Case: 13-11026 Document: 00512687021 Page: 1 Date Filed: 07/03/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 13-11026
Fifth Circuit
FILED
July 3, 2014
Lyle W. Cayce
Clerk
HIGHLAND CAPITAL MANAGEMENT, L.P.,
Plaintiff–Appellant,
versus
BANK OF AMERICA, N.A.,
Defendant–Appellee.
Appeal from the United States District Court
for the Northern District of Texas
No. 3:10-CV-1632
Before SMITH, WIENER, and PRADO, Circuit Judges.
JERRY E. SMITH, Circuit Judge: *
Highland Capital Management, L.P. (“Highland”), and Bank of America
entered negotiations for the bank to sell to Highland a $15.5 million loan (the
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 13-11026
“Regency Loan”) at 93.5% of par value. On December 3, 2009, Highland’s rep-
resentative, Daugherty, and the bank’s representative, Maidman, had a tele-
phone call in which they agreed to that price. Maidman, however, stated dur-
ing that call and in a subsequent email that the trade was “subject to appro-
priate consents and documentation.”
Highland sued to enforce the putative contract. This dispute centers on
whether an oral contract was formed under New York law when the price of
the trade was agreed to, or whether Maidman’s caveat evinced the bank’s
intent not to be bound by Maidman’s caveat. The district court granted sum-
mary judgment for Bank of America, holding that there was no genuine dispute
of material fact. We agree and affirm.
I.
A.
The district court ruled that New York substantive law applies because
Bank of America and Highland had entered into trades in the past that
included terms stating that New York law would govern all future trades, and
because the bank’s own draft contract documents in the present trade suggest
that it intended New York law to apply. We apply New York law because nei-
ther side disagrees.
B.
The law on contract formation is not in question. As a panel of this court
explained at the Rule 12(b)(6) stage of this case, each party must manifest an
intent to be bound. 1 When there is an alleged oral contract, the court considers
1 Highland Capital Mgmt., L.P. v. Bank of Am., Nat’l Ass’n, 689 F.3d 202, 206–07 (5th
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extrinsic evidence and looks for four factors: (1) whether there has been an
express reservation to be bound only in writing, (2) whether there has been
partial performance, (3) whether all terms have been agreed to, and
(4) whether the agreement is of the kind usually committed to writing. 2
The question is therefore whether Highland has pointed to evidence to
create a genuine dispute as to whether Bank of America intended to be bound.
Highland insists that, notwithstanding the apparent reservation and that
there was no partial performance, it has presented evidence that all terms have
been agreed to and that the agreement is not the kind usually committed to
writing. Highland’s theory is somewhat confusing but seems to rely entirely
on industry custom. It maintains that when the dealings are interpreted in
light of industry custom, as evinced by the standard terms for such trades
promulgated by the Loan Syndications and Trading Association (“LSTA”), a
genuine dispute exists as to whether the bank’s agreement to the price dem-
onstrates an intent to be bound. But Highland also seems to contend sepa-
rately that Bank of America previously conducted a trade with it in which the
LSTA terms governed, and one of those terms stated that any future trade
between the two will be binding once they agree on the price.
Highland’s first theory is problematic. The LSTA standard terms are not
binding law, and so long as Bank of America expressed an intent not to be
governed by the LSTA, anything that the LSTA has to say about contract for-
mation is of no import. It could be that the LSTA reflects “industry custom”
and that such custom suggests that the bank intended to bind itself once it
agreed to all the terms discussed in the phone call. But the bank demonstrated
Cir. 2012) (citing Powell v. Omnicom, 497 F.3d 124, 129 (2d Cir. 2007)).
2 See id. at 208; Winston v. Mediafare Entm’t Corp., 777 F.2d 78, 80 (2d Cir. 1985).
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that it did not want to follow the LSTA, the LSTA standard terms tell us noth-
ing about the bank’s intent.
The evidence that the bank intended not to be bound is overwhelming,
and the only evidence that Highland puts forward is question-begging. Maid-
man explained in the phone call that the deal would be “subject to appropriate
consents and documentation.” Daugherty admits that Maidman said, “We
have our own docs.” Shortly after the conversation, Maidman sent Daugherty
an email and reiterated that the trade “is subject to appropriate consents and
documentation.” Later that same day, the bank’s outside counsel, David
Eades, emailed another Highland employee, Carter Chism, and stated,
We’ve been retained by BoA in connection with this proposed loan
trade. Can you give me a call at your convenience to discuss matters?
Note that BoA does not plan to use Banc [sic] of America Securities
trading desk for this matter, so its protocol may differ from similar
trades you have done with the bank.
The next day, another Bank of America employee, Caroline Yingling,
emailed Chism to explain that the LSTA Standard Terms do “not contain the
necessary confidentiality provisions.” On December 9, she again emailed
Chism with draft documents and explained that they “remain subject to fur-
ther review and final approval.” She also warned that, before the bank would
attempt to get the borrower’s consent to the loan assignment, it would first
need to “work[] out any comments” Highland had about the draft documents.
When Chism responded on December 11 with the LSTA trade-confirmation
forms, Yingling reiterated that the prior draft documents would have to be
agreed to in addition to the LSTA trade confirmations. She also repeated that
the bank would have to agree to the draft documents before attempting to
obtain the borrower’s consent to the assignment.
The district court also relied on Daugherty’s deposition testimony that,
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although he had said the deal was “done”—the customary way to finalize a
trade deal—he admitted that he could not get anyone at the bank to say that
it was “done.” Specifically, Daugherty testified, “I could never get [Maidman]
to say we were done. I remember that, being very frustrated. He would never
say he was done. And it was, you know, cause for concern because obviously
I wanted to do this trade, and I could never get him to say we were done.”
Daugherty also testified that he “didn’t think it was a guaranteed deal.”
Further, Daugherty testified that he recognized Maidman was not a
trader and that, although his “trading etiquette” was “terrible” and “very
annoying,” Daugherty “had to tolerate it because [he] knew [he] wasn’t going
through the standard process, or whatever, of trading with a trading desk.”
Highland acknowledges that Maidman had no experience trading loans and
admits that Maidman said nothing about the LSTA in the December 3 call.
There was no agreement as to any particular confirmations, and on
December 18 Chism circulated revised confirmations. Yingling responded by
adding two terms: that the trade is still subject to consent of the borrower, and
the bank is not liable if it is unable to obtain such consent. Highland rejected
the indemnification provision, and negotiations deteriorated. Eventually the
loan would pay off at par value.
Highland has put forward no facts to create a genuine dispute as to
whether industry custom might change the meaning of Bank of America’s deal-
ings. Although industry custom is extrinsic evidence a factfinder can use to
determine the parties’ intent to be bound, its value is substantially diminished
where, as here, other evidence overwhelmingly shows that the persons
involved in the dealings were unaware of those customs. Industry custom is
not binding law but only helps the trier of fact to understand the meaning of
the words used. Highland admits that Maidman and Yingling were unfamiliar
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with the LSTA and were “novices” in this area. Highland tries to avoid this
bind by claiming on appeal that Bank of America was an experienced LSTA
trader, but that is irrelevant. Whether the bank intended to be bound in this
instance depends on the knowledge, understanding, and words of its
representatives.
Highland offers no evidence to suggest that Bank of America even
thought the LSTA terms would apply. Indeed, when the LSTA was finally
mentioned after Highland sent over an LSTA confirmation, the bank explicitly
said it did not want to use that confirmation because it did not contain the
necessary confidentiality provisions. The bank’s documents never mentioned
the LSTA. Highland wants us to interpret this to mean that the bank never
proposed to use something other than the LSTA. But Highland is assuming,
without proof, that somehow the LSTA is a background principle of law that is
binding on the parties unless they opt out. That assumption is unfounded.
Highland relies heavily on the SAG Credit Approval Document, noting
that it did not include the later controversial indemnification terms. Highland
asks this court to believe that, therefore, the bank intended to be bound by the
LSTA terms only until much later, when it allegedly found out that the loan
would pay at par and therefore wanted the indemnification provision. But that
again assumes that the default rules are the LSTA terms, even though weighty
evidence has been adduced that the bank did not want the LSTA to govern,
and no evidence has been presented indicating that the bank expected to be
bound by the LSTA. More generally, the fact that the bank did not include the
future terms that it would eventually seek tells us nothing about whether the
bank had already agreed to be bound by the current proposed terms. Indeed,
Maidman explicitly told Highland that he would need approval for the terms
in the SAG Credit document, as Highland admits.
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Highland’s remaining evidence is beside the point. Even if the district
court erroneously found that Bank of America had checked the “assignment
only” box on the LSTA confirmation and did not know that the loan would pay
full value until much later, none of that speaks to whether the LSTA pro-
cedures for the creation of an enforceable contract were ever binding on the
bank in the first place. Regarding the December 11 confirmation that suppos-
edly incorporated the LSTA, Highland never countersigned, so there was still
no agreement at that point. Lastly, the evidence that “commercial loan trades
are typically not committed to writing” cannot counteract objective indications
that the bank wanted this trade to be in writing. Industry custom, again, is
not binding law but merely a tool by which courts interpret contract language.
The decision in APS Capital Corp. v. Mesa Air Group, Inc., 580 F.3d 265
(5th Cir. 2009), on which Highland heavily relies, has nothing to do with the
issues here. There the court found a contract ambiguous because it had lan-
guage suggesting a completed transaction—both said “done” after deciding on
the price—but the email said it was a “preliminary” agreement and that a
“fuller” agreement would have to be negotiated. Moreover, there was only
passing mention of the LSTA. Here, in contrast, Highland’s whole argument
is based on whether the LSTA applies, and Highland has not adduced any evi-
dence or cited any law regarding the binding effect of prior LSTA agreements
or otherwise suggesting that the bank’s representatives were acting within the
same customary industry framework in which Highland was operating.
For its second theory, Highland claims that no later than October 2003—
six years before the current trade—it and the bank executed an LSTA con-
firmation that incorporated the “Binding Effect Standard Term” of
“Paragraph 21” of the standard LSTA terms. “Because Highland and Bank of
America . . . had executed LSTA confirmations on multiple prior trades,”
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Highland argues, “by default the parties had already agreed to the LSTA’s
Binding Effect Provision and Form of Purchase Standard Term before they
began negotiating the Regency Loan trade.” Accordingly, Highland writes, the
bank had to opt out of the LSTA unambiguously, and “contractual obligations
existed between Bank of America and Highland before they ever began negoti-
ating the Regency Loan trade.”
This proposition is a matter of contract interpretation, which is not a
question for the trier of fact. 3 Whether a prior contract had a binding effect on
the procedures available for future contract-formation is a legal question. And
Highland has put forward no caselaw to establish that a prior LSTA trade
binds the corporate entity to its contract-formation procedures. Indeed, High-
land cites no caselaw on the meaning of Paragraph 21, so at best it has waived
this part of its argument on appeal. 4
II.
Highland contends that the district court erred in excluding its expert
report by Allison Taylor, a co-founder and past executive director of the LSTA.
We agree with the district court’s observation that the report is excludable
because it makes several legal conclusions reserved for the court, improperly
credits or discredits witness testimony, and otherwise makes factual determin-
ations reserved for the trier of fact. Either way, the report offers no evidence
whatsoever that the LSTA’s terms were binding on Bank of America. It offers
no relevant evidence about industry custom not already discussed above.
Finally, as for Highland’s alternative claim that even if no contract had
3 X Techs., Inc. v. Marvin Test Sys., Inc., 719 F.3d 406, 413 (5th Cir. 2013).
4 See L&A Contracting Co. v. S. Concrete Servs., Inc., 17 F.3d 106, 113 & n.27 (5th Cir.
1994).
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been formed, the bank had an obligation to negotiate a final contract in good
faith, Highland agrees with the district court’s legal conclusion that the test to
determine whether a preliminary agreement existed is “substantially identi-
cal” to the question whether an oral contract was formed. Therefore, relying
on the same evidence previously adduced, we conclude that no preliminary
agreement existed.
The judgment is AFFIRMED.
9