Power & Telephone Supply v. Suntrust Banks

• Decision Date: 17 May 2006
• Docket Number: No. 05-5966.,05-5966.
• Citation: 447 F.3d 923
• Parties: POWER & TELEPHONE SUPPLY COMPANY, INC., Plaintiff-Appellant, v. SUNTRUST BANKS, INC.; SunTrust Bank; SunTrust Bank—Atlanta; SunTrust Bank—Nashville, N.A.; SunTrust Equitable Securities Corporation; SunTrust Capital Markets, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

447 F.3d 923

POWER & TELEPHONE SUPPLY COMPANY, INC., Plaintiff-Appellant, v. SUNTRUST BANKS, INC.; SunTrust Bank; SunTrust Bank—Atlanta; SunTrust Bank—Nashville, N.A.; SunTrust Equitable Securities Corporation; SunTrust Capital Markets, Inc., Defendants-Appellees.

No. 05-5966.

United States Court of Appeals, Sixth Circuit.

Argued: April 26, 2006.

Decided and Filed: May 17, 2006.

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ARGUED: Cannon F. Allen, Armstrong Allen, Memphis, Tennessee, for Appellant. S. Lawrence Polk, Sutherland, Asbill & Brennan, Atlanta, Georgia, for Appellees. ON BRIEF: Cannon F. Allen, Amy M. Pepke, Sara Falkinham, Armstrong Allen, Memphis, Tennessee, for Appellant. S. Lawrence Polk, Elena C. Parent, Sutherland, Asbill & Brennan, Atlanta, Georgia, for Appellees.

Before: GUY, DAUGHTREY, and CLAY, Circuit Judges.

OPINION

RALPH B. GUY, JR., Circuit Judge.

Plaintiff Power & Telephone Supply Company, Inc. (P & T), brought this action against the interrelated SunTrust defendants seeking to recover $6 million in costs incurred under two derivative interest rate "swap" agreements that P & T entered into as a hedge against increases in the variable interest rate on its syndicated lines of credit.¹ P & T's third amended complaint asserted claims against the SunTrust defendants under theories of breach of contract, breach of fiduciary duty, agency, negligence, common law suitability, deceptive trade practices in violation of the Tennessee Consumer Protection Act (TCPA) (Tenn.Code Ann. § 47-18-109(a)(1)), and illegal tying under the Bank Holding Company Act (12 U.S.C. § 1972).² The district court first dismissed some of P & T's claims, and then granted summary judgment to defendants on the rest. Defendants brought a counterclaim seeking indemnification for the attorney fees and costs incurred in defending this action. The district court granted summary judgment to defendants on their counterclaim, and subsequently entered judgment in defendants' favor in the amount of $802,535.93.

On appeal, P & T challenges the dismissal of (1) its intentional misrepresentation claim for failure to satisfy Fed. R.Civ.P. 9(b), and (2) its claim under the TCPA as barred by the one-year statute of limitations set forth in Tenn.Code Ann. § 47-18-110. Also, while abandoning its claim for breach of fiduciary duty, P & T contends that the district court erred in granting summary judgment to defendants on its negligence claim. Finally, P & T argues that the district court erred in finding that defendants were entitled, either singly or collectively, to indemnification under one or more provisions of the written agreements. No challenge is made to the reasonableness of the amount of the judgment. After review of the extensive record and the arguments presented on appeal, we affirm.

I.

P & T Supply, a Tennessee corporation headquartered in Memphis, distributes telecom products to telephone, communications, and cable companies. P & T used the banking services of First Tennessee Bank for many years, including a syndicated line of credit (SLOC) for working capital and inventory purchases. First Tennessee was the lead bank on that syndicated credit facility. SunTrust-Nashville participated in the SLOC for the first time in August 1996, and finally succeeded in replacing First Tennessee as P & T's primary bank in November 1998. In soliciting P & T's business, SunTrust made two presentations central to P & T's claims in this case.

The presentations, made in September 1996 and January 1997, pitched the investment banking services and products of SunTrust Capital Markets (and its subsidiary SunTrust Corporate Finance (STCF)), including syndicated credit facilities, term loans, private placements, and derivative interest rate swaps. P & T alleges that the SunTrust defendants misrepresented the level of care that would be taken in providing such services. In particular, P & T relies on the following statements from the written materials that described the "advantages" of STCF's services:

[] STCF works almost exclusively with clients and prospects of its banks. This creates a high level of accountability.

[] We are dedicated to doing what is right for our clients, not just doing a deal. To us, every deal is an advisory assignment.

[] Our seasoned professional staff has amassed an average of 14 years of experience in a diverse range of financial and corporate positions.

[] A senior level product specialist is in charge of every deal—from start to finish.

[] Every deal is important to us and warrants the highest level of service.

Also, in pitching their lending syndication services, the materials from both presentations stated that STCF would assist throughout the process, "helping [clients] structure a marketable transaction that best meets the company's needs," and would stay involved after the transaction is completed, "thereby facilitating conversation regarding future transactions and reinforcing our role as financial advisor." With respect to "risk management," the materials stated: "We take seriously our responsibility to recommend only those strategies that are appropriate for our customers and will not recommend an inappropriate or high risk transaction."

In April 1997, only a few months after the second presentation, First Tennessee and SunTrust proposed that P & T hedge against rising interest rates on the SLOC and discussed the relative risks and benefits of an interest-rate cap versus an interest-rate swap. P & T rejected SunTrust's proposed swap, and decided instead to purchase a five-year interest rate cap at 8% on a notational amount of $20 million. P & T did not move the SLOC to SunTrust until November 1998, more than a year-and-a-half after the second presentation, and did not enter the swap agreements at issue until July 1999 and July 2000, respectively.

In November 1998, when the existing SLOC matured, SunTrust-Nashville took over as P & T's primary bank and became the lead lender on a new $60 million SLOC. The new SLOC, or credit facility, was documented by Restated Credit and Restated Security Agreements, which explicitly provided that nothing in them or any related documents created a fiduciary relationship between P & T and either SunTrust or any participating lender.

In June 1999, as P & T's borrowing under the SLOC grew, SunTrust proposed that P & T enter an interest-rate swap to hedge against increases in the variable interest rate on its higher loan balances. SunTrust Equitable Securities Corporation (STES) presented P & T with a written proposal that explained the swap, disclaimed any advisory role on the part of SunTrust, and advised that P & T should determine the risks and merits of the transaction without reliance on SunTrust "or its affiliates." That proposal was accepted and P & T entered into a five-year swap on a notational amount of $20 million, under which P & T would pay at a fixed rate of 6.56% and SunTrust-Atlanta would pay at a floating rate tied to the London Interbank Offered Rate (LIBOR).

As is typical of such contracts, the swap was governed by a master agreement and confirmation setting forth the particulars of the transaction. The master agreement (an International Swap Dealers Association (ISDA) Master Agreement) included SunTrust-Atlanta's terms of dealing and risk disclosures, which, in turn, expressly disavowed the existence of any advisory or fiduciary relationship absent an express written undertaking by SunTrust. The confirmation incorporated the master agreement, acknowledged the terms of dealing and risk disclosures, and specifically acknowledged that the transactions involved certain risks. The risks identified included: (1) that the swap may increase or decrease in value with a change in interest rates (market risk); and (2) that the swap could not be terminated quickly at or near its value (liquidity risk).

The 1999 Swap was initially favorable to P & T because interest rates rose 1% over the next year. P & T received quarterly statements reflecting that the 1999 Swap had a positive "unwind value" of $90,000 in December 1999, $170,998 in April 2000, and $475,362 in May 2000. Rising demand for credit in the spring of 2000 led P & T to seek an increase in the SunTrust SLOC and caused further concern about the risk of rising interest rates. STES prepared a comparison of estimated costs for the following scenarios: (1) if P & T did not choose to further hedge its borrowing; (2) if it simply added a second interest-rate swap on a notational amount of $15 million; or (3) if it unwound the favorable 1999 Swap for cash value and entered a newly restructured interest rate swap on a notational amount of $35 million. P & T decided to keep the 1999 Swap and enter into a second swap on a notational amount of $20 million under which P & T would pay at a fixed rate of 7.37% and SunTrust-Atlanta would pay based on the LIBOR.

This second swap, effective July 3, 2000, was memorialized by a confirmation that incorporated the earlier master agreement, acknowledged the market and liquidity risks of the transaction, and again disavowed any advisory or fiduciary relationship unless expressly agreed to in a written engagement letter. In an August 2000 Loan Commitment Letter, SunTrust and STES agreed to provide P & T with a new $75 million SLOC. The terms of the Commitment Letter included as a condition that P & T hedge at least 50% of the SLOC and required cross-collateralization of the SLOC and the swaps. P & T alleges that the second interest rate swap was entered into at defendants' urging and in anticipation of the hedging requirement. The new $75 million SLOC was executed in October 2000.

Interest rates, specifically the LIBOR, began dropping dramatically in November 2000. P & T's borrowing under the SLOC also fell off, steadily declining from a high of approximately $60 million in June 2000, to approximately $40 million in February 2001, $20 million in October...