453 F. App'x 582
6th Cir.2011Background
- Loan of $6,960,000 and a derivative interest-rate swap to finance construction at 630 Bakers Bridge Ave., Franklin, TN.
- Loan allowed prepayment of the Note “without penalty or premium.”
- Swap fixed BKB’s rate via notional amount; swap had a 10-year term and a termination fee upon early termination.
- BKB prepaid the Note in March 2007; SunTrust demanded a market-value termination fee under the Swap.
- BKB sued for breach of contract and libel of title; district court dismissed claims and O.F.
- SunTrust sought and obtained attorneys’ fees under Section 10.11 of the Loan Agreement; BKB challenged the fee provision as unconscionable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Swap termination fee violates the Note prepayment terms. | BKB contends no penalty because prepayment is penalty-free under the Note. | SunTrust maintains the fee is an obligation under the Swap, not the Note. | The fee is contractually required under the Swap; claims dismissed. |
| Whether the fee provision is substantively unconscionable. | BKB argues the provision disfavors it and may recover fees despite not prevailing. | SunTrust argues conventional, enforceable fee provision; Taylor standard applied. | Not unconscionable under Tennessee law; affirmed district court. |
| Whether the question of unconscionability should be certified to the Tennessee Supreme Court. | BKB seeks certification to resolve unsettled state-law issue. | Certification unnecessary; standard clearly articulated in Taylor. | Certification denied; law deemed sufficiently settled. |
| Whether the district court properly awarded attorneys’ fees under Section 10.11. | BKB disputes fee-shifting scope. | Fees incurred in connection with the Construction Loan Documents were contemplated by Section 10.11. | Affirmed district court’s fee award. |
Key Cases Cited
- Thrifty Oil Co. v. Bank of Am. Nat’l Trust & Sav. Ass’n, 322 F.3d 1039 (9th Cir. 2003) (describes synthetic fixed-rate loans and swap purposes (notional coupling))
- Planters Gin Co. v. Fed. Compress & Warehouse Co., 78 S.W.3d 885 (Tenn. 2002) (contract terms control when language is clear and unambiguous)
- Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004) (unconscionability evaluated by setting, purpose, and effect; one-sided terms analyzed)
- Carrington v. W.A. Soefker & Son, Inc., 624 S.W.2d 894 (Tenn. Ct. App. 1981) (fee-shifting provisions upheld without prevailing-party requirement)
- Zaluski v. United Am. Healthcare Corp., 527 F.3d 564 (6th Cir. 2008) (Rule 12(b)(6) standard and plausibility standard in dismissal)
- Hill v. Blue Cross & Blue Shield of Mich., 409 F.3d 710 (6th Cir. 2005) (factual pleading standards in Twombly/Iqbal framework)