One tenant went bankrupt. Now an $11.7M question splits two readings of the same contract
A federal appeals court has revived a commercial borrower's fight against Wells Fargo and servicer LNR Partners over millions in swept loan cash.
The dispute starts in 2018. MUFG Union Bank loaned Aberdeen Developers $41 million, secured by a Chicago mixed-use building worth around $73 million. MUFG later sold its lender rights to a corporation that named Wells Fargo Bank as trustee. Wells Fargo, in turn, appointed LNR Partners as the loan's special servicer – the party that makes the substantive decisions about how the loan is run.
Two documents control the deal. A Loan Agreement sets the general terms. A Cash Management Agreement, known as the CMA, spells out how money from the building moves.
The arrangement held until the pandemic. In January 2021, one of the building's largest tenants filed for bankruptcy. That allowed the servicer to declare a Cash Sweep Trigger Event. From that point, the building's income stopped flowing to Aberdeen's operating account and started landing in an account LNR Partners controls. Each month the servicer pays taxes, insurance, fees and expenses in a fixed order of priority. Whatever remains – the excess cash flow – is the heart of the case.
Aberdeen says the contract requires that leftover cash be returned to it at the end of each month. LNR Partners says it can hold the money in a separate sweep account as additional security until a cash sweep cure occurs. Neither side argues that a cure has happened or ever will.
The stakes are real. As of the amended complaint, the servicer had accumulated about $2.3 million, growing by roughly $150,000 a month. If no cure occurs before the loan term ends in 2029, the court noted, the account could reach an estimated $11.7 million.
Aberdeen sued for breach of contract in Illinois state court in August 2023. The defendants moved the case to federal court and asked a judge to dismiss it. The district court agreed, finding the documents plainly favored the lender and servicer.
The Seventh Circuit saw it differently. Writing for the panel, Judge Scudder found that both sides offered reasonable readings of the same words – which, under Illinois law, is exactly what makes a contract ambiguous. And when a contract is ambiguous, its meaning becomes a question of fact that a judge cannot settle on a motion to dismiss. The court reversed the dismissal and sent the case back for more proceedings.
The takeaway for commercial servicers and borrowers is direct. Cash sweep and cash management terms that look bulletproof in a healthy deal can come apart under stress. Here, one section described funds being held as collateral while another described those funds being disbursed to the borrower – and neither said clearly how long the servicer could keep swept cash. The trigger was never the problem. The duration was. That is where careful drafting earns its keep, and where this case will now be fought out on the facts.
