Whitney Bank v. SMI Companies Global, Inc. ( 2020 )

Case: 18-31189 Document: 00515296349 Page: 1 Date Filed: 02/03/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 18-31189
Fifth Circuit
FILED
February 3, 2020
WHITNEY BANK, Lyle W. Cayce
Clerk
Plaintiff - Appellant Cross-Appellee
v.
SMI COMPANIES GLOBAL, INCORPORATED; VAUGHN S. LANE,
Defendants - Appellees Cross-Appellants
Appeals from the United States District Court
for the Western District of Louisiana
Before SMITH, DENNIS, and HAYNES, Circuit Judges.
JAMES L. DENNIS, Circuit Judge:
Whitney Bank, a Mississippi corporation, sued SMI Companies Global,
Inc., a Louisiana corporation, and its president and loan guarantor, Vaughn S.
Lane, a Louisiana resident, to collect under two loan agreements upon which
SMI allegedly defaulted. SMI filed several counterclaims against Whitney for
breaches of the loan agreements, negligent misrepresentation, and tortious
interference with its business relations. After a bench trial, the magistrate
judge 1 required SMI to repay the amount it owed on the first loan plus interest,
1The parties consented to the case being tried before a magistrate judge, pursuant to
28 U.S.C. § 636(c).
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totaling more than $1.2 million, but relieved SMI of its obligation to repay the
outstanding principal and interest on the second loan. The magistrate judge
also ruled in favor of SMI on all of its counterclaims and ordered that Whitney
pay SMI $3.5 million in damages on those claims. For the reasons that follow,
we AFFIRM in part, REVERSE in part, and REMAND.
I. FACTS AND PROCEDURAL BACKGROUND
SMI Companies Global, Inc. (SMI) was an equipment fabricator in the
oil and gas industry. In December 2012, SMI applied for a loan from Whitney
Bank (Whitney) to fund its general business operations. Whitney and SMI
initially agreed to a $1 million revolving line of credit (Loan 1), secured by
SMI’s accounts receivable and with SMI’s president Vaughn Lane as
guarantor. 2 The parties renewed the agreement in 2014 and 2015, and
increased the maximum credit amount to $1.5 million. According to the
agreement, SMI could borrow up to $1.5 million depending on what its
accounts receivable supported, its borrowing base, 3 as evidenced through
certificates that SMI was required to submit to Whitney. Loan 1 matured on
July 31, 2016, when SMI was required to “pay [the] loan in one payment of all
outstanding principal plus all accrued unpaid interest.”
In March 2015, Halliburton Corporation offered SMI a $2 million
contract to construct eight steel acid tanks. At the time, business at SMI was
slow due to the decrease in oil prices, which caused an industry-wide economic
downturn. Moreover, the terms of the project were onerous, especially for a
2 Whitney and SMI executed three documents pertaining to this line of credit: (1) a
business loan agreement; (2) a promissory note; (3) and a commercial security agreement.
Additionally, Lane executed a commercial guaranty, and a guarantor acknowledgement.
Collectively, these documents are referred to in this opinion as Loan 1.
3 According to trial testimony, a borrowing base certificate is an instrument that tells
the bank what the borrowing company has in receivables and therefore the amount that the
company should be permitted to borrow from the bank.
2
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company experiencing cash-flow problems—most significant was the
withholding of payment until all eight vessels were delivered. Eager to accept
an opportunity for new business amid a market downturn but unable to do so
without outside financing, SMI turned to Whitney.
Whitney agreed to extend a $900,000 line of credit (Loan 2) 4 for the
Halliburton job. Under the terms of Loan 2, the loan matured on April 3, 2016,
and, like Loan 1, it was secured by SMI’s accounts receivable, along with SMI’s
other property, and was guaranteed by Lane. SMI argues that Loan 2 was
intended to be secured solely by the Halliburton receivables as collateral and
segregated from SMI’s other accounts receivable securing Loan 1. However,
the text of the contract does not reflect such an agreement.
Before the parties executed Loan 2, SMI relayed all information
regarding the Halliburton project to a commercial loan officer at Whitney,
including the payment schedule. Whitney was aware of SMI’s poor financial
condition, knew that SMI could not complete the Halliburton project without
the loan, and knew that SMI could not repay the loan until the Halliburton
project was complete.
The Halliburton job encountered delays, and actual work on the tanks
did not begin until March 2016, a month before Loan 2 matured. In April 2016,
the parties extended Loan 2’s maturity date to July 3, 2016, though both
parties knew that the project could not be completed by that date. In late May
2016, Whitney’s loan officer e-mailed Lane stating he would request that
Whitney combine Loans 1 and 2 and set a maturity date of December 2016 to
“continue the accommodation with regards to Halliburton.” No agreement was
4 Whitney and SMI executed three documents pertaining to this line of credit: (1) a
business loan agreement; (2) a promissory note; (3) and a commercial security agreement.
Collectively, these documents are referred to in this opinion as Loan 2.
3
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ever memorialized, however, and Loan 2’s maturity date was never extended
past July 3, 2016. SMI began meeting with Whitney on a weekly basis to
submit funding requests for the upcoming week. While Lane testified that a
loan officer at Whitney orally assured SMI that it would continue to fund
payroll so that SMI could stay afloat, Whitney declined to fund payroll in late
June 2016. At that time, SMI had borrowed the full $900,000 principal amount
available under Loan 2.
Still, as Loan 2’s July 3 maturity date loomed, SMI had steadily reduced
the debt on Loan 1, with a total credit line of $1.5 million, to an amount just
over $1 million. The Halliburton project was on schedule, with the delivery of
two tanks imminent. Halliburton had agreed to make interim project
payments for every two vessels produced rather than waiting until the end of
the project. In light of this potential for earlier payment, Whitney and SMI
communicated extensively about an extension of the lines of credit. However,
except for the earlier extension of Loan 2’s maturity date to July 3, 2016, the
terms of Loans 1 and 2 were never altered. By Loan 2’s July 3, 2016, maturity
date, SMI had failed to repay any portion of that $900,000 loan.
Per the terms of both loan agreements, SMI’s failure to pay by the
maturity date triggered default on Loan 2 and a cross-default on Loan 1,5
which meant that “all indebtedness immediately [became] due and payable, all
without notice of any kind to [SMI].” Under the terms of the contracts,
Whitney had the ability to exercise rights against the collateral securing the
loans—all of SMI’s accounts receivable. Loans 1 and 2 stated that in the event
of default, Whitney could collect from SMI’s customers and instruct them to
make payments directly to Whitney to pay off the loans.
5 A cross-default occurs when a provision of one loan agreement (here, Loan 2) states
that a default on that loan puts a borrower in default on another obligation (here, Loan 1).
4
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But Whitney did not immediately attempt to collect. Instead, Whitney
bankers met with SMI and Lane throughout July to attempt to devise a
workout plan. With SMI’s cooperation, Whitney required all payments on the
Halliburton project be made directly to the bank. After SMI delivered the first
two tanks, Halliburton sent the first payment on July 18, 2016, which reduced
Loan 2’s balance by almost half. The six remaining tanks were on schedule for
delivery in pairs.
Despite the ongoing negotiations between SMI and Whitney regarding
Loan 2, on July 21, 2016, a Whitney loan officer notified Lane that Loan 2 was
being moved to a new department in the bank, which SMI later discovered was
the Special Assets department. The Whitney officer also informed Lane that
Whitney’s commercial lending department, with whom SMI had been
communicating and negotiating about Loan 2, should no longer be contacted.
Whitney did not provide an explanation for this shift. A few days later,
Whitney instructed Lane that he should direct all communication to Liskow &
Lewis, Whitney’s outside counsel. SMI and Lane repeatedly but unsuccessfully
requested that direct communication with Whitney be reestablished.
On August 5, 2016, Loans 1 and 2 were charged-off, 6 and two days later,
Halliburton cancelled its project with SMI. On August 18, Whitney’s counsel
made a written demand on SMI, advising that the SMI loans were in default
and setting forth the principal and interest amounts due. Whitney’s counsel
also sent demand letters to several SMI customers demanding payments
directly to Liskow & Lewis. In exercising its right to collect from SMI
customers that owed money to SMI, Whitney did not coordinate its collection
6According to trial testimony, charged-off loans are no longer “active.” They are “loans
that the bank has deemed to be of less than adequate asset quality and . . . no longer a
bankable asset and are taken off the bank’s books by charging to the loan loss reserve
account.”
5
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efforts with SMI nor did it verify whether, or how much, any SMI customer
owed. As a result, notices were sent to SMI customers that did not owe SMI
any money or had already paid the amounts they owed. Whitney never
provided SMI with copies of demands sent to SMI customers or advised of any
amounts collected as a result of those demands. After the notices were sent,
some SMI customers canceled contracts. On December 14, 2016, SMI
terminated its operations.
While the money Whitney collected reduced the deficit that SMI owed on
the defaulted loans, as of November 2016, SMI’s debt to Whitney totaled
around $1 million in principal and interest from the uncollected portions of the
two defaulted SMI loans. Whitney sued SMI and Lane to recover the unpaid
balances on the two loans, plus accrued interest, contractual attorneys’ fees,
costs, and expenses. In their answer, SMI and Lane asserted that they had no
obligation to repay the loans because of Whitney’s alleged breaches of contract,
breaches of fiduciary duty, tortious interference with SMI’s business
relationships, and bad faith. SMI also brought counterclaims for breach of
contract, breach of duty to deal in good faith, negligent misrepresentation, and
tortious interference with business relations. The parties stipulated that
neither loan was repaid in full by their respective maturity dates—July 31,
2016 for Loan 1, and July 3, 2016 for Loan 2.
After a bench trial, the magistrate judge determined that Whitney
breached Loan 2 by failing to continue to advance funds to SMI as needed
through completion of the Halliburton project. The magistrate judge found
that, though Loan 2 had an express maturity date of July 3, 2016, “it was the
common intent of the parties . . . that the $900,000 revolving line of credit
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created a production loan 7 or production credit that required the bank to fund
that line of credit through the completion of SMI’s contract with Halliburton.”
The magistrate judge explained that this was “apparent from the face of the
business loan agreement, which states that the purpose of the loan was ‘for a
temporary overline to provide funds for a particular contract with
Halliburton.’” Over Whitney’s objections, the magistrate judge considered and
relied on extrinsic evidence, including testimony from various Whitney
employees and an expert witness hired by SMI.
The magistrate judge also found that Whitney breached Loan 2 “by
requiring SMI to submit borrowing base certificates and [calculating] the
amount of available funding based on a percentage of the eligible accounts
receivable” because “[t]here is no provision in the loan documents for [Loan 2]
requiring that advances be limited on the basis of the borrower’s accounts
receivable.” The magistrate judge found that Whitney, in breaching Loan 2,
violated the duties of good faith and commercial reasonableness and listed
twenty-one “[e]xamples of Whitney Bank’s breach of these duties.” The
magistrate judge then held that Whitney’s failure to fund the Halliburton
contract to completion constituted a “substantial breach” and that, as a result,
SMI and Lane were relieved from repaying the uncollected principal and
interest under Loan 2.
Having already ruled in favor of SMI on its breach of contract
counterclaim, the magistrate judge next ruled in SMI’s favor on its
7 The magistrate judge stated that production loans are “loans made to cover the
production of a crop or the construction or manufacture of an object such as the tanks that
SMI contracted to build for Halliburton. A production loan requires a commitment from the
lender that financing will be available to the borrower from before the ‘production’ or
‘construction’ starts through the completion of the project.” With production loans, the
magistrate judge explained, “the borrower and the lender have a full understanding that the
loan last until the maturity of the production.”
7
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counterclaims for negligent misrepresentation, and tortious interference with
business relations. He awarded SMI and Lane damages in the total amount of
$3.5 million, equivalent to the court’s estimate of SMI’s enterprise value or,
alternatively, its lost profits from customers it lost due to its demise. Next, the
magistrate judge found that Whitney did not breach—and was entitled to fully
recover and collect—all outstanding principal and interest on Loan 1. The
magistrate judge denied Whitney’s claim for contractual attorney’s fees.
The magistrate judge entered judgment for Whitney and against SMI
and Lane, as guarantor, for the outstanding principal and default interest
balance on Loan 1, totaling $1,277,164.23. In the same judgment, the
magistrate judge ruled that SMI and Lane were relieved from repayment
obligations on Loan 2, and that, on their counterclaims, they were entitled to
recover $3,500,000 from Whitney. Whitney timely filed a notice of appeal, and
SMI and Lane cross-appealed.
We first review the magistrate judge’s conclusion that Whitney breached
Loan 2 but not Loan 1. Next, we evaluate SMI’s remaining counterclaims for
negligent misrepresentation, tortious interference with business relations, and
breach of duty to deal in good faith. Finally, we review the denial of contractual
attorney’s fees to Whitney.
II. BREACH OF CONTRACT
As explained in further detail below, SMI’s breach of contract claim
against Whitney fails for two reasons: First, under basic contract
interpretation principles, the mere recital of the purpose of the loan, when read
in conjunction with the rest of the document, did not require Whitney to
continue to provide funding to SMI until that purpose was fulfilled, regardless
of SMI’s default and failure to make payment as required under the loans.
Second, the remainder of SMI’s breach claims are based on unwritten,
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purported oral agreements between Whitney employees and SMI. These
claims fail by operation of the Louisiana Credit Agreement Statute, whose
purpose is to prevent precisely this type of claim.
A. Breach of the Terms of Loans 1 and 2
We first evaluate the magistrate judge’s conclusion that Whitney
breached the terms of Loan 2. “Interpretation of a contract is the
determination of the common intent of the parties.” LA. CIV. CODE art. 2045.
“When the words of a contract are clear and explicit and lead to no absurd
consequences, no further interpretation may be made in search of the parties’
intent.” LA. CIV. CODE art. 2046. Moreover, “when a clause in a contract is
clear and unambiguous, the letter of that clause should not be disregarded
under pretext of pursuing its spirit.” Id. cmt. b (citing Maloney v. Oak Builders,
Inc., 235 So. 2d 386, 390 (La. 1970)). “In Louisiana, ‘parol or extrinsic evidence
is generally inadmissible to vary the terms of a written contract unless there
is ambiguity in the written expression of the parties’ common intent.’” Total E
& P USA Inc. v. Kerr-McGee Oil & Gas Corp., 719 F.3d 424, 435 (5th Cir. 2013)
(quoting Blanchard v. Pan–OK Prod. Co., 32,764 (La. App. 2 Cir. 4/5/00); 755
So. 2d 376, 381). “A provision susceptible of different meanings must be
interpreted with a meaning that renders it effective and not with one that
renders it ineffective.” LA. CIV. CODE art. 2049. “Each provision in a contract
must be interpreted in light of the other provisions so that each is given the
meaning suggested by the contract as a whole.” LA. CIV. CODE art. 2050.
The Business Loan Agreement for Loan 2 contained the following
purpose of loan statement:
APPLICATION FOR AND PURPOSE OF THE LOAN. Borrower
has applied to Lender for a Loan in the aggregate principal amount
of $900,000.00 for the following purpose: NEW LOAN REQUEST:
LOAN PURPOSE FOR A TEMPORARY OVERLINE TO
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PROVIDE FUNDS FOR A PARTICULAR CONTRACT WITH
HALLIBURTON.
It had an express maturity date of April 3, 2016, which was later extended by
the parties in writing to July 3, 2016. SMI agreed to repay the loan with
interest at the date of maturity and granted a security interest in all its
accounts receivable. At Loan 2’s maturity date, Whitney had the contractual
right “to insist upon immediate payment in full of the unpaid principal balance
then outstanding under [the] Note, plus accrued interest, together with
reasonable attorneys’ fees, costs, expenses and other fees, and charges as
provided [in the contract].” According to the terms of Loans 1 and 2, Whitney
had “no obligation to make Loan Advances or to disburse Loan proceeds if . . .
[SMI] or [Lane] is in default under the terms of this Agreement,” including
“default[ing] in the payment of principal or interest under the Note.”
Construing the provisions of the loan documents so that each is given the
meaning suggested by the parties’ agreement as a whole, we conclude that,
contrary to SMI’s arguments and the magistrate judge’s findings, the
statement of the purpose of the loan did not require Whitney to continue
advancing funds until the completion of the Halliburton projects. See, e.g.,
Lafargue v. United States, 193 F.3d 516, 1999 WL 706064, at *5 (5th Cir. 1999)
(“essentially agree[ing]” with the reasoning of two district courts that “the
mere recital in the deed of the purpose for which the land conveyed was to be
used is not in itself sufficient to impose any limitation or restriction on the
estate granted” (alteration omitted)). “Each provision in a contract must be
interpreted in light of the other provisions so that each is given the meaning
suggested by the contract as a whole.” LA. CIV. CODE art. 2050. “Legally, all
of the terms of a contract must be read in pari materia so as to give each
provision of the contract a meaning and practical consequence.” Lancaster v.
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Petroleum Corp., 491 So. 2d 768, 777 (La. Ct. App. 1986). The magistrate
judge’s interpretation of the purpose statement as requiring Whitney to fund
the Halliburton project through completion would render Loan 2’s maturity
date meaningless. It would also have been pointless for the parties to extend
the maturity date of the loan from April 3, 2016, to July 3, 2016, if the loan’s
terms required Whitney to continue funding until the project was complete.
It is clear from the plain language of the contract that the parties
intended that the loan mature on July 3, 2016, and that Whitney be paid on
July 3, 2016, regardless of whether the Halliburton project was complete. See
Cash v. Liberty Ins. Underwriters, Inc., 624 F. App’x 854, 859-60 (5th Cir. 2015)
(reversing the district court’s finding that a contract was ambiguous under
Louisiana law). If the parties had intended for Whitney to fund the
Halliburton project to completion, or for the loan to mature only after the
project was completed, “they could have drafted the contractual language that
way . . . but they did not.” Id. at 860.
Contrary to SMI’s argument, the Louisiana concept of legal cause does
not alter this analysis. In Louisiana, “[c]ause is the reason why a party
obligates himself.” LA. CIV. CODE art. 1967. Lawful cause is a requirement for
contract formation, along with capacity, consent, and certain object. LA. CIV.
CODE art. 1966; Leger v. Tyson Foods, Inc., 95-1055 (La. App. 3 Cir. 1/31/96);
670 So. 2d 397. “The cause of an obligation is unlawful when the enforcement
of the obligation would produce a result prohibited by law or against public
policy.” LA. CIV. CODE art. 1968. For example, a contract to open an illegal
gambling ring would be void for lack of lawful cause. SMI argues that Loan 2’s
purpose statement morphed into a binding contractual term by virtue of its
being the cause of the contract. There is no support for this interpretation of
the concept of cause in the Civil Code or Louisiana jurisprudence. The only
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relevant inquiry into cause is whether the reason that a party obligated himself
was lawful—and here, the reasons for each of the parties’ obligations clearly
were.
Because the contract’s terms were unambiguous, the magistrate judge
erred in disregarding “the letter of that clause . . . under pretext of pursuing
its spirit.” LA. CIV. CODE art. 2046 cmt. b. 8 Reviewing the plain text of the
agreement, Whitney did not breach Loan 2 by refusing to fund the Halliburton
project to completion or extend the maturity date. 9
The magistrate judge also found that Whitney breached Loan 2 “by
requiring SMI to submit borrowing base certificates and to calculate the
amount of available funding based on a percentage of the eligible accounts
receivable” because unlike Loan 1, Loan 2 did not expressly state that advances
would be limited based on SMI’s accounts receivable.
Reviewing de novo, Whitney’s actions did not breach Loan 2. Nat’l Union
Fire Ins. Co. v. Circle, Inc., 915 F.2d 986, 989 (5th Cir. 1990). The magistrate
judge did not identify which provision of the contract Whitney violated, and we
find no written provision of Loan 2 that prohibits Whitney’s action. See Louque
v. Allstate Ins. Co., 314 F.3d 776, 782 (5th Cir. 2002) (“To state a claim for
breach of an insurance contract under Louisiana law, a plaintiff must allege a
breach of a specific policy provision.”); Gulf Prod. Co. v. Petroleum Engineers,
Inc., 2013-0578 (La. App. 4 Cir. 12/11/13); 2013 WL 6925002, at *2 (“In order
for Gulf to assert a valid cause of action for breach of contract, it must allege a
breach of a specific provision of the contract.”). In fact, Loan 2 expressly
8 The magistrate judge also erred in admitting parol evidence and expert testimony to
aid in interpreting the unambiguous contract. See Kerr-McGee, 719 F.3d at 435.
9 Because Whitney did not breach Loan 2, its breach was not “substantial,” and
therefore the magistrate judge erred in finding that SMI and Lane were excused from
performance under the contract.
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required SMI to submit borrowing base certificates at the end of each month
and allowed Whitney to, “within its sole judgment, refuse to extend Loan
Advances” under several circumstances, including when the amount requested
would cause SMI to exceed its maximum line of credit, when SMI failed to
provide satisfactory documentation to support the advance, or when Whitney
“deem[ed] itself to be insecure with regard to the repayment of [SMI’s] Loan
and Note.” Moreover, SMI does not argue that Whitney ever denied a
disbursement from Loan 2 before its maturity date, and by the loan’s maturity
date, Whitney had loaned SMI the maximum amount available under Loan
2—$900,000.
Finally, applying these same principles of interpretation to the first loan,
the magistrate judge correctly concluded that Whitney did not breach Loan 1.
B. Breach of Oral Agreements
The Louisiana Credit Agreement Statute (LCAS), LA. REV. STAT.
§ 6:1121, et seq., operates as a “statute of frauds” for the credit industry. EPCO
Carbon Dioxide Prods., Inc. v. JP Morgan Chase Bank, NA, 467 F.3d 466, 469
(5th Cir. 2006) (quoting King v. Parish Nat’l Bank, 2004-0337 (La. 10/19/04);
885 So. 2d 540, 546). Its purpose is “to prevent potential borrowers from
bringing claims against lenders based on oral agreements.” Id. (quoting Jesco
Const. Co. v. Nationsbank Corp., 2002-0057 (La. 10/25/02); 830 So. 2d 989, 992).
The LCAS allows a debtor to file suit against a financial institution based on a
credit agreement only where that “agreement is in writing, expresses
consideration, sets forth the relevant terms and conditions, and is signed by
the creditor and the debtor.” 10 LA. REV. STAT. § 6:1122. As relevant here, a
10Under the statute, a “creditor” includes a financial institution, a “debtor” is “a
person or entity that obtains credit or seeks a credit agreement with a creditor or who owes
money to a creditor,” and a “credit agreement” is any “agreement to lend or forbear repayment
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debtor is prohibited from bringing a claim against a creditor for any unwritten,
unsigned agreement the creditor made, “such as entering into a new credit
agreement, forbearing from exercising remedies under a prior credit
agreement, or extending installments due under a prior credit agreement.” Id.
§ 6:1123.
“[A]ll actions (or causes of action or theories of recovery) [against a
creditor afforded protection by the LCAS] based upon an oral agreement to
lend money are barred by the La. Rev. Stat. 6:1122.” Jesco Const. Co., 830 So.
2d at 992. For example, in King v. Parish National Bank, 885 So. 2d at 543,
548, the Louisiana Supreme Court held that a bank officer’s oral promise to a
customer that the customer’s loan restructuring would not jeopardize his
financial welfare “as long as he remained current in all his obligations with the
bank” was an agreement to make a financial accommodation, and thus was a
credit agreement that was unenforceable under the LCAS because it was not
in writing. Similarly here, Whitney’s alleged oral assurances to SMI—
including that it would fund the Halliburton project to completion, that the
maturity date would be extended, and that payroll would always be funded—
were evidence of agreements to make financial accommodations to SMI or to
forbear from exercising remedies under Loan 2 that must be in writing and
signed by both parties to be enforceable under the LCAS. See id.; LA. REV.
STAT. §§ 6:1122, :1123. None of SMI’s claims to this effect are enforceable
because they do not qualify as actions on a credit agreement under the LCAS.
SMI argues that King and other cases are inapposite because “[t]he
evidence in this matter features explicit written contracts.” The evidence in
King featured explicit written contracts as well—to which additional
of money or goods or to otherwise extend credit, or make any other financial accommodation.”
LA. REV. STAT. § 6:1121.
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modifications were added by oral agreement. See King, 885 So .2d at 542-43
(explaining that plaintiff consolidated his loans into a single promissory note
and brought his cause of action based on oral assurance that the restructuring
would not impair his welfare). That the underlying contracts are in writing is
immaterial; SMI brings a claim based on oral assurances not memorialized in
the written loan agreement, and therefore the LCAS bars its actions. See
Loraso v. JP Morgan Chase Bank, N.A., No. CIV.A. 13-4734, 2013 WL 5755638,
at *6 (E.D. La. Oct. 23, 2013) (“[A] promise . . . to modify, forbear, or refinance
a loan . . . constitutes a credit agreement that would have to be in writing to be
enforceable under the LCAS.”). 11
SMI’s breach of contract counterclaim is based on Whitney’s failure to
fund the Halliburton project to completion. As explained above, this was not a
requirement of the written loan agreement, and therefore any claim based on
such an oral promise is barred by the LCAS. See King, 885 So. 2d at 548.
III. SMI’S REMAINING COUNTERCLAIMS
We next evaluate the magistrate judge’s conclusions as to SMI’s
counterclaims against Whitney for negligent misrepresentation, tortious
11 In finding that SMI’s claims were not barred by the LCAS, the magistrate judge
relied on a line from the Louisiana Fourth Circuit’s decision in BizCapital Business &
Industrial Dev. Corp. v. Union Planters Corp., 2003-2208 (La. App. 4 Cir. 9/8/04); 884 So. 2d
623, 627, stating that, in drafting a statute that stated that financial institutions do not owe
general fiduciary duties to their customers or third parties, “the legislature did not intend to
totally immunize banks from all legal duties in their relationship with customers and third
parties.” BizCapital is inapposite here. It involved a financial institution’s
misrepresentation to another financial institution regarding a debtor’s solvency. This is
unlike SMI’s claims, which involve a debtor suing a bank on an oral agreement to make
changes to a loan—the type of claim that falls squarely within La. Rev. Stat. § 6:1123 as an
“agreement of a creditor . . . to take certain actions, such as entering into a new credit
agreement” and therefore must satisfy, inter alia, the writing and signature requirements of
La. Rev. Stat. § 6:1122. Moreover, the court in BizCapital was not interpreting the portions
of the LCAS at issue here, sections 6:1122-23, which govern credit agreements between
lenders and borrowers like Whitney and SMI. As explained above, King and Jesco are
directly applicable.
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interference with business relations, and breach of duty to deal in good faith. 12
As explained in detail below, each of SMI’s counterclaims fails: SMI’s claim for
negligent misrepresentation, like its breach of contract claim, is barred by the
LCAS; it fails to prove at least one of the elements of its tortious interference
claim; and its claim for breach of duty to deal in good faith is not cognizable
where Whitney has not breached a written term of the agreement.
A. Negligent Misrepresentation
Similar to SMI’s breach of contract claim, SMI’s negligent
misrepresentation claim was based solely on Whitney’s refusal to fund the
Halliburton project to completion. For the same reasons that SMI’s breach of
contract claim based on this oral representation fails, so too does SMI’s
negligent misrepresentation claim. See King, 885 So. 2d at 548.
B. Tortious Interference with Business Relations
SMI also claims that Whitney tortiously interfered with its business
through its aggressive collection efforts. To succeed on a tortious interference
with business relations claim in Louisiana, a plaintiff must “prove by a
preponderance of the evidence that defendants improperly influenced others
not to deal with the plaintiff” and “were motivated by actual malice” in so
doing. Jeff Mercer, LLC v. State through Dep’t of Transp. & Dev., 51,371 (La.
App. 2 Cir. 6/7/17); 222 So. 3d 1017, 1024. “It is not enough to allege that a
defendant’s actions affected the plaintiff’s business interests; the plaintiff must
allege that the defendant actually prevented the plaintiff from dealing with a
third party.” Henderson v. Bailey Bark Materials, 47,946 (La. App. 2 Cir.
4/10/13); 116 So. 3d 30, 37. After plaintiff passes this threshold, he “must also
establish that the interference was improper,” Dussouy v. Gulf Coast Inv.
12 SMI and Lane also brought counterclaims for breach of fiduciary duty, abuse of
rights, and tortious interference with contract, which they later abandoned.
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Corp., 660 F.2d 594, 602 (5th Cir. 1981), “i.e., not to ‘protect legitimate
interests.’” IberiaBank v. Broussard, 907 F.3d 826, 841 (5th Cir. 2018) (quoting
Bogues v. La. Energy Consultants, Inc., 46,434 (La. App. 2 Cir. 8/10/11); 71 So.
3d 1128, 1134). Finally, a plaintiff must prove that the defendant was
motivated by spite or ill will to satisfy the malice element. Jeff Mercer, LLC,
222 So. 3d at 1025; Bogues, 71 So. 3d at 1135.
Louisiana’s law “is a significant deviation from the common law version
of this tort, which requires intentional and improper conduct, but not a
showing of ill will or actual malice.” George Denegre, Jr. et al., Tortious
Interference and Unfair Trade Claims: Louisiana’s Elusive Remedies for
Business Interference, 45 LOY. L. REV. 395, 403 (1999); see also Junior Money
Bags, Ltd. v. Segal, 970 F.2d 1, 10 (5th Cir. 1992) (“This [Louisiana] tort does
not appear to be as broad as it is under the Restatement or as [plaintiff]
urges.”); 8 LA. CIV. L. TREATISE, BUSINESS ORGANIZATIONS § 33:12 (“For many
years, Louisiana was the only state in the country that refused to recognize
any form of tortious interference with contract.”). To even survive summary
judgment on this action, the plaintiff “must come forward with evidence of ill
will.” Denegre, supra, at 404.
Louisiana “jurisprudence has viewed this cause of action with disfavor.”
Bogues, 71 So. 3d at 1135. Courts have explained that satisfying “the malice
element . . . is difficult (if not impossible) to prove in most commercial cases in
which conduct is driven by the profit motive, not by bad feelings.” Id. (quoting
JCD Mktg. Co. v. Bass Hotels and Resorts, Inc., 2001-1096 (La. App. 4 Cir.
3/6/02); 812 So. 2d 834, 841). Indeed, SMI concedes that there appear to be no
reported cases where a party has been held liable for this tort. See id. (quoting
JCD Mktg., 812 So. 2d at 841).
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In Lewis v. Huie-Hodge Lumber Co., the Louisiana Supreme Court found
that the defendant, a company that operated sawmill plants, was not liable for
tortious interference with business when it threatened to fire its employees if
they dealt with the plaintiff, who had opened up a competing business, and
convinced others in the area not to sell goods to the plaintiff. 46 So. 685, 686
(La. 1908). The court reasoned that because the defendant operated a store in
competition with the plaintiff, it had a legitimate business interest in
influencing others not to deal with the plaintiff. Id. The court explained: “The
animus which led the defendant to take the course it did was not to injure the
plaintiff, but to protect and safeguard its own business interest.” Id.In a tortious interference with contract case, a landlord, Frisard, sued a
bank after the bank’s attorney erroneously “sent a notice of eviction to
Frisard’s tenant telling her to vacate the premises as the property was to be
seized and sold.” Frisard v. Eastover Bank for Sav., 572 So. 2d 343, 344 (La.
Ct. App. 1990). The bank apologized and said they had the wrong address, but
three months later, a bank representative went to the tenant’s house and,
when no one was home, left a message with a neighbor “to the effect that the
mortgage was in default, the property was to be sold, and the tenant must move
voluntarily or be evicted.” Id. The bank’s representative contacted the tenant
three additional times with the same incorrect notice. Id. The Louisiana Fifth
Circuit found no cause of action, explaining that “[t]ortious interference is an
intentional act . . . not a negligent act.” Id. at 347.
To succeed on its claim, SMI must prove that Whitney improperly, and
motivated by “spite or ill will,” not negligence, influenced third parties—SMI
customers—not to deal with SMI. On this record, SMI’s claim must fail.
There is no evidence that Whitney was driven by anything other than
profit in its collection efforts. See Scott v. Bank of Coushatta, 512 So. 2d 356,
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364 (La. 1987) (“Monitoring and collecting a loan are powers incidental to a
state bank’s express power to loan money.”). Moreover, the express terms of
the contract allowed Whitney to recover from SMI’s customers because both
loans were secured by SMI’s accounts receivable. While it may have been more
prudent and logical for Whitney to involve SMI in its collection efforts, those
efforts, however brusque, served to protect the bank’s legitimate interests—
collecting on the defaulted loans. See Lewis, 46 So. at 687 (discussing another
case where “it was legitimate for defendant[] to appropriate to itself all the
customers it could command, even to the extent of driving plaintiff out of
business”).
SMI comes closest to establishing a tortious interference claim based on
Whitney’s sending collection letters to SMI customers who did not owe money
to SMI at that time. The loan agreement allowed Whitney to send collection
letters to SMI customers upon default, and there is no condition requiring that
Whitney coordinate those efforts with SMI. The agreement did not, however,
allow Whitney to demand money from customers that owed nothing. As the
magistrate judge found, this had a negative impact on SMI’s business,
damaging its relationship with at least three customers.
Even if the letters that Whitney’s attorney sent to SMI customers
contained inaccuracies, however, in sending the letters, Whitney was
attempting to collect on its loan; there is simply no evidence that it was
motivated by any ill will toward SMI. Whitney’s attempts to collect the
amounts due after SMI failed to repay the loan, however clumsy, were
pursuant to its legitimate business interest. Whitney’s actions sound more in
negligence, and Louisiana does not recognize a cause of action for negligent
interference with contract or business relations. See Frisard, 572 So. 2d at
347; Mahfouz v. Old Republic Ins. Co., 570 So. 2d 136, 138 (La. Ct. App. 1990)
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(assuming district court dismissed negligent interference with business
relations claim because “the law recognizes no cause of action”).
Moreover, the magistrate judge’s own findings undermine his conclusion
that Whitney acted with actual malice. The court found the testimony of SMI’s
expert, W. Timothy Finn, credible. It specifically noted that Finn “opined that
Whitney Bank likely made a macro decision to stop lending to the oil and gas
industry which had a significant downturn even before [Loan 2].” The court
later stated that “[a] corporate decision to cease lending to oil and gas service
companies would explain the bank’s change in course.” This finding supports
the conclusion that Whitney’s actions were driven by a business decision and
not by “spite or ill will,” undermining the magistrate judge’s finding of actual
malice. Bogues, 71 So. 3d at 1135.
SMI cannot rely on its belief or assumption that Whitney was acting
pursuant to some malicious motive other than protecting its legitimate interest
in collecting on the loan—it must submit evidence. On this record, we find
none. 13 In diversity cases, “it is not for us to adopt innovative theories of
recovery . . . for . . . [Louisiana] law, but simply to apply that law as it currently
13 The magistrate judge found malicious intent regarding the actions of two Whitney
employees of the special assets department. These employees visited SMI facilities without
familiarizing themselves with SMI’s business, the Halliburton project, or the ongoing
negotiations between Whitney and SMI. The magistrate judge also found that a Whitney
employee instructed Whitney’s attorney to begin collection efforts after asserting that Lane
failed to provide the bank with the requested cash flow projections, though trial testimony
confirmed that Lane provided all the requested information. After reciting these facts, the
magistrate judge concluded “that those actions . . . were with ill will or malice.” The court
did not elaborate on how these actions constituted malice, and our review of the record
reveals that the Whitney employees were acting pursuant to collecting on the loan—a
legitimate business interest. We conclude that the magistrate judge’s finding that Whitney
acted with actual malice was clearly erroneous. See Lewis, 46 So. at 686; see also Loraso, 2013
WL 5755638, at *2 (dismissing plaintiff’s claim against bank for tortious interference with
business relations where bank repeatedly requested financial documents that customer had
already sent and did not respond to customer’s questions).
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exists.” Mitchell v. Random House, Inc., 865 F.2d 664, 672 (5th Cir. 1989)
(quoting Galindo v. Precision Am. Corp., 754 F.2d 1212, 1217 (5th Cir. 1985));
see also Junior Money Bags, Ltd., 970 F.2d at 11 (“As a federal court sitting in
diversity, we decline to significantly expand the scope of this very limited form
of recovery.”). Because Whitney had a financial motive in its collection efforts
and we find no evidence indicating that Whitney was driven by spite or ill will,
SMI’s tortious interference claim based on Whitney’s collection efforts fails. 14
C. Breach of Duty to Deal in Good Faith
SMI’s final counterclaim is for breach of duty to deal in good faith. SMI
claims that LA. REV. STAT. 10:1-01 et seq. imposes on all parties the duty of
good faith dealing, which Whitney breached by withdrawing payroll funding,
failing to continue negotiations, contacting an SMI customer directly for
payment, funding at Whitney’s discretion, funding “short of need or changed
expected funding amounts,” and collection efforts, generally. The magistrate
judge agreed, listing several instances of Whitney’s breach of the duty to deal
in good faith.
“As a general rule, Louisiana recognizes an implied covenant of good
faith and fair dealing in every contract.” Clark v. Am.’s Favorite Chicken Co.,
110 F.3d 295, 297 (5th Cir. 1997). Good faith governs the conduct of parties to
a contract “in whatever pertains to the obligation.” LA. CIV. CODE art. 1759.
The Louisiana Revised Statutes state that “[e]very contract or duty within this
Title imposes an obligation of good faith in its performance and enforcement.”
LA. REV. STAT. § 10:1-304. 15 The Civil Code defines good faith by reference to
14 To the extent SMI’s tortious interference claim against Whitney is based on its
failure to fund the Halliburton project to completion, such a claim is barred by the LCAS.
See King, 885 So. 2d at 548.
15 Good faith here is synonymous with good faith as defined in the Civil Code. See LA.
REV. STAT. § 10:1-304 La. rev. cmt. 2006 (“This section applies only to the general obligation
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its “breach”: “An obligor is in bad faith if he intentionally and maliciously fails
to perform his obligation.” LA. CIV. CODE art. 1997 cmt. b. 16 The term bad
faith “generally implies actual or constructive fraud or a refusal to fulfill
contractual obligations, not an honest mistake as to actual rights or duties.”
Delaney v. Whitney Nat’l Bank, 96-2144 (La. App. 4 Cir. 11/12/97); 703 So. 2d
709, 718.
Whether a plaintiff may bring a cause of action for breach of good faith
where the defendant was not actually in breach of the terms of the contract
has been somewhat unclear in Louisiana. In some cases, courts have treated
the question of breach and the question of good faith exercise of contractual
rights as different questions. See N-Y Assocs. v. Bd. of Comm’rs, 2004-1598
(La. App. 4 Cir. 2/22/06); 926 So. 2d 20, 24; Whitney Nat. Bank v. Reliable
Mailing & Printing Servs., Inc., 96-968 (La. App. 5 Cir. 4/9/97); 694 So. 2d 479,
481 (evaluating whether bank acted in good faith in enforcing contract by
selling property recovered after debtor defaulted on loan without finding that
bank breached the contract). In other cases, courts have held that a breach of
good faith is only actionable when a party has breached the terms of the
obligation. See Favrot v. Favrot, 2010-0986 (La. App. 4 Cir. 2/9/11); 68 So. 3d
1099, 1110 (“[J]udicial determination of good-faith . . . failure to perform a
conventional obligation is always preceded by a finding that there was a failure
to perform, or a breach of contract.”).
The Louisiana Supreme Court seemingly resolved this issue in Lamar
Contractors, Inc. v. Kacco, Inc., 2015-1430 (La. 5/3/16); 189 So. 3d 394, 397.
There, the court analyzed Louisiana Civil Code article 2003, which states in
of good faith in the performance and enforcement of contracts. In those instances, the
provisions of the Louisiana Civil Code shall govern as to the standard of good faith.”).
16 Article 1997 states that “[a]n obligor in bad faith is liable for all damages,
foreseeable or not, that are a direct consequence of the failure to perform.”
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relevant part: “An obligee may not recover damages when his own bad faith
has caused the obligor’s failure to perform . . . . If the obligee’s negligence
contributes to the obligor’s failure to perform, the damages are reduced in
proportion to that negligence.” The district court in Lamar found that Kacco,
a subcontractor, breached the terms of a construction contract with its general
contractor, Lamar, by failing to provide sufficient materials to complete the
construction job. The district court also found that Lamar contributed to
Kacco’s breach by negligently withholding payments for completed work
performed by Kacco. Significantly, however, Lamar did not violate any
obligation owed under the contract in withholding the payments. Applying
article 2003, the district court reduced the damages awarded to Lamar because
it negligently withheld payments and contributed to Kacco’s breach, despite
finding that Lamar did not breach the terms of the contract. Id. at 397.
The Louisiana Supreme Court reversed, holding that “an obligor cannot
establish an obligee has contributed to the obligor’s failure to perform unless
the obligor can prove the obligee itself failed to perform duties owed under the
contract.” Id. at 398. The court explained that Article 2003’s damages bar “is
correlative to the general duty imposed by La. Civ. Code art 1983, which
requires ‘[c]ontracts must be performed in good faith.’” Id. at 397. The court
stated that while the duty of good faith permeates all Louisiana contracts, “this
general duty of good faith cannot be considered in isolation. Rather, it is
necessarily regulated and circumscribed by the obligations imposed by the
parties’ contract.” Id. at 398. The court cited approvingly the language in
Favrot v. Favrot, stating that “we do not examine a party’s good faith (or bad
faith) unless and until we find that the party has failed to perform an
obligation, from which the obligee has sustained damages.” Id. (quoting
Favrot, 68 So. 3d at 1109). This court recently addressed Lamar, affirming a
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district court’s conclusion “that the good-faith inquiry in Article 2003 is limited
to situations where the obligee has breached.” Apache Deepwater, L.L.C. v.
W&T Offshore, Inc., 930 F.3d 647, 655 (5th Cir. 2019).
Lamar prohibits a reduction in damages based on bad-faith acts unless
the misbehaving party breached the terms of the contract. A fortiori, a non-
breaching party’s allegedly bad-faith acts cannot entitle the breaching party to
receive damages if such acts do not entitle the breaching party to even a
reduction in the amount of damages it owes. Because we have concluded that
Whitney did not breach the terms of either loan, any claim regarding Whitney’s
violation of the duty of good faith fails.
The dissent maintains that Whitney breached its contract with SMI in
demanding payments from SMI customers who at that time did not owe SMI
any money. While acknowledging that “a violation of a general duty rather
than a specific contractual duty or obligation must be resolved in tort,” the
dissent “would conclude that Whitney’s duty to assert its security interest over
only that which the contract allows is a specific contractual obligation and that
the allegation of bad faith here may be brought in contract.” Respectfully, we
disagree. The dissent points to no provision of the loan documents that
requires Whitney “to assert its security interest over only that which the
contract allows.” Because no contractual provision governs Whitney’s conduct,
Louisiana law compels that SMI’s be brought in tort.
The case cited by the dissent, Stephens v. International Paper Co., 542
So. 2d 35, 39 (La. Ct. App. 1989), provides an apt example. There, the
Louisiana Court of Appeal for the Second Circuit held that a plaintiff’s cause
of action arose in tort as opposed to contract where a timber company that
contracted with plaintiff to enter his property to cut and harvest timber
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negligently left the gates on the property open, allowing plaintiff’s cattle to
escape. Id. The court reasoned that
[a]lthough the law requires that one who is granted a servitude
must use it in a proper manner, this is a general duty rather than
a specific contractual duty or obligation assumed by the owner of
the servitude; the breach of a general duty results in an action for
damages “ex delicto,” the breach of a special duty contained in the
contract may result in an action for damages ex contractu.
Id. Plaintiff’s action sounded in tort because “[t]he defendant did not
contractually assume any special obligation pertaining to the duty of care to be
exercised in the use of the servitude.” Id.Similarly here, Whitney’s action potentially violated “a general duty
rather than a specific contractual duty or obligation,” and it therefore sounds
in tort rather than contract. See id. There is no term of the contract that
regulates the duty of care Whitney owed in collecting amounts from SMI
customers, and therefore Whitney simply cannot be held liable in contract for
its action. See Little v. First Nat’l Bank of Jefferson, 616 So. 2d 202, 203 (La.
Ct. App. 1993) (holding that plaintiff’s action against bank for breach of
confidentiality “clearly sounds in tort” despite plaintiff’s contention that it
amounted to a “breach of a fiduciary duty arising out of a contractual
relationship”); Gulf Prod. Co. v. Petroleum Engineers, Inc., 2013-0578 (La. App.
4 Cir. 12/11/13); 2013 WL 6925002, at *2 (“[I]n order for [plaintiff] to assert a
valid cause of action for breach of contract, it must allege a breach of a specific
provision of the contract.”).
The dissent claims that “[t]he specific grant of a security interest in one
thing (debtors’ accounts) means that attempting to assert an interest over
another account where none was granted runs contrary to the parties’ intent
and is a breach.” This proposition finds no support in Louisiana jurisprudence.
See Nicholson & Loup, Inc. v. Carl E. Woodward, Inc., 596 So. 2d 374, 396 (La.
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Ct. App. 1992) (expressly adopting the distinction that a cause of action sounds
in contract “[w]here [it] arises from breach of a promise set forth in contract”
but sounds in tort “where it arises from a breach of duty growing out of
contract” (alterations omitted) (emphasis added)); Bergeron v. Pan Am. Assur.
Co., 98-2421 (La. App. 4 Cir. 4/7/99); 731 So. 2d 1037, 1045 (dismissing breach
of contract claims because “[t]he plaintiffs fail to point out any provision of the
written insurance policies which have been allegedly breached by Pan
American”); Gulf Prod. Co. v. Petroleum Engineers, Inc., 2013-0578 (La. App. 4
Cir. 12/11/13); 2013 WL 6925002, at *2 (“[I]n order for [plaintiff] to assert a
valid cause of action for breach of contract, it must allege a breach of a specific
provision of the contract. Consequently, even if there is a breach of duty
arising out of a contractual relationship, but without an expressed promise in
the contract, the action is ex delicto.”). While it may be true that when the
contract does not provide for a particular situation, courts assume that parties
“intended to bind themselves to the express provisions of the contract, as well
as to whatever law, equity, or usage regards as implied,” Fleming v. Acadian
Geophysical Servs., Inc., 827 So. 2d 623, 628 (La. Ct. App. 2002), there is no
support for the proposition that a failure to abide by “whatever law, equity, or
usage regards as implied” can form the basis of a breach of contract claim; only
a breach of “the express provisions of the contract” can. See Gulf Prod. Co.,
2013 WL 6925002, at *2.
In sum, because Whitney’s action sounds in tort if at all, not contract, it
cannot form the basis of SMI’s claim for breach of duty to deal in good faith.
Finally, though SMI’s complaint references only “breach of duty to deal
in good faith,” the magistrate judge referred to it as a “breach of . . . duty to
deal in good faith and with commercial reasonableness.” He correctly
explained that the Louisiana Revised Statutes contain a commercial
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reasonableness requirement regarding a secured party’s collection efforts after
a debtor defaults. See LA. REV. STAT. § 10:9-607(c). It requires a secured party
“to proceed in a commercially reasonable manner” if it “undertakes to collect
from or enforce an obligation of an account debtor or other person obligated on
collateral.” Id.
When collecting on its collateral—SMI’s accounts receivable—after SMI
defaulted on the loan, Whitney was required to do so in a commercially
reasonable manner. See LA. REV. STAT. § 10:9-607(c). If Whitney failed to
collect collateral in a commercially reasonable manner, it “is liable for actual
damages in the amount of any loss caused by [its] failure.” Id. § 10:9-625(b).
However, a creditor is shielded from liability where the collateral is used to
eliminate or reduce the deficiency. Id. § 10:9-625(d). “[A] debtor . . . whose
deficiency is eliminated or reduced . . . may not otherwise recover under
Subsection (b) for noncompliance with the provisions of this Part relating to
collection, enforcement, disposition, or acceptance.” Id. The amounts Whitney
collected from SMI’s customers were applied to reduce SMI’s deficiency on
Loan 1. Therefore, commercially reasonable or not, SMI cannot recover for
Whitney’s failure to observe the standard of commercial reasonableness in its
collection efforts because the funds recovered were used to reduce its deficiency
on the loan. See LA. REV. STAT. § 10:9-625(d).
IV. ATTORNEYS’ FEES
Both loans stated that Whitney would be entitled to recover from SMI
and Lane the bank’s reasonable attorneys’ fees, costs, and expenses. The
magistrate judge declined to award Whitney its attorneys’ fees, reasoning that
“the conduct of Mr. Hebert, the attorney for the bank, in collecting on the sums
owed to SMI by its customers actually contributed to the loss of SMI’s business”
and that Hebert had potential conflicts of interest with his client. For those
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reasons, the magistrate judge found “it would be inequitable and unreasonable
to permit the bank to recover any attorney’s fees in this case, and no such
damages will be awarded to the bank,” particularly considering that SMI’s
president Lane attempted to cooperate in collection efforts upon Whitney’s
request. The magistrate judge also required that each party would bear its
own costs.
Though this court reviews for abuse of discretion, “the district court’s
discretion to deny the award is much more limited when the contract provides
for attorneys’ fees.” McDonald’s Corp. v. Watson, 69 F.3d 36, 45 (5th Cir. 1995).
Still, “a court in its sound discretion may decline to award attorney’s fees
authorized by a contractual provision when it believes that such an award
would be inequitable and unreasonable.” Cable Marine, Inc. v. M/V Tr. Me II,
632 F.2d 1344, 1345 (5th Cir. 1980). Whitney cites no case where this court
reversed a lower court that declined to award attorneys’ fees when those fees
were provided for by contract. Cf. id. at 1346 (declining to overturn district
court’s refusal to award attorneys’ fees though the contract provided for them).
The magistrate judge explained his decision, reasoning that such fees would
be inequitable because the conduct of the bank’s attorney in collecting amounts
from SMI’s customers without coordinating with SMI contributed to the loss of
SMI’s business. Considering Whitney’s attorney’s behavior in failing to
coordinate with SMI, demanding payment from customers who owed nothing
to SMI, and the bank’s cutting off all communication with SMI, the magistrate
judge was within his discretion in declining to award attorneys’ fees to
Whitney.
***
In sum, we AFFIRM the magistrate judge’s ruling in favor of Whitney
on its main demand for recovery under Loan 1. We REVERSE his ruling
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against Whitney on its main demand for recovery under Loan 2 and REMAND
for the magistrate judge to RENDER judgment in favor of Whitney on that
claim. We REVERSE and REMAND for the magistrate judge to RENDER
judgment in favor of Whitney on SMI’s counterclaims for breach of contract,
negligent misrepresentation, tortious interference with business relations, and
breach of duty to deal in good faith. We AFFIRM the magistrate judge’s ruling
that Whitney is not entitled to recover from SMI for attorneys’ fees and costs.
AFFIRMED in part, REVERSED in part, and REMANDED.
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HAYNES, Circuit Judge, concurring in part and dissenting in part:
I concur in much of the judgment of the court, but I dissent in two
respects.
First, I would affirm the district court’s holding that sufficient evidence
supported the finding of malice necessary for a tortious interference claim.
Tortious interference in Louisiana is hard to prove, as it requires actual
malice. Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 601–02 (5th Cir. 1981).
Often this requirement is insurmountable in the business context because of
the “appropriate” motivation of profits. But I disagree with the notion that
someone in a corporation who is seeking to collect money from another can
never have actual malice or ill will towards that other. Corporations are run
by humans, after all. As factfinder, the magistrate judge, who presided over
the trial, found that Whitney acted with actionable ill will. The magistrate
judge’s decision rested in part on its determination that Whitney’s employees
lacked credibility, and we do not second-guess credibility determinations. See
Estate of Lisle v. Comm’r, 541 F.3d 595, 601 (5th Cir. 2008) (“A trial judge’s
credibility determinations are due this extra deference because only the trial
judge can be aware of the variations in demeanor and tone of voice that bear
so heavily on the listener’s understanding of and belief in what is said.”
(internal quotation marks omitted)).
Giving deference to fact-finding in the district court, as we are required
to do, the only question before us is whether any facts support a conclusion of
malice. A confession is not needed, of course, and circumstantial evidence will
do. Brown v. Petrolite Corp., 965 F.2d 38, 47 (5th Cir. 1992) (“[A] court or jury
may infer actual malice from objective circumstantial evidence[.]”). Here,
Whitney initially worked with SMI while trying to collect on the loan. Then,
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all of a sudden, Whitney moved the loan to Special Assets based, at least in
part, on false information. Whitney’s representatives then appeared
unannounced at SMI’s headquarters and demanded that SMI and Lane sign a
claim release and forbearance agreement. After SMI declined to sign a release
unless it were reciprocal, the relationship turned ugly. The loans were
cancelled, Whitney required any contact go through its attorneys, and Whitney
began the key element of the tortious interference claim: sending demands to
entities that did business with SMI but did not owe SMI anything. Given this
series of facts and the magistrate judge’s determination that Whitney’s
employees lacked credibility, I would hold that sufficient evidence exists to
support the malice finding necessary for the tortious interference claim.
Second, I would affirm the district court’s finding on SMI’s bad-faith
counterclaim. The majority opinion explains that, before reaching the question
of bad faith, we must examine whether Whitney breached its obligations. 1
Majority Op. at 22–24. Here, the claim is that Whitney did so by making
demands to non-debtors. The loan documents gave Whitney a security interest
in SMI’s accounts receivable and the right to “notify account debtors to make
payments directly to [Whitney]” (emphasis added). The agreement did not,
however, give Whitney the right to demand payment from non-debtors. So
when Whitney made demands of customers who owed nothing to SMI and
attempted to assert a security interest over something that the contract did
not give Whitney claim to, Whitney did not perform in accordance with the
contract’s terms. While it is true that the contract does not expressly provide
1 Although a violation of a “general duty rather than a specific contractual duty or
obligation” must be resolved in tort—not contract, “in certain circumstances the same acts or
omissions may constitute breaches of both general duties and contractual duties.” Stephens
v. Int’l Paper Co., 542 So. 2d 35, 38–39 (La. Ct. App. 1989). I would conclude that Whitney’s
duty to assert its security interest over only that which the contract allows is a specific
contractual obligation and that the allegation of bad faith here may be brought in contract.
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Case: 18-31189 Document: 00515296349 Page: 32 Date Filed: 02/03/2020
No. 18-31189
that collecting from those who owe SMI nothing is a breach, courts assume that
parties “intended to bind themselves to the express provisions of the contract,
as well as to whatever law, equity, or usage regards as implied.” Fleming v.
Acadian Geophysical Servs., Inc., 827 So. 2d 623, 628 (La. Ct. App. 2002). The
specific grant of a security interest in one thing (debtors’ accounts) means that
attempting to assert an interest over another account where none was granted
runs contrary to the parties’ intent and is a breach. Considering the
magistrate judge’s conclusion that Whitney acted with ill will, the conclusion
that Whitney’s actions were not “mere bad judgment or negligence” but instead
“the conscious doing of a wrong” is supported by the evidence. MKR Servs.,
L.L.C. v. Dean Hart Constr., L.L.C., 16 So. 3d 562, 566 (La. Ct. App. 2009).
Although I agree that SMI should be liable for defaulting on the loan, I would
offset its obligation based on Whitney’s breach.
Accordingly, I dissent from the majority opinion’s decision to reverse as
to the tortious interference and bad-faith counterclaims and the holdings
inconsistent with these counterclaims. I otherwise concur.
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