Tuesday, October 23, 2012
Bank of America (BoA) recently experienced a setback when the Fifth Circuit reversed a ruling from the Northern District of Texas granting BoA's Motion to Dismiss a breach of contract claim brought by Highland Capital Management (“Highland”). The case, Highland Cap. Mgt., L.P v. Bank of Am., Nat. Ass’n., was decided on October 2, 2012.
According to Highland’s complaint, the parties entered into an agreement via telephone regarding BoA's interest in certain bank debt. Highland alleged that, during the phone conversation, the parties agreed to all material terms, including the price of the debt to be sold ($15,500,000 at the price of 93.5% of par), and that the agreement was binding pursuant to industry standards and the standard terms as published by the Loan Syndications and Trading Association, Inc (“LSTA”).
BoA claimed, and it was undisputed, that shortly after the phone conversation, on the very same day, it sent an e-mail to Highland confirming the agreement but including the language “subject to appropriate consents and documentation.” When BoA refused to settle the debt trade unless Highland incorporated additional terms relating to indemnification, legal fees, etc., Highland filed suit alleging promissory estoppel and breach of contract.
The Fifth Circuit had no trouble dispensing with Highland’s promissory estoppel claim, stating that Highland did nothing more than “recite the elements of a promissory estoppel claim and assert that the Bank’s actions met those requirements.” However, it did find a triable issue of fact with respect to the breach of contract claim.
When determining whether parties intend to be bound absent a writing, the court considers whether there has been an express reservation of the right not to be bound in the absence of a writing, whether there has been partial performance of the contract, whether all of the terms of the alleged contract have been agreed upon, and whether the agreement at issue is the type of contract that is usually committed to writing. While the District Court found that BoA's "subject to" language indicated an absence of intent to be bound, the Fifth Circuit found that conclusion at odds with other facts alleged in the complaint. Particularly, that the “consents and documentation” referenced by BoA’s email were controlled by the LSTA Standard Terms, and “any specific terms that deviated from the LSTA standard terms were required to be expressly reserved by the Bank.” There was no indication that BoA expressly reserved the right not to be bound and Highland alleged that the parties’ had agreed upon the material terms.
Standing alone, BoA’s email, which prompted the District Court to rule in favor of BoA, may suggest an absence of intent to be bound. Nevertheless, construing Highland’s claims in the light most favorable to Highland, it has alleged sufficient facts to render the Distroct Court's grant of BoA's motino to dismiss improper.
[Christina Phillips & JT]