Bluebonnet Hotel Ventures, L.L.C. v. Wells Fargo Bank, N.A.

• Decision Date: 06 June 2014
• Docket Number: No. 13–30827.,13–30827.
• Citation: 754 F.3d 272
• Parties: BLUEBONNET HOTEL VENTURES, L.L.C., Plaintiff–Appellant v. WELLS FARGO BANK, N.A., Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

754 F.3d 272

BLUEBONNET HOTEL VENTURES, L.L.C., Plaintiff–Appellant

v.WELLS FARGO BANK, N.A., Defendant–Appellee.

No. 13–30827.

United States Court of Appeals, Fifth Circuit.

June 6, 2014.

James Richard Swanson, Attorney, Jason W. Burge, Fishman Haygood Phelps Walmsley Willis & Swanson, L.L.P., New Orleans, LA, for Plaintiff–Appellant.

Nancy Scott Degan, Esq., Roy C. Cheatwood, Matthew Charles Juneau, Kathlyn Gloria Perez, Esq., Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., New Orleans, LA, for 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 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 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 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. SeeFed.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, 106 S.Ct. 2548. 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., 255 F.3d 254, 258 (5th Cir.2001).

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...