Louisiana Stadium & Exposition District v. Financial Guaranty Insurance
2012 U.S. App. LEXIS 22827
2d Cir.2012Background
- LSED purchased $13 million in FGIC bond insurance in connection with $240 million ARS bonds for the Superdome refinancing.
- The Policies insured against nonpayment by LSED, not guaranteed credit enhancement over the life of the bonds.
- FGIC later lost its AAA rating; NY Insurance Department ordered FGIC to stop new policies and claims payments.
- LSED sued FGIC in federal court, asserting four claims: failure of cause, breach of implied obligation, detrimental reliance, and unjust enrichment (which is discussed but not the center of resolution).
- The district court dismissed FGIC, holding LSED failed to plead viable Louisiana-law causes of action; the court declined to rule on standing for anticipatory breach.
- The majority affirms, concluding no actionable failure of cause, no viable implied obligation, no anticipatory breach, and no detrimental-reliance claim, under Louisiana law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Failure of cause viability | LSED asserts FGIC’s breach of credit-enhancement cause invalidated the contract. | FGIC argues credit enhancement is not the principal cause and disclaimer negates claim. | No viable failure-of-cause claim as a matter of law |
| Implied obligation breach | FGIC breached implied obligation to maintain creditworthiness/pay claims under Art. 2054. | No implied obligation to maintain AAA rating; contract disclaims such guarantees. | Implied-obligation claim rejected |
| Anticipatory breach | FGIC’s inability to pay due to state order constitutes anticipatory breach. | No definitive refusal to perform; FGIC’s obligations could resume; standing issues for bondholders exist. | Anticipatory breach claim dismissed |
| Detrimental reliance | Reliance on FGIC’s representations about credit enhancement warrants recovery. | Commitment letters unambiguously limited; reliance unreasonable given explicit terms. | Detrimental reliance claim rejected |
Key Cases Cited
- Aaron & Turner, L.L.C. v. Perret, 22 So.3d 910 (La.App. 1st Cir. 2009) (explains civil-law concept of cause vs. consideration)
- Cyprien v. Bd. of Supervisors ex rel. Univ. of La., 5 So.3d 862 (La. 2009) (failure of cause; material for vitiation of consent when cause matters)
- St. Charles Ventures, LLC v. Albertsons, Inc., 265 F.Supp.2d 682 (E.D. La. 2003) (distinguishes failure of cause vs. motive; changed circumstances after contract can negate cause)
- Carpenter v. Williams, 428 So.2d 1314 (La. App. 3d Cir. 1983) (early view on cause/motive; precedes 1984 code revision)
- Hanover Petroleum Corp. v. Tenneco, Inc., 521 So.2d 1234 (La. App. Ct. 1988) (change in circumstances can vitiate consent)
- Dameware Development, L.L.C. v. American General Life Insurance Co., 688 F.3d 203 (5th Cir. 2012) (disclaimer scope affects failure-of-cause analysis; informs contract disclaimers)
- NPS, LLC v. Ambac Assur. Corp., 706 F.Supp.2d 162 (D. Mass. 2010) (bond insurers’ failure to maintain credit enhancement not necessarily breach)
- Water Works Bd. of City of Birmingham v. Ambac Fin. Group, Inc., 718 F.Supp.2d 1317 (N.D. Ala. 2010) (rating maintenance generally not guaranteed by bond insurance contract)
- Bluebonnet Hotel Venture, LLC v. Wachovia Bank, N.A., No. 10-cv-489 (M.D. La. 2011) (discusses failure-of-motive and integration concept in context of Louisiana law)
- Angelo & Son, LLC v. Piazza, 1 So.3d 705 (La. Ct. App. 2009) (post-change in circumstances as vitiating consent)