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Prior History: Bluebonnet Hotel Ventures, LLC v. Wachovia Bank, N.A., CIV .A. 10-489-JJB, 2013 WL 3423106 (M.D. La. July 8, 2013) [USA], noted in 2014 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 395 (Trial court granted summary judgment in favor of Bank in action by Developer for rescission of a swap agreement between Bank and Developer after Bank failed to issue an LC for Developer. The court concluded that swap agreement was not contingent on issuance of the proposed standby LC, which was outlined in a term sheet executed by the parties, and because the swap agreement was a separate transaction according to its language and the parties' conduct)

Note: Bluebonnet Hotel Ventures LLC (Developer) executed a term sheet with Wachovia Bank, N.A. (Bank), the predecessor in interest to Wells Fargo Bank, N.A. The term sheet outlined the proposed terms for a standby letter of credit to be issued by the Bank, which would allow Developer to issue an allotment of tax-exempt Gulf Opportunity Zone bonds ("GO Zone" bonds) in order to finance a hotel development project. The term sheet provided that "THIS LETTER IS NOT A COMMITMENT OR AGREEMENT TO LEND MONEY OR EXTEND CREDIT". Subsequent negotiations between the parties failed to produce an agreement, and Bank did not finance the bonds by issuing a letter of credit. Developer acquired a USD 2.5 million letter of credit from Regions Bank instead.

Before the execution of the term sheet, Developer also discussed a swap agreement with Bank, into which the parties entered. The swap agreement was intended to reduce the risk associated with the floating interest rates of the bonds Developer intended to issue. Under the swap agreement, the parties agreed on a fixed interest rate and made offsetting payments to each other as the interest rate on the bonds fluctuated. In 2008, a short time after the agreement's effective date, interest rates fell to historic lows, resulting in Developer being obligated to make payments to Bank, which reached USD 6 million at the time this action was filed.

Developer sued Bank to rescind the swap agreement on theories of rescission and detrimental reliance, arguing that the swap agreement was a part of the same overarching transaction as the letter of credit, which failed to materialize. Bank moved for summary judgment. The United States District Court for the Middle District of Louisiana, Brady, J., granted summary judgment in favor of Bank.

The trial judge ruled that the term sheet outlining the proposed letter of credit specifically stated that the Bank had no obligation to issue the letter of credit, and so it was unreasonable for developer to rely on the term sheet. The trial judge also agreed with Bank that letter of credit issuance was uncertain at the time the swap agreement was signed, and noted that the language of the swap agreement indicated that it was a fully-integrated written agreement and that the parties' course of dealing indicated that the swap agreement was completely separate from, and not contingent on, the letter of credit issuance.

On appeal by Developer, the U.S. Court of Appeals, Fifth Circuit, in an opinion by Jones, J., affirmed. Developer argued that its reason for entering into the swap agreement was to fix the interest rate of the GO Zone bonds, and that the agreement was contingent on Bank issuing the financing of said bonds. However, the Court of Appeals rejected this argument, noting that the agreement specifically obliged Developer to pay regardless of whether Bank financed the transaction, or whether Developer obtained financing at all. The appellate opinion noted that the written agreement stated that the obligation was "separate and apart" from, and not contingent on, any existing or possible future financing closing. Based on these observations, and because Developer was unable to find any textual support in the agreement for its claim, the appellate court reasoned that finalizing the GO Zone bond financing was not Developer's reason for entering into the swap agreement. Rather, the appellate court determined that Developer entered into the swap agreement in order to make or receive payments based on the fluctuations of interest rates on the GO Zone bonds. As such, Developer raised no genuine factual issue and the appellate court affirmed the trial court decision.

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