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Bank of America Must Defend Contract Claim

DALLAS (CN) - The 5th Circuit reinstated Highland Capital Management's contract claim against Bank of America over the botched sale of a $15.5 million loan interest.

A three-judge panel ruled that "when viewed in the light most favorable to Highland, and taking the above allegations as true, Highland has made a viable claim for breach of an oral contract." The Dallas-based alternative investment firm claims that in December 2009, the parties' employees agreed to the sale over the phone of a $15.5 million interest from the bank to Highland at 93.5 percent of par.

"Pursuant to industry practice, the agreement also incorporated standard terms and conditions published by the Loan Syndications and Trading Association Inc. providing that an oral debt-trade agreement is binding on the parties, so long as the agreement includes all material terms," the 15-page opinion states. "According to Highland, [Bank of America representative Andrew] Maidman did not reserve any non-LSTA, non-industry terms or conditions during the December 3 phone call."

Highland says that later that day, its employee sent an email to Maidman that confirmed the debt-trade agreement was complete. It says Maidman responded shortly thereafter, confirming the agreement and adding that it was "subject to appropriate consents and documentation." Highland says the "subject to" language does not allow either party to demand the inclusion of non-industry or non-LSTA standard terms in the agreement.

The bank later refused to settle the trade unless Highland agreed to additional terms that departed from the standard terms in the oral agreement, including indemnification, legal fees, and waiver of legal claims, according to the complaint. Highland responded by suing the bank in July 2010 for breach of contract and promissory estoppel.

It claimed that because the subject loan was paid off at 100 percent of par value, Highland also lost the increased value of the principal it would have purchased. The U.S. District Court for the Northern District of Texas later granted the bank's motion to dismiss both claims in November 2011.

n Tuesday, the panel disagreed with the lower court's determination that the December 3 emails show further "consents and documentation" were necessary and that there was no intent to be bound.

It said the lower court's interpretation of the "subject to" language in the emails "ignores other facts pleaded by Highland which, when accepted as true, define this language in a manner that preserves Highland's breach of contract claim."

"In contrast, Highland's complaint alleges that the parties had orally agreed to all material terms of the trade during their telephone call without reserving any non-industry terms or conditions, and agreed that the trade was subject only to the standard terms of the LSTA based on the parties' past dealings," the panel wrote. "Furthermore, Highland alleged that LSTA standard terms specify that 'the parties agree to be legally bound by any subsequent phone call or email between them that reaches an agreement as to the material terms,' and that 'a party must expressly reserve any non-industry standard terms at the time the agreement is reached by phone call, email or otherwise, or else those terms are waived and the agreement is a binding and enforceable contract.'"

The panel noted that the bank may argue that the parties never agreed on all material terms, but that is an issue of fact, and it should not be a basis for dismissal.

However, the panel refused to reverse the lower court's dismissal of Highland's promissory estoppel claim, finding the dismissal was proper because Highland has not adequately pleaded reliance on the bank's promise.

"Nowhere does the complaint elaborate how Highland relied on Bank of America's promise, nor are there any allegations that Highland was harmed by any actions it took based on that promise," the panel wrote. "The only harm Highland alleges it withstood is its loss of the 'benefit of the increased value of the principal of the Regency Loan, as well as the interim interest payments made on the Regency Loan since the date of the trade.'"

The panel continues: "These damages are not the result of any reliance by Highland. Instead, they simply result from Bank of America's failure to follow through on the alleged agreement between the parties."

Founded in 1993 by James Dondero and Mark Okada, Highland is one of the largest global alternative credit managers, with $20 billion in assets under management, according to its website.

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