A three-judge panel in Atlanta’s U.S. Court of Appeals for the 11th Circuit has upheld a lower court’s decision to not award damages to a North Texas vulture fund in a contract dispute against BB&T Bank over loans that both financial entities held in a failed Florida real estate project.
The opinion, issued Thursday, is the latest development in a five-and-a-half-year legal battle initiated against North Carolina-based BB&T by Plano-based LNV Corp., which is owned by North Texas banker Andy Beal. It’s also the latest win for BB&T’s lawyers, David Clem and Kenneth Johnston of
Johnston Pratt.
“Both the trial and appellate courts have vindicated BB&T and we are very pleased with the result,” said Clem, who represented BB&T both at the trial and appellate level, in an email.
BB&T and LNV got involved in a deal together after developers of Owls Head, a Central Florida residential resort development project, defaulted on their $36 million loan and the banks holding the debts failed in light of the financial crisis. BB&T and LNV saw the opportunity for a financial windfall and swooped in to acquire the bad loans.
BB&T served as the lead bank after acquiring the failed lead bank’s portfolio in 2009. LNV joined the deal as a participant bank, acquiring a 23.08 percent stake in the Owls Head loan for $197,345.
As lead, BB&T immediately sued the defaulted Owls Head borrowers and guarantors, seeking to recover the value of the loans, the appellate opinion said. Legal records indicate that LNV did not join the lawsuit, but BB&T’s lawyers notified LNV of all court proceedings and invited them to attend hearings and mediations – none of which LNV participated in.
LNV sued BB&T in 2012 after BB&T reached a $2.5 million settlement with Douglas Duncan, the solvent guarantor behind Owls Head. LNV alleged BB&T breached their agreement by materially changing the loans’ terms without LNV’s consent.
According to court documents, LNV had rejected the settlement offer in September 2011, vouching for the fact that BB&T should pursue obtaining a judgment against Duncan to recover a larger amount. BB&T told LNV that it still intended to go through with it. When BB&T received the settlement money from Duncan in November 2011, the bank forwarded $577,000 to LNV, which accounted for 23.08 percent of the $2.5 million.
After a bench trial, a federal judge in Penscola ruled in June 2016 that while BB&T had breached its agreement with LNV, the vulture fund deserved no damages since LNV failed to prove them.
LNV appealed the decision shortly after, citing, among other arguments that the district judge erroneously cited a legal malpractice opinion to aid in her decision. BB&T cross-appealed, asking the 11th Circuit to reverse the trial judge’s ruling that it had breached its contract with LNV.
In Thursday morning’s opinion, the appellate court rejected every reason LNV brought for how the trial court erred in its ruling and affirmed the lower court ruling. The panel declined to rule on whether BB&T breached the contract.
“Whether BB&T did or didn’t breach the participation agreement – the district court found that it did – is a difficult question,” the opinion says. “The contract seems to us to be a maze of internally contradictory provisions that interact with each other in inconsistent ways. Fortunately for us, the issue of breach is ultimately irrelevant because we hold that the district court correctly concluded that LNV failed to prove its damages with sufficient (or really any) certainty. Bad facts make bad law – so too with bad contracts.”
The opinion later says that LNV can’t prove that the $577,000 payout it received was damagingly inadequate.
“Full face-value recovery on a defaulted loan collateralized by recession-wrecked Florida real estate would seem to defy even the most expansive conception of ‘expectation interest,’ leaving LNV with a steep uphill climb in its efforts to prove its damages to a reasonable certainty,” the opinion says.
“For the foregoing reasons, we affirm the district court’s judgment.”
Dallas attorneys James Pennington and Jeff Levinger represented LNV at the trial and appellate level, respectively.
In an email, Levinger said LNV plans to file a motion for rehearing “asking the court of appeals to consider the evidence it overlooked.
“LNV believes that the court of appeals overlooked important trial testimony and exhibits establishing that BB&T’s unilateral decision not to pursue and collect a judgment from a very wealthy guarantor damaged LNV well beyond the sum it received from BB&T’s settlement,” Levinger said. “The court also overlooked how BB&T’s allocation of the settlement was inconsistent with its own internal computation, which would have yielded a much larger payment to LNV.
“And the opinion’s emphasis on the amount that LNV originally paid for its participation interest is troubling because that fact is legally irrelevant,” he added.
Click here to learn more about the BB&T-LNV legal battle.