### IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 13

- 11026

HIGHLAND CAPITAL MAN AGEMENT, L.P. , Plaintiff

–

Appellant ,

versus BANK OF AMERICA, N.A

. , Defendant

– Appellee

.

Appeal from the United States District Court for the Northern District of Texas No. 3:10

- CV

- 1632

Before SMITH , WIENER, and PRADO , Circuit Judges

. JERRY E. SMITH, Circuit Judge : *

Highland Capital Management, L.P. (“Highland”) , and Bank of America entered negotiations for the b ank to sell to Highland a $15.5 million loan (the

* Pursuant to 5 TH C IR

. R. 47.5 , the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5 TH C IR

. R. 47.5.4. United States Court of Appeals Fifth Circuit 

### FILED July 3, 2014 Lyle W. Cayce Clerk Case: 13-11026 Document: 00512687021 Page: 1 Date Filed: 07/03/2014No. 13

- 11026

“Regency Loan”) at 93.5% of par value. On December 3, 2009, Highland’s rep

re sentative, Daugherty, and the b ank’s representative, Maidman, had a tel e phone call in which they agreed to that price. Maidman, however, stated dur

ing that call and in a subsequent email that the trade was “subject to appro

pri ate consents and documentation.” Highland sued to enforce the putative contract. Th is dispute centers on whether an oral contract was formed under New York law when the price of the trade was agree d to , or whether Maidman’s caveat evinced the bank’s intent not to be bound by Maidman’s caveat. The district court granted sum

mary judgment for Bank of America, holding that there was no genuine di spute of material fact

. We agree and affirm

.

I. A. T he district court ruled that New York substantive law applies because Bank of America and Highland had entered into trades in the past that included terms stating that New York law would govern all future trades , and because the b ank’s own draft contract d ocuments in the present trade suggest that i t intended New York law to apply. We apply New York law because nei

ther side disagrees.

B

. The law on contract formation is not in question. As a panel of this court explained at the Rule 12(b)( 6) stage of this case, each party must manif est an intent to be bound. 1 Whe n there is an alleged oral contract , the court considers

1 Highland Capital Mgmt., L.P. v. Bank of Am., Nat’l Ass’n , 689 F .3d 202, 206

– 07 (5th 2 Case: 13-11026 Document: 00512687021 Page: 2 Date Filed: 07/03/2014No. 13

- 11026

extrinsic evidence and looks for four factors: (1) whether there has been an express reservation to be bound only in writin g, (2) whether there has been
par tial performance, (3) whether all terms have been agreed to, and (4) whether the agree ment is of the kind usually committed to writing. 2 The question is therefore whether Highland has pointed to evidence to create a genui ne dispute as to whether Bank of America intended to be bound. Highland insist s that, notwithstanding the apparent reservation and that there was no partial performance, it has presented evidence that all terms have been agreed to and that the agreement i s not the kind usually committed to writ ing. Highland’s theory is somewhat confusing but seems to rely entirely on industry custom. It maintains that when the dealings are interpreted in light of industry custom, as evinced by the standard terms for suc h trades
prom ulgated by the Loan Syndications and Trading Association (“LSTA”), a genuine dispute exists as to whether the b ank’s agreement to the price dem

onstrates an intent to be bound. But Highland also seems to contend sepa rately that Bank of America previously conducted a trade with it in which the LSTA terms governed, and one of those terms state d that any future trade between the two w ill be binding once the y agree on the price. Highland’s first theory is problematic. The LSTA standard term s are not binding law , and so long as Bank of America expressed an intent not to be
gov erned by the LSTA , anything that the LSTA has to say about contract for

mation is of no import. It could be that the LSTA reflects “industry custom” and that such cus tom suggests that the b ank intended to bind itself once it agreed to all the terms discussed i n the phone call. But the bank demonstrated

Cir. 2012) (citing Powell v. Omnicom , 497 F.3d 124, 129 (2d Cir. 2007) )

. 2 See id. at 208; Winston v. Mediafare Entm’t Corp. , 777 F.2d 78, 80 (2d Cir. 1985)

. 3 Case: 13-11026 Document: 00512687021 Page: 3 Date Filed: 07/03/2014No. 13

- 11026

that it did not want to follow the LSTA, the LSTA standard terms tell us noth

ing about the b ank’s intent. The evid ence that the b ank intended not to be bound is overwhelming , and the only evidence that Highland puts forward is question

- begging. Maid

man explained i n the phone call that the deal would be “subject to appropriate
consents and documentation.” Daugherty admits that Maidman said , “We have our own docs.” Shortly after the conversation, Maidman sent Daugherty an email and reiterated that the trade “is subject to appropriate consents and documentation.” Later that same day, the b ank’s outside counsel, David Eades, emailed another Highland employee, Carter Chism, and stated , We’ve been retained by BoA in connection with this proposed loan trade. Can you give me a call at your convenience to discuss matters? Note that BoA does not plan to use Banc [ sic ] of America Securities trading desk for this matter, so its protocol may differ from similar trades you have done with the bank

. The next day, another Bank of America employee, Caroline Yingling, emailed Chism to explain that the LSTA Standard Terms do “not contain the necessary confidentiality provisions.” On December 9, she again emailed Chism with draft documents and explained that they “remain subject to fur

ther review and final approval.” She also warn ed that, before the b ank w ould attempt to get the borrower’s consent to the loan assignment, it would first need to “work[] out any comments” Highland had about the draft documents. When Chism responded on December 11 with the LSTA trade

- confirmation forms, Yingling reiterated tha t the prior draft documents would have to be agreed to in addition to the LSTA trade confirmations. She also re peat ed that the bank would have to agree to the draft documents before attempting to obtain the borrower’s consent to the assignment. The distri ct court also relied on Daugherty’s d eposition testimony that , 4 Case: 13-11026 Document: 00512687021 Page: 4 Date Filed: 07/03/2014No. 13

- 11026

although he had said the deal was “done”

— the customary way to finalize a trade deal

— he admitted that he could not get anyone at the b ank to say that it was “done.” Specifically, Daugherty test ified , “I could never get [Maidman] to say we were done. I remember that, being very frustrated. He would never say he was done. And it was, you know, cause for concern because obviously I wanted to do this trade, and I could never get him to say we wer e done.” Daugherty also testified that he “didn’t think it was a guaranteed deal.” Further, Daugherty testified that he recognized Maidman was not a trader and that , although his “trading etiquette” was “terrible” and “very
annoy ing,” Daugherty “had to tolerate it because [he] knew [he] wasn’t going through the standard process, or whatever, of trading with a trading desk.” Highland acknowledges that Maidman had no experience trading loans and admits that Maidman said nothing about the LSTA i n the December 3 call. There was no agreement as to any particular confirmations , and on December 18 Chism circulated revised confirmations. Yingling responded by adding two terms: that the trade is still subject to consent of the borrower , and the b ank is not liable if it is unable to obtain such consent. Highland rejected the indemnification provision , and negotiations deteriorated. Even tu ally the loan would pay off at par value. Highland has put forward n o facts to create a genuine dispute as to whe ther industry custom might change the meaning of Bank of America’s deal

ings. Although industry custom is extrinsic evidence a factfinder can use to determine the parties’ intent to be bound, its value is substantially diminished where, as here, other evi dence overwhelmingly shows that the persons involved in the dealings were unaware of those customs. Industry custom is not binding law but only helps the trier of fact to understand the meaning of the words used. Highland admits that Maidman and Yingling were unfamiliar 5 Case: 13-11026 Document: 00512687021 Page: 5 Date Filed: 07/03/2014No. 13

- 11026

with the LSTA and were “novices” in this area. Highland tries to avoid this bind by claiming on appeal that Bank of America was an experienced LSTA trader , b ut that is irrelevant. Whether the b ank intended to be bound in this instance de pends on the knowledge, under standing, and words of its representatives

. Highland offers no evidence to suggest that Bank of America even thought the LSTA terms would apply. Indeed, when the LSTA was finally

men tioned after Highland sent over an LST A confirmation, the b ank explicitly said it did not want to use th at confirmation because it did not contain the

nec essary confidentiality provisions. The b ank’s documents never men tioned the LSTA. Highland wants us to interpret this to mean that the b ank never proposed to use something other than the LSTA. But Highland is assum ing , without proof , that somehow the LSTA is a background principle of law that is binding on the parties unless they opt out. That assumption is unfounded. Highland relies heavily on the SAG Credit Approval Document, noting that it did not include the later controversial indemnification terms. Highland asks this court to believe that, therefore, the b ank intended to be bound by the LSTA terms only until much later , when it allegedly found out that the loan would pay at par and therefore wanted the indemnification provision. But that again assumes that the default rules are the LSTA terms , even though weighty evidence has been adduced that the b ank did not want the LSTA to g overn, and no evidence has been presented indicat ing t hat the b ank expected to be bound by the LSTA. More generally, the fact that the b ank did not include the future terms that it would eventually seek tells us nothing about whether the bank had already agreed to be bound by the current proposed terms. Indeed, Maidman explicitly told Highland that he would need approval for the terms in the SAG Credit document, as Highland admits. 6 Case: 13-11026 Document: 00512687021 Page: 6 Date Filed: 07/03/2014No. 13

- 11026

Highland’s remaining evidence is beside the point. Even if the dis tri ct court erroneously found that Bank of America had checked the “assign ment only” box on the LSTA confirmation and did not know that the loan would pay full value until much later, none of that speaks to whether the LSTA pro

cedures for the creation of an enforceable contract were ever binding on the b ank in the first place. Regarding the December 11 confir ma tion that sup pos edly inc o r porated the LSTA , Highland never counter signed , so there was still
no agree ment at that point. Lastly, the evidence that “com mercial loan trades are typi cally not committed to writing” cannot coun teract objective indications that the b ank wanted this trade to be in writing. Industry custom, again, is not bind ing law but merely a tool by which courts interpret cont ract language. The decision in APS Capital Corp. v. Mesa Air Gr ou p, Inc. , 580 F.3d 265 (5th Cir. 2009), on which Highland heavily relies, has nothing to do with the issues here. There the court found a contract ambiguous because it had lan

guage suggestin g a completed transaction

— both said “done” after deciding on the price

— but the email said it was a “pre lim in ary” agreement and that a “fuller” agreement would have to be negotiated. Moreover, there was only
pass ing mention of the LSTA. Here, in contr ast, Highland ’s whole argument is based on whether the L STA applies, and Highland has not adduced any evi

dence or cited any law regarding the binding effect of prior LSTA agreement s

or otherwise suggesting that the b ank’s repre sen tatives were act ing wit hin the same customary industry framework in which Highland was operating. For its second theory, Highland claims that no later than October 2003

— six years before the current trade

— it and the b ank executed an LSTA con

firmation that incorporated the “Binding Effect Standard Term” of “Paragraph 21 ” of the standard LSTA terms

. “Because Highland and Bank of Amer ica

. . . had executed LSTA confirmations on multiple prior trades,” 7 Case: 13-11026 Document: 00512687021 Page: 7 Date Filed: 07/03/2014No. 13

- 11026

Highland argues, “by default the parties had already agreed to the LSTA’s Binding Effect Provision and Form of Purchase Standard Term before they began nego tiating the Regency Loan trade.” Accordingly, Highland writes, the b ank had to opt out of the LSTA unambiguously , and “contractual obligations existed between Bank of Ameri ca and Highland before they ever began negoti

at ing the Regency Loan trade.” This proposition is a matter of contract interpretation , which is not a
ques tion for the trier of fact

. 3 Whether a prior contract had a binding effect on the procedures avail able for future contract

- formation is a legal question. And Highland has put forward no caselaw to establish that a prior LSTA trade binds the corporate entity to its contract

- formation procedures. Indeed, High

land cites no caselaw on the meaning of Par agraph 21 , so at best it has waived this part of its argument on appeal. 4

II. Highland contends that the district court erred in excluding its expert report by Allison Taylor, a co

- founder and past executive director of the LSTA. We agree with the district court’s observation that the report is excludable because it makes several legal conclusions reserved for the court , improperly cred its or discredits witness testimony, and otherwise makes factual deter min

a tions reserved for the trier of fact

. Either way, the report offers no evidence what so ever that the LSTA ’s terms were binding on Bank of Amer ica. It offers no relevant evidence about industry custom not already dis cussed above. Finally, as for Highland’s alternative claim that even if n o contract had

3 X Tech s. , Inc. v. Marvin Test Sys., Inc. , 719 F.3d 406, 413 (5th Cir. 2013).

4 See L&A Contracting Co. v. S. Concrete Servs., Inc ., 17 F.3d 106, 113 & n.27 (5th Cir. 1994)

. 8 Case: 13-11026 Document: 00512687021 Page: 8 Date Filed: 07/03/2014No. 13

- 11026

been formed , the b ank had an obligation to negotiate a final contract in good faith, Highland a grees with the district court’s legal conclusion that the test to deter mine whether a preliminary agreement existed is “substantially identi

cal” to the question whether an oral contract was formed. Therefore, relying on the same evidence previously adduc ed, we conclude that no preliminary
agree ment existed

. The judgment is AFFIRMED.

9 Case: 13-11026 Document: 00512687021 Page: 9 Date Filed: 07/03/2014