Keenan v. Donaldson, Lufkin & Jenrette, Inc.

• Decision Date: 29 May 2008
• Docket Number: No. 07-30321.,07-30321.
• Parties: Burt H. KEENAN, Plaintiff-Appellant, v. DONALDSON, LUFKIN & JENRETTE, INC.; Donaldson, Lufkin & Jenrette International; Donaldson, Lufkin & Jenrette Securities Corporation; DLJ Bridge Finance, Inc.; Credit Suisse First Boston (USA), Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

529 F.3d 569

Burt H. KEENAN, Plaintiff-Appellant, v. DONALDSON, LUFKIN & JENRETTE, INC.; Donaldson, Lufkin & Jenrette International; Donaldson, Lufkin & Jenrette Securities Corporation; DLJ Bridge Finance, Inc.; Credit Suisse First Boston (USA), Inc., Defendants-Appellees.

No. 07-30321.

United States Court of Appeals, Fifth Circuit.

May 29, 2008.

Phillip A. Wittmann (argued), Paul James Masinter, Heather Shauri Lonian, Stone, Pigman, Walther & Wittmann, New Orleans, LA, Steven Schindler, Lisa Carrie Cohen, Rebecca Lisbeth Fine, Schindler, Cohen & Hochman, New York City, for Keenan.

Lawrence J. Portnoy (argued), Miriam Francine Ingber, Davis, Polk & Wardwell, New York City, Terry Christovich Gay, Kevin Richard Tully, Christovich & Kearney, New Orleans, LA, for Defendants-Appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before KING, DeMOSS and SOUTHWICK, Circuit Judges.

SOUTHWICK, Circuit Judge:

Burt Keenan appeals the district court order granting the Defendants' motion for summary judgment. Because we disagree with the district court's interpretation of the key state statute, we reverse and remand.

FACTS AND PROCEDURAL HISTORY

In March 1996, Keenan and others founded Independent Energy Holdings PLC and its subsidiary, Independent Energy UK Limited (together, "IE"), to take advantage of opportunities created by the deregulation of energy markets in the United Kingdom. Keenan was IE's Executive Chairman and Chief Executive Officer until 1998, and thereafter remained a member of the Board of Directors and the company's largest individual equity holder. The Appellees — Donaldson, Lufkin & Jenrette, Inc. ("DLJ"),¹ Donaldson, Lufkin & Jenrette International ("DLJ International"), Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Securities"), DLJ Bridge Finance, Inc. ("DLJ Bridge"), Credit Suisse First Boston (USA), Inc., ("CSFB"), (collectively, "DLJ entities" or "Defendants") — performed several functions for IE in their roles as financial advisors, investment bankers, equity brokers, and principal underwriters for IE. Specifically, DLJ Bridge loaned money to IE through its membership in a multibank syndicate. DLJ Securities acted as the underwriter for IE's initial United States public offering and two secondary offerings. DLJ International served as financial advisors regarding mergers and acquisitions.

In late 1999, IE began experiencing cash flow problems. In 2000, IE required growing amounts of outside capital to stay in business. IE relied, in part, on loans from the banking syndicate, of which (as of May 2000), DLJ Bridge was a member. In June 2000, the banking syndicate informed Keenan and IE that it considered IE to be in technical default of its credit facility. On or about June 21, 2000, Keenan made a 6.6 million personal, unsecured loan to IE.² A portion of the loan would be used to cure the alleged default, the remaining amount would provide IE with additional working capital. Keenan alleges, and the Defendants do not at this point dispute,³ that he made the loan based upon an oral agreement with Matt Davis and Derek Shakespeare, investment bankers employed by one of the DLJ entities. This oral agreement provided that if Keenan made the loan to IE, and raised additional financing from personal and business acquaintances,⁴ DLJ would waive technical default of the existing credit facility, develop a long-term credit facility, and provide further funding of IE until the resolution of the liquidity crisis.

On or about June 21, 2000, Keenan loaned the money; IE executed a promissory note with a maturity date of October 1, 2000. Keenan also wrote a letter to the banking syndicate concerning the loan in which he made no mention of any oral agreement with a DLJ entity.

The banking syndicate waived the alleged default regarding the loan. However, DLJ Bridge and the other members of the banking syndicate refused to extend additional credit to IE, which forced the company into receivership and liquidation in the UK. In the liquidation process, the banking syndicate's secured debt of 165 million was paid in full, along with interest and penalties. However, IE was only able to repay 700,000 of Keenan's 6.6 million unsecured loan. Keenan asserts that prior to the time he made his loan to IE, Davis and Shakespeare failed to inform him that (1) DLJ had already decided that it would not extend further credit or support to IE once the existing credit facility expired, (2) the banking syndicate was discussing entering IE into insolvency if its liquidity issues continued at the same time that Keenan made the loan, and (3) DLJ believed that unless IE promptly resolved its billing and collection problems, the banking syndicate would not increase or extend credit.

Keenan filed suit against the Defendants on October 7, 2005. Keenan initially asserted claims for promissory estoppel and detrimental reliance and sought $10 million in damages. On September 20, 2006, he amended his complaint to assert five additional claims of fraud, fraud by omission, negligent misrepresentation, negligent omission, and breach of fiduciary duty.

The DLJ entities moved to dismiss. The district court considered matters beyond the pleadings and treated the motion as one for summary judgment. The court granted judgment, finding that all of Keenan's claims were barred by the requirement that agreements covered by the Louisiana Credit Agreement Statute be in writing. Keenan appeals, arguing the statute does not apply.

DISCUSSION

Summary judgment is appropriate if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). We make all inferences in favor of the nonmovant. Minter v. Great Am. Ins. Co. of N.Y., 423 F.3d 460, 465 (5th Cir.2005). We review the district court conclusions de novo. Id.

The issue before the district court was whether the following Louisiana statutory provision applied to the oral agreement that Keenan entered with DLJ:

A debtor shall not maintain an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and the debtor.

La.Rev.Stat. Ann. § 6:1122 (2005). If the statute applies, the fact that the agreement was not in writing makes it unenforceable.

There is a conceptual clash in this case between common understandings of the terms "creditor" and "debtor," and DLJ's view — accepted by the district court — about the statutory definitions. In common usage, Keenan was a creditor who loaned money to IE, a debtor. DLJ made an accommodation to IE as a result of the loan. Whether the statutory definitions permit a different label to be placed on Keenan, namely "debtor" instead of — or perhaps in addition to — "creditor," is our issue:

(1) "Credit agreement" means an agreement to lend or forbear repayment of money or goods or to otherwise extend credit, or make any other financial accommodation.

(2) "Creditor" means a financial institution or any other type of creditor that extends credit or extends a financial accommodation under a credit agreement with a debtor.

(3) "Debtor" means a person or entity that obtains credit or seeks a credit agreement with a creditor or who owes money to a creditor.

(4) "Financial institution" means a bank, savings and loan association, savings banks, or credit union authorized to transact business in this state.

La.Rev.Stat. Ann. § 6:1121 (2005).

The district court's analytical steps were as follows. The Defendants' promises to Keenan to waive pursuit of the technical default, develop a long-term credit facility, and support IE through the liquidity crisis were financial accommodations meeting the definition of a "credit agreement." DLJ was a creditor in that it extended those financial accommodations. Keenan was a debtor because he "sought a credit agreement with a creditor."

The district court acknowledged that Keenan had no debtor-creditor relation with DLJ as that would usually be understood. However, "he entered into a credit agreement as defined" in this statute. That made him a statutory "debtor." This was true even though Keenan also clearly was a creditor because of his loan of money to IE.

The district court also rejected Keenan's argument that the statute is premised on a situation in which the party seeking to enforce the oral agreement has entered into a direct debtor-creditor or borrower-lender relationship. The court found Keenan's "narrow" statutory interpretation to be inconsistent with the plain meaning of the statute, citing Louisiana courts' practice of permitting a "broader interpretation." Accordingly, the district court found that a credit agreement existed, and, that because it was not in writing, all of Keenan's claims were statutorily barred.

It is certainly true that a legislature may define and use words in unusual ways. The issue for the district court and now for us is whether that occurred here. Because diversity of citizenship is the source for federal jurisdiction and the issues are ones of state law, the answers to the questions posed will be found in state substantive law. In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir.2007). In Katrina, we set out our understanding of the means by which Louisiana courts discern controlling state law. A final decision of the Louisiana Supreme Court on the issues presented would be controlling, but there is none. Louisiana's interpretive methodology on unresolved legal issues is to examine first the primary sources of law: the constitution, codes, and statutes. Jurisprudence is secondary, even where numerous lower court decisions are in accord on an issue. Id.

Today's issues involve statutory interpretation. In Louisiana, the starting point in ascertaining...