River Capital Advisors v. F.C.S. Advisors, Incorpo ( 2014 )

Case: 13-40196 Document: 00512493778 Page: 1 Date Filed: 01/08/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
January 8, 2014
No. 13-40196 Lyle W. Cayce
Clerk
RIVER CAPITAL ADVISORS OF NORTH CAROLINA, INC.,
Plaintiff-Appellee,
v.
FCS ADVISORS, INC. and BREVET CAPITAL SPECIAL OPPORTUNITIES
MASTER FUND, L.P.
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Texas
USDC No. 4:10-CV-471
Before REAVLEY, DAVIS, and HIGGINSON, Circuit Judges.
PER CURIAM:*
I.
The plaintiff broker, River Capital Advisors of North Carolina, Inc.
(“River Capital”), was engaged by a prospective borrower, Aruba Energy, LLC
(“Aruba”), to assist in obtaining substantial financing for a start-up business
in the oil and gas industry. The defendants-appellants, FCS Advisors, Inc., and
Brevet Capital Special Opportunities Master Fund, L.P. (“Appellants”), agreed
* 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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. 13-40196
to make the loan to Aruba in installments. When Aruba notified Appellants
that a significant portion of the proceeds of one of the initial loan installments
would be allocated to pay River Capital’s brokerage fee, Appellants declined to
make the loan and requested that Aruba and River Capital agree to defer
nearly the entire brokerage fee until a later date. Aruba and River Capital
agreed to do so. Once the remaining portion of the brokerage fee became due,
Appellants refused to grant Aruba’s borrowing request that would enable
Aruba to pay River Capital, because Aruba was in default at the time the
request was made. River Capital sued Appellants to recover the fee owed by
Aruba on a theory that Appellants tortiously interfered with River Capital’s
agreement with Aruba. After a bench trial, the district court rendered
judgment in favor of River Capital on the grounds that Appellants had granted
other borrowing requests by Aruba during that same time period while Aruba
was in default. We reverse because the loan agreement between Appellants
and Aruba provided Appellants the right to decline the installment loan at
issue if Aruba was in default.
II.
The district court had subject matter jurisdiction under 28 U.S.C. § 1332,
and we have jurisdiction over this timely appeal under 28 U.S.C. § 1291.
III.
“When reviewing a district court decision after a bench trial, we review
factual findings for clear error and conclusions of law de novo.” 1 We also review
mixed questions of law and fact de novo. 2 A factual finding is clearly erroneous
1 United States v. McFerrin, 570 F.3d 672, 675 (5th Cir. 2009) (citations omitted).
2 In re Luhr Bros., Inc., 325 F.3d 681, 684 (5th Cir. 2003).
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when “although there is evidence to support it, the reviewing court on the
entire evidence is left with the definite and firm conviction that a mistake has
been committed.” 3 “Like contract interpretation, tortious interference with
contract is a mixed question of law and fact. Conclusions of law are reviewed
de novo. In contrast, whether the elements of contractual interference have
been satisfied is a factual question . . . .” 4
IV.
The Appellants raise a number of defenses. We conclude that their
justification defense clearly resolves this appeal. Appellants contend that,
under Texas law, they were justified in denying Aruba’s borrowing request for
the loan out of which the Success Fee to River Capital would be paid because
Aruba was in default at the time the request was made. Thus, Appellants argue
the district court erred in imposing liability on them under a theory of tortious
interference with River Capital’s contract with Aruba.
“Texas jurisprudence has long recognized that a party to a contract has
a cause of action for tortious interference against any third person . . . who
wrongly induces another contracting party to breach the contract.” 5 To
establish a claim for tortious interference with contract under Texas law, a
plaintiff must prove: (1) the existence of a contract subject to interference, (2)
a willful and intentional act of interference; (3) the act was a proximate cause
of the plaintiff’s damages; and (4) actual damages or loss. 6 “Even if a plaintiff
3In re Renaissance Hosp. Grand Prairie Inc., 713 F.3d 285, 293 (5th Cir. 2013) (quoting
Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573 (1985)).
4 Ham Marine, Inc. v. Dresser Indus., Inc., 72 F.3d 454, 461 (5th Cir. 1995).
5 Holloway v. Skinner, 898 S.W.2d 793, 794–95 (Tex. 1995).
6 Id. at 795–96.
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establishes the elements of [tortious interference], a defendant may still
prevail upon establishing the affirmative defense of justification.” 7
Under Texas law, the justification defense is based on the exercise of (1)
one’s own legal rights, or (2) a good-faith claim to a colorable legal right, even
though that claim ultimately proves to be mistaken. 8 If the defendant has a
legal right to interfere with a contract, then he “has conclusively established
the justification defense, and the motivation behind assertion of that right is
irrelevant.” 9 “[I]n a tortious interference case, a defendant’s motivation behind
the assertion of a legal right is irrelevant since the right conclusively
establishes the justification defense.” 10
The district court concluded that Appellants could not rely upon the
justification defense because they “failed to establish that they acted in good
faith in exercising a colorable legal right, and, as a result, their
privilege/justification defense does not provide an independent basis to bar
Plaintiff from the relief sought herein.” The court found that Appellants’
refusal to fund Aruba’s borrowing requests for payment of the Success Fee due
to default was inconsistent with its other conduct during that same period. The
court characterized the Appellants’ conduct as “pick[ing] and choos[ing] which
creditors of Aruba would be paid.”
We conclude that the district court erred in identifying the relevant legal
right exercised by Appellants to deny Aruba’s Borrowing Requests. Appellants,
7 Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 210 (Tex. 1996).
8Prudential Ins. Co. of Am. v. Fin. Review Servs. Inc., 29 S.W.3d 74, 80 (Tex. 2000) (citing
Texas Beef, 921 S.W.2d at 211).
9 Texas Beef, 921 S.W.2d at 211 (citation omitted).
10 Calvillo v. Gonzalez, 922 S.W.2d 928, 929 (Tex. 1996).
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as lender, were entitled to deny borrowing requests if Aruba, the borrower, was
in default under the provisions of the Term Loan Agreement.
Section 2 of the Term Loan Agreement provides that Appellants, as
lender, had “no obligation to make any Term Loan unless and until the
conditions set forth in this Section 2, and the applicable conditions set forth
elsewhere in [the] Agreement, including Section 4, have been satisfied . . . .”
Section 4.2 of the Agreement, which contains various Conditions Precedent to
the funding of a Term Loan, gives Appellants the right to deny a Borrowing
Request if Aruba was in default. 11 The fact that Aruba was in default is
undisputed. As explained above, the provisions of the Term loan Agreement
give Appellants the legal right to deny a borrowing request when the borrower
is in default. Thus, Appellants are not required to establish that they acted in
good faith, since the assertion of a legal right “conclusively establishe[s] the
justification defense.” 12 Our inquiry ends there. Appellants were justified
under Texas law to deny Aruba’s borrowing request, regardless of their motive
for doing so. 13 Therefore, Appellants were legally justified in declining to make
11 Section 4.2 provides, in pertinent part:
4.2 Additional Conditions Precedent to Term Loans. The agreement of each
Lender to make the initial Term Loan on the Closing Date and any other Term
Loan on a Borrowing Date is subject to the satisfaction, prior to or concurrently
with the making of such Term Loans on such date, of the following conditions
precedent:
...
(c) No Default. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the Term Loans requested to
be made on such date.
12Calvillo, 922 S.W.2d at 929. See also In re Wright, 138 F.App’x. 690, 694 (5th Cir. 2005)
(unpublished) (“First, we think Texas law, as set forth in Texas Beef Cattle and Calvillo, . . .
recognizes the justification defense regardless of . . . motive.”).
13 We also see no basis to say the lender was in bad faith simply because it made some loans
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the loan and did not tortiously interfere with River Capital’s contract with
Aruba.
V.
Accordingly, we reverse the district court and render judgment in favor
of Appellants.
REVERSED and RENDERED.
and denied others. That is what bankers do. For example, loans necessary for the borrower
which is in default to continue operations may well be approved and other loans declined;
exercising judgment is required and we should be extremely hesitant to second guess such
decisions.
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