546 F.3d 365 (6th Cir. 2008), 08-5032, Langley v. Prudential Mortg. Capital Co., LLC
|Citation:||546 F.3d 365|
|Party Name:||Robert LANGLEY; Mountaineer Development Company, Ltd; Colony Crossing, LLC; Langley-Colonial, LLC, Plaintiffs-Appellees, v. PRUDENTIAL MORTGAGE CAPITAL COMPANY, LLC, Defendant-Appellant, National City Bank, Defendant.|
|Case Date:||October 27, 2008|
|Court:||United States Courts of Appeals, Court of Appeals for the Sixth Circuit|
Argued: June 5, 2008.
William W. Allen, Gess, Mattingly & Atchison, Lexington, Kentucky, for Appellant.
P. Douglas Barr, Stoll Keenon Ogden, Lexington, Kentucky, for Appellees.
Steven M. Collins, Daniel F. Diffley, Grant T. Stein, Alston & Bird, Atlanta, Georgia, Barbara B. Edelman, David J. Treacy, Dinsmore & Shohl, Lexington, Kentucky, for Appellant.
P. Douglas Barr, Robert M. Watt III, Shannon A. Singleton, Stoll Keenon Ogden, Lexington, Kentucky, for Appellees.
Before: MERRITT, MOORE, and ROGERS, Circuit Judges.
This case involves two sizeable real estate loans-one for $43 million, the other for $14 million-by Prudential, the lender, to Robert Langley, the borrower. The dispositive issue on appeal is whether two contracts, both of which included a forum selection clause choosing New York as the forum for litigation, should be enforced. The federal district court below determined that the contracts were invalid and thus declined to enforce the forum selection clauses. Because a valid and enforceable contract exists, we vacate and remand for the district court to entertain a motion to enforce the forum selection clause under FED.R.CIV.P. 12(b)(6) or 28 U.S.C. § 1404(a).
This appeal stems from two loan agreements between Langley and Prudential Mortgage Capital Company, LLC (“ Prudential" ). First, on June 6, 2007, Langley signed a loan for $43,300,000 to finance a commercial real estate project in Gulf Shores, Alabama, known as Craft Farms (the “ Craft Farm loan" ). And second, Langley signed a loan for $13,800,000 on June 25, 2007, to finance a commercial real estate project in Mississippi known as Colony Crossing (the “ Colony Crossing loan" ). The parties also agreed to “ Rate Lock Agreements" for both loans, which were signed on the same days as the two loan agreements. The Rate Lock Agreements, which are at the heart of this controversy, both included the following choice of law and forum selection clause:
Pursuant to Section 5-1401 of the General Obligations of the State of New York, this Agreement shall be governed by the substantive law of the State of New York (without regard to the principles of conflicts of laws). Pursuant to Section 5-1402 of the General Obligations Law of the State of New York, the parties hereto elect that any litigation arising out of this Agreement shall be brought only in a state or federal court sitting in New York County in the State of New York.
The Rate Lock Agreements resulted from negotiations to determine the exact
conditions and rates necessary to finalize the loans. Because Prudential intended to securitize the proposed loans using commercial mortgage-backed securities, it required rate lock deposits, which Langley paid, before agreeing to the Rate Lock Agreements. The Rate Lock Agreements also included a provision giving Prudential the discretion to demand increases in the amount of the rate lock deposits. Under the terms of the loan agreements, Langley agreed to pay “ unwind costs" if the loans failed to close for any reason.
Beginning in the summer of 2007, the rate on the 10-Year Treasury Notes began to drop as a result of the subprime mortgage crisis. Prudential characterized this event as a material adverse change and demanded that Langley increase the rate lock deposits in order to maintain the terms of the Rate Lock Agreements. Meanwhile, a dispute had developed over the interpretation of the Rate Lock Agreements; specifically, the parties disagreed about whether they had agreed to fix the interest rates for the loans absolutely or whether the agreements simply fixed the interest rate spread (which was subject to change). Langley ultimately delivered two letters of credit-drawable on an account at National City Bank-to Prudential in response to Prudential's demand that he increase the rate lock deposits: one on August 20, 2007, and the other on August 21, 2007.2 As market conditions continued to fluctuate, the parties entered into what proved to be unsuccessful discussions about modifying the terms of the loan. Prudential then informed Langley that the failure to finalize the two loans constituted unwind events under the agreements. Accordingly, Prudential informed Langley that it would seek to have the letters of credit honored as part of the unwind costs. Langley then filed an action on December 3, 2007, seeking to enjoin National City Bank, a co-defendant, from honoring the letters of credit that Langley had provided to Prudential. In response, Prudential argued that the forum selection clauses should be enforced and that the injunction should not issue.
The district court rejected the forum selection clauses and then issued the preliminary injunction on December 6, 2007. On the forum selection clause issue, the district court's decision is as follows:
As a preliminary matter, the Court must address Prudential's assertion [that] pursuant to the Rate Lock Agreement, any disputes arising from the Rate Lock Agreements “ shall be governed by the substantive law of the State of New York" and that any litigation arising out of the Rate Lock Agreements “ shall be brought only in a state or federal court sitting in New York County in the State of New York." Plaintiffs contend that as there was no meeting of the minds regarding the Rate Lock Agreements, the choice of law and forum selection clauses ... do not control this litigation, a contention with which this Court agrees. Accordingly, this Court is a proper forum for this litigation, which shall be governed by the substantive law of the Commonwealth of Kentucky.
Langley v. Prudential Mortgage Capital Co., No. 07-cv-404-JMH, 2007 WL 4365423, at *2, 2007 U.S. Dist. LEXIS 92224, at *5 (E.D.Ky. Dec. 12, 2007). This appeal followed.
Prudential argues in this appeal that the district court committed reversible
error by not enforcing the terms of the forum selection clause. According to Prudential, the agreements containing the clauses constitute valid, enforceable contracts, notwithstanding the district court's conclusion to the contrary. We review questions of contract interpretation de novo. Chi. Title Ins. Corp. v. Magnuson, 487 F.3d 985, 990 (6th Cir.2007) (citing Golden v. Kelsey-Hayes Co., 73 F.3d 648, 653 (6th Cir.1996)).
The district court focused on the parties' disagreement about whether the agreements locked the interest rates absolutely or merely the spread in finding that there was no meeting of the minds. Langley argues that the agreements froze the interest rates at a fixed value for each loan, while Prudential contends...
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