EPCO Carbon Dioxide Products, Inc. v. JP Morgan Chase Bank, NA

United States Court of Appeals
Fifth Circuit
F I L E D
In the October 6, 2006
United States Court of Appeals Charles R. Fulbruge III
for the Fifth Circuit Clerk
_______________
m 05-30958
_______________
EPCO CARBON DIOXIDE PRODUCTS, INC.,
Plaintiff-Appellant,
VERSUS
JP MORGAN CHASE BANK, NA,
FORMERLY KNOWN AS BANK ONE, NA,
Defendant-Appellee.
_________________________
Appeal from the United States District Court
for the Western District of Louisiana
m 3:04-CV-2324
__________________________
Before JONES, Chief Judge, and I.
SMITH and STEWART, Circuit Judges. Because this case was resolved on motion
to dismiss, the allegations in the complaint
JERRY E. SMITH, Circuit Judge: must be liberally construed in favor of the
plaintiff, and all facts pleaded in the complaint
EPCO Carbon Dioxide Products, Inc. must be taken as true. Lowery v. Tex. A&M
(“EPCO”), appeals the dismissal of its breach Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997).
of contract, abuse of rights, and bad faith The facts discussed below utilize that standard.
claims against JP Morgan Chase Bank, NA
(“Chase”). Because EPCO’s complaint pleads A.
sufficient allegations to state a claim on which EPCO, a liquid carbon dioxide producer,
relief can be granted, we reverse and remand. acquires sites and manufacturing equipment
for its production process through financing and did not intend to renew the letters of cred-
from banking institutions. Chase provided fin- it on two EPCO facilities. Chase was aware
ancing for three EPCO facilities, most recently that a failure to renew letters of credit for
EPCO’s Eddyville, Iowa, facility. these facilities would cause defaults on the
bonds for those facilities as well as cross-
In December 2002, EPCO and Chase made defaults with other lenders.
a financing agreement for the Eddyville facil-
ity, providing for a “lower floater” corporate EPCO received a letter from Chase indicat-
note financing structure bywhich Chase would ing that the only circumstance in which Chase
issue an irrevocable direct pay letter of credit would renew the letters of credit was if EPCO
for $3,350,000 that would support floating- entered into a forbearance agreement in which
rate option notes issued by EPCO.1 EPCO EPCO would admit certain technical defaults,
also executed Security Agreements in which it provide additional collateral, and pay addition-
granted Chase a security interest in various al fees and higher interest rates. EPCO signed
collateral relating to the Eddyville facility. that agreement.
Some financing documents contemplated a
subsequent issuance of notes up to an aggre- Following a few additional months of ne-
gate amount of $7 million relating to the ac- gotiations, in May 2004 Chase made a written
quisition of future projects, including a facility offer by letter to EPCO to restructure the in-
in Monroe, Wisconsin. debtedness associated with EPCO’s facilities
and extend the Eddyville letter of credit
In February 2003, Chase requested that through December 1, 2005. EPCO accepted
EPCO grant a security interest in additional that offer on the terms set forth by Chase.
collateral in connection with discussions re- Notwithstanding EPCO’s acceptance, Chase
garding the $7 million loan package. EPCO failed to comply with the terms of the May
informed Chase that its plans for additional 2004 agreement and has made repeated threats
projects, including the Monroe facility, were to put EPCO in default and impose even more
on hold and that it would not provide addi- onerous conditions.
tional collateral. Chase, however, insisted on
the additional collateral. In September 2004 Chase informed EPCO
that it would not renew the letter of credit un-
In March 2003, Chase informed EPCO that less EPCO paid increased fees to Chase, and
it wished to terminate the banking relationship paid all attorney fees incurred by Chase during
the negotiations since March 2003. Should
Chase fail to renew the letters of credit, EPCO
1
will suffer significant financial losses and ir-
“Lower Floater” financing is a security struc-
reparable damage to its reputation.
ture in which notes are underwritten and sold in the
public finance market to investors who will rely on
the letter of credit as a source of repayment. The B.
trustee of the letter of credit, Chase, will make EPCO sued Chase in state court seeking
payments to the holders of the notes and can then specific performance of the May 2004 agree-
seek reimbursement from the debtor, EPCO, ment, damages for breach of contract and
pursuant to the terms of a Reimbursement abuse of rights, and an injunction to prevent
Agreement signed by the parties.
2
Chase from failing to renew the letters of cred- Although the magistrate judge based his de-
it. Chase removed the case to federal court cision solely on the pleadings, he included a
based on diversity of citizenship and moved to footnote describing documents Chase had
dismiss under Federal Rule of Civil Procedure attached to its reply memorandum in support
12(b)(6) for failure to state a claim. of the motion to dismiss. Id. In footnote 4 he
discussed several email documents submitted
Chase’s principal contention in its motion by Chase that indicated that the May 2004
to dismiss was that all of EPCO’s claims stem agreement required “execution of definitive
from an alleged breach of the May 2004 agree- documentation” to be accepted and that EPCO
ment. Under Louisiana’s Credit Agreement had initially rejected that offer by email. Id.
Statute, all actions based on a credit agreement The district court accepted the magistrate
are barred unless the agreement is, inter alia, judge’s recommendation, with the exception of
in writing and signed by the creditor and footnote 4, and dismissed the claims.
debtor. See LA. REV.STAT. 6:1121 et seq.;
Jesco Constr. Corp. v. Nationsbank Corp., II.
830 So. 2d 989, 991-992 (La. 2002). Because We review a dismissal under rule 12(b)(6)
EPCO did not allege that the May 2004 de novo. See Bombardier Aerospace Employ-
agreement was in writing and signed by both ee Welfare Benefits Plan v. Ferrer, Poirot &
parties, Chase claimed that EPCO’s allegations Wansbrough, 354 F.3d 348, 351 (5th Cir.
were insufficient on their face to state a claim. 2003). We apply the same standard as does
the district court: A claim will not be dis-
The magistrate judge, in his report and rec- missed unless the plaintiff cannot prove any set
ommendation, concluded that to bring a claim of facts in support of its claim that would
for breach of a credit agreement, EPCO was entitle it to relief. Id.
required to plead either “the existence of a
written agreement ‘that is signed by the cred- A.
itor and the debtor,’” or that “(1) EPCO ac- The Louisiana Credit Agreement Statute
cepted the offer by email, and (2) Chase operates as a “statute of frauds” for the credit
agreed to conduct business by electronic industry. King, 885 So. 2d at 546. Actions
means.” EPCO Carbondioxide Prods. v. JP brought by debtors based on credit agreements
Morgan Chase Bank, NA, 2005 WL 1630096 cannot be maintained unless “the agreement is
(W.D. La. 2005). Because EPCO had failed in writing, expresses consideration, sets forth
to meet these pleading requirements, EPCO’s the relevant terms and conditions, and is
“conclusory” allegation that it had “accepted signed by the creditor and the debtor.” LA.
the offer” was insufficient. Id. For the abuse REV. STAT. § 6:1122 (2005). The purpose of
of right claim, the magistrate judge concluded the statute is “to prevent potential borrowers
that EPCO was seeking to “create an implied from bringing claims against lenders based
agreement obligating Chase to renew the loans upon oral agreements;” its effect is to bar “all
or letters of credit beyond their maturity actions for damages arising from oral credit
dates,” a cause of action precluded by the agreements, regardless of the legal theory of
Louisiana Credit Agreement Statute and recovery asserted.” Jesco, 830 So. 2d at 992.
Louisiana jurisprudence. Id. The statute has also been held to reach actions
based on implied agreements from a course of
3
dealings or a “previous business relationship.” 12(b)(6) may be appropriate based on a suc-
King, 885 So. 2d at 548. cessful affirmative defense, that defense must
appear on the face of the complaint.3 The
Louisiana has also enacted the Uniform Statute of Frauds has traditionally been con-
Electronic Transactions Act, LA. REV. sidered an affirmative defense. See FED. R.
STAT. § 9:2601 et seq. (2005). This statute CIV. P. 8(c); Automated Med. Lab., Inc. v.
allows an electronic signature to satisfy the Armour Pharm. Co., 629 F.2d 1118 (5th Cir.
signature requirement for most legal docu- 1980).
ments. LA. REV. STAT. § 9:2607. The Act
applies only to transactions between parties EPCO pleaded that a written offer was ex-
who have “agreed to conduct transactions by tended to EPCO by Chase on the date of the
electronic means.” LA. REV. STAT. § 9:2605- May 2004 agreement. EPCO also pleaded that
(B)(1). it accepted this offer. Under the liberal notice-
pleading standard of rule 8, this was a suf-
Taken together, these two statutes create a ficient pleading to provide notice to Chase of
significant evidentiary burden for EPCO. the factual basis for EPCO’s claim.4
Because it brings an action on a credit agree-
ment, EPCO must prove, as an element of its Chase argues, and the magistrate judge
claim, that there was a written credit agree- agreed, that EPCO should be required to plead
ment signed by both parties. If EPCO asserts either that the May 2004 agreement was
that it submitted its signature electronically, it
must prove that the parties agreed to conduct 2
transactions by electronic means. (...continued)
300, 312-14 (applying “no set of facts that would
entitle him to relief” standard to review of a rule
It is a well-known principle of federal law
12(b)(6) motion for dismissal based on the Louisi-
that federal procedure requires only notice
ana Credit Agreement Statute). The traditional
pleading, “a short and plain statement of the Fifth Circuit rule is that “a complaint is sufficient
claim showing that the pleader is entitled to if it satisfies the Federal Rules, even though it
relief.”2 Although dismissal under rule would be subject to demurrer in a state court for
failure to set forth facts sufficient to constitute a
cause of action.” Thompson v. Allstate Ins. Co.,
2
FED. R. CIV. P. 8(a)(2); Hoshman v. Esso 476 F.2d 746, 749 (5th Cir. 1973). We see no rea-
Stand. Oil Co., 263 F.2d 499, 501 (5th Cir. 1959). son to depart from this general rule in the instant
“A claimant does not have to set out in detail the context.
facts on which the claim for relief is based, but
must provide a statement sufficient to put the op- 3
2 MOORE, supra, § 12.34[4][b], at 12-74 (cit-
posing party on notice of the claim.” 2 JAMES W. ing Kansa Reins. Co. v. Congressional Mortgage
MOORE ET AL., MOORE’S FEDERAL PRACTICE Corp., 20 F.3d 1362, 1366 (5th Cir. 1994)).
§ 8.04[1][a], at 8-22 (Matthew Bender 3d ed.
4
2006). Although in some statutory contexts state See Gen. Elec. Capital Corp. v. Posey, 415
statutes have modified federal pleading require- F.3d 391, 396, 398 (5th Cir. 2005) (describing the
ments, see id., this court has not construed the “low bar” set out by rule 8a with the example de-
Louisiana Credit Agreement Statute as modifying scribed as sufficient by form 9, “the simple state-
the rule 8 standard. Cf. In Re Dengel, 340 F.3d ment, ‘[D]efendant negligently drove a motor ve-
(continued...) hicle against plaintiff . . . .’”).
4
signed by the parties or that the parties agreed EPCO has not conceded that its claim is
to transact by electronic means. This argu- based on an oral representation of Chase or on
ment misunderstands the rule 8 requirement. an unsigned agreement. Consistent with its
“Parsing the allegations into elements has nev- pleadings, EPCO may be able to show that its
er been required.”5 EPCO’s pleadings need acceptance was in the form necessary to satisfy
not identify every element of its claim, partic- the Credit Agreement Statute, either by
ularly where the contested elements relate to submitting proof that its agreement with Chase
the affirmative defense of the statute of frauds. was in a written, signed document or proof
that it submitted its acceptance of Chase’s
Although courts in this circuit have previ- offer electronically and that the two parties
ously dismissed claims under rule 12(b)(6) in had agreed to conduct business electronically.
reliance on the Louisiana Credit Agreement Neither of these factual scenarios is foreclosed
Statute, in those cases the non-moving party by the face of EPCO’s pleadings, so dismissal
either pleaded or conceded that its claim was at this early stage was improper.6
based on an oral or unsigned agreement. See
Dengel, 340 F.3d at 311-14; Bonvillain v. B.
U.S., 1999 WL 1072539, at *3 (E.D. La. Although we have the authority to grant
1999); Whitney Nat’l Bank v. Stack, 1991 WL judgment in favor of a party who did not move
255376, at *1 (E.D. La. 1991). Instructive in for summary judgment in the district court, we
this regard is the analysis in Dengel. should do so only where “(1) there is no gen-
uine issue of material fact and (2) the opposing
There, the plaintiff brought a third-party party has had a full opportunity to (a) brief the
counterclaim against Bank One, alleging legal issues and (b) develop a record.” Rob-
breach of a loan commitment. Although plain- inson v. Aetna Life Ins. Co., 443 F.3d 389,
tiff did not plead a written, signed credit 396 (5th Cir. 2006). Chase submitted addi-
agreement in his counterclaim, we affirmed a tional evidentiary material through an affidavit
summary judgment, relying on the fact that attached to its reply memorandum in support
“the alleged credit agreement attached to the of its motion to dismiss. EPCO did not have
third party claim is not signed by Dengel and a chance to respond to that material or to chal-
his wife as required by La. R.S. 6:1122.” lenge it by submitting contrary evidence.7 We
Dengel, 340 F.3d at 313.
6
We express no opinion as to the sufficiency of
any additional showing that EPCO may be able to
5
Posey, 415 F.2d at 396 n.5. “Indeed, the mere make or as to whether, in the event of an inade-
fact that allegations can be characterized as quate showing, EPCO would be subject to sanc-
‘conclusional’ will not, alone, suffice to make them tions.
insufficient.” Id. at 397 n.6. “[T]he test is whether
7
the complaint ‘outline[s] or adumbrate[s]’ a In addition, the plain text of rule 56 creates a
violation of the statute or constitutional provision notice requirement for summary judgment. FED.R.
on which the plaintiff relies . . . and connects the CIV. P. 56(c) (“The motion shall be served at least
violation to the named defendants.” 2 MOORE, 10 days before the time fixed for the hearing.”).
supra, § 8.04[1][a], at 8-24 (quoting Brownlee v. Although our circuit has not followed our sister
Conine, 957 F.2d 353, 354 (7th Cir. 1992)) circuits by implying a hearing requirement, see
(brackets and ellipses in original). (continued...)
5
therefore deem it prudent to remand these is-
sues to the district court, which may require
full briefing or receive additional evidence.
The summary judgment is REVERSED,
and this matter is REMANDED for further
proceedings.
7
(...continued)
Jackson v. Widnall, 99 F.3d 710, 713 (5th Cir.
1996), “if there is no hearing, the adverse party
must have at least 10 days before the court makes
a ruling to respond to the motion for summary
judgment,” 2 MOORE, supra, § 56.10[2][a], at
56-49.
6