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


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  •      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.
    2
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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
    3
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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.
    4
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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”
    5
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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,
    6
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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.
    7