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AGEM Management Services, LLC v. First Tennessee Bank National Association

United States District Court, E.D. Louisiana

April 25, 2013

AGEM MANAGEMENT SERVICES, LLC, ET AL.
v.
FIRST TENNESSEE BANK NATIONAL ASSOCIATION

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For AGEM Management Services, LLC, Bruno Wink, LLC, Tangi East, LLC, Plaintiffs: Joseph M. Bruno, LEAD ATTORNEY, Daniel A. Meyer, Bruno & Bruno, New Orleans, LA; Christopher Michael Hatcher, Blue Williams, LLP (Metairie), Metairie, LA.

For First Tennessee Bank National Association, incorrectly identifed as First Tennessee Bank National Association, Inc, Defendant: Kent A. Lambert, LEAD ATTORNEY, Alexander McVoy McIntyre, Jr., Katie L. Dysart, Baker Donelson Bearman Caldwell & Berkowitz (New Orleans), New Orleans, LA; Katherine Murphy Bogard, PRO HAC VICE, Mark D. Griffin, PRO HAC VICE, Baker Donelson Bearman Caldwell & Berkowitz (Memphis), Memphis, TN.

OPINION

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ORDER AND REASONS

JANE TRICHE MILAZZO, UNITED STATES DISTRICT JUDGE.

Before the Court is Defendant's Motion to Dismiss for Failure to State a Claim (R. Doc. 31) and Defendant's Motion to Strike Exhibit A to Plaintiffs' Response Memorandum in Opposition (R. Doc. 36). For the following reasons, the Motion to Strike is DENIED and the Motion to Dismiss is GRANTED.

BACKGROUND

I. Factual Background

AGEM Management Services, LLC (" AGEM" ), Bruno Wink, LLC (" Bruno Wink" ), and Tangi East, LLC (" Tangi East" ) (collectively " Plaintiffs" ) are corporate entities that were formed for the purpose of developing commercial real estate on the Gulf Coast. (R. Doc. 30 at ¶ 7.) In order to finance their ventures, Plaintiffs issued bonds to investors in the form of variable rate demand notes (" VRDNs" ), which are bonds that have a long-term nominal maturity with a " floating" interest rate that fluctuates periodically in accordance with the SIFMA Swap Index rate. ( See R. Doc. 30 at ¶ 8; see also R. Doc. 31-1 at 4.) Plaintiffs were responsible for making the applicable variable rate interest payments to investors who purchased the VRDNs. The primary security for the obligations of repayment under the VRDNs was an irrevocable Letter of Credit to be issued by Whitney National Bank (" Whitney Bank" ). (R. Doc. 30 at ¶ 8.) Additionally, Plaintiffs employed Frazier

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Lanier Company (" Frazier" ), an investment-banking firm, to serve as their " remarketing agent." ( Id. at ¶ 9.) Frazier was responsible for locating investors to purchase Plaintiffs' VRDNs, and also for setting, on a weekly or monthly basis, the interest rates payable on the VRDNs. ( Id. ) On April 1, 2008, Bruno Wink and AGEM obtained $7.8 million and $1.9 million in financing, respectively, under the above VRDN arrangement. (R. Doc. 30 at ¶ 10.) On June 2, 2008, Tangi East obtained $5.5 million in financing. ( Id. )

After issuing the VRDN bonds, and upon the advice of Whitney Bank, Plaintiffs entered into Interest Rate Swap Agreements (" Swap Agreements" ) on August 12, 2008 with Defendant First Tennessee Bank National Association (" First Tennessee" ) in an effort to hedge against the variable interest rate risk associated with the VRDNs. (R. Doc. 30 at ¶ 15.) Plaintiffs contracted with First Tennessee to pay a fixed interest rate on a notional amount of debt in return for First Tennessee's payment of a variable interest rate on the same notional amount of debt. ( Id. ) By doing so, Plaintiffs hoped to lock in a fixed interest rate on their outstanding VRDN debt, and thereby protect themselves in the event of an increasing SIFMA rate (R. Doc. 30 at ¶ 13.) The Swap Agreements were to remain effective through March 26, 2013 for Bruno Wink and AGEM, and April 17, 2013 for Tangi East. ( Id. )

II. Plaintiffs' Allegations

Plaintiffs seek relief against First Tennessee for breach of contract, fraudulent suppression, breach of fiduciary duty, misrepresentation, and civil conspiracy. (Doc. 30 at ¶ 16, 18-39.)

Specifically, Plaintiffs allege that Whitney and First Tennessee operated under a fee sharing arrangement in which First Tennessee would pay Whitney a one-time fee in exchange for interest rate swap referrals. (R. Doc. 30 at ¶ 12.) Plaintiffs aver that under this contractual agreement, Whitney Bank would provide First Tennessee with counterparties (such as Plaintiffs) who speculate that bond interest rates will increase. First Tennessee, who speculates that bond interest rates will decrease, would then enter into swap agreements with said counterparties. ( Id. ) Plaintiffs contend that Whitney benefits by receiving a portion of the one-time, industry-standard fee generated from the swap product transaction. Plaintiffs claim that First Tennessee and Whitney operated under this arrangement for over five years preceding Plaintiffs' Swap Agreements. ( Id. )

Plaintiffs maintain that Whitney Bank, acting as First Tennessee's agent pursuant to the above agreement, knowingly made false representations to Plaintiffs in order to induce them to enter into Swap Agreements with First Tennessee. Plaintiffs aver that this agreement resulted in substantial profits to both First Tennessee and Whitney Bank at the expense of Plaintiffs. (R. Doc. 30 at ¶ 14.) Plaintiffs also claim that First Tennessee did not disclose pertinent information to Plaintiffs at the time of the Swap Agreements. Had they done so, Plaintiffs argue, Plaintiffs would not have entered into the Swaps. (R. Doc. 30 at ¶ 17.)

Succinctly, Plaintiffs base their injury on two primary misrepresentations: first, that Whitney's representation that the interest rate swaps would have the effect of converting the variable rates that Plaintiffs owed on their VRDN bonds into fixed interest rates, thereby eliminating the interest rate risk associated with their VRDNs. (R. Doc. 30 at ¶ 14.) Second, that First Tennessee's failure to disclose that an impairment on Whitney's Letter of Credit underlying each of the VRDN issuances

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would likely increase the interest rates Plaintiffs had to pay on the VRDN bonds, thus resulting in higher borrowing costs to Plaintiffs. (R. Doc. 30 at ΒΆ 17.) Plaintiffs assert that absent these intentional misrepresentations they would not have entered into the Swap Agreements with First ...


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