Kasowitz Challenges Enforceability of "Bad Boy" Guarantees

Kasowitz Challenges Enforceability of "Bad Boy" Guarantees

Kasowitz represents commercial real estate investor David Lichtenstein and one of his affiliated entities, Lightstone Holdings LLC, in defending against lawsuits by two groups of lenders, each of which is seeking to enforce a $100 million non-recourse carve-out guaranty. Under the guaranty -- part of the $8 billion financing by which Lichtenstein and Lightstone acquired the Extended Stay Hotel chain in June 2007 -- liability is purportedly triggered by the occurrence of certain "bad boy" acts, such as fraud or corporate waste. In separate lawsuits originally filed in New York State court, the lenders claim that the "bad boy" liability under the guaranty was triggered by Extended Stay's filing of a Chapter 11 bankruptcy petition on June 15, 2009. Kasowitz removed the lawsuits to the district court for the Southern District of New York, which directed them to the bankruptcy court where the Extended Stay bankruptcy is pending. In opposing the lenders' motion to remand the actions to state court, Kasowitz argues that the bankruptcy court should determine the enforceability of the "bad boy" guaranties, because they penalize Lichtenstein for having properly exercised his fiduciary duties when he authorized Extended Stay's bankruptcy filing. Kasowitz partner David E. Ross and associate Alana S. Klein are working on the matter.