Bank of America, N.A. v. JB Hanna, LLC
2017 U.S. App. LEXIS 14652
| 8th Cir. | 2017Background
- JB Hanna borrowed repeatedly from Bank of America and used ISDA-governed interest-rate swaps to hedge floating-rate loans.
- In 2005 the Bank proposed refinancing $7.2M of existing debt and adding $4M new credit into an $11.2M loan, and offered to unwind prior swaps and enter a single $11.2M swap terminating in 2015.
- JB Hanna executed the 10-year swap (terminating August 2015) on June 29, 2005, but signed a separate five-year $11.2M floating-rate loan on September 20, 2005 (maturing September 2010), creating a term mismatch.
- JB Hanna later defaulted when the 2010 loan matured; the Bank sued for breach and guaranty; the jury initially found for Hanna but this court vacated that verdict as against the great weight of the evidence and remanded for a new trial.
- On remand Hanna asserted defenses of fraudulent inducement and fraudulent failure to disclose, arguing the Bank misrepresented the deal as a "better" arrangement and hid that the mismatch would harm JB Hanna; the district court granted summary judgment for the Bank, finding JB Hanna could not have reasonably relied on the Bank’s alleged misrepresentations.
- The Eighth Circuit affirmed, holding (inter alia) that JB Hanna was a sophisticated party, had the relevant information by September 20, 2005, and could have discovered the asserted misrepresentation through reasonable diligence.
Issues
| Issue | Bank's Argument | Hanna's Argument | Held |
|---|---|---|---|
| Whether Hanna can maintain fraudulent-inducement defense | Hanna was sophisticated, had disclosure and could not reasonably rely | The Bank misrepresented the deal as a "better" arrangement inducing Hanna to accept the mismatched terms | No — Hanna could not have reasonably relied; summary judgment for Bank |
| Whether Hanna can maintain fraudulent-failure-to-disclose defense | Hanna had actual notice of swap/loan terms by Sept. 20, 2005 and could investigate | Bank failed to disclose that mismatch would increase cost/risk | No — nondisclosure fails where sophisticated party had information and ability to evaluate |
| Whether Hanna’s claimed reliance was reasonable given parties’ relationship | Arms-length creditor–debtor relationship and ISDA non-reliance language defeated reasonable reliance | Bank was a longtime advisor and thus Hanna reasonably relied | No — relationships were arms-length; ISDA and sophistication show no fiduciary duty |
| Whether setoff defense survives if fraud defenses fail | Setoff depends on fraud-based claim of overcharge; without fraud no setoff | Setoff available because transaction was harmful and billed incorrectly | No — setoff tied to fraud defenses; those fail so setoff fails |
Key Cases Cited
- Bank of Am., N.A. v. JB Hanna, LLC, 766 F.3d 841 (8th Cir. 2014) (prior Eighth Circuit decision recited facts and sophistication findings)
- Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229 (2d Cir. 1999) (elements of fraudulent-inducement and reliance under New York law)
- Banque Arabe et Internationale D’Investissement v. Md. Nat’l Bank, 57 F.3d 146 (2d Cir. 1995) (arms-length creditor–debtor relationship limits fiduciary duties and reasonable reliance)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standards and burden shifting)
- Danann Realty Corp. v. Harris, 157 N.E.2d 597 (N.Y. 1959) (party cannot claim inducement where contract terms are clear on face of agreement)