred stock, payable in cash or in kind, on October 15, 2008.
Accordingly, on October 6, 2008, when Spanish Broadcasting had the right to terminate the
Swap and make a close-out payment to LBSF of approximately $6 million, it had $40.5 million
of cash available to do so. Indeed, whether Spanish Broadcasting opted to pay the preferred
stock dividend in kind or in cash, it still could have elected to prioritize the remainder of its
funds differently than it actually did. For example, it could have paid its upcoming $23.5 million
in obligations, and made the $6 million close-out payment to terminate the Swap, while retaining
$11 million in available cash. Accordingly, LCPI’s failure to fund its portion of the RCF did not
limit Spanish Broadcasting’s ability to terminate the Swap. Thus, Spanish Broadcasting’s
decision not to terminate the Swap was in every sense just that: Spanish Broadcasting’s decision.
The resulting Swap Damages were not a natural and probable consequence of LCPI’s failure to
fund that would render such damages “direct damages” under applicable case law. Thus, the
Swap Damages are not direct damages caused by LCPI’s breach and therefore must be
considered consequential damages subject to the Damages Waiver.
IV. Conclusion
For the reasons stated, the Motion is granted. To the extent not already withdrawn, and
with the exception of the Fee Damages, the Claim shall be disallowed in its entirety and
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expunged from the claims register. 	LBHI is directed to settle an order consistent with this
Memorandum Decision.
Dated: December 29, 2015
New York, New York
/s/ Shelley C. Chapman
UNITED STATES BANKRUPTCY JUDGE
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