*1 VI. reject all of challenges
We to A16 affirm entry judgment for defen-
dants. So ordered.
LOUISIANA STADIUM & EXPOSI DISTRICT,
TION State of Louisi
ana, Plaintiff-Appellants,
FINANCIAL GUARANTY INSURANCE
CO., Defendant-Appellee, Lynch, Lynch
Merrill Co., Merrill & Lynch, Pierce, Merrill Fenner &
Smith, Inc., Corporation, Defen
dants.
Docket No. 10-2030.
United States Court Appeals,
Second Circuit.
Argued: March 2011.
Decided: Nov. *2 Swanson,
James R. Haygood Fishman Phelps Walmsley Swanson, Willis & LLP (Lance McCardle, Mills, Alysson C. L. *3 brief), Orleans, LA, New for Plaintiffs- Appellants Louisiana & Exposi- Stadium tion District and State of Louisiana. Fraser, Brian S. Richards Kibbe & Orbe, (Shari LLP, York, New NY A. Brandt, brief; Cerone, Rudy pro J. vice, PLLC, hac McGlinchey Stafford New Orleans, LA, brief, on the for Defendant- Appellee Guaranty Financial Insurance Corp.). WINTER, POOLER, HALL,
Before: Circuit Judges.
Judge HALL separate dissents in a opinion.
POOLER, Judge: Circuit Louisiana Exposition Stadium and Dis- trict and the (together, State Louisiana “LSED”) agreement seek rescind purchase bond insurance from Financial (“FGIC”) Guaranty Insurance Co. and re- cover its million premium payment. $13 cause, LSED bases its claim on tenet requires of Louisiana law that all supported contracts be cause—“the why reason obligates himself.” 1966, La. Ann. Civ.Code art. “Cause” is a broader than concept “consid- eration,” because require cause does not anything given in return. Aaron & Turner, Perret, L.L.C. So.3d Cir.2009). (La.App. 1st Because we find principal that the agreement cause of the between purchase was the bond protect insurance to the bondholders default, event of not to reduce the .the paid interest rate LSED money, to borrow affirm we the district court’s decision.
BACKGROUND Superdome LSED owns New Or- leans. stock company insurance tually stripped ratings of its credit place of business New principal its York, sought altogether, N.Y. York. was ordered New existing debt to take ad- Department stop writing to refinance new Insurance rates. LSED vantage lower interest policies paying any and all “suspend from Mer- accepted proposal eventually existing policies. against claims” Pierce, Smith, & Inc. Lynch, rill Fenner this action in the LSED commenced (“Merrill as lead Lynch”) to serve under- U.S. District Court for the Eastern Dis- proposed for the writer broker-dealer against trict FGIC. LSED ap- In March LSED issued bonds. *4 Lynch, alleging also sued Merrill in million auction rate proximately $240 Lynch Merrill to disclose that the failed “Bonds”). (the Auction rate se- securities of the bond structure proposed success (“ARS”) long-term, are variable curities depended Lynch’s submitting on Merrill that have their interest rate securities support thir- every bids auction for the Dutch periodically rates at auctions. reset auction, ty-year life of the LSED’s action bonds. buy At a orders are filled Dutch eventually to the starting the lowest rate bid until all was transferred Southern with are by the securities offered for sale matched District of New York the Judicial Panel rate at purchase along orders. The Litigation on Multidistrict with four is filled is known as the Merrill & the final sell order Lynch other actions. See In re rate,” ap- Co., (ARS) clearing and “clearing rate Mkg. Auction Rate Sec. plies outstanding to all ARS that issue (J.P.M.L.2009). Litig., F.Supp.2d 1331 until next Dutch auction. to against FGIC moved dismiss claims action, it for a cause of a failure state being
In with the Bonds is- connection granted May court motion district sued, purchased million in bond LSED $13 Lynch In re Auction 11, Merrill 2010. FGIC, a purchasing insurance from both Litig., Rate 09-2030, Sec. 09- Docket Nos. Municipal New Policy Bond Insurance and 5404, 09-6770, 1924719, at *14 2010 WL Municipal Bond Debt Service Reserve (S.D.N.Y. 11, 2010). “Policies”). May This fol- appeal (together, Fund Policies that it lowed.1 alleges “understood that its savings future payment interest would be substantially greater than the amount of DISCUSSION premium paid alleges FGIC.” LSED Policies expected that of a grant We review motion
“wrap” triple-A the Bonds with FGIC’s a dismiss for to state claim de novo. making credit Bonds at- rating, more Mills, (2d 66, Harris v. 572 F.3d Cir. tractive investors. 2009). legal sufficiency “We consider the complaint, taking allega its factual years after the bonds 2008—two were drawing true all tions to be and reasonable triple-AAA issued—FGIC lost its credit favor.” Id. We plaintiffs in the inferences rating light after it came to that FGIC a risky apply plausibility credit standard determin swaps invested default subprime mortgage ing complaint markets. even- if for which plaintiff states currently operating briefing, did under an Order mental order FGIC is asserted Rehabilitation, by issuing issued a decision not bar Court from Court of the State of New York on June 2012, appeal fully because the submitted http://www.fgicrehabi available argued before Rehabilitation Order is- litation.com/pdflib/FGIC_Order_of_ agree. sued. We Rehabilitation.pdf. parties, in supple- Both granted. Pipe Id. at 72. Our Transcon. Gas Line may Corp. Transp. relief Co., (5th Cir.1992) Ins. F.2d plausibility analysis is (footnote omitted). guided working principles. two First, “a must although accept I. Failure of cause. allegations all contained in
true primary appeal issue on this inapplicable that tenet complaint, is whether LSED rescind bond conclusions,” recit- legal and threadbare policy insurance for failure of Loui cause. action, cause of als of the elements of a requires siana’s Civil Code all con conclusory supported mere state- supported by tracts be cause—“the reason ments, Second, only do suffice. why party obligates himself.” La. Civ. plausible claim complaint states a Ann. art. Code 1967. “Cause” is a dismiss, for relief survives a motion to expansive concept more than consider determining complaint whether a ation, because: ... states a claim for relief will plausible [ujnlike analysis the common law of a *5 context-specific requires be a task that consideration, using contract which re- reviewing judi- court draw on quires something exchange, the civil experience cial and common sense. concept law of obligate ‘cause’ can a by only. person his will The difference (internal marks, quotation Id. citations been analogized has to a civilian con- omitted; original). omission in the tract-consent approach compared to a parties agree The that Louisiana contract-bargain approach. common law governs the analysis. law re Merrill an objective Consideration is element 1924719, Lynch, 2010 WL at *4. Louisi required contract, to form a whereas state, analyzes ana is a law civil and cases subjective is a cause more element that methodology under a different than com goes parties. the intentions of the mon law states: Therefore, law, a person Louisiana obligated by can both a gratuitous tradition, Under Law Louisiana’s Civil onerous contract.
courts look first and foremost to statuto- Turner, Perret, & Aaron L.L. C. v. 22 ry in- law. The Louisiana Civil Code Cir.2009). 910, (La.App. So.3d 915 1st structs that sources of law are ‘[t]he custom,’ legislation ‘legis- and and that Louisiana law recognizes least lation is a solemn expression legisla- grounds two for failure of “Error cause. tive will.’ primary ‘[T]he basis of law consent, may can vitiate so that a contract (as legislation, for a is civilian not upon Cy be rescinded based an error.” law) body great common a of tradi- prien Supervisors Bd. v. ex rel. Univ. tion in form of prior decisions of La., (La.2009). 5 So.3d But “[e]r concept courts.’ The of stare is decisis ror vitiates consent when it concerns Law, foreign to the Civil Loui- including a without obligation cause which the Therefore, siana. in cases such as this incurred, not have been and that cause was by by we guided are decisions rendered known or should been have known courts, appellate particu- the Louisiana party.” other La. Civ.Code art. 1949. larly when numerous decisions are may when Cause also fail circumstances given a accord on issue—the so-called if change, changes even the are created not jurisprudence constant —but we are parties. Carpenter the acts third Williams, strictly (La.App. bound them. Cir.1983) appeared, plaintiff sued for breach (“[t]he into a cle parties entered 3d of contract. facts or condi- assuming certain fact or the assumed tions exist. When Court deter- not not to exist or did found condition was properly rescinded mined that ULL through the act into even come existence Id. at on failure of cause. contract based ], contracts have been [ of third considering from After affidavits 867-68. rescinded.”). Thus, under Louisiana (1) stating degree university officials agree- after an that occurs university four-year from an accredited a basis for provides is into ment entered (2) a job requirement; ULL rescission, that cause was long as so Cyprien if it knew he would not have hired party. to the known other UTSA, degree did not have a summary judgment to the granted why reason “[clause While university, finding: itself, St. Charles Ven party obligates” These affidavits establish ULL Albertsons, tures, LLC v. if have incurred the would not (E.D.La.2003), a party F.Supp.2d Mr. Cyprien known that did had into an also “motive” enter have from an uni- degree have a accredited relates to a party’s “Motive agreement. Cyprien clearly Mr. knew or versity. internal, entering reasons for subjective known academic should have that his imputed to the which cannot be qualifications were an important factor *6 knowledge party.” other Bluebon of the in to him. Under ULL’s decision hire Bank, Hotel LLC v. Wachovia net Venture circumstances, we find ULL has these (E.D.La. N.A., 29, Sept. No. 10-cv-489 it a to ground established that had valid 2011). cause, an error as to a Unlike on Cyprien’s rescind Mr. contract based provide ground not a party’s motive does Thus, Cyprien error in the cause. Mr. agreement. for rescission of St. will to a bad faith be unable establish Ventures, F.Supp.2d at 692 Charles 265 of contract claim. The district breach (collecting discussing cases actionable for denying court erred in ULL’s motion motive). and A failure cause inactionable summary judgment this claim. ground of cause is therefore a viable for 5 at So.3d 868. rescission, but a failure of motive is not. Finally, the error in cause must be a Loui support claim under Cyprien particularly instructive on reasonable There, Design plaintiff Quality failure of cause. siana law. See issue.of Constr., Co., job Capital head coach of the Inc. v. Glass 2008 WL applied 31, 4764341, University Lafayette (La.App. at at *4 Oct. of Louisiana 1st Cir. 2008) (“unilateral (“ULL”) ... vitiate team. error does not Cyprien, basketball at Plaintiff had a consent if the reason for the error was So.3d student ne university copy complaining party’s own inexcusable worker his former fax a error”); glect discovery Degra of the plaintiffs resume to ULL. Id. Accord- (La. resume, Hampton, had velles ing plaintiff graduated to the (“[a] Cir.1995) may be University App. of Texas at Anto- 1st from San (“UTSA”) fact unilateral error as to a degree, nio a bachelor’s invalidated for with making principal was Id. After ULL hired which was a which false. only when other plain- revealed that but plaintiff, newspaper princi known it tiff never knew or should have was graduated UTSA. cause”). pal plaintiff day fired the same the arti- ULL claim, argues press that at the it standing time have which insurance, appear purchased belong the bond FGIC false would to the bondholders it first ly represented that invested conserva instance. That leaves lack of harm, tively, creditworthy, and would take credit enhancement as LSED’s go to maintain its creditworthiness steps while credit enhancement have forward, hoped bonds, district been a ing for benefit of the this did finding provide primary erred with cannot said to be their cause. action under viable cause of LSED’s failure to receive the agree We court’s law. district hoped-for credit enhancement is a failure analysis. motive, Indeed, not a failure of' cause. commitment letters into entered be- every court to have considered the issue referenced the tween “Official has found that an express absent contrac Language,” Statement Disclosure obligation, tual policies bond insurance include in required LSED was form cannot the basis for a claim based on language The disclosure stated Bonds. rating. an insurer’s ruined credit See Am that FGIC’s triple-A ratings reflected Corp. bac Assurance v. Adelanto Pub. “ratings agencies’ current assessments Auth., 5087(JFK), Util. No. Civ. n strength insurance financial (S.D.N.Y. WL at *6 Nov. ratings are not These recom- [FGIC].... 2011) (“Regardless Authority’s sub buy, sell or hold the Insured mendations jective purchasing motivations for the in Bonds, subject and are to revision or with- policies Ambac, surance offered Ambac rating at any agencies.” drawal time duty never assumed a contractual to main language explicitly The disclosure also tain rating a certain credit or to engage stated that the Policies did “not insure any conduct other than to prom make the Nonpayment by than Is- risk other payments ised pursuant to the Bond Insur (1) Plainly, suer.” LSED was aware that *7 Bond.”); Surety ance Policies and the Wa guarantees were to there no attached City ter Birmingham Works Bd. of of rating credit over the life of the FGIC’s Group, Fin. F.Supp.2d Ambac (2) only the Bonds’ intended Bonds (N.D.Ala.2010) (“It 1317, 1320 defy would purpose was to insure the bondholders logic and common sense for Ambac to obli against nonpayment by the risk of LSED. (35) gate thirty-five itself to maintain for years on the pur- highest possible rating,
This case turns what LSED credit chased from As the disclosure lan- when the determination the FGIC. award of clear, entities”); guage purchased ratings by separate makes LSED bond credit are insurance, NPS, not The Corp., credit enhancement. LLC v. Ambac Assur. (D.Mass.2010) (“char argues distinction is critical. LSED that F.Supp.2d acterizing the failure of was not FGIC’s interest as a ‘prin [lower rates] inabili- ty guaranteed triple-A maintain a cipal’ purpose Agreement to rat- of the runs coun the ing, operate but FGIC’s to its busi- ter to contractual document itself as in a careful and well as to the nature of the prudent ness manner. contractual argument relationship is the problem parties”); The with LSED’s between see cannot pay Transcript Argument that it sue based on a failure to also of Oral at bonds, undisputed City out on the because it is New v. Ambac Assurance Orleans of (E.D.La. 2010) presented Corp. (ap that no bonds were ever for Oct. 08-3949 if to that payment. pay plying Even a failure oc- Louisiana law to find “here curred, obtaining it is not clear that LSED would the credit enhancement credit over promises rating to maintain its guarantee financial
came AAC’s with the the life of the bonds. entering Agree- into of advantage the receipt the characterizing ment but find in Louisiana law nothing We purpose a of the principal as these benefits damages a recover party would allow to the contractual runs counter Agreement on a belief that certain conditions based guarantee which does document itself by be maintained the other period the over credit enhancement explicitly when the contract disclaimed time”). guarantee of a continuance of those condi- underlying The transaction here is tions. recent decision The Fifth Circuit’s buying ob- similar to title insurance when Development, L.L.C. v. Ameri Dameware buy a The taining mortgage a house. Co., 688 F.3d can Insurance General Life buys mortgagor policy a title insurance (5th Cir.2012), con illustrates these coverage to the provides bank There, pension plan purchased cepts. mortgagor pays The fact the mortgagee. policies, life then sued the insur insurance rate, interest or even that the title lower purchase after failed to company ance insurance entices the bank to make the plan yield pension benefits the had the tax loan, mortgagor is the benefit the receives pension plan hoped Specifically, for. pur- But the purchasing policy. policies “to to use insurance intended pose policy provide is to itself plan qualified pension establish a bank in case turns out with insurance title pursuant tax treatment sec favorable contract fulfilled be flawed. The is the Internal Revenue tion 412 of Code.” when the premium paid the insurer pension plan argued, at The if agrees pay the title is later found part, that its contract with insurance insurer is if flawed. breach invalid an error company was rendered pay in accordance refuses to Fifth concerning cause. Id. at 207. The policy. terms of the Circuit, applying Louisiana turned to scale, grander On a much that is what language issue bought here. in- happened bond finding there was no error of cause. It buy- purpose surance from FGIC. The agreements noted between ing protect was to the bond insurance any responsibility “disclaim[] of a bondholders event default part the” creating insurer LSED. A side benefit have been *8 412(1) Plan; and contained a of also list interest lower rate —credit enhancement— providers plan, create such who could a part but it not of the contract. The was provided and that whichever chosen the explicit protects only contract is that it the “solely pension plan responsible” would be bondholders, and there is guaran- that no 412(1) Thus, establishing for a Plan. Id. tee that FGIC will maintain particular concluded, language the Fifth Circuit the rating. credit pension of the the agreement plan between Further, and ‘the the insurer “demonstrates that a line there is of Louisi pension obligated reason ana a plan] indicating party’s itself cases that “error [the in its to in its judgment upon [the insurer] contract was founded own evalua secure for em tion future conditions” not policies life insurance its market does permit ployees.” Similarly, agree Id. here the rescission based on an error of (1) ments pur Corp. make clear that LSED was cause. Hanover Petroleum v. Ten more; insurance, chasing nothing 1240 (La.App. bond and neco 3d (2) Cir.1988). Hanover, sought made In representations FGIC no or defendant the ground parties provision a contract of When made no to rescind on situation, particular “the unfore a it must be specifically error of as- cause— that gas they of the natural market sumed intended to bind them- collapse seen provisions in not restructuring only express of the selves to governmental also performance its of the but to whatever the dustry,” which “rendered law, equity, usage regards implied under the contract untenable.” refused, finding necessary in a contract of kind or state court defendant’s purpose. was based on own for the contract to achieve its simply claim of error its Id.; Espla judgment. error in see also By very nature, gapfil- its Article 2054 is a Templeton Energy Gas Inc. v. nade Oil & ler, obligations used to infer into contract (5th 621, 625 Cir. Corp., Income 889 F.2d provision made no “[w]hen 1989) (rejecting the assertion particular for a situation.” gapfil- No such agreement to principal cause was necessary ler obligation is here. The one stream,” “income which had obtain an obligation pay FGIC assumed was the result plunge failed as a in the on the bonds the event of a default by price noting market oil and default, LSED. of a absence language provide did not Moreover, obligation does not come due. stream); purchase Superior income pay properly presented on Co., Energy Oil Co. v. Transco would explicit bond be a breach of an (W.D.La.1985) F.Supp. (holding obligation, implied not an obligation. simply that the fact that the “market has Complaint The Third Amended cannot anticipated” not the manner evolved fairly creating be read as an issue as to not error in the cause of the principal whether “the need maintain a credit contract). rating any kind” was an implied contrac- here are ar- The facts similar. LSED obligation. pleaded tual that “to gues FGIC that had known would act provide fulfill its credit en- denigrate rating, its own credit it would hancement, needed to issue LSED never million paid premium have the $13 policy an insurance ... maintain However, above, the up front. as detailed ‘triple-A’ rating 30-year life of over specifically commitment letters disclaimed A290, ¶293; A153, See Bonds.” see also any guarantee to maintain AAA-credit ¶ (“[i]f rating FGIC’s credit fell below explicit rating agency. This disclaimer triple-A any time after Bonds were language which LSED was well —of issued, holding LSED —not investors placed LSED notice of pos- aware — Bonds—would bear the cost in the form of sibility rating FGIC’s credit ¶ rates”); A230, higher interest reduced in the future. LSED took cal- (“LSED paying triple-A for FGIC’s did per- culated commercial risk that ¶296 (“FGIC rating”); id. at knew that *9 hoped. form as it Even under Louisiana’s relying LSED was on FGIC’s credit en- law, civil it is not the of this court to role through accomplished FGIC’s hancement — bargain. of relieve LSED its bad maintaining rating ... for ‘triple-A’ the ¶297 (“FGIC’s A231, Bonds”); life of the Implied breach II. of contract. ...”). rating its ‘triple-A’ loss of While reasons, argues For the same LSED fails LSED case is not sim- “[t]his a ply rating,” argu- to state a claim for breach of an about FGIC’s credit viable implied 2054 of ment loses its force when reads obligation. Article Louisi one identify provides: pleadings. pleadings ana’s Civil The FGIC’s Code that because standing, finding credit instead ‘triple-A’ loss “its breach as yet renounce its explic- expressly Letters did not The Commitment FGIC rating.” a is no maintain under there any obligation obligations to itly disclaim Louisiana Louisi- reading anticipatory agree. and breach. We rating, no credit an into a contract “a refusal to imply requires us to law definitive law allows ana reject- explicitly anticipatory a before claim for perform” Corp. Dev. can stand. Andrew ed. breach Corp., Esplanade 347 So.2d West contract. Anticipatory III. breach (La.1977). pay now cannot While FGIC argues that FGIC claims of the Insurance LSED also out on because order, by ren oral its contract made clear at anticipatorily Department breached as claims. Under pay to that does it could not dering argument, itself unable not mean anticipatory doctrine in future. The Louisiana out on such claims pay obligor announces “applies when an correctly breach court dismissed district which is perform obligation he will of contract claim. breach obligee future. The sometime due to Detrimental reliance. obligor fails IV. not wait until the
need to be considered perform for a permits Code Trust Co. Bank & breach.” Coast Gulf a reli to state claim for detrimental party Enters., Granger 800 So.2d v. Rick ance: Cir.2001) (quotation (La.App. 404-05 3d obligated by promise A party omitted). Here, and citation LSED marks he knew or have known when should guaran argues explicitly agreed FGIC the other promise that the would induce the N.Y. payment. But order of tee rely to his detriment party Department, pay cannot Insurance FGIC in so the other was reasonable Thus, argues, FGIC is claims. LSED Recovery limited to the relying. may be contract. breach of damages incurred suf- expenses or the FGIC counters that lacks stand- a result reli- promisee’s fered as claim, LSED is ing press because on a promise. ance on the Reliance not a bondholder. The contract between re- gratuitous promise made without issue parties required only that FGIC quired formalities is not reasonable. did, argues, policies, once FGIC plaintiff Ann. A La. Civ.Code art. 1967. Any obligations ended. all of its to LSED must estab alleging detrimental reliance only to the bond- obligations future are (1) representation by lish conduct A349, holders, not used LSED. See “As (2) word, justifiable repre on the reliance means, herein, the term ‘Bondholder’ (3) sentation, change detrimental Bond, other than particular person because of reliance. Babkow position who, Nonpay- the Issuer at the time Bart, P.L.C., 423, 427 v. Morris ment, terms of such is entitled under the Cir.1998). 4th (La.App. The district Thus, because payment Bond to thereof.” clarity which the “[t]he found by any rights are not affected LSED’s Letters disclosed Commitment Policies, or in the breach of either now rating subject change FGIC’s credit future, argues be found to it cannot cannot the conclusion that LSED compels *10 anticipatorily policies. have breached reli from the of detrimental theory benefit Lynch,
The
declined to
ance.”
re Merrill
WL
district court
had
at *14.
reach the issue of whether LSED
Bethea,
corporated
The
court relied on Drs.
into
policy.
district
One could
v.
Moustoukas
Weaver LLC St. Paul
reasonably rely
not
on a renewal letter
Co.,
(5th
ing any on reliance extra-contractual argues, the contract here does not include promises unreasonable. Id. The Fifth Cir clause, integration while the contract in cuit held that Louisiana law allows courts did, Bethea again making it distinguish plaintiffs to find a reliance a promise argues able. FGIC that detrimental reli unreasonable as a matter of law where the usually ance only comes into play when unambiguous. contract at issue is Id. at there is no written or when the 403-04. The Fifth Circuit held that: contract is unenforceable. Jackson v.
We find no error in the district Lare, court’s 779 So.2d n. 1 (La.App. 2d allegation dismissal. Bethea’s .2002). rea- Cir
sonable reliance on the O’Brien letter The correctly district court
and St. Paul’s promise brochures as a concluded contract at issue here was provide that St. Paul would uncondition- unambiguous. The issue of the missing al tail coverage, free or at least that St. integration clause not particularly is rele Paul would renew policy Bethea’s until vant to our analysis. integration the doctors could take advantage of the clause was important Bethea because coverage, free tail is belied the clari- the plaintiffs were arguing other docu ty of the insurance policy and the con- changed ments the terms of the insurance tent of the documents at issue. The in- policy. Under Louisiana policy, “[p]arol surance indisputably is breached, extrinsic generally valid and evidence is provides inadmissible that ei- vary party may ther terms of a written non-renew at time coverage expression and that tail unless the written provided will be of the com for no mon premium only ambiguous.” additional intention of the upon re- Melton, (La. tirement during policy’s Campbell term. Both 2002). the contract’s “A integration clause and contract is ambigu considered require Louisiana law that any change ous on issue of intent when either it policy to the provision issue, be written form and in- lacks a bearing on that *11 Although hold that susceptible richment. I would contract are of a written terms plead- adequately plausibly there is has and one LSED interpretation, more than a provi- the above claims so as to survive as to its ed uncertainty ambiguity or 12(b)(6) of cannot to dismiss under Rule sions, intent of be motion or the novo review re- language employed.” procedure, federal our de ascertained of issue, interpret provisions quires at the Com- us several Looking at the term which, having unambiguous are the Louisiana Civil Code plainly Letters mitment a in lack suffi- undergone revision before us. The Commitment on the issue jurists to clarity did not for common law make clear that FGIC cient Letters the ade- triple-A a render an authoritative answer on that would remain guarantee Thus, case. entity quacy pleadings for of the Bonds. this rated the life follow, join unambiguous and I cannot the Letters are for reasons Because majority opinion, on state- I vacate point, any this reliance and would clear on or, marketing judgment prefera- materi- of the district court made ments FGIC’s (which agreement bly, certify following question part were of als is, parties) Supreme a matter of Louisiana as Court: between unreasonable. Code, has the Under Louisiana Civil
plaintiff adequately pleaded LSED CONCLUSION of action failure of cause and causes implied obligation respect with breach have the remainder We examined purchased policies to the bond insurance arguments find them to be LSED’s from FGIC such that if the relevant forth without merit the reasons set trial, were obligations proven carefully the district court’s considered would be entitled to rescind obli- The decision of the district court opinion. gation? respects. is affirmed all done Although certification should be HALL, Judge, dissenting: Circuit and not state “sparingly” “merely because use,” Expositions permits Louisiana Stadium and Dis- law Runner v. N.Y. Stock (2d (“LSED”) argues that the appeal Exchange, trict F.3d Cir. 2009), presents fail- improperly prime opportu district court dismissed for this case nity Supreme ure to state claim under Louisiana law for the Louisiana Court to against up post-revision give four Financial LSED’s claims clear confusion (“FGIC”)— Guaranty grap Insurance to federal courts Company direction and state cause, obli- claims implied pling unique failure of breach of to Louisiana civil reliance, unjust gation, detrimental en- law.2 asks a state Whether this Court Supreme 1. Louisiana could refor- in said and that there are Court lions involved case expand upon question or it sees controlling mulate precedents in the deci- no clear fit, based on record in this case. [Supreme Louisiana].” sions of the Court of XII, § Sup.Ct. Rule of La. See Rules of per- law and local rules our own 27.2(a) ("If per- L.R. law also 2d Cir. state certify "questions propositions of mit us to or mits, may certify question court of state Lou- [Louisiana law] Court of highest law to that state's court. When the judgment opinion isiana for rendition or or question, certifies a the court retains concerning questions propositions certain or pending response jurisdiction court's the state appears of Louisiana law" in a case where it question.”). to the certified "questions propositions that there are law determinative of [Louisiana] which are independently ques- said cause other
51 legal questions” court to “resolve unsettled ern District of Louisiana in St. Charles “(1) depends principally Ventures, the absence of Inc., LLC v. Albertson’s 265 (2) decisions; authoritative state court (E.D.La.2003). the F.Supp.2d there, 682 Even state; importance of the issue to the and though, the court possible noted a “anoma- (3) capacity of certification to resolve ly,” allegedly outlying ap- Louisiana litigation.” Wap- O’Mara v. Town peals court case in which “the court may (2d 693, pinger, Cir.2007); 485 F.3d have treated as ‘cause’ that which was see also Reliance Polyvision Ins. Co. v. properly more considered a motive.” Id. (2d Cir.2007). 54, Corp., 474 F.3d Con- at 691. factors, sidering these certification is clear- The status of breach of implied obli- ly warranted here. Louisiana no doubt gation causes of action unclear, is also compelling has a to need ensure that its especially as to when an obligation may be obligations civil law of is appropriately implied. Article 2054 of the Louisiana treated federal courts and own state provides Civil Code par- “[w]hen the courts, and the Louisiana Court ties provision made no for a particular position the best litiga- resolve this situation, it must be assumed that they bring clarity tion and to its underlying intended to bind only themselves not legal questions. importantly, Most howev- express provisions contract, but er, appears there to be a marked absence also to whatever equity, or usage of clear authority proper on the analysis of regards implied in a contract of that failure of cause and breach of implied obli- kind or necessary claims, for the gation and there many are too achieve its purpose.” The inherent difficulties in Louisiana common Su- law-trained Court, jurists preme predicting interpreting predecessor resolutions of un- these settled areas of statute to Louisiana civil law. article stated that language stands two propositions. courts, too, Louisiana struggled have First, because obligations “not all arising with the distinction between actionable out of contract explicitly need be stated failure of cause claims and non-actionable ... good performance faith is implied.” failure of motive claims. disap- Since the National Corp. v. Myrick, Benedict & Safe pearance of the word “motive” from the (La.1979). Sec- Louisiana Civil provisions regard- Code’s ond, and more importantly, equity will claims, ing “failure of cause” state courts supply “everything” that is “considered in- in Louisiana have been unsure about the cidental to particular or nec- role “failure of motive” can play a “fail- essary carry it into effect” in “incidents See, ure of cause” e.g., claim. Hanover only parties as the may reasonably Tenneco, Inc., be Corp. Petroleum supposed to have been upon silent from a So.2d 1240 (La.App.Ct.1988) (stating, error, knowledge they supplied Civil Code articles from that [equity].” 1948 and 1949 provide Equity, Id. being “consent be vitiated “founded in error the Christian principle when it concerns the principal cause do unto or motive and others that which we would not cause or us,” id., motive was wish others known should should do unto have result- been known to the party”). date, other To ed a breach of implied obligation in the clearest discussion regarding the dis- National if because the “contracting Safe tinction between “failure of cause” and were reversed [the defendant] “failure of motive” has come from the would not expect to be treated as it treat- United States District Court for the plaintiff].” East- ed [the at 795. I While am *13 the the majority’s to be district court’s rea FGIC would not wish
certain that LSED, faulty, soning, only per the Louisiana which I believe is it treated treated as not elaborated on the Supreme petuates unique has confusion over Louisiana’s Court by successor scope equity required implied the of of of cause and breach obli 2054, statute, at here. In- Article issue City gation claims. See also New Or deed, interpreting courts and state federal Corp., v. leans Ambac Assurance No. 08- (E.D. the remain conflicted. Some provision 2010). I am 3949 La. mindful that rely principle.” note on the “Christian or predict this Court’s task is to how the See, Supply & v. Devin Tool Co. Cam- e.g., Louisiana would Supreme Court resolve Inc., Works, 623, 784 n. F.2d 627 eron Iron us, frankly, the case I before were (5th Cir.1986) curiam); (per 2 Owl Constr. so, forced do I would vacate decision Inc., Contractor, 642 Co. Adams v. Ronald permit pro below LSED’s claims to 475, (E.D.La.1986); Morphy, 479 F.Supp. My analysis ceed. of Louisiana law and 2000, v. Makofsky & Masson Canal Place suggesting the rationale certification of (La.1989); 569, n. 8 Gibbs So.2d principal these two issues follows. Thomas, 764, v. So.2d Constr. Co. (La.1987). it Others narrow to a ban on I. Failure of Cause unjust jettison altogether. or enrichment majority overlooks several errors Profile, See Hendricks v. Acadiana in dismissing made the district court 242, (La.Ct.App.1986) 245-46 in LSED’s failure of cause claim this case. is principle simple ban (suggesting First, incorrectly court district deter- enrichment); on see Bank unjust also Am. mined that Louisiana law has presump- FDIC, & 49 F.3d Trust Coushatta against tion failure of cause claims where (5th Cir.1995) 1064, (predicting 1067-68 “the error concerns an event that ex- “anomaly” is an that “the
National Safe i.e., pected future,” in the place take Supreme Court would not where error asserted is with respect to again). Fifth apply” choose to Unlike the events occurring after the formation of the & Trust Circuit Am. Bank Coushatta Lynch contract. re In Merrill Auction my colleagues, who call 2054 a article (“ARS”) Litig., Rate Sec. No. 09 MD simple “gapfiller,” I believe question as (S.D.N.Y. May 2010 WL at *6 important scope giving of equity as 2010). Second, the district court prema- implied rise obligations contracts turely ignorance attributed LSED’s of Louisiana state should be resolved FGIC’s practices business time it the Louisiana Court itself. acquired the bond insurance to “inexcusa- Given the “anomalous” state of case law ignorance, neglect, ble and want of care.” implied failure of cause and breach of Lastly, in analysis its of LSED’s failure of claims, reject majority’s covenant I claim, the district failed to implicit conclusion LSED’s claims are appreciate fully the nuanced difference be- easy the face of complaint to resolve on tween a claim for failure of motive and one The majority, a matter of law. as the majority opinion failure of cause. The did, ignores unique district court char- only compounds these errors. presented acteristics of the issues and ad- analysis relying vances an unsound —even A. LSED’s Failure Cause Claim on precedent jurisdic- of common law claim, failure of cause attempt questions tions—in its to resolve LSED’s viewed LSED, specific light Maj. to Louisiana civil most favorable to law. See is best Moreover, now, Op. at 44-45. as it stands characterized as follows: FGIC purported provide credit enhancement that support LSED ord contrary, and armed to offset poor needed credit. This cred- only precedent relying on common enhancement, in the form of bond insur- law contract interpretations, majority ance, signal to the market then classifies LSED’s-“failure to receive had less risk of non-pay- LSED’s bond hoped-for credit enhancement” as- a *14 ment, reducing thus the bond’s interest non-cognizable “failure of motive.” See lowering rates and LSED’s overall costs Maj. Op. at 44-45. representa-
the bond issue. FGIC’s Given confusion, Further illustrating the tions, reasonably expected that majority then likens bond insurance to title by FGIC would maintain creditworthiness suggests insurance and such an analogy doing business in typical its conservative forecloses LSED’s claim under Louisiana remote-loss manner so that the market My law. colleagues observe title in- would reward its FGIC-insured bonds with surance primarily against insures risk more favorable interest rates. The error only flawed title bearing incidentally of fact on the issue of cause is allows a that, mortgagee at the time it contracted with LSED benefit in the form of a thereafter, shortly or knowingly FGIC was lower interest rate charged by the bank. I engaging risky seriously deals that jeop- quarrel do not conclusion, with the based ardized its creditworthiness. Because on the hypothetical, “only that the breach bond only good insurance is as the is if the insurer pay refuses to in accor- insurer, creditworthiness of the viewed in with the policy.” terms of the dance See light LSED, most favorable to argu- Maj. Op. at 45-46. my Based on under- ably an error in fact principal as to the standing of action Louisiana’s for failure of cause occurred because FGIC was not con- cause, however, -I agree cannot my ducting conservative, its business colleagues that rescission is inappropriate remote-loss manner that LSED was led to simply because yet FGIC has not breached believe it would. Had LSED known about the strict terms of policies. risky FGIC’s business practices at An “obligation” civil law time it entered the obligation and acquired —Louisiana’s equivalent of insurance, bond contract —“cannot practices those exist would have without a thrown the lawful suitability of cause.” La. FGIC’s bond in- Civ.Code art. surance question, into 1966. “Cause why and LSED would is the reason paid not have obligates million for that himself.” $13 Id. art. (emphasis insurance. added). civil concept “[T]he law of ‘cause’ obligate can a person by only, his will majority does not way. see [ujnlike the analysis common law of a con- Drawing on language from a disclaimer tract using consideration.” Aaron & Tur- only related to FGIC’s AAA rating, not its ner, Perret, L.L.C. v. general creditworthiness, the majority con- (La.Ct.App.2009). This willful cludes that “consent” guarantees there “were no at- obligation error, to an “may be tached to vitiated rating” FGIC’s credit and that fraud or policies’ duress.” La. “only Civ.Code art. purpose intended added). (emphasis insure the against bondholders Consent will be risk of vitiat- nonpayment by ed error Maj. LSED.” See when “it Op. at concerns a cause This, majority believes, without which shows that would not LSED could therefore not pur- have been have been incurred- and that cause was chasing credit enhancement as its “pri- known or should have been known to the mary cause.” Despite allegations (em- party.” and rec- other La. Civ.Code art. 1949 So, obligation. added). garded as a cause of the concern a cause Error will
phasis “cause,” the con- if insurance were a the nature of even bond “when bears clearly suggest contractual tract, thing that is the authorities cited above or the quality of that not limited to one actionable object or substantial LSED is qualities or person thing, or form of cause. other cir- or party, other Instead, error as “a line of cases where regarded, or that the cumstances recognized and contracts to cause has been regarded, as a good have should in faith often “concern error with re- rescinded” Id. art. 1950 obligation.” cause of spect thing to the nature of the sold and added); Cyprien see also v. Bd. (emphasis suitability for its intended use.” See St. Sys., La. Supervisors the Univ. of *15 Ventures, at F.Supp.2d 265 689-91 Charles (La.2009) 862, (discussing failure So.3d 868 (discussing pre- post-code revision Code). the Louisiana Civil of cause under that failure of support cases to the idea enough is broad to en- Because “cause” “suitability thing the of the cause involves re- party should have compass reasons purchased relation to the reason cause, my view it is garded as the purchaser doing”). so With- cause always express for the impossible recognizing out the breadth of LSED’s or causes for primary the cause contain cause, majority’s claim for failure of the obligated itself.
why party
upholding
rationale
the dismissal of that
the con-
majority opinion
The
searches
component
claim latches onto a small
documents,
tract
which the district court
maintain
AAA
it—FGIC’s failure to
its
clear,”
entirely
In re Mer-
noted were “not
rating
on this thin reed concludes as
—and
1924719,
Lynch
Litig., 2010 WL
rill
ARS
a matter of law
LSED’s cause could
2,
at *4 n.
for what it identifies as LSED’s
not have been credit enhancement.
cause,
insurance. This
“primary”
bond
problem
majority’s reasoning,
with the
is,
proposition,
implicitly
dubious as it
mis- however, is
cause—credit en-
that LSED’s
Although
Louisiana law.
an action-
states
overarching purpose
hancement —the
requires
failure of cause claim
able
which FGIC’s bonds were believed to suit-
one,
pleaded
“principal”
cause
to be a
able,
guar-
with a AAA
synonymous
is not
“princi-
1984 revisers removed the word
problems with
antee. There are related
because it
invites confusion. This
pal”
majority’s analysis,
as well.
confusion,
seemingly controls the
First,
majority
it seems to me that the
rationale,
majority’s
suggests
that a
clearly recognize
does not
LSED’s real
“primary”
is limited to one
cause. Louisi-
wit,
knowingly
em-
complaint,
FGIC
however,
rejects
flatly
ap-
ana
guarantee-
barked on a reckless course of
obligation
proach: “Even when
has
ing
regard
integri-
assets
for their
without
causes,
multiple
any
error that bears on
ty
agencies
That
ratings
or risk.
of them
to make the obli-
one
is sufficient
downgraded FGIC based
this behavior
Ventures,
gation invalid.”. See St. Charles
true,
change
this does not
arguably
but
682,
F.Supp.2d,
(quoting
La. Civ.
1984(e)) (dis-
bought
policies
fact
FGIC’s
art.
rev. cmts.
Code
good
prem-
based on a
faith belief—if false
cussing
failure of
the evolution of the
revision).
Indeed,
ise—that FGIC would remain a creditwor-
action and basis for
thy enterprise. To focus on the actions of
even the Louisiana statutes use
words
cause,”
ratings agencies,
third
without
“any
parties,
“a
La.
art.
Civ.Code
circumstances,”
knew
discussing
allegations
other
id. art.
general
relied on its
regard
parties
did
or should have re-
such as LSED
buying
when
insurance is
Dameware a pension plan purchased
creditworthiness
viewing
complaint
light
least
life
policies
insurance
with the understand-
LSED,
ing
not the most.
policies
yield
favorable
those
certain
pension
tax benefits. When the
plan did
Again,
also
majority opinion
mistak-
not receive the favorable tax treatment
enly relies on FGIC’s disclaimer to wash
had intended to
acquire,
sued for rescis-
away
numerous instances
the com-
purchase
sion of its
based on failure of
FGIC,
in which
without reference to
plaint
Circuit,
cause. Id. at 205. The Fifth
how-
rating,
pro-
AAA
itself as
represented
ever, held that
there was no failure of
viding credit enhancement. See Third Am.
cause, noting that the life insurer express-
¶¶ 83,
(“Our
Compl.
long-term goal
is to
ly
disclaimed
consequences
“tax
and/or
”);
to maintain a
risk book ...
continue
low
planning concepts”
that it
have used
¶
(purchasing
id.
bond insurance will
in “describing the
of using
benefits
life
LSED).
“lower cost of funds” to
The ma-
insurance in connection” with
policy.
seriously
jority thus cannot
contend that
Dameware,
206. In
the disclaimer
the limited disclaimer
the AAA rating
party representations
were in fact
also disavowed FGIC’s broader
*16
comprehensive, showing that
can
company
pay
to remain
that
claims
“acknowledged
they
that
understand” that
appear
company
or
to be a
that can pay
the life
“operates
insurer
solely in the
Certainly
claims.
of an in-
capacity of
product provider
and that
company
driving
surance
to refrain from
presentations”
sales
or even its de-
off a cliff
itself
need not
found in the
scription of
of using
“benefits
life insur-
express terms of the
especially
ance in connection with
product]
[its
can-
contrary pre-obligation
when makes
rep-
not be relied
tax
upon
legal
as
or
advice.”
satisfied, therefore,
I am
resentations.
added).
Id. at 210 (emphasis
In acquiring
to determine as a matter
law that FGIC
life
policies,
insurance
Dameware even
knowingly
carelessly
did not
and
endanger
acknowledged that
was
“not relying
purported
its
conservative
investment
upon any representation, warranty, or
practices.
guarantee beyond those contained within
majority
The
cites the Fifth Circuit’s
itself,
policy
the insurance
includ-
Dev.,
recent decision Dameware
L.L. C.
ing any riders or amendments thereto.”
Co.,
Am.
Gen.
Ins.
would analysis, my district court’s bases, and however, these forth sets adopt, displays several addition- colleagues of them. covers none FGIC’s disclaimer Failure of worthy of discussion. al errors the conclu- compels thus This distinction when an error of most often occurs cause proceedings, sion, stage of at this (obli- the time the contract fact exists at only AAA- (covering disclaimer FGIC’s words, there incurred. In other gation) is pre- totally insufficient rating) is credit party where one is a “failure of cause” claims for failure pleaded clude LSED’s conceals, obfuscates, partic- or lies about a cause.3 that, had truth been known to ular fact have contracting party, the other guid- further provides also Dameware entering stopped that other of an effective disclaim- scope ance on so, fail may obligation; into the sophisticated er, demonstrates for it to a “unilateral” error. St. Charles due expressly to disclaim how parties know Ventures, Inc., 265 LLC v. Albertsons The disclaimer they intend. that which (E.D.La.2003). F.Supp.2d solely to FGIC’s AAA-credit here relates Contrary sugges- credit- to the district court’s third-party rating, asserting modify rating. tion that Louisiana courts “are hesitant agencies ratings concerns an limited vitiate a contract when error disputes LSED neither assert, in the made, expected place event that is to take nor does it disclaimer *17 future,” cause, Litig., Lynch In re Merrill ARS failure of that basis for the sole 19424719, *6, Louisiana courts But that limit- 2010 WL rating. AAA FGIC lost its of cause claims on disclaimer, surely routinely uphold could FGIC ed changed of circumstances occur- match the full and multi- the basis expanded to have “A after the contract is executed. ring in Dame- scope faceted of the disclaimer an ware, may inception exist at the of to bar LSED’s claim cause is insufficient ie., (1) fail,” change then FGIC’s and for failure of cause based may as to cause vitiate con- of circumstances regarding the benefits representations Litvinoff, (2) (quoting fact. sent after the Id. products, bond insurance FGIC’s Cause, At 48 La. products, Still Another Look ongoing responsibility such (1987)). (3) example, Ange- For of fiscal L.Rev. mode conservative FGIC’s Son, Piazza, complaint’s on the lo & LLC management. Based (La.Ct.App.2009), the court held that con- light in the most favor- allegations viewed certain factors sent had been vitiated when plaintiff, the I must conclude able to following prop- the transfer of affecting disappeared in fact the there was error daugh- erty daughter. from father to The suitability policies of FGIC’s insurance purchased par- her un- ter and her husband represented them and as LSED a used car business allegations, property ents’ and also derstood them. Given those they would be impression under the coupled with the nature of “cause” under retirement, law, father ease into opinion helping I the the am of Louisiana that, exemplifies the Louisiana Su- noting again, jurists the need for 3. once It is worth question contemplating legal what does and does not consti- preme Court to resolve the diametrically op- failure of cause find tute here. before us Surely this posed answers in the same case. credit, business, Fargo the letter of Wells issued goodwill the one receive learning differing proposed father’s terms those the assistance have sale, After the the business. Id. in the letter of intent. Bluebonnet run balked new, competing instead started a father and issued the bonds without the letter of street, down the with his son credit, business credit. Without the letter of Blue- business, daughter’s failed assist his portion sold a small bonnet sabotage goodwill actively worked to It then an action bonds. initiated for fail- with his former business. Id. associated the swap agree- ure of cause to rescind change father’s The found Fargo. Fargo’s ment with Wells On Wells i.e., consent, daughter’s vitiated the course dismiss, motion to the district court con- contract, cause of the “the reason with- cluded that courts routinely Louisiana rec- never would have [plaintiffs] out which the ognize claims for failure cause where business, into the used car failed.” entered changed circumstances have as result of disappeared, When those factors Id. part seeking actions on the “were left with business and plaintiffs enforce Id. It the contract. denied Wells really they may wanted house have never Fargo’s motion on the basis that Bluebon- family consid- place, in the first but for claim net had stated a valid for failure of the sale of Accordingly, Id. erations.” complaint alleged cause because the and business rescinded. Id. at house operative swap credit agreement, failed for “due to Wells recently, in Hotel More Bluebonnet Ven Fargo’s credit, failure to issue letter of N.A., tures, Bank, LLC v. 10- Wachovia which doomed the bond issuance for the on Motion to Dis (Ruling 489-JJB-DLD hotel, why the obvious reason Bluebonnet miss) (M.D.La. 2011), Sept. United contemplated swap agreement in the the Middle District Court for Dis States place.” first Louisiana, in applying trict of majority Bluebonnet for pur- cites “changed held that circumstances defining failure of poses motive and failure of cause when the ‘cause’ constitute *18 opinion, however, failure of cause. Their the party seeking within the control of is notably recognize fails to Bluebonnet’s There, to the contract.” Id. Blue enforce that, pronouncement although clear less Ventures, Hotel was bonnet LLC formed important,” obvious but “no “a less fact purpose constructing a for hotel. which a or both assumed sought project finance the Bluebonnet to existence, would come but in into fact did through the issuance of bonds and needed circumstances, not based changed re- a of credit its bonds letter to make more at sults failure of cause.” Id. marketable and attractive to investors. In opining that “Louisiana courts are Fargo exchanged Wells and Bluebonnet a likewise hesitant to vitiate a contract due regarding letter of intent the letter of to error when the error concerns an event credit, Fargo tentatively agreed and Wells expected place is to take the fu- to underwrite and market bonds. ture,” Lynch In Litig., re Merrill ARS Fargo Wells also coaxed Bluebonnet into 1924719, *6 (citing 2010 WL at St. Charles entering “whereby into a swap agreement Ventures), court the district here failed to anticipated Bluebonnet planned bonds pertinent language consider that the rates to issue variable interest could be was hedged by adjusting addressing St. Charles Ventures a essentially the bonds claim, motive to a fixed rate based on the interest rate non-actionable not latter, swap.” Id. When it came time to issue the cause claim—the failure of will not true that Louisiana courts of While a viable cause course, being a basis of cause based on failure rescind contracts error in thus court’s The district action. of fact is due to the unilateral error where of mo- a failure between distinguishing not ne- ignorance, “inexcusable plaintiffs key St. because failure of cause tive and care,” nothing pleaded and want of glect, recognize in fact did Ventures Charles suggests that LSED complaint in the could viti- “cause” failure of a prospective aware that should have been aware or F.Supp.2d fact. 265 after the ate consent practices had altered its business (“[I]t may a cause exist is clear at 688 why very reason going manner to the obligation and then of an inception at the pur- millions of dollars spent LSED fail.”) and alterations marks (quotation namely, bond insurance chase FGIC’s Bluebonnet, omitted). St. Examining derived from con- creditworthiness FGIC’s Angelo & Son dem- Charles Ventures servative, The fact practices. remote-loss Louisiana courts do clearly that onstrates that FGIC could understood changed of fact due that error recognize rating, suggest- as its AAA guarantee a basis on future circumstances majority by the disclaimer on which ed (obligation) and a contract to rescind relies, that it also knew or does not mean for the district that it was error was em- known that FGIC should have begin analysis its the instant case to engage an affirmative course barked on against rescission. presumption put that would its practices in business risk as to at so much creditworthiness fail- analysis of the court’s The district unsuitable for render its bond insurance compro- further claim was ure of cause purchased. par- This is the reason was it characterized way in which mised ticularly where FGIC had not disclosed so claim and attribut- the failure of cause despite its al- portfolio increased risk about FGIC’s cred- ing ignorance LSED’s contrary. leged to the representations practices or investment itworthiness short, discovery concerning without ignorance, neglect, and want “inexcusable understanding of its reading and LSED’s Litig., Lynch In re Merrill ARS of care.” FGIC, premature it is agreement with (quoting at *5 Scott 2010 WL majority court and the rely, as the district (La.1987)). Coushatta, 356, 362 do, agreement on the bare terms of court characterized LSED’s The district concluding that LSED exhibit- basis “thirty years guaran- being “cause” as ignorance, neglect, and ed “inexcusable through FGIC’s credit enhancement teed (“the Bluebonnet, [con- want of care.” See *19 triple-A ratings” of its maintenance if the provisions only have force tract] disclaimed expressly noted that FGIC had is found valid: Bluebon- itself [contract] triple-A rat- any guarantee to maintain of cause claim attacks net’s failure by attacking the doing validity agreement thirty years. Id. at *10. In of ing for inquiry that the into Logic cause. dictates however, so, all of accept the court did not (and validity thus into agreement’s true, did allegations factual nor LSED’s “cause”) the in- any inquiry into precedes in favor all reasonable inferences it draw and the construction of terpretation required to do under of as was itself.”) agreement evaluating for motions dis- the standard L.P., Group, Litwin v. Blackstone Additionally, given miss. “failure of Cir.2011). (2d 706, ma- recognized 715 action 634 F.3d is not a cause of cause” majority affirming jurisdictions, in law the same mistake common jority makes relying in court erred and the district court. the district common law of other states as a basis exerts a decisive influence on the obli- concluding cause was not gation.” (quoting that LSED’s Id. at La. 689-91 Civ. f). Lynch See In re Merrill ARS example, reasonable. Code art. 1950 cmt. For hold- 1924719, at *7 (citing Litig., WL ing that the “cause” purported underlying NPS, Co., Assurance LLC v. Ambac 706 the obligation really at issue was a motive (D.Mass.2010) F.Supp.2d 162 and Water contract, i.e., for entering the the improba- Birmingham v. City Bd. Works bility that retailer open another of of F.Supp.2d Group, Ambac Fin. particular store in a New neigh- Orleans (N.D.Ala.2010)). The in cases cited borhood, the in St. Charles Ventures majority opinion similarly are unavail- rejected the plaintiffs failure of cause they inaccurately because ing assume claim, noting nothing that there was differ- error in judgment LSED’s was founded ent suitability about the fact assumption an erroneous of market upon premises, leased than of other the arrival me, therefore, upit I conditions. Were neighborhood. another retailer claim for would hold LSED’s failure 694-95; Superior see also Oil Co. summarily of cause is not foreclosed as a Co., Energy Transco 616 F.Supp. of matter Louisiana law. (W.D.La.1985) (rejecting plaintiffs failure of cause claim non-cognizable as a B. “Failure Cause” “Failure of “[cjause of motive noting claim and Motive” end is distinguishable from the motive that why turn I explain I now to would certi- prompts the debtor bind himself’ and matter to Louisiana fy this although “motive bears decisive influence In holding that it was not reason- Court. upon party’s ... an will error of mo- able LSED to believe its contract tive does not nullify obligation”) (quot- thirty years guarantee with FGIC would ing § 1 Litvinoff Louisiana Civil Law enhancement, credit the district court 1969). Treatise, to distinguish failed between cause and applying analy- St. Charles Ventures’ Juxtaposed to failure of cause motive. is sis of failure of to its analysis motive what, under is “fail- termed claim, LSED’s failure of cause the district of motive.” failure of “cause” ure While court here what conflated should have rescinding be a an obligation, can basis for separate analytical undertakings. been As is, cannot. a failure “motive” That I understand the distinction between fail- changed going to circumstances motive ure of cause and failure motive as ex- than rather cause are sufficient to Ventures, plained in St. Charles I would Noting consent. the revision of the vitiate hold that it possible distinguish be- Code which removed the Civil tween a present cause and a motive motive word from the relevant articles ad- in paying situation —LSED’s motive cause, dressing $13 St. Charles Ven- failure of million premium for bond insurance cause, explained tures that unlike achieve lower rates on interest the bonds. thing to “the nature of the sold and goes *20 suing simply It is not or, because the suitability put for its intended use” purchasing motive in the bond differently, suitability insurance thing “the of the despite failed to materialize in to the or FGIC’s best purchased relation reason Rather, supra efforts. discussed purchaser doing,” cause the so motives as I.A., subjective principal pur- in the LSED’s cause was to sphere “rest of the indi- so that in chase a credit from a vidual” “an error the motive enhancement credi- ble, not annul though creditworthy does the contract even it insurer. principal cause for which was a point, some by St Charles Ven-
As demonstrated
contract,
may
either
and it
be
tures,
making
alike must rec-
litigants
courts and
contract,
making
“failure
to the motive for
between
as
the difference
ognize
made,
when ana-
it is
or to
person
“failure of motive”
with whom
cause” and
of cause claims.
matter of the contract itself.”
lyzing
pleading
subject
or
added).
alone as
here is not
fur-
But the district
Article 1825 states
(emphasis
appears to create
is one that
this issue
of a
error in the cause
ther that “[t]he
courts as
in the Louisiana
confusion
invalidating
some
the effect of
contract to have
in
part
derives
The confusion
cause,
well.
it,
when
principal
must be on the
from the
of “motive”
disappearance
several;
cause is
principal
there are
See,
Hanover Petro-
e.g.,
revised Code.
motive,
that consid-
and means
called
Tenneco, Inc., 521 So.2d
Corp.
leum
the contract would
eration without which
(stating, in er-
(La.App.Ct.1988)
added).
(emphasis
have been made.”
ror,
provide
and 1949
that articles 1948
Finally, Article
states that
error
“[n]o
by error
may be vitiated
that “consent
contract,
in the motive can invalidate
principal
only when it concerns
that it
apprised
the other
unless
or motive was
motive and that cause
or
agreement,
cause of the
principal
was the
known to the
or should have been
known
nature of the transac-
or unless from the
ap-
Charles Ventures
party”).
other
St
presumed that he knew it.”
tion it must be
by any court
best effort to date
pears the
added).
it would
Accordingly,
(emphasis
the difference
decipher
Louisiana to
be-
Code,
Civil
appear that under
of cause and non-
tween actionable failure
provide a basis for
failure of motive could
For that
actionable failure of motive.
rea-
contract,
if
but
certain
rescinding the
and also because the determination
son
met, i.e., motive was a
conditions were
the issue over which
would resolve
contract and the
principal cause of the
differ, I
majority and I
believe would
aware,
party was
or should have
other
the Louisiana
worthwhile for
aware, of it. The difficulties raised
been
this issue and resolve
weigh
Court
of action in terms of a
by defining a cause
confusion in the lower courts.
ongoing
adequately
instances
word that
some
reading
provisions
A
of relevant
careful
action and in
describes the viable cause of
accompa-
the Louisiana Civil Code and
bars such action are readi-
other instances
reveals that the
nying state court decisions
ly appreciated.
“cause” and “motive”'is
difference between
ap-
of the 1984 Civil Code
The drafters
certainly
can lead to
oftentimes subtle
confusion,
remedy
parently sought to
significant
A
source of the con-
confusion.
altogether
by removing the term “motive”
what the Louisiana courts
fusion between
addressing
provisions
from the relevant
(the failure of which
recognize as “cause”
of the 1984
failure of cause. Article 1950
rescission) and what
provides a basis for
“[ejrror may concern a
Code states
(not a basis for
they deem to be “motive”
it bears on the nature of the
cause when
rescission)
to have arisen from the
appears
contract,
contractu-
thing
or the
that is the
defining
cause of
provisions
1870 Code
object
quality
of that
al
or
substantial
example,
action for failure of cause. For
qualities
thing,
person
or the
or
states that
Article 1823 of the 1870 Code
any other cir-
party,
other
or the
as to all circumstances
exist
“[e]rrors
regarded, or
cumstance that
and facts which relate to a
but
regarded,
faith have
good
it.
should
every error that will invalidate
is not
*21
is,
rele-
effect,
obligation.” That
must be in cause of the
To have that
the error
motive, i.e.,
subjective
longer
no
use the
failure of
reason
provisions
code
vant
entering
job
for
relocation.
help
define “cause.” As
“motive”
term
Compounding
problem,
courts have cit
above, the comments to Article
highlighted
Carpenter
purporting
ed
to set forth the
the term failure of
make clear
analysis
correct
for failure of cause claims
be used to describe
may
longer
no
motive
that, first,
notwithstanding
fact
Car
“an error
rescinding
contract
a claim
prior
was
to the
penter
decided
1984 Code
does not annul the contract
in the motive
and, second, might
it
well be
revision
de
a decisive influence
though
even
exerts
differently
cided
under the revised Code
La.
art. 1950
obligation.”
Civ.Code
given
upon
that the failure of cause
f.
cmt.
Carpenter
Court rescinded the con
failure
The removal of “motive” from the
ostensibly
tract was
better described as a
in
provision
the 1984 revision to
principal
failure of motive unrelated to the
understandably to
appears
the Civil Code
See,
entering
obligation.
cause for
Louisi
have created some confusion
Cajun
e.g.,
Co-op.
In re
Elec. Power
See, e.g.,
ana courts.
Hanover Petroleum
(Bankr.M.D.La.
230 B.R.
714 n. 34
incorrect
Corp.,
(stating,
when it situation, particular it must be assumed markets, thereby putting in risks volatile they intended to bind themselves not stability jeopardy. its own financial only express provisions to the of the con whether argues regardless LSED tract, law, equity, but also to whatever the rating specifical- a AAA FGIC maintained usage regards implied or a contract level paid million was for some ly, the $13 necessary that kind or for the contract enhancement, so, by losing and its of credit Article 2054 is the purpose.” to achieve its its rating entirely, FGIC breached credit to article 1903 of the Civil Code successor acknowledges that FGIC contract. LSED prior in effect to 1984. Nation guarantee rating a AAA because could not Corp. Myrick, v. al Benedict & Safe agencies rating. third-party ratings set (La.1979), the Louisiana 371 So.2d said, That have control over FGIC did interpreted article 1903 to Court and, stability by expressly own financial require “that contracts are to be under in the promising pay to on claims event stood, expressed, but what is thereby and enhance LSED’s default law, everything equity or also cus credit, necessarily im- had an LSED’s par tom is considered as incidental to the obligation keep financially itself plied necessary carry ticular good stable in order to make on that ex- into effect.” See also McKee Southfield promise. press Sch., (La.Ct.App.1993) parent (holding contract between Implied A. LSED’s Breach Obli- private for the education of child school gation Claim implied obligation by school to contained viewing allega- Again, rather than provide verification of that edu written complaint light tions in the in the most cation). plaintiff, favorable to the the district court applicable Under majority and the have characterized the argues that a bond without a credit insurer implied obligation claim for breach of in a rating ability pay or the claims would present manner that does not LSED’s For not be able sell bond insurance. strongest pos- cause of action terms reason, implied obligation there is an pleadings. sible based on the Their ratio- part on the of the insurer to maintain solely had nales focused on whether FGIC ability and the to pay creditworthiness rating. to maintain an AAA differently, the contract. Put claims under Finding express language requiring no and the demonstrating creditworthiness rating, relying FGIC to maintain such Works, ability of which pay on the claims—neither decisions NPS Water currently implied do—are an which held that there was no breach FGIC can
63 argument in- in the plaintiffs’ contract for bond merit there under the obligation is at least an issue of fact whether the surance. rating any need to maintain a credit nowhere its decision Significantly, kind, and not be banned the New York concept court address the does the district Department paying State Insurance in Louisiana Civil Code article set forth claims, implied out is a breach of an obli- Louisiana law there is an 2054 that under gation necessary achieving that is to undertake whatever implied obligation contract, i.e., express provisions necessary carry out the ex- conduct is provide bond insurance. The district court To this press provisions of a contract. have, majority again, and the overlooked argues adequately has point unique facets the Louisiana Civil an obli- pleaded implied FGIC breached wit, implied obligation Code—to to find an part on the bond insurer gation require under article 2054 does not a de- maintaining creditworthiness and an abili- termination that the contract is otherwise they ty pay claims as are made. With- reasons, ambiguous. For these I would attributes, is unable to out those FGIC vacate the district court’s dismissal of FGIC, express agreement. carry out its claim for of implied LSED’s breach hand, seeks to characterize on the other proceedings. remand for further slightly differently argument LSED’s —as- ambiguous contract is not serting that the Unjust B. Ban on Enrichment permitted and that LSED should not be Expansive More Principle Equi- explain extrinsic materials to introduce ty can intent of the be deter- clarity Given the lack of on when Louisi any guaran- on its face to disclaim mined permits ana law to be im so, ratings. doing to maintain AAA tee plied, claim cannot be on LSED’s resolved however, the thrust FGIC does contest complaint the face of the as matter of they materials —that of those extrinsic again law. I note that federal and state “stand basic uncontroversial analyzing implied courts breach of obli insurance, by guar- that bond proposition gation claims remain conflicted over anteeing payment on the bonds equitable princi article 2054 is an whether issuer, event of a default form simple unjust ple greater than ban on of credit enhancement.... because v. enrichment. Owl Constr. Co. Ronald obligations to cover the issuer’s promises Contractor, Inc., 475, F.Supp. Adams payment default.” the event of FGIC (E.D.La.1986); Morphy, Makofsky & distinguish National attempts Safe 2000, Masson Place 538 So.2d v. Canal ground allegations that it also involved (La.1989); 569, 574 n. 8 Gibbs Constr. Co. implied breached the the defendant Thomas, (La.1987); v. 500 So.2d good dealing. faith and fair obligation of Profile, but see Hendricks v. Acadiana Although question that case did involve a (La.Ct.App. 245-46 faith, I good of a breach of do not read 1986); Am. Bank & Trust Coushatta interpretation of article National Safe’s (5th FDIC, 49 F.3d 1067-68 Cir. particular implied as limited to that 1995). Furthermore, following the 1984 obligation. Code, revision of the Civil the Louisiana agree I would with the district has not decided a case While Court majority points there is no relevant interpreting court and the article 2054 on Accordingly, requirement in the contract that to the claims raised here. express predict I the Louisiana Su- rating, maintain a AAA there is while would pleading hold that the preme Court would *24 America, UNITED STATES presents implied a viable a breach of
here Appellee, claim, I for the same reasons cause, certify of failure of I would the issue certify question this as well.
Norby MORENO, Marin Defendant- Appellant. III. Conclusion No. 10-3567-cr. causes of This case involves action unique to the of Louisiana—failure State United States Court of Appeals, implied and breach of an obli- Second Circuit. gation. It cannot be denied that the Loui- Argued: Oct. 2011. siana is the final arbiter in Supreme Court interpreting the Louisiana Civil Code. Decided: Nov. holdings The varied in case law defining both types of claims has created confusion scope
as to the of those claims and limited
the confidence with which common law- jurists may
trained divine how Louisiana
law would bear on the facts alleged this
complaint. highest As the court of the
only jurisdiction in the United States to system,
have a civil law the Louisiana Su-
preme bring clarity Court can to these
issues, which would then be dispositive of and, forward, appeal going would min- misinterpretation
imize of Louisiana’s laws
by the courts the other 49 states.
Accordingly, join I majority’s cannot
opinion affirming the district court’s dis-
missal of complaint LSED’s amended
this action I believe the district court significant
overlooked nuances
pleading of claims for failure of cause and
breach implied obligation, nuances undoubtedly would benefit
clarification by the stated,
Court. For the I respect- reasons
fully dissent.