Bank of the West v. Valley National Bank of Arizona

Two banks loaned $11 million dollars pursuant to a loan participation agreement between them. The participating bank relied more heavily on the lead bank than the participation agreement allowed. After the debtor failed, a flood of lawsuits cost the lead bank millions of dollars. The lead bank sued the participating bank to recover one-half the litigation expenses. The participating bank counterclaimed, alleging that the lead bank fraudulently induced it to advance money by failing to share important information. The lead bank won below. We affirm, except for a collateral source rule issue regarding the lead bank’s insurance.

I. FACTS

Bank of the West loaned money to Technical Equities Corporation. As the line of credit grew, Bank of the West needed another bank to participate in order to avoid violating its lending limits. (Ex 279). In a series of loan participation agreements, Valley National Bank committed itself to 50% of the loan and 50% of any extraordinary expenses. (Ex 410, 427, 483). “A [loan] participation, as distinguished from a multi-bank loan transaction (syndicated loan), is an arrangement in which a bank makes a loan to a borrower and then sells all or a portion…