RBC Capital Markets, LLC v. Highland Capital Mgmt., L.P.
| Decision Date | 04 December 2015 |
| Docket Number | No. 05-13-00948-CV,05-13-00948-CV |
| Parties | RBC CAPITAL MARKETS, LLC, Appellant v. HIGHLAND CAPITAL MANAGEMENT, L.P., Appellee |
| Court | Texas Court of Appeals |
On Appeal from the 95th Judicial District Court Dallas County, Texas
Before Justices Evans, Brown, and Schenck1
Opinion by Justice Brown
This dispute concerns an alleged 2001 oral contract in which RBC Capital Markets, LLC agreed to sell Highland Capital Management, LP seven promissory notes ("Notes") having an aggregate face value of $45.4 million for 52 ½ cents on the dollar. Highland sued RBC for breach of contract asserting it reneged on its promise to sell Highland the Notes. Highland asserted it suffered $21.5 million in benefit of the bargain damages because the value of the Notes was their full face value.
The Notes were securities under New York law, which is also the law the parties agree we must apply in determining whether a contract existed. To show the contract existed,Highland relied on evidence that the parties agreed to the price in which they would exchange the Notes, thereby agreeing to "price and principal,"2 which constitutes a securities trade, obligating RBC to deliver the Notes to Highland.
At the time of the agreement, RBC did not own the Notes, but was acting as an intermediary negotiating Highland's acquisition from the owners. If successful, RBC would purchase the Notes from the owners and sell them to Highland. However, after Highland and RBC reached an agreement on price and principal, the owners of the Notes refused to sell them. Consequently, the trade never closed or settled. Shortly thereafter, the owners were paid the full face value of the Notes. Highland subsequently sued RBC seeking to recover the difference between the agreed upon sales price and the full face value of the Notes. Following a jury trial, the trial court rendered judgment in favor of Highland, awarding it over $21.5 million in actual damages plus prejudgment interest. On appeal, RBC asserts Highland failed to show a contract existed because Highland's agreement to purchase the Notes was subject to other terms and conditions that had not occurred and remained to be negotiated.3 RBC also asserts no contract was formed because the parties did not intend to be bound to an oral agreement. For the following reasons, we reverse the trial court's judgment and render judgment that Highland take nothing.
In 2000, the McNaughton Apparel Group, Inc. delivered eight subordinate promissory notes with an aggregate face value of $69 million to Leonard Schneider and his three children for monies owed in connection with its acquisition of the Schneiders' apparel business. The Noteswere subordinate to McNaughton's senior debt, which was substantial. In January 2001, the Schneiders retained Glen Rauch Securities to market the Notes, which were considered high-yield debt securities. Unable to locate a buyer on its own, Rauch enlisted the assistance of RBC, a securities broker-dealer that trades such securities over the counter on the secondary market.
RBC agreed to market the Notes, intending to act as a riskless principal. Specifically, if RBC found a willing buyer, it would purchase the Notes from the Schneiders and immediately thereafter resell them to the buyer for a slightly higher price, earning the spread between the two prices.
One of RBC's clients, Highland, was already familiar with McNaughton, and expressed interest in the Notes. Beginning in January 2001, Highland discussed pricing and other conditions it would require if it purchased the Notes. Recordings of these discussions were presented in evidence. These recordings show that Highland notified RBC from the outset that any of its bids would be subject to various conditions due to the nature of the securities at issue, which were unique seller notes. Specifically, Highland informed RBC it would only bid on the Notes if it received representations from the Schneiders, and a specific written representation from McNaughton that there were no side letters concerning the Notes.
Because Highland would only purchase the Notes on certain conditions, it told RBC it could give a "subject to" bid, but suggested RBC first run it by the Schneider family to see if they would be willing to move forward on that basis. RBC responded it had already done so and that Highland's conditions were worthy of discussion and further pursuance.
According to Highland, on March 12, it made a firm oral bid to purchase the Notes, which RBC orally accepted on March 14. By the time of trial, twelve years later, the individuals who made these communications had little independent memory of them. However, recorded calls show the parties' negotiations between these dates.
To show it made a firm bid to purchase the Notes, Highland relies on a March 12 call. On that call, Highland did not state it was making a firm bid or mention how many of the Notes it was bidding on. Instead, that call was devoted almost entirely to Highland communicating the conditions of its bid. Specifically, Highland began the conversation stating if they were to be finished at the 52 1/2 level, it would be subject to docs and reps, meaning that the trade would be documented and Highland would require representations and warranties about the Notes. Highland told RBC it did not know how many representations it would be, but they would include one from McNaughton.
Evidence at trial showed that the documentation the parties were referencing included a written trade confirmation. Highland also told RBC on that call it wanted language in the documents providing the trade would settle within ten days of reaching an agreement and for some sort of penalty if either side was dragging their feet. After RBC indicated it would take ninety plus days to settle, Highland explained it needed to settle quickly because it had reporting deadlines to meet.
On another call later that day, Highland told RBC it was already working with its lawyer on the documentation. Highland asked RBC, assuming they agreed on price and the various outs Highland had already mentioned, what RBC's thoughts were on the appropriate way to document the transaction. They both agreed the documentation would not be standard and Highland would need to craft something to reflect all of its various concerns.
When the Schneiders had not yet responded to Highland's offer by the following day, Highland told RBC that if the punitive language became a stumbling block to getting some answer that day, Highland would be willing to listen to the Schneiders' or RBC's suggestions as to some sort of general settlement.
On the afternoon of March 14, RBC called Highland and they again discussed the deal. At the time of that call, both Highland and RBC acknowledged they were all in agreement on price. Nevertheless, RBC told Highland the Schneiders still wanted to talk to their lawyer before committing. RBC also told Highland that it believed that "subject to just about everything . . . they could imagine," they would have a trade.
Highland remained frustrated because it had timing demands. It cautioned RBC that if the Schneiders kept delaying, its bid would fade. Highland explained to RBC the trade absolutely had to settle by the end of the month. RBC voiced concerns that Highland's timing demands might cause the Schneiders to "forget the whole thing." Highland said it might be able to give an additional day or two at most because Highland had an indenture issue it had to solve.
According to Highland, later that afternoon, RBC accepted its offer, entering into a legally binding trade. However, none of Highland's witnesses could recollect receiving RBC's acceptance. Therefore, to show RBC accepted its offer, Highland relied on testimony at a prior trial against the Schneiders ("Schneider trial") about the Notes.
At the Schneider trial, Wood, the RBC salesman who had negotiated the trade with Highland, testified that on March 14, RBC executives told him to call Highland and "confirm the trade." According to Highland, this was immediately after RBC agreed to purchase the Notes from the Schneiders. In any event, Wood testified at the Schneider trial that he called Highland and said, 4
To further show the parties entered into a contract on March 14, Highland presented evidence of its own trade ticket, which was an internal e-mail formally documenting that a tradehad occurred. The e-mail was sent by Michael Rich, one of Highland's portfolio managers, who was also involved in the negotiations. The e-mail stated that Highland had bought the Notes from RBC "subject to extensive documentation" with a goal to settle within ten days after the trade date. The e-mail also stated that Highland was "crafting a customized trade confirm and note purchase agreement with attorney . . . ." At trial, Rich testified that he would not have generated the trade ticket if there had not been a trade. Nevertheless, he could not recall the communication that precipitated him to generate the ticket.
That afternoon, almost immediately after the alleged oral contract was formed, Highland sent RBC an e-mail with an attached draft of a Note Trade Confirmation, and asked for RBC's comments. The draft stated it was confirming a trade "subject to the terms and conditions" contained therein. The draft included the pricing that had been agreed to, but also included provisions related to Highland's other conditions, that remained to be negotiated. For example, it required settlement no later than ten business days from the trade date. It also included several conditions precedent, all of which had to occur before the settlement date. If any condition precedent did not occur before that time, either Highland or RBC could terminate the confirmation rendering it null and void. The draft contained signature blocks...
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