53 F. Supp. 3d 972
E.D. Ky.2014Background
- First Technology Capital, Inc. (FTC), owned by James Bates, owned a beneficial interest in an allowed unsecured prepetition claim against American Airlines (the "AA Claim"). FTC sought to sell that claim in June 2012.
- JPMorgan Chase (Chase), via agent J.C. Barone, made an electronic "best and final" bid on June 28, 2012 to buy the $22,886,139 claim at 35.75%, and FTC accepted by email and oral confirmation the same day.
- Chase’s June 28 bid expressly stated it was "subject to review of your due diligence and execution of a Transfer of Claim Agreement (TCA)." No TCA existed or was negotiated in detail on June 28; Chase produced a draft TCA on July 16.
- Chase ran a UCC search and learned of liens held by Tennessee Commerce Bank (later the FDIC). FTC’s counsel (Bunch) made numerous post‑bid statements about lien status, negotiations with the FDIC, and prospects for a lien release.
- Chase sold portions of the claim downstream on July 9; when closing problems surfaced, Chase paid downstream counterparties differences and later FTC sold the claim to Citigroup for a higher price. FTC sued for declaratory relief and moved for summary judgment; Chase counterclaimed for breach, fraud, and unjust enrichment.
Issues
| Issue | Plaintiff's Argument (FTC) | Defendant's Argument (Chase) | Held |
|---|---|---|---|
| 1. Whether a binding contract formed on June 28 | No binding contract: Chase’s bid was conditioned on due diligence and execution of a TCA, leaving essential terms open | A valid contract formed: bid fixed identity, price, and quantity; only administrative steps remained | Held for FTC — no contract: Kentucky law requires all material terms be definite; the TCA condition left essential terms open (no enforceable agreement-to-agree) |
| 2. Whether Chase reasonably relied on FTC/Bates/Bunch statements (fraud/neg. misrep.) | Representations and omissions (title, lien scope, FDIC involvement) induced Chase to buy and re-sell — causing damages | Chase was a sophisticated market participant, reserved unfettered due diligence, ran UCC searches, and thus could not reasonably rely on FTC’s statements | Held for FTC — no actionable fraud or negligent misrepresentation: Chase’s reliance was not reasonable and fraud elements not proved by clear and convincing evidence |
| 3. Whether FTC had a duty to disclose lien and related facts (fraud by omission) | FTC had a duty because it partially disclosed facts and created impression of full disclosure; superior knowledge | No duty: Chase expressly reserved due diligence, had access to documents under NDA, and could obtain public records | Held for FTC — no duty to disclose as a matter of law; omission claim fails |
| 4. Whether unjust enrichment applies because FTC retained and later sold the Claim | FTC was unjustly enriched by retaining and later selling the Claim after taking Chase’s bid | No unjust enrichment because Chase had no enforceable contractual right and no fraud; FTC did not inequitably retain benefit | Held for FTC — unjust enrichment rejected (no contractual or fraud predicate) |
Key Cases Cited
- Cinelli v. Ward, 997 S.W.2d 474 (Ky. Ct. App. 1998) (preliminary agreements with material open terms unenforceable; either fully binding or unenforceable)
- Giverny Gardens, Ltd. P’ship v. Columbia Hous. Partners Ltd. P’ship, [citation="147 F. App'x 443"] (6th Cir. 2005) (applies Cinelli; rejects imposing duty to negotiate in good faith to close open terms under Kentucky law)
- Kovacs v. Freeman, 957 S.W.2d 251 (Ky. 1997) (contract requires sufficiently definite and certain essential terms)
- Estate of Riddle ex rel. Riddle v. Southern Farm Bureau Life Ins. Co., 421 F.3d 400 (6th Cir. 2005) (distinguishes duties in conditional contracts/receipts from unenforceable preliminary agreements)