United States District Court, E.D. Kentucky, Central Division
FIRST TECHNOLOGY CAPITAL, INC., Plaintiff/Counterclaim Defendant,
JPMORGAN CHASE BANK, N.A., Defendant/Counterclaimant,
JAMES L. BATES, Counterclaim Defendant
[Copyrighted Material Omitted]
For First Technology Capital, Inc., Plaintiff, Counter Defendant: Andrew M. Stephens, LEAD ATTORNEY, Lexington, KY; Michael Joseph Gartland, LEAD ATTORNEY, J. Wesley Harned, DelCotto Law Group PLLC, Lexington, KY.
For JPMorgan Chase Bank, N.A., Defendant, ThirdParty Plaintiff, Counter Claimant: David B. Tachau, Dustin E. Meek, Katherine E. McKune, LEAD ATTORNEYS, Tachau Meek PLC, Louisville, KY.
For James L. Bates, ThirdParty Defendant, Counter Defendant: Andrew M. Stephens, LEAD ATTORNEY, Lexington, KY; Michael Joseph Gartland, LEAD ATTORNEY, J. Wesley Harned, DelCotto Law Group PLLC, Lexington, KY.
MEMORANDUM OPINION AND ORDER
Robert E. Wier, United States Magistrate Judge.
The Court considers the parties' cross-motions for summary judgment. Plaintiff and Counterclaim Defendant, First Technology Capital, Inc. (FTC), filed a (since
removed, on diversity) petition for declatory judgment on the underlying contract claim. Defendant and Counterclaimant, JPMorgan Chase Bank, N.A. (Chase), filed contract, fraud, and unjust enrichment counterclaims against FTC and, on the latter counts, individually, against James L. Bates, the President of FTC. Both sides now seek judgment as a matter of law on the claims.
In this hotly disputed commercial case, there actually is little fight over the facts. The parties scarcely contest the sequence or specifics of the communications and dealings between them. Rather, the parties train their considerable fire on the legal effect and action ability of a short relevant history in the early summer of 2012. Through extensive briefing and oral argument the Court has fully heard and considered the positions of Chase and FTC/Bates on dueling summary judgment motions. The summary judgment standards, on this fully developed record, direct judgment for FTC and Bates and against Chase on all claims. For the reasons that follow, there was no valid contract on June 28. Further, as to the fraud and negligent misrepresentation claims, Chase did not rely reasonably to its detriment on misrepresentations from FTC or its agent, attorney Bunch, and there otherwise was no actionable fraud. Finally, no basis exists for application of the equitable principles of unjust enrichment.
Chase cites many wounds from its dealings with FTC, but, legally at least, those largely are self-inflicted; Chase has no remedy in this case, and FTC and Bates are entitled to judgment as a matter of law.
I. Relevant Factual and Procedural Background
First Technology Capital, Inc. (FTC), is a Kentucky corporation owned by James L. Bates. DE #7 (Disclosure Statement). FTC, as part of its daily operations, acquires and/or invests in various assets.
In September 2010, FTC executed a Term Promissory Note with Tennessee Commerce Bank for approximately $10.47 million dollars in order to purchase 100% of the beneficial interest in Dougherty Air XVIII Investment Trust. Dougherty Air administered the subject Trust as owner trustee. The Trust owned (or contemporaneously acquired) a 1999 McDonnell Douglas MD-83 (DC-9-83), tail number N973TW. The Trust leased the MD-83 to American Airlines, Inc. through a long-term lease. FTC acquired a beneficial interest in the Trust and a right to (at least most portions of) future lease payments. As part of the Promissory Note and financing terms, FTC assigned Tennessee Commercial Bank a 100% security interest in FTC's assets, to include its beneficial interest in the Trust and any ensuing proceeds. DE #100-1 (Bates Affidavit) at 2-3, ¶ ¶ 3-5; DE #101-18 (UCC Financing Statements); s ee also DE #34 (First Amended Counterclaim) at 6-7, ¶ 18 (generally discussing documents).
American Airlines suspended lease payments on November 29, 2011, after filing for Chapter 11 bankruptcy reorganization. See In re AMR Corp., et al., No. 11-153463 (SHL) (Bankr. S.D.N.Y.). In January 2012, American Airlines renegotiated the terms of the lease. See DE #100-2 (Partial Term Sheet). The term sheet to which the parties agreed awarded the " Lessor" a " separate and distinct stipulated, allowed general unsecured non-priority pre-petition claim" against American Airlines in the amount of $22,886,139. Id. The parties do not dispute that, around this same time, the Federal Deposit Insurance Corporation (FDIC) took over Tennessee Commerce Bank and acquired its assets. Thus, as receiver of the bank, the FDIC acquired FTC's loans (including the loan related to the MD-83) and became the lienholder on FTC's assets.
Prompted by the FDIC's entrance on the scene, and in an effort to negotiate terms of a discounted payoff of its indebtedness to the Tennessee Commerce Bank (and the FDIC), FTC engaged Intuitive Processes and Controls (iPAC). See DE #101-22 (email chain from FTC to iPAC principals). FTC made an initial Offer of Compromise to the FDIC on April 20, 2012. DE #101-25 (detailing initial offer and providing updated (July 13, 2012) receivables). On June 14, 2012, Bunch corresponded with Hon. Matthew Haddock, an attorney with iPAC, about an FDIC deal. DE #101-26. Haddock advised Bunch: " Now, [iPAC] will do our best in this area, but there are no promises and even estimates are difficult. You may end up having to bid." Id.
On June 20, 2012, the bankruptcy court allowed the identified claim. See DE #100-3 (Stipulation) at 14 (" The general unsecured non-priority pre-petition claim against American set forth in Section 5.1 of the Term Sheet is hereby allowed." ). Within days, FTC began marketing the claim. W. Thomas Bunch, FTC and Bates's long-time attorney, emailed Matthew Pennella at Chase on June 22, 2012:
We represent First Technology Capital, a company located near Lexington, Kentucky in Versailles, Kentucky. FTC was the owner of a beneficial interest in an aircraft leased to American Airlines. On Wednesday the order (attached hereto) was entered approving the modified lease and granting FTC an allowed unsecured claim of $22,886,139 (this is in Sec. 5.1 on the unredacted copy which can be provided if we proceed). FTC is interested in the sale, assignment and transfer of this claim. The sale must be without recourse. Mr. Bates, the principal of FTC, is looking upward toward $10 million for the sale of this claim. Would you be interested; if so make me your highest and best offer.
Id. at 3 (June 22 Email from Bunch to Pennella). Bunch attached the redacted second stipulation to the email, promptly forwarded to John C. Barone, as Pennella was out of the office.
Chase, via Barone, made an initial offer within hours:
Thank you for all your help today on First Technology Capitals [ sic ]. JPMorgan is very interested in working with you and your client on their allowed American Airlines, Inc. Claim for $22,886,139.00. For your reference, JPMorgan is pleased to provide First Technology Capital with a firm bid of 33% on this claim, which will result in net proceeds to your client of
$7,552,425.87. This bid is good until 5pm EST today. If acceptable, please let me know and I will send you an email confirmation. We look forward to Mr. Bates response.
DE #101-30 (email from Barone to Bunch). FTC did not accept the offer, but, through Bunch, expressed FTC's desire to continue negotiations after the weekend. DE #101-31 (email from Bunch to Barone); see also DE #101-32 (email exchanges between Bunch and Barone). Barone reached out to Bunch on Monday, June 25, noting volatility in the market and stating: " I would love to try and lock this up, subject to documentation, today if Mr. Bates is interested." DE #101-32 (email from Barone to Bunch). Barone emailed Bunch again on Tuesday, June 26. DE #101-33. The correspondence affirmed Chase's interest in FTC's claim and extended a 32.75% bid. Id. Discussions with Chase continued throughout the day on June 27. DE #101-34.
On Thursday, June 28, 2012, Bunch emailed Barone regarding a bid U.S. Bank purportedly made to FTC. Following additional emails between Bunch and Barone and Bunch and Bates, Barone presented Chase's " best and final" offer:
First, thank you again for giving JPMorgan the opportunity to bid on your claim, this is an important transaction for us. . . . I spoke with our desk and JPMorgan is please[d] [to] provide you with a best and final bid at 35.75% on your $22mm allowed American Airlines, Inc. claim. This bid is good until 5pm EST today, June 28, 2012 and is subject to review of your due diligence and execution of a Transfer of Claim agreement. We [ sic ] very interested in working with you on this opportunity and hope this is reflected in our bid. Please confirm via email if we are done and you would like to lock in this price.
DE #101-37 (email from Barone to Bates and Bunch). FTC accepted the offer at 5:19 p.m. on Thursday, June 28. DE #101-38 (" JC: Mr. Bates has authorized me to accept your offer below during our agreed extended time. I will have Mr. Bates confirm this by separate email. Please advise when we may close. I would like to do the extra and final paperwork tomorrow afternoon: we are both exhausted right now." ). Barone responded:
Thank you for your email. Upon Mr. Bates confirmation email, we will be done at 35.75% subject to the provisions outlined under our initial bid. Please have Mr. Bates send me an email with his confirmation. Thank you again for choosing to work with JPMorgan on this important transaction.
DE #101-39 (email from Barone to Bunch and Bates). That same evening, Bates, Barone, Bunch, and a Chase trader participated in a telephone conference, during which Bates orally confirmed the transaction. See DE #101-40 (email from Bunch to Barone discussing telephone conference). Later that night, Bates personally confirmed the email from Bunch. DE #101-2 (Email from Bates to Barone) (" JC, This will confirm the email from Tom. Thanks, JIM." ).
Following this flurry of activity, both parties confirmed the sale with their respective companies that evening. DE #101-3 (email from Bates to FTC employees: " Dan and Doug, The AA Claim has been sold at .3575. . . ." ); DE #101-41 (email from Barone to Chase employees: " Guys, JPMorgan buys a $22,886,139.00 allowed American Airlines claim at 35.75% from First Technology Capital, Inc. subject to review of due diligence and execution of a Transfer Agreement." ). That night, Barone also emailed Howard Grossman, in-house counsel for Chase, and Pennella regarding a lien search. DE #101-46.
Chase recorded the purchase on its books on June 29, 2012. See DE #102-1 (Sealed Ex. indicating purchase on Chase's High Yield Loan Trading Blotter); DE #102-2 (Sealed Ex. reflecting trade by Alex Bea).
On the morning of Friday, June 29, 2012, Barone emailed Bunch, introduced Grossman as the individual who would " run with the settlement of this transaction," and requested particular information/documents relating to due diligence. DE #101-45 (email from Barone to Bunch, Grossman, and Pennella). Grossman responded, in part:
In addition to the documents that [Barone] requested, it would be helpful to review the complete term sheet as well as any proofs of claim forms that have been filed. Also, we have ordered a UCC search and will need to understand and resolve any liens that may appear.
Once we review the basic documents, we will forward a draft Transfer of Claim Agreement.
DE #101-47. Bunch responded:
If you run a UCC search, you will find a February 2012 Article 9 filing for a lien on the assignment of the master lease in favor of Tennessee National [ sic ] Bank. This bank is in receivership with the FDIC but the loan assignment is current and not in default. The lending documents and the other agreements do not include an assignment of rental proceeds so it is our conclusion that the allowed claim sale proceeds go to FTC. We will forward all documents to you for your evaluation and conclusions, but in the meantime we have representatives negotiating with the FDIC for the sale of our paper to FTC, which will ameliorate any future legal problems with your client. Otherwise if necessary we can close the transaction with a trust agreement that all proceeds of the sale be held by a trustee in escrow for all parties pending resolution of the disputes. We believe all problems will be settled before we have any closing.
Id. (email from Bunch to Grossman, Barone, and Pennella). As part of the same correspondence, Bunch also requested a " short non-disclosure or confidentiality agreement whereby JPCM [ sic ] agrees not to make the non-redacted copy public and use it only for acquisition of the allowed claim." Id.
Chase learned of the lien search results on the morning of June 29, prior to Bunch's email. See DE #101-19 (email from Chase employee Margaret Garrity to Barone and Grossman). The search revealed 15 total liens: 11 were terminated and 4 related to Tennessee Commerce Bank. Id. Later that afternoon, Chase emailed Bunch a form Non-Disclosure Agreement (NDA). Per Chase: " Our form was specifically developed for use in the bankruptcy claims market and it's been our experience that it contains provisions that are accepted by market participants and our counterparts." DE #101-51 (email from Rebecca Canada to Bunch). FTC and Chase executed the NDA shortly thereafter. See DE #100-17.
By July 3, Bunch purported to have provided Chase with all of the requested documents, and Grossman indicated on July 5 that he would review the documents and forward a claims transfer agreement. DE #101-52. In a separate email of the same date, Grossman requested that Bunch provide the UCC lien releases for the Tennessee Commerce Bank filings. DE #100-18 (email from Grossman to Barone). Bunch responded on July 5:
[O]nly one of the items 10, 11, and 12 pertain to the aircraft and we are in the process of obtaining a release. The loan with the Tennessee bank is current, not in default and FTC still owns the aircraft. We believe the lien is on the beneficial interest of FTC in the aircraft and not on any proceeds. We will know more by this Friday or Monday.
DE #101-7 (email from Bunch to Grossman).
Chase decided and agreed to sell the FTC AA Claim on July 9. DE #100-20 (email from Pennella to Barone and Bea advising, in part: " We are selling the AA Inc claim we are buying from First Technologies to GoldenTree and MatlinPatterson." ). Chase sold $17,886,139 of the claim downstream to GoldenTree and sold the remaining $5,000,000 downstream to MatlinPatterson. Id. Chase promptly presented both buyers with draft trade confirmations, which contained a " Binding Agreement and Standstill" clause:
Upon execution by the parties, this letter shall constitute a binding agreement between the parties and Seller shall cease discussions with other potential purchasers and will decline all other bids with respect to the Claim.
DE #100-21 (email with trade agreement from Chase to GoldenTree); DE #100-22 (Ex. 22) (email with trade agreement from Chase to MatlinPatterson). The parties never signed those documents. DE #100-4 (Grossman Depo.) at 67 (Depo. p. 261).
On July 10, Grossman emailed Bunch to " check on progress in obtaining copies of the final documents and the allowed claim listing in the Debtor's Claims Register." Grossman indicated that receipt of these documents would result in Chase completing a Transfer of Claim Agreement. DE #101-56 (email from Grossman to Bunch). Bunch addressed the status of the documents in a July 11 email to Grossman and other individuals at Chase. DE #101-59 (Bunch email). Bunch also stated the following:
When this transaction was originally done, Mr. Bates, president and owner of FTC, paid Minnesota lawyers to review the historical documents and assure him as to valid ownership. When FTC liened the aircraft to the Tennessee Commerce Bank, its attorneys verified the historical ownership and transfers of the aircraft. When I hired NYC bankruptcy counsel, they verified the FTC ownership prior to negotiating with the AA bankruptcy lawyers. The AA lawyers requested verification of ownership and were satisfied. The allowed unsecured claim was preserved in the order after notice, no objection, entry and now finality.
FTC owns the aircraft and the claim and has a right to sell the claim to Chase.
Mr. Bates and I believe you have done all due diligence in verification of ownership of the claim and you should be ready to do the Transfer of Claim documents. Mr. Bates has instructed me to provide no further information to you and to advise you that we have emailed everything that we have and can supply nothing else. He is upset about the costs of document production when Chase is protected by the finality of the AA order.
Thus my instructions are to review the final transfer documents, get you the AA Claims Register POC Number (due later this week) and move toward closing. We all believe that we have more than satisfied what would be yours and our due diligence.
Id. Internal Chase correspondence indicates that, as of July 11, it considered FTC to have submitted all requested documents. DE #100-23 (July 11 email from
Grossman to Barone and Garrity). Meanwhile, on the same date, FTC learned that it could receive a higher offer for the claim. DE #101-57 (FTC emails regarding claim offer from Brager). Bunch advised Bates: " The 973 claim is sold to Chase under a valid and binding sale contract, even though it is less than the Chase contract. I assume you were fishing for some information to us if we can buy 974 and market it." Id.
On July 16, 2014, Chase confirmed that the claim was listed in the Claims Register. See DE #101-58 (July 16 email from Garrity to Grossman). That same day, Chase emailed FTC a " proposed Transfer of Claim Agreement" listing " both FTC and Dougherty." DE #101-60 at 5 (July 16 email from Gross to Bunch); see also DE #100-25 (draft Transfer of Claim Agreement). Bunch responded on July 20, indicating that Dougherty Air did not agree to the transaction:
[Y]esterday I learned from the FTC corporate lawyer, Andy Stephens (I am the business bankruptcy lawyer) that Dougherty Air, the trustee-owner of the aircraft, had contacted him concerning the fact that the American Airlines bankruptcy lawyers had included it as a co-owner or co-claimant under the Claims Register and pursuant to the Agreed Order that approved the final term sheet with the allowed unsecured claim. Dougherty is claiming that they have an economic interest in the claim and its assignment, that Chase and FTC were aware of this inter-relationship when we began our negotiations, that we omitted including them in the contracting process, and that they cannot be compelled to join in a contract and the Assignment of Claim Agreement between FTC and Chase.
. . . .
Mr. Bates has indicated to both Andy and me that he is desirous of moving forward with the sale of the claim to Chase and that Andy and you should find a way to make this transaction work by dealing with Dougherty Air directly. At this point, I cannot obtain Dougherty as a signatory to the Transfer of Claim Agreement but stand by ...