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Bank of America, N.A. v. JB Hanna, LLC

United States Court of Appeals, Eighth Circuit

August 9, 2017

Bank of America, N.A., Plaintiff- Appellee,
v.
JB Hanna, LLC; Kerzen Properties, LLC; Burt Hanna; Hanna's Candle Company, Defendants - Appellants.

          Submitted: April 5, 2017

         Appeal from United States District Court for the Western District of Arkansas - Fayetteville

          Before COLLOTON, BEAM, and BENTON, Circuit Judges.

          COLLOTON, CIRCUIT JUDGE.

         Bank of America, N.A. sued Burt Hanna, JB Hanna, LLC, Kerzen Properties, LLC, and Hanna's Candle Company (collectively, "the Hanna Parties") for breach of contract after the Hanna Parties failed to pay a loan. A jury found that the Hanna Parties did not breach the contract, and the court entered judgment for them. On appeal, however, we reversed and vacated the judgment, after determining that the jury's verdict was against the great weight of the evidence. Bank of Am., N.A. v. JB Hanna, LLC, 766 F.3d 841, 851-54 (8th Cir. 2014). On remand, the Hanna Parties advanced defenses of fraudulent inducement and fraudulent failure to disclose. The district court[1] granted the Bank's motion for summary judgment on those defenses, and the Hanna Parties appeal. Because JB Hanna could not have reasonably relied on the Bank's allegedly fraudulent representations, we affirm.

         I.

         The underlying facts of this case are set forth at length in this court's prior decision. We therefore address only the facts and procedural history that are relevant to this appeal.

         In the late 1990s, JB Hanna began borrowing money from the Bank through floating-interest-rate loans. The Bank loaned millions to JB Hanna and entered into corresponding interest rate swap agreements with JB Hanna to fix the interest rate on the respective loans. An interest rate swap allows a borrower to hedge his exposure to changes in the interest rate on a floating-rate loan.

         In the simplest case, the borrower makes fixed-rate interest payments to a counterparty, who makes floating-rate interest payments to the borrower. Both payment streams are based on a notional principal amount that often decreases during the term of the swap and matches the declining balance of a corresponding loan. By paying a fixed interest rate to a counterparty in exchange for the counterparty making payments based on the floating rate, a borrower can artificially "fix" the interest rate he pays on any associated loan. The swap agreements between the Bank and JB Hanna were governed by an International Swap Dealers Association ("ISDA") Master Agreement.

         In 2005, JB Hanna sought to borrow $4 million from the Bank. JB Hanna, however, still owed the Bank approximately $7.2 million on previous loans, so the parties considered refinancing JB Hanna's existing debt in conjunction with the new $4 million loan to execute one $11.2 million loan agreement. Under this arrangement, JB Hanna and the Bank would also execute a new $4 million swap, and the two pre-existing swap agreements for the $7.2 million loan would remain in effect. JB Hanna's expert testified that this arrangement-having three separate swaps that terminate at different times-would have exposed JB Hanna to a floating interest rate before the $11.2 million loan matured.

         On June 29, 2005, the Bank's loan officer reviewed the terms of the arrangement with JB Hanna. The loan officer noted that the Bank was proposing a five-year $11.2 million loan. He also informed JB Hanna that it "might want to fix the rate on the whole deal"-meaning execute one swap agreement for the entire loan-and that JB Hanna should let him know if it would like to pursue this option. Later, in an e-mail summarizing a telephone call between the loan officer and JB Hanna's controller, the loan officer outlined the terms of the new proposed swap arrangement. Under this proposal, the Bank would unwind the two existing swaps and execute one new swap on a notional principal amount of $11.2 million. Thus, the parties would execute one new $11.2 million loan and one new $11.2 million swap.

         That same day, June 29, JB Hanna agreed to these terms and entered into an interest rate swap on a notional principal amount of $11.2 million to terminate on August 1, 2015. On September 20, 2005, JB Hanna and the Bank entered into a floating-rate loan of $11.2 million with a stated maturity date of September 20, 2010. Under this arrangement, the 2005 loan agreement matured in 2010, five years before the 2005 swap agreement would terminate.

         In September 2010, the 2005 loan matured, JB Hanna failed to pay the balloon amount due, and the Bank declared JB Hanna in default. Pursuant to cross-default provisions in the Hanna Parties' other loan agreements, the Bank accelerated all other outstanding obligations owed. In November, the Bank sued the Hanna Parties, alleging breach of contract and breach of guaranty. In their answer, the Hanna Parties raised several affirmative defenses, including a fraud defense. The Hanna Parties also made counterclaims.

         After the district court granted the Bank's motion for summary judgment as to the Hanna Parties' counterclaims, the case proceeded to trial. The Hanna Parties requested jury instructions on the defenses of fraudulent inducement and fraudulent failure to disclose. The district court denied this request, concluding that there was insufficient evidence of fraud. The court also noted that "had [it] known that the facts were going to ...


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