Where is Joseph Heller when you need him? The Clear Channel (CCU-OLD) lawsuits are a lawyer’s delight. It is a chess game between masters. The arguments and tactics on both sides are, to this point, unusually clever.
As suspected, the banks have no legitimate excuse or defense on the merits. They do not claim that they have complied with their commitment agreement. Production of precedent agreements containing the loan terms offered by the banks would create a very strong motion for summary judgment. The banks have not produced such documents.
Instead, the banks attorneys, Davis Polk & Wardwell, use Catch-22 reasoning to claim that the banks can do whatever they like, and the borrowers and Clear Channel have no recourse. It is a lesson in how to create a tough argument when you have no excuse for your client’s actions.
First, the banks state that, under the law, a breach of contract does not exist until the final date for performance has been reached. In this case that date is June 12. The banks argue that the terms presented to the borrowers to this point are a mere negotiating ploy, and that attempting to renegotiate a contract is not a breach of that contract unless and until the banks specifically state that they do not intend to go ahead with the deal. Of course, the banks will never state that.
Basically, the banks are arguing that they can continue to offer unacceptable terms for negotiating purposes up until 11:59 P.M. on June 12, and only if they fail to comply with their commitment when the clock strikes midnight on that date will they be in breach.
Since, however, the commitment expires at midnight on June 12, the first point at which there is a breach entitling the borrowers to specific performance is the same as the point at which there is no agreement left to perform. “Catch-22.”
The banks further argue that New York law makes an order to perform obligations under a contract – called legally an order for specific performance -- available only when money damages are not adequate or are speculative and are not subject to calculation.
Citing as their only New York State precedent a case from 1890, the banks claim that an order of specific performance is not available in the case of a loan because there is nothing unique about money. Theoretically, the borrowers can go out and get another loan somewhere else, and only after the borrowers get new financing are monetary damages established. The damages would be the difference in cost, if any, between the old loan and the new loan.
Having argued that specific performance is not available because monetary damages are sufficient, the banks next assert that the borrowers cannot get monetary damages either.
It is alleged by the banks that, to establish damages, the borrowers must go out in the market and make a good faith effort to get another loan on the same terms. If the borrowers cannot find another loan, then the only damages available would be for loss of the deal. Such damages are defined as “special” damages, and, the banks allege, the commitment agreement specifically forbids the borrowers from obtaining “special” damages.
In sum, the banks argue that money damages are only available if another loan can be found, but since another loan probably cannot be found there are only “special” damages, and the commitment forbids “special” damages.
“Catch-22” rears its head again.
In a nutshell, the banks complete argument is that specific performance cannot be had because monetary damages will suffice, but monetary damages cannot be had because another loan cannot be found on which to base damages. A brilliant defense, but unlikely to succeed.
The New York State Courts generally don’t like circular arguments that prevent an aggrieved party from obtaining compensation. Likewise, the court is not likely to take kindly to the assertion of the banks that they can avoid their contractual liabilities with impunity.
For the borrowers to obtain a denial of the summary judgment motions they do not need to win on the legal theories. All they need to do is to show that there are issues of fact for the jury to decide. The moving papers of the banks are, in themselves, filled with questions of fact.
Finally, from a legal standpoint, all the banks attempts to limit damages will probably also be denied. The commitment agreement does not state what the banks assert with regard to “special” damages. The limitation on special damages is in two parts. The first part applies only to the misuse of information, and the second part applies only to the final loan agreements.
As for the banks’ attempt to limit the damages obtainable by the Texas plaintiffs – Clear Channel and CC Holdings -- by pretending that the Texas plaintiffs are also plaintiffs in New York, and then trying to limit their non-existent claim by filing a supposed counterclaim constitutes Theater of the Absurd. It is not sufficiently serious to warrant further discussion, except to state that it cannot possibly succeed. It is important only as evidence of the fear and desperation in the banks’ camp.
Once the New York court allows any of the causes of action to go to the jury and refuses to limit damages, the banks are goners. The banks only remedy will be to delay the inevitable with appeals and further motions. That tactic should be circumscribed by the progress of the Texas case. The banks won’t be able to avoid a jury forever. A settlement is out there somewhere. It’s just a question of timing.