Bluebonnet Hotel Ventures, L.L.C. v. Wells Fargo Bank, N.A. , 754 F.3d 272 ( 2014 )

Case: 13-30827 Document: 00512655192 Page: 1 Date Filed: 06/06/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 13-30827 June 6, 2014
Lyle W. Cayce
BLUEBONNET HOTEL VENTURES, L.L.C., Clerk
Plaintiff—Appellant
v.
WELLS FARGO BANK, N.A.,
Defendant—Appellee
Appeal from the United States District Court
for the Middle District of Louisiana
Before REAVLEY, JONES, and GRAVES, Circuit Judges.
EDITH H. JONES, Circuit Judge:
This appeal arises from the district court’s grant of summary judgment
for Appellee Wells Fargo Bank, N.A. (“Wells Fargo”) on Appellant Bluebonnet
Hotel Ventures’ (“Bluebonnet”) claim for rescission of contract. For the
following reasons, we affirm.
BACKGROUND
Bluebonnet is a single-purpose corporate entity that was established to
construct and operate a hotel in Baton Rouge, Louisiana. In order to finance
the hotel’s construction, Bluebonnet obtained an allocation of tax-exempt Gulf
Opportunity Zone bonds, which Bluebonnet intended to sell to investors. In
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No. 13-30827
late 2006, Bluebonnet contacted Wells Fargo 1 to provide a letter of credit for
the bonds and underwrite their sale. In March 2007, the parties agreed upon
and executed a term sheet outlining the terms for a proposed letter of credit.
Among other things, the term sheet specifically provided: “This letter is not a
commitment or agreement to lend money or extend credit[.]” Subsequent
negotiations between the parties regarding the letter of credit eventually broke
down, and ultimately Wells Fargo did not finance the bonds. Bluebonnet
instead closed on a $2.5 million letter of credit with Regions Bank in order to
meet state deadlines and preserve its bond allocation. Bluebonnet was only
able to issue $2.5 million of its bond allocation, and those bonds were never
sold to the public.
Meanwhile, shortly before the execution of the term sheet, Wells Fargo
asked Bluebonnet whether it would be interested in entering into a swap
agreement, which would reduce the risk associated with floating interest rates
on the bonds that Bluebonnet planned to sell. As described by the lower court,
a swap agreement
is a separate agreement whereby parties agree upon a fixed,
baseline interest rate (usually including a certain spread above the
market interest rate), and one party makes payment to the other
based on whether the floating market interest rate (usually a
specified interest rate index) moves above or below the fixed
interest rate. The payments are calculated based on the difference
between the fixed and floating interest rates over a given interval,
multiplied by a hypothetical amount of “notional” principal agreed
to in advance.
Bluebonnet Hotel Ventures, L.L.C. v. Wachovia Bank, N.A., No. 3:10-cv-00489-
JJB-RLB (M.D. La. Sept. 29, 2011) (order granting in part and denying in part
1 Bluebonnet originally dealt with Wachovia Bank rather than Wells Fargo, but the
two banks merged during the pendency of the negotiations. The parties agreed to substitute
Wells Fargo for Wachovia in this suit.
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motion to dismiss). Under the agreement, the parties’ payments would
theoretically offset each other as the variable interest rate on the bonds
fluctuated, resulting in Bluebonnet’s ultimately paying a fixed interest rate on
the bonds. While the parties were in negotiations over the agreement, Wells
Fargo sent Bluebonnet a presentation on how the swap transaction would
work, which included the following disclaimer:
Although this proposal describes how the customer could use the
proposed transaction to hedge against the interest expense of an
existing or future loan or other financing, the proposed transaction
would be a separate and independent obligation of the customer
and would not be contingent on whether [such financing closes, is
outstanding, or is repaid].
Despite the fact that the bonds had yet to be issued, and a letter of credit had
yet to be executed, Bluebonnet entered into the swap agreement with Wells
Fargo.
In the summer of 2007, after the swap agreement was executed but
before its effective date, interest rates rose above the fixed rate, such that
Bluebonnet could have terminated the agreement and received in excess of
$1 million from Wells Fargo. Bluebonnet was informed of this option but chose
not to terminate the swap agreement at that time. Shortly thereafter, in 2008
interest rates dropped to historic lows, and Bluebonnet was required to pay
Wells Fargo the difference in interest rates. Bluebonnet asserts that this has
resulted in over $6 million in payments to Wells Fargo under the swap
agreement.
Bluebonnet subsequently filed suit against Wells Fargo, seeking to
rescind the swap agreement based on failure of cause, negligence and
detrimental reliance under Louisiana law. Wells Fargo filed a motion to
dismiss, which the district court granted in part, allowing Bluebonnet’s failure
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of cause claim to proceed. 2 After discovery, Wells Fargo moved for summary
judgment on Bluebonnet’s failure of cause claim. When the district court
granted this dispositive motion, timely appeal followed.
STANDARD OF REVIEW
A district court’s grant of summary judgment is reviewed de novo.
DePree v. Saunders, 588 F.3d 282, 286 (5th Cir. 2009). This court applies the
same standards as the district court, id., granting summary judgment where
there is no genuine issue as to any material fact and the movant is entitled to
judgment as a matter of law. See Fed. R. Civ. P. 56(a). “A genuine issue of
material fact exists ‘if the evidence is such that a reasonable jury could return
a verdict for the non-moving party.’” Crawford v. Formosa Plastics Corp., La.,
234 F.3d 899, 902 (5th Cir. 2000) (quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)). The court is to
consider evidence in the record in the light most favorable to the non-moving
party and draw all reasonable inferences in favor of that party. Thorson v.
Epps, 701 F.3d 444, 445 (5th Cir. 2012). However, the non-movant must go
beyond the pleadings and present specific facts indicating a genuine issue for
trial in order to avoid summary judgment. Celotex Corp. v. Catrett, 477 U.S.
317, 324, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Summary judgment is
appropriate if the non-movant “fails to make a showing sufficient to establish
the existence of an element essential to that party’s case.” Id. at 322. An
appellate court may affirm summary judgment “on any ground supported by
the record, even if it is different from that relied on by the district court.”
Holtzclaw v. DSC Commc’ns Corp., 225 F.3d 254, 258 (5th Cir. 2001).
2 The district court also allowed Bluebonnet’s detrimental reliance claim to proceed
and ultimately granted summary judgment to Wells Fargo on that claim. Bluebonnet does
not appeal that ruling.
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DISCUSSION
Under Louisiana law, “[a] contract is formed by the consent of the
parties[.]” La. Civ. Code art. 1927. However, a party’s consent may be vitiated
by, and a contract rescinded upon, error. La. Civ. Code art. 1948. “Error
vitiates consent only when it concerns a cause without which the obligation
would not have been incurred and that cause was known or should have been
known to the other party.” La. Civ. Code art. 1949. In other words,
[E]rror is a ground for invalidation when it bears on a
circumstance that determined the will of the party in error as the
principal reason for which that party consented to obligate himself.
It is required, however, that the other party knew, or should have
known, that that circumstance was such a reason for the party in
error.
Saul Litvinoff, Vices of Consent, Error, Fraud, Duress and an Epilogue
on Lesion, 50 La. L. Rev. 1, 25 (1989). Louisiana jurisprudence recognizes that
once a party in error demonstrates a “failure of cause,” the contract may be
rescinded. Angelo & Son, LLC v. Piazza, 1 So.3d 705, 710 (La. Ct. App. 2008).
Bluebonnet insists that there is a failure of cause warranting rescission
of the swap agreement. Bluebonnet maintains that its cause for entering into
the agreement was to “fix the rate” on variable rate bonds, contingent on Wells
Fargo issuing a letter of credit for the bonds, and that cause allegedly failed
when Bluebonnet was unable to obtain a letter of credit from any financial
institution that would finalize the bond financing.
Contrary to Bluebonnet’s assertions, the contractual language of the
swap agreement undercuts Bluebonnet’s argument with regard to the letter of
credit. The agreement specifically obliged Bluebonnet to pay Wells Fargo any
unfavorable difference between the fixed interest rate amount and the floating
interest rate amount as such payments became due, irrespective of whether
“there exists at any time a commitment for any [f]inancing” or “circumstances
change such that [Bluebonnet] . . . is unable to obtain[] any financing”
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(alterations added). 3 The agreement defined “financing” as “any loan or other
extension of credit” that Bluebonnet received from Wells Fargo or any other
entity. Moreover, in executing the swap agreement, Bluebonnet affirmed that
the agreement created an obligation that was “separate and apart” from any
existing or future loan or financing, and that Bluebonnet’s obligations under
the agreement would “not be contingent on whether any loan or other financing
closes, is outstanding or is repaid.”
It is evident from the express terms of the agreement that finalizing
financing for the bonds was not Bluebonnet’s cause for entering into the
agreement, and Bluebonnet has not highlighted any contractual language that
clearly suggests otherwise. 4 Bluebonnet acknowledges, and the swap
agreement confirms, that Bluebonnet entered into the swap agreement in
order to receive the difference between the floating and fixed interest rates in
the event that the floating rate exceeded the fixed rate. Bluebonnet has never
alleged that this cause failed. Therefore, Bluebonnet has not demonstrated a
genuine factual issue as to whether there is an error vitiating its consent to
the swap agreement and warranting rescission. 5
3 Bluebonnet’s manager, Milford Wampold, signed seven different confirmations
between May 1, 2007—shortly after the swap agreement was executed—and May 2, 2008,
each of which reiterates these provisions verbatim.
4 In an effort to demonstrate that Bluebonnet’s cause for executing the swap
agreement hinged on a forthcoming letter of credit, Bluebonnet cites to emails that were
exchanged with Wells Fargo around the time that the swap agreement was signed. However,
under Louisiana law, courts may only consider parol evidence when a contract is ambiguous.
See La. Civ. Code art. 2046. Bluebonnet does not allege, nor do we find, that the swap
agreement is ambiguous. See Campbell v. Melton, 817 So.2d 69, 75 (La. 2002) (“A contract is
considered ambiguous on the issue of intent when either it lacks a provision bearing on that
issue, the terms of a written contract are susceptible to more than one interpretation, there
is uncertainty or ambiguity as to its provisions, or the intent of the parties cannot be
ascertained from the language employed.”). We do not consider the parol evidence that
Bluebonnet presents.
5 Bluebonnet urges this court to affirm that Louisiana law permits a contract to be
rescinded when a cause that was based on the anticipation of a future event or condition fails
due to the non-occurrence of the event or condition. Compare Angelo & Son, LLC v. Piazza,
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This conclusion is supported by our previous decision, Dameware
Development, L.L.C. v. American General Life Insurance. Co., in which this
court held that there was no failure of cause constituting error or warranting
rescission of a contract. 688 F.3d 203, 208-09 (5th Cir. 2012). The plaintiff in
Dameware maintained that its cause for entering into contract with the
defendant was to obtain tax benefits for certain employees’ life insurance
policies. Id. at 207. That cause purportedly failed when the plaintiff was
unable to obtain the benefits. Id. Upon review of the parties’ agreement,
however, this court reasoned that the contract focused almost entirely on
insurance policies, not tax benefits, while the one form that did discuss tax
benefits disclaimed the defendant’s responsibility for them. Id. Looking to the
plain language of the contract, this court concluded that the plaintiff’s cause
for entering into the contract was to secure life insurance policies, not tax
benefits, and because that cause had not failed, the contract could not be
rescinded. Id. at 207-08. See also In re Merrill Lynch Auction Rate Sec. Lit.,
No. 09 MD 2030(LAP), 2010 WL 1924719 at *7 (S.D.N.Y. May 11, 2010)
(applying Louisiana law and dismissing a failure of cause claim where the
“alleged cause . . . was explicitly contradicted by the terms of the Commitment
Letters”).
Based on the foregoing analysis, the judgment of the district court is
AFFIRMED.
1 So. 3d 705, 709-10 (La. Ct. App. 2008), Carpenter v. Williams, 428 So. 2d 1314, 1318 (La.
Ct. App. 1983), and O’Neal v. Cascio, 324 So. 2d 539, 541-42 (La. Ct. App. 1975) with St.
Charles Ventures, L.L.C. v. Albertsons, Inc., 265 F. Supp. 2d 682, 688-95 (E.D. La. 2003) and
Hanover Petroleum Corp. v. Tenneco, Inc., 521 So. 2d 1234, 1240-41 (La. Ct. App. 1988).
Given our conclusion as to Bluebonnet’s cause for entering into the agreement, we need not
address that issue here.
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