Highland Capital Management, L.P. v. Bank of America

Case: 11-11139 Document: 00512006871 Page: 1 Date Filed: 10/02/2012

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
October 2, 2012

No. 11-11139 Lyle W. Cayce
Clerk

HIGHLAND CAPITAL MANAGEMENT, L.P.

Plaintiff-Appellant
v.

BANK OF AMERICA, NATIONAL ASSOCIATION

Defendant-Appellee

Appeal from the United States District Court
for the Northern District of Texas

Before BENAVIDES, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:
In this case, Plaintiff-Appellant Highland Capital Management, L.P.
(“Highland”) appeals the district court’s dismissal under Federal Rule of Civil
Procedure 12(b)(6) of its claims for breach of contract and promissory estoppel
brought against Defendant-Appellee Bank of America, National Association
(“Bank of America”). Because we find that the district court was justified in
dismissing Highland’s promissory estoppel claim, but that it erred in dismissing
Highland’s breach of contract claim, we affirm in part, and reverse and remand
in part.
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FACTUAL AND PROCEDURAL BACKGROUND
Because Highland appeals the district court’s order granting Bank of
America’s motion to dismiss under Rule 12(b)(6), we recite the facts as stated in
Highland’s complaint. See, e.g., Harold H. Huggins Realty, Inc. v. FNC, Inc., 634
F.3d 787, 794 (5th Cir. 2011). In late 2009, party representatives for Highland
and Bank of America entered negotiations seeking to reach an agreement
whereby Bank of America would sell its interest in certain bank debt (the
“Regency Loan”) to Highland. On December 3, 2009, Highland’s representative,
Pat Daugherty, called Bank of America’s representative, Andrew Maidman, to
finalize the agreement and its terms. According to Highland’s First Amended
Complaint, Daugherty and Maidman agreed in the phone conversation to all
material terms of the debt trade, including the description, amount, and price
of the debt to be sold, namely, $15,500,000 of the Regency Loan at the price of
93.5% of par. Pursuant to industry practice, the agreement also incorporated
standard terms and conditions published by the Loan Syndications and Trading
Association, Inc. (“LSTA”) providing that an oral debt-trade agreement is
binding on the parties, so long as the agreement includes all material terms.
According to Highland, Maidman did not reserve any non-LSTA, non-industry
terms or conditions during the December 3 phone call.
Following the December 3 phone conversation and on that same day,
Daugherty sent an email to Maidman in which he confirmed that the debt-trade
agreement was complete. Maidman responded shortly thereafter with an email
confirming the agreement and adding that it was “subject to appropriate
consents and documentation.” Pl.’s First Am. Compl. ¶ 10, Highland Capital
Mgmt., L.P. v. Bank of Am., N.A., 2011 WL 5428779 (N.D. Tex. Nov. 7, 2011)
(No. 3:10-CV-1632-L) [hereinafter Pl.’s Compl.]; see also Highland Capital
Mgmt., L.P. v. Bank of Am., N.A., No. 3:10-CV-1632-L, 2011 WL 5428779, at *5
(N.D. Tex. Nov. 7, 2011). Highland alleged that, pursuant to industry practices,

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this “subject to” language called for the incorporation of the LSTA’s standard
terms in the agreement, but did not undermine the enforceability of the original
oral agreement, nor did it permit either party to demand the inclusion of
non-industry or non-LSTA standard terms in the agreement.
After December 3, 2009, Bank of America refused to settle the debt trade
unless Highland agreed to include additional terms in the agreement relating,
among other matters, to indemnification, legal fees, and waiver of legal claims.
According to Highland, these additional terms departed from the standard terms
governing the December 3 oral agreement. In response, Highland filed suit
against Bank of America on July 27, 2010 for breach of contract and promissory
estoppel, alleging that the terms sought by Bank of America did not conform to
the parties’ oral agreement. Because the Regency Loan was paid off at 100% of
par, Highland claimed that Bank of America’s failure to settle the deal as agreed
upon caused Highland to lose the increased value of the principal of the Regency
Loan. Bank of America filed a motion to dismiss under Rule 12(b)(6) and on
November 7, 2011, the district court granted the motion. This timely appeal
followed.
STANDARD OF REVIEW
This Court reviews a district court’s grant of a motion to dismiss de novo,
“accepting all well-pleaded facts as true and viewing those facts in the light most
favorable to the plaintiff.” Bustos v. Martini Club Inc., 599 F.3d 458, 461 (5th
Cir. 2010) (quotation marks omitted). Those facts, however, “taken as true,
[must] state a claim that is plausible on its face.” Amacker v. Renaissance Asset
Mgmt. LLC, 657 F.3d 252, 254 (5th Cir. 2011). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint is insufficient if it offers
only “labels and conclusions,” or “a formulaic recitation of the elements of a

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cause of action.” Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555
(2007)).
ANALYSIS
Relying on the “subject to” language of the parties’ December 3, 2009
emails, the district court held that, because the parties did not intend to be
bound without additional “consents and documentation,” no binding contract was
formed on December 3, 2009, either through the December 3 phone conversation
or the parties’ subsequent emails. Highland Capital Mgmt., 2011 WL 5428779,
at *5. With respect to the promissory estoppel claim, the court held that
Highland did not allege a clear and unambiguous promise, nor did it allege
reasonable reliance on that promise. Id. at *8. On appeal, Highland argues that
the district court’s dismissal of Highland’s breach of contract claim was
erroneous because the court failed to accept Highland’s well-pleaded facts as
true and, in addition, improperly considered factual issues regarding the
contracting parties’ intent and industry standards governing the formation of
the alleged contract. Highland argues that, taken as true, its well-pleaded facts
establish that the December 3, 2009 phone conversation created a binding
contract.1 Highland also argues on appeal that its well-pleaded allegations
demonstrate the existence of a clear and unambiguous promise on which
Highland relied, thus rendering the district court’s dismissal of Highland’s
promissory estoppel claim erroneous. We address Highland’s arguments in turn.

1
Highland also alleges that, even if no binding oral contract was formed, a preliminary
agreement was formed whereby Bank of America was obligated to engage in good-faith
negotiations according to industry practices. Because we hold that the district court erred in
dismissing Highland’s claim that a binding oral contract was formed, we need not reach this
alternative argument.

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I. Breach of Contract
An enforceable contract requires “a mutual intent to be bound.” Four
Seasons Hotels Ltd. v. Vinnik, 515 N.Y.S.2d 1, 5 (N.Y. App. Div. 1987).2 If a
contract is unambiguous, then a court may decide the parties’ intent as a matter
of law, but where the contract is ambiguous, or “cannot be interpreted without
resort to extrinsic evidence,” then the factfinder must determine the parties’
intent. Brighton Inv., Ltd. v. Har-ZVI, 932 N.Y.S.2d 214, 216 (N.Y. App. Div.
2011). Courts use an objective test to determine whether the parties intended
to enter into a contract, looking to “the manifestation of a party’s intention
rather than the actual or real intention.” Vinnik, 515 N.Y.S.2d at 6 (quoting 21
N.Y. Jur. 2d, Contracts, § 29). In addition, even if a writing indicates that the
parties left certain terms open for further negotiation, the parties are still bound
by the contract if the matters left open were not deemed to be material by the
parties. Id.
Oral contracts are also valid under New York law, Winston v. Mediafare
Entm’t Corp., 777 F.2d 78, 80 (2d Cir. 1985), but if the parties do not intend to
be bound by an oral contract until a writing is signed, then they are not bound
until that time, Powell v. Omnicom, 497 F.3d 124, 129 (2d Cir. 2007); see also
R.G. Grp., Inc. v. Horn & Hardart Co., 751 F.2d 69, 74 (2d Cir. 1984). With
respect to oral contracts, whether a contracting party intends to be bound is a
question of fact for the factfinder to resolve. Consarc Corp. v. Marine Midland
Bank, N.A., 996 F.2d 568, 576 (2d Cir. 1993). Courts generally consider four

2
Highland originally filed suit in Texas state court, after which Bank of America
removed the action to federal district court based on diversity jurisdiction. The district court
applied New York law “[b]ecause the LSTA Standard Terms state that they are governed by
New York law and both parties acknowledge that Plaintiff’s claims are governed by New York
law[.]” Highland Capital Mgmt., 2011 WL 5428779, at *2. We likewise analyze Highland’s
claims under New York law.

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factors in determining whether parties intend to be bound absent a writing:
“(1) whether there has been an express reservation of the right not to be bound
in the absence of a writing; (2) whether there has been partial performance of
the contract; (3) whether all of the terms of the alleged contract have been
agreed upon; and (4) whether the agreement at issue is the type of contract that
is usually committed to writing.” Powell, 497 F.3d at 129. The circumstances
indicating an intent to be bound “may be shown by ‘oral testimony or by
correspondence or other preliminary or partially complete writings.’” Winston,
777 F.2d at 81 (quoting Restatement (Second) of Contracts § 27 cmt. c (1981)).
Relying on the language in the parties’ December 3 emails, the district
court held that Highland failed to state a claim for breach of contract “[b]ecause
the parties’ communications do not reveal an intent to be bound absent
additional consents and documentation.” Highland Capital Mgmt., L.P., 2011
WL 5428779, at *5. Specifically, the district court focused on Maidman’s email
stating that the agreement was “subject to appropriate consents and
documentation” and Daugherty’s email stating that the parties were “done on
this trade subject to agent and borrower consents.” Id. (emphasis omitted). The
district court found that these emails clearly show that the parties recognized
that “further consents and documentation were necessary to finalize their
agreement,” such that there was no intent to be bound, and thus no valid claim
for breach of contract under New York law. Id.
In contrast, Highland’s complaint alleges that the parties had orally
agreed to all material terms of the trade during their telephone call without
reserving any non-industry terms or conditions, and agreed that the trade was
subject only to the standard terms of the LSTA based on the parties’ past
dealings. See Pl.’s Compl. ¶¶ 9, 20. Furthermore, Highland alleged that the

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LSTA standard terms specify that “the parties agree to be ‘legally bound’ by any
subsequent phone call or email between them that reaches an agreement as to
the material terms,” and that “a party must expressly reserve any non-industry
standard terms at the time the agreement is reached by phone call, email or
otherwise, or else those terms are waived and the agreement is a binding and
enforceable contract.” Id. ¶ 13 (emphasis omitted).
When viewed in the light most favorable to Highland, and taking the
above allegations as true, Highland has made a viable claim for breach of an oral
contract. Highland alleged in its complaint that, notwithstanding their
subsequent emails, the parties entered a binding and enforceable oral agreement
on December 3, 2009—an agreement which, pursuant to the allegedly agreed-to
standard terms of the LSTA, was not susceptible to the addition of non-industry
terms or conditions. Taken as true, these allegations support a viable claim for
breach of contract when coupled with Highland’s assertion that after the
December 3 agreement, Bank of America “demanded additional, non-industry
standard terms to be included . . . before [Bank of America] would comply with
its obligation to sell its interest in the Regency Loan.” Id. ¶ 25.
The district court viewed the “subject to” language in the parties’
subsequent emails as negating any “intent to be bound absent additional
consents and documentation,” Highland Capital Mgmt., L.P., 2011 WL 5428779,
at *5, and it is true that Highland’s complaint admits that Maidman’s email
stated that any agreement between Highland and Bank of America was “subject
to ‘appropriate consents and documentation,’” Pl.’s Compl. ¶ 21. But the district
court’s interpretation of the “subject to” language ignores other facts pleaded by
Highland which, when accepted as true, define this language in a manner that
preserves Highland’s breach of contract claim. Most notably, Highland’s

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complaint asserts that “the consents and documentation referenced in [Bank of
America]’s email to Highland were constrained by the LSTA Standard Terms,
and any specific terms that deviated from the LSTA Standard Terms were
required to be expressly reserved in [Bank of America]’s confirmation of the
trade at the time the binding agreement was reached telephonically.” Id. ¶ 24
(emphasis omitted). Specifically, Highland alleged that, within the industry, all
debt trades are typically subject to the borrower’s consent, and “even if the
borrower does not consent, the LSTA Standard Terms still require the parties
to close the transaction as a participation rather than an assignment.” Id. ¶ 22
(emphasis omitted). Therefore, according to Highland, “the borrower’s consent
is not a condition precedent to the formation of a binding and enforceable trade.”
Id. Similarly, with respect to the reference to “documentation” in Maidman’s
email, the complaint alleges that “bank debt trades conducted under the LSTA
Standard Terms typically involve the execution of a standard trade confirmation
to close the transaction,” but the execution of a confirmation “is not a condition
precedent to the formation of a binding and enforceable trade once the parties
agree to the material terms of the sale.” Id. ¶ 23.3 Accordingly, because
Highland asserted in its complaint that the parties did not reserve any
non-industry, non-LSTA standard terms, but Bank of America nonetheless
demanded non-standard terms after December 3, 2009, id. ¶ 24., Highland
presents a viable claim for breach of contract.
The district court stated that industry practice “cannot create an intent to
be bound when the parties’ intentions as expressed in their communications

3
Highland quotes the Handbook of Loan Syndications and Trading in support of this
allegation, which states that “[w]hile the confirmation is the first step in closing a trade, it is
not the first step in making a trade. The trade is actually made orally between two market
participants . . . . [L]oan trades done orally are binding contracts, so long as the material terms
of the contract have been agreed upon.” Id. ¶ 14 (emphasis omitted).

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indicate otherwise,” but can merely “be considered in determining whether a
contract was formed.” Highland Capital Mgmt., L.P., 2011 WL 5428779, at *5.
While this may be a correct statement of law, Highland does not look merely to
industry practice in pleading intent,4 but also states that the parties agreed to
all material terms, as well as the LSTA standard terms. Pl.’s Compl. ¶ 9.
Highland asserts that, according to the latter, once parties have executed a
confirmation incorporating the LSTA standard terms, they “agre[e] to be legally
bound to any other transaction between them . . . upon reaching agreement to
the terms thereof (whether by telephone, exchange or electronic messages or
otherwise . . .), subject to all the other terms and conditions set forth in any
confirmation relating to such transaction, or otherwise agreed.” Id. ¶ 12.5
Highland’s complaint alleges that Highland and Bank of America had entered
into past trades governed by the LSTA standard terms, such that any future
trades between them were bound by those terms. Id. ¶¶ 16-20. Thus, it appears
from Highland’s allegations regarding the LSTA standard terms that the parties
were bound once they orally agreed to the material terms of their transaction,
even if the later written confirmation would contain additional “subject to”

4
We are also not convinced that the parties’ communications contradict a finding that
the parties intended, according to industry practices, to be bound by their December 3 oral
agreement, at least not when Highland’s explanation of the meaning of the “subject to consents
and documentation” language is taken to be true. Bank of America may dispute whether the
debt-trade industry’s practices actually support Highland’s definition of the “subject to”
language, but industry practice and usage are issues of fact to be determined by the trier of
fact. SR Int’l Bus. Ins. Co. v. World Trade Ctr. Props., LLC, 467 F.3d 107, 134 (2d Cir. 2006).
5
The district court found that this “unambiguous language in the LSTA Standard
Terms” did not preclude the inclusion of non-LSTA terms, Highland Capital Mgmt., L.P.,
2011 WL 5428779, at *5, but this conclusion is not supported by the facts alleged in Highland’s
complaint. As discussed above, Highland adequately alleged the limiting effect of the LSTA
standard terms on the parties’ December 3, 2009 oral agreement. See Pl.’s Compl. ¶¶ 13–15,
24.

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conditions. Bank of America may argue that the parties never agreed on all
material terms, but that is an issue of fact, and it should not be a basis for
dismissing the claim. See Red Oak Fund, L.P. v. MacKenzie Partners, Inc., 934
N.Y.S.2d 401, 402–03 (N.Y. App. Div. 2011) (“Defendant’s claim that there was
no meeting of the minds . . . is merely another way of disputing plaintiff’s
allegations regarding the parties’ agreement.”).
Because the district court viewed the parties’ emails as indicating a lack
of intent to be bound, it did not employ the four-factor test used in New York to
analyze intent. Again, that test asks “(1) whether there has been an express
reservation of the right not to be bound in the absence of a writing; (2) whether
there has been partial performance of the contract; (3) whether all of the terms
of the alleged contract have been agreed upon; and (4) whether the agreement
at issue is the type of contract that is usually committed to writing.” Powell, 497
F.3d at 129. Taking Highland’s allegations as true, there is no indication that
Bank of America expressly reserved the right not to be bound without a writing.
While there was no partial performance, Highland does allege that the parties
agreed to all material terms. See Vinnik, 515 N.Y.S.2d at 6 (stating that
material terms must be definite, but that “[a] contract does not necessarily lack
all effect merely because it expresses the idea that something is left to future
agreement”). Finally, the LSTA standard terms and the Handbook of Loan
Syndications and Trading both indicate that debt trades can be conducted orally,
and only later committed to a written confirmation. The test therefore does not
result in a clear finding that the parties did not intend to be bound.
As a final matter, it is helpful to compare this case to one at the summary
judgment stage, which is a distinction that is dispositive in our review of the
district court’s ruling. The above test is not overly useful in analyzing the

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parties’ intent at the motion to dismiss stage because there is a lack of evidence
to which the test can be applied. As the district court stated, it is true that in
New York an unambiguous contract is construed as a matter of law. Highland
Capital Mgmt., L.P., 2011 WL 5428779, at *3 (citing Metro. Life Ins. Co. v. RJR
Nabisco Inc., 906 F.2d 884, 889 (2d Cir. 1990)). But this case involves an oral
contract, the terms of which were not memorialized in a writing, draft or
otherwise. Like an ambiguous contract, the alleged agreement here cannot be
analyzed without resort to extrinsic evidence. Furthermore, as stated earlier,
whether or not parties intend to be bound by an oral contract is usually a
question of fact for the factfinder. Consarc, 996 F.2d at 576.
The emails following the allegedly binding oral contract do not
“unambiguously” indicate that the parties did not intend to be bound. This is
shown by Highland’s pleadings regarding the manner in which debt deals are
conducted, the meaning of “subject to” language in those deals, and the
particulars of the parties’ negotiations here. The issue of intent is thus unfit for
a decision as a matter of law at this early stage. See Vinnik, 515 N.Y.S.2d at 6
(“Being essentially factual in nature, proof bearing upon the question of
contractual intent should not be considered by the court prior to joinder of issue
unless . . . the court gives notice of its intention to give the case summary
judgment treatment.”). Our view is bolstered by the fact that much of the
relevant caselaw relied upon by the district court involves cases dealt with at the
summary judgment stage. See, e.g., Consarc, 996 F.2d at 577 (reversing
summary judgment); Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension
Plan, 7 F.3d 1091, 1094 (2d Cir. 1993) (same); Seiden Assocs. v. ANC Holdings,
Inc., 959 F.2d 425, 427–428 (2d Cir. 1992) (same); see also Har-ZVI, 932
N.Y.S.2d at 217 (affirming denial of summary judgment because the parties’

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written communications were not clear, such that “intent must be determined
by assessing . . . the totality of the circumstances,” which “depends on
assessments of credibility and inferences to be drawn from the conflicting
evidence, and so must be made by the trier of fact”). Moreover, since Highland’s
and Bank of America’s emails could reasonably indicate an intent to be bound
according to industry custom, or conversely could indicate that there was not yet
a binding agreement, dismissal is inappropriate without other evidence of
intent—evidence which simply cannot be ascertained at the motion to dismiss
stage since we may not look beyond Highland’s well-pleaded facts.
Here, the emails between Highland and Bank of America do not clearly
negate an intent to be bound when viewed in light of Highland’s well-pleaded
facts. See Vinnik, 515 N.Y.S.2d at 10 (“The point is that the letter of March 10,
construed in light of the facts as alleged in the complaint, is not so indefinite as
to raise an inference of non-finality so certain as to render the complaint
dismissable prior to joinder of issue.”). Standing alone, the emails on which the
district court relied in dismissing Highland’s breach of contract claim may
suggest the absence of intent to be bound, but Highland’s allegations regarding
the binding effect of the December 3 phone conversation, the parties’ agreement
to abide by the LSTA’s standard terms, Bank of America’s failure to seek
inclusion of any non-industry, non-LSTA standard terms, and the meaning of the
parties’ “subject to” language under the LSTA standard terms renders the intent
of the parties, at the very least, ambiguous. Without further evidence regarding
the parties’ interactions and industry custom and practice, it is not possible to
definitively determine whether the parties intended to be bound by their oral
agreement. Taking the facts in Highland’s complaint as true, and viewing them
in the light most favorable to Highland, Bustos, 599 F.3d at 461, Highland has

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stated a plausible claim for relief against Bank of America for breach of contract,
Amacker, 657 F.3d at 254. Thus, the district court erred in dismissing for failure
to state a claim.
II. Promissory Estoppel
“To establish a claim for promissory estoppel, a plaintiff must allege (1) a
clear and unambiguous promise, (2) reasonable and foreseeable reliance by the
party to whom the promise is made, and (3) an injury sustained in reliance on
the promise.” Sabre, 944 N.Y.S.2d at 42 (quotation marks omitted). If the
parties have a valid contract, then a claim for promissory estoppel cannot stand.
Susman v. Commerzbank Capital Mkts. Corp., 945 N.Y.S.2d 5, 8 (N.Y. App. Div.
2012).
The district court held that Highland had failed to state a claim for
promissory estoppel because a clear and unambiguous promise was absent.
Highland Capital Mgmt., L.P., 2011 WL 5428779, at *8. Specifically, the district
court found that “[n]either the parties’ communications nor the LSTA Standard
Terms include an express promise,” and that, “[w]hile it is possible that in the
context of the trade, the parties’ communications coupled with the circumstances
in which it was made could be a promise, any such promise is far from the clear
and unambiguous type required to support a claim of promissory estoppel.” Id.
The court also held that the parties made clear that additional consents and
documentation were required, and “New York courts have held that any alleged
reliance by a plaintiff on a promise to enter an agreement is unreasonable if the
promise is made subject to obtaining approval or execution of a written
agreement memorializing the parties’ agreement.” Id. Highland’s complaint
alleged that Bank of America “promised to [Highland] that [Bank of America]
would settle a transaction in accordance with the parties’ telephonic and email

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confirmations of the material terms of the trade,” and Highland “reasonably and
substantially relied on [Bank of America]’s promise to its detriment.” Pl.’s
Compl. ¶ 39.
The district court’s dismissal was proper because Highland has not
adequately pleaded reliance on Bank of America’s promise, and we therefore
need not reach the question of whether Highland adequately alleged a clear and
unambiguous promise for the purposes of its promissory estoppel claim.
Nowhere does the complaint elaborate how Highland relied on Bank of America’s
promise, nor are there any allegations that Highland was harmed by any actions
it took based on that promise. The only harm Highland alleges it withstood is
its loss of the “benefit of the increased value of the principal of the Regency
Loan, as well as the interim interest payments made on the Regency Loan since
the date of the trade.” Id. ¶ 26. These damages are not the result of any
reliance by Highland. Instead, they simply result from Bank of America’s failure
to follow through on the alleged agreement between the parties.
In order to state a valid claim for relief, a plaintiff must offer more than
“labels and conclusions,” or “a formulaic recitation of the elements of a cause of
action.” Iqbal, 556 U.S. at 678. Here, Highland has done nothing more than
recite the elements of a promissory estoppel claim and assert that Bank of
America’s actions meet those requirements. Accordingly, the district court’s
dismissal of Highland’s promissory estoppel claim, albeit on different grounds,
was correct.
CONCLUSION
For the foregoing reasons, we AFFIRM the dismissal of Plaintiff-Appellant
Highland Capital Management, L.P.’s promissory estoppel claim. We REVERSE

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the district court’s dismissal of Highland’s breach of contract claim, and remand
for further proceedings consistent with this opinion.

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