2012 Commercial Law Developments
A. Formation, Scope, and Meaning of Agreement
- Edelman Arts, Inc. v. Art International (UK) Ltd., 841 F. Supp. 2d 810 (S.D.N.Y. 2012) -- The placement of signed purchase order in escrow was a mechanism to create a condition precedent to validity of the parties' contract, not just a condition to the buyer's duty to pay.
- Green Tree Servicing, LLC v. Woods, 2012 WL 3222360 (Tex. Ct. App. 2012) -- A loan servicing agreement, its amendment, and sub-servicing agreement established that the sub-servicer had capacity to bring an action against the debtors on an allegedly securitized loan. Whether the sub-servicer could establish that the loan was transferred from the original creditor to one of the parties to the servicing agreement and whether the loan remained subject to the servicing agreement relates not to capacity but to standing, an issue that could not properly be determined in a no-evidence motion for summary judgment.
- Epitech, Inc. v. Kann, 139 Cal. Rptr. 3d 702 (Cal. Ct. App. 2012) -- Creditors were not third-party beneficiaries of a contract between the debtor and its financial advisor and thus their action against the advisor for misrepresentation -- based on statements made before, during, and after the advisor's contractual relationship with the debtor -- was not subject to the arbitration clause contained in that contract.
- BKCAP, LLC v. CAPTEC Franchise Trust, 2000-1, Nos. 11-2928 & 11-3378 (7th Cir. 2012) -- The court interpreted loan agreement language regarding prepayment yield maintenance and
- Louisiana Stadium & Exposition v. Financial Guaranty Insurance, __F3d__ (2d Cir. 2012) -- A party to an agreement failed to state a valid basis for rescission of an agreement to purchase bond insurance. In connection with a bond issuance, the issuer of the bonds obtained bond insurance from tax issuer of the bond insurance. Two years later, the issuer of the insurance lost its triple-AAA credit rating and was eventually ordered by the New York Insurance Department to stop paying all claims against existing policies. The bond issuer then commenced suit claiming that the insurance issuer falsely represented its investment strategy and creditworthiness going forward. The court affirmed the lower court's dismissal for failure to state a claim, holding that the cause of the agreement was to protect the bond issuer's bondholders in the event of default by the bond issuer. To the extent that the insurance issuer's AAA rating at the time of contract reduced the interest rate at which the bond issuer issued bonds, this benefit was ancillary to the principal cause of the agreement.
- United Prairie Bank-Mountain Lake v. Haugen Nutrition & Equipment, LLC, 813 N.W.2d 49 (Minn. 2012) -- Pursuant to the state constitution, a debtor was entitled to a jury trial on a bank's contractual claim for attorney's fees in connection with action to enforce a secured loan. The claim is legal, not equitable, because it is more like one for indemnity than for restitution or specific performance.
- Bayerische Landesbank v. Aladdin Capital Management LLC, 692 F.3d 42 (2d Cir. 2012) -- Investors in collateralized debt obligation that sold interests in a credit default swap sufficiently alleged that they were third-party beneficiaries of the portfolio management agreement entered into between CDO issuer and the registered investment adviser. The agreement specifically stated the adviser's obligations and liabilities to the investors. Although the agreement identified the swap counter-party as an intended third party beneficiary and disclaimed the existence of other third-party beneficiaries "except as otherwise specifically provided herein," the exception might refer to the entire agreement, not merely the clause on third-party beneficiaries.
- In re Guggenheim Corp. Funding, LLC, 2012 WL 3939857 (Tex. Ct. App. 2012) -- A credit agreement contained a jury waiver clause, which applied to any "legal action or proceeding relating to this agreement or any other loan document," including "any amendment" or "modification" thereto. The court held that it covered claims relating to amended warrants given that a contemporaneous fee letter identified the original warrants as a "loan document" and the parties had agreed that the credit agreement and fee letter should be construed together.
- Bank of America v. FDIC, 2012 WL 6105147 (D.D.C. 2012) -- The FDIC stated claim against custodian of mortgage loans despite exculpatory clause in Custodial Agreement because the clause excepted not only gross negligence, willful misconduct, and a bad-faith, material breach not cured within 10 days of notice, but also "other malfeasance," which was undefined and too broad to constitute clear and unequivocal notice of what rights were contracted away.
- Lehman Bros. Holdings Inc. v. Bethany Holdings Group, LLC, 10 Civ. 4373 (SHS), 2011 U.S. Dist. LEXIS 86786 (S.D.N.Y. Aug. 5, 2011) -- The court concluded their jury trial waivers in guaranties are enforceable where the guarantor had sufficient bargaining power and "business acumen." The guarantor had authorized his attorney to attach his pre-signed signature page and the jury trial waiver was sufficiently conspicuous.
B. Choice of Law
- Crastvell Trading Ltd. v. Marengere, 90 So. 3d 349 (Fla. Ct. App. 2012) -- A forum-selection clause in loan agreements was not binding on the debtors' affiliates or their controlling shareholder because the agreements expressly indicated that there were no third-party beneficiaries entitled to enforce the agreements.
- IDACORP, Inc. v. American Fiber Systems, Inc., 2012 WL 4139925 (D. Id. 2012) -- A clause in stock purchase agreement selecting New York as the exclusive forum to litigate disputes was not a basis for a federal court in Idaho to dismiss or transfer an action brought for breach of that contract because Idaho law invalidates choice-of-forum clauses that restrict access to Idaho courts.
- Citizens Bank v. Merrill, Lynch, Pierce, Fenner and Smith, Inc., 2012 WL 5828623 (E.D. Mich. 2012) -- Because no contrary intention was manifest in the choice-of-law clause in the parties' control agreement, Michigan procedural law, including its six-year statute of limitations, not the chosen law of New York, with its three-year limitations period, applied to tort and contract claims brought under New York law.
- Newton v. American Debt Services, Inc., 854 F. Supp. 2d 712 (N.D. Cal. 2012) -- An arbitration clause in a consumer's contract with debt settlement company was procedurally unconscionable because the contract was one of adhesion. The arbitration clause was located on the back of a double-sided form that was incorporated by reference into the actual contract but not contained within the contract itself or signed by the consumer. The arbitration clause was substantively unconscionable because it: (i) limited the debt settlement company's liability to the amount the consumer paid even though federal law expressly authorizes greater recovery, (ii) allows for the prevailing party to recover reasonable attorney's fees even though state law permits such an award in a consumer contract only if the action was not brought in good faith; (iii) required arbitration in Tulsa, the debt settlement company's home city, thereby requiring the consumer to incur substantial expense; and (iv) gave the debt settlement company the unilateral right to choose an arbitrator.
- Grosvenor v. Qwest Corp., 854 F. Supp. 2d 1021 (D. Colo. 2012) -- An arbitration clause in an internet subscriber agreement was illusory and not enforceable because the provider reserved the right to modify any of the agreement's provisions, including the arbitration clause, at its sole discretion.
- MV Insurance Consultants v. NAFH National Bank, 87 So. 3d 96 (Fla. Ct. App. 2012) -- Because agreements executed contemporaneously by the same parties and concerning the same transaction are construed together as a single contract, an arbitration clause in the parties' Collateral Assignment of Termination Payments and Economic Interests applied to claims brought under the promissory note, security agreement, and guaranty.
- Amegy Bank v. Monarch Flight II, LLC, 2012 WL 1494340 (S.D. Tex. 2012) -- A secured party's claims for conspiracy and fraudulent transfer against a debtor's wife and entities controlled by the debtor were subject to arbitration between the secured party and the debtor because the conspiracy claim alleges substantially interdependent and concerted misconduct between the debtor and the nonsignatory defendants and the fraudulent transfer claim is premised on the security agreement.
- Ping v. Beverly Enterprises, Inc., 2012 WL 3631399 (Ky. 2012) -- A mother's durable power of attorney regarding financial decisions and medical treatment gave her daughter authority "[t]o generally do any and every further act and thing of whatever kind, nature, or type required to be done on my behalf" and directed that "the language of this document be liberally construed." The power of attorney did not give the daughter authority to enter into an arbitration agreement with a long-term care facility, which agreement was not a condition to admission to the facility -- because the agency was limited to managing the mother's property and finances and to making healthcare decisions on her behalf, and did not authorize the daughter to waive the mother's access to courts when there was no reasonable necessity to do so.
- Clay v. New Mexico Title Loans, Inc., 288 P.3d 888 (N.M. Ct. App. 2012) -- An arbitration clause in a security agreement covered "any claim, dispute or controversy . . . that in any way arises from or relates to this Agreement or the [collateral]." It defined "claim" to include actions based in tort. It did not cover the debtor's action against the secured party for injuries suffered when the debtor was shot by a repossession agent because the action did not relate to the agreement.
- Hosier v. Citigroup Global Markets, Inc., 858 F. Supp. 2d 1206 (D. Colo. 2012) -- Federal law governs the award of post-judgment interest in federal cases, including those confirming an arbitration award. The arbitration panel may not establish a post-judgment rate different from the federal statutory rate unless it determines the parties have clearly, unambiguously, and unequivocally contracted for their own rate.
- Cataphora Inc. v. Parker, 848 F. Supp. 2d 1064 (N.D. Cal. 2012) -- Under applicable state law a successful plaintiff on a contract action is entitled to prejudgment interest if either the contract so provides or the amount of the damages is certain or capable of being made certain with calculation. Here the amount of damages was uncertain and the contract provided for 18% interest on "[a]ny payments that are late" but not on any other breach or dispute. Similarly, although parties are free to contract around federal law on post-judgment interest in diversity actions, here the agreement covered only late payments and did not expressly state that the parties agreed to a specified post-judgment interest rate or an intent to contract around 28 U.S.C. § 1961.
- Lane v. U.S. Bank, 2012 WL 3670467 (Cal. Ct. App. 2012) -- A clause in a deed of trust entitled a lender to attorney's fees "in connection with Borrower's default" and "for the purpose of protecting Lender's interest in the Property and rights under this Security Agreement." The clause was broad enough to cover quasi-contract claims for unjust enrichment and imposition of a constructive trust. Such claims were "on the contract" within the meaning of California's reciprocity statute. Thus, the lender was liable for the attorney's fees incurred by the borrower's representative in successfully defending against those claims of the lender.
- Commercial Real Estate Inv., L.C. v. Comcast of Utah II, Inc., 2012 WL 3285071 (Utah 2012) -- Contractual liquidated damages clauses are enforceable unless unconscionable at the time the parties enter into the contract.
- Wells Fargo Bank, N.A. v. LaSalle Bank Nat'l Ass'n, No. CIV-08-1125-C, 2011 U.S. Dist. LEXIS 93927 (W.D. Okla. Aug. 23, 2011) -- The court considered whether a repurchase agreement in CMBS transaction, requiring the seller of mortgages to repurchase non-complying loans at the purchase price plus interest and costs, constituted either an impermissible requirement of specific performance or unenforceable liquidated damages. The court cited competing CMBS precedent in concluding that on the facts of this case, the failure by the purchaser to mitigate damages should offset only the requirement to repay the purchase price as a result of any failure by the special servicer to service the loans post-default.
- In re Makris, 482 Fed. Appx. 695 (3d Cir. 2012) -- A clause in promissory note made the borrower liable for the lender's attorney's fees incurred "in enforcing this Note." The clause was not broad enough to cover attorney's fees incurred in unsuccessfully pursuing the borrower for fees the lender incurred in suing the guarantor.
- In re Glazier Group Inc., 2012 WL 6005764 (Bankr. S.D.N.Y. 2012) -- A creditor's claim for attorney's fees incurred subsequent to the payoff of loan survived even though the payoff letter provided that upon receipt of payment "all obligations of the Borrower and any guarantors under any and all of the Loan Documents shall be deemed paid in full." The payoff letter expressly stated that the amount owed was "[a]s of December 5, 2011" and, in any event, the loan agreement contained an all-encompassing unambiguous survival clause that provided that all indemnification obligations survive repayment of the loan.
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