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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT ________________________
No. 16-14801 ________________________
D.C. Docket No. 3:13-cv-00191-MCR-CJK
LNV CORPORATION,
Plaintiff-Appellant,
versus
BRANCH BANKING AND TRUST COMPANY,
Defendant- Appellee. ________________________
Appeal from the United States District Court for the Northern District of Florida ________________________
(January 11, 2018)
Before MARCUS and NEWSOM, Circuit Judges and BUCKLEW, * District Judge.
PER CURIAM:
* Honorable Susan C. Bucklew, United States District Judge for the Middle District of Florida, sitting by designation. Case: 16-14801 Date Filed: 01/11/2018 Page: 2 of 15
I
This case features a contract dispute between two companies that entered
into a “participation agreement.” In a traditional participation agreement, a “lead”
bank loans money to a borrower and then sells a piece of the loan to a “participant”
bank. Here, a lead bank loaned money to finance a Florida real-estate venture in
2005, and a participant bank joined 23.08% of the action via a participation
agreement. The collapse of the real-estate market in the late 2000s wiped out the
original parties to the agreement and sank the venture itself, pushing the borrowers
into default. In 2009, our appellee Branch Banking and Trust Company
(“BB&T”) acquired the lead bank’s portfolio, which included two loans—the
“Owls Head” loan and the “JLD” loan—both of which financed portions of the
defunct real-estate development. At around the same time, appellant LNV
Corporation acquired the 23.08% participant’s share in the Owls Head loan for
$197,345, thus placing BB&T and LNV in the agreement’s lead-participant
relationship vis-à-vis the Owls Head loan.
As lead, BB&T immediately sued the defaulted Owls Head borrowers and
guarantors, seeking to recover the value of the loans. During the litigation, the
value of collateral underlying both loans dropped dramatically, and BB&T
accordingly charged down the loans’ book values. The Owls Head loan had a
book value of $16.2 million when BB&T acquired it in May 2009, but by July
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2011 BB&T had charged it down to $1.47 million. Similarly, the JLD loan had a
book value of $5.9 million in August 2010, but in June 2011 BB&T charged it
down to $2.48 million.
At a court-ordered mediation in August 2011, Douglas Duncan—an original
Owls Head guarantor who was personally liable on the loan—and BB&T agreed to
assign both the JLD and Owls Head loans to one of Duncan’s companies for $10
million. This transaction between BB&T and Duncan effectively dissolved the
loans, terminating the rights of those who had previously held an interest in
them—that is, BB&T and LNV—against Duncan. Of this $10 million settlement,
BB&T unilaterally—and LNV says suspiciously—allocated $2.5 million to the
Owls Head loan, which had $34.6 million outstanding, and $7.5 million to the JLD
loan, which had $9.6 million outstanding. These figures resulted in a 7.2%
recovery on the Owls Head loan, of which LNV owned 23.08%, and a 78.3%
recovery on the JLD loan, which BB&T owned alone. The loans’ book values—
trading at roughly 50% discounts when BB&T acquired them in 2009—had since
diverged even further from their face values; according to BB&T’s analysis, the
Owls Head loan was worth $1.47 million while the JLD loan was worth $2.48
million. 1
1 In defending what appeared to be disproportionate allocations—particularly relative to the loans’ respective face values—BB&T has consistently maintained that the division reflected the 3 Case: 16-14801 Date Filed: 01/11/2018 Page: 4 of 15
Shortly after the August mediation, BB&T informed LNV of Duncan’s $2.5
million offer for the Owls Head loan, but did not disclose the total $10 million
settlement amount, the allocation, or the fact that it had already reached an
agreement with Duncan to settle the lawsuit. In September 2011, LNV rejected
Duncan’s settlement offer. Nevertheless, the following month, BB&T informed
LNV that it intended to accept Duncan’s offer, and in November, BB&T and
Duncan closed on the sale and assignment of the loans. Once it received the funds,
BB&T promptly forwarded to LNV $577,000—23.08% of the $2.5 million
purchase price allocated to Owls Head. LNV sued BB&T in September 2012,
asserting that BB&T had breached the participation agreement—in particular, by
materially changing the loans’ terms without LNV’s consent—and thereby harmed
LNV.
Following a bench trial, the district court held that although BB&T had
breached the agreement, LNV “failed to prove damages on the breach of contract
claim.” The court thus awarded LNV zero damages (and separately denied LNV’s
fact that the collateral securing the JLD loan had a higher value than that securing the Owls Head loan and that the JLD litigation was less complex than the Owls Head litigation.
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request for attorneys’ fees). LNV timely appealed to this Court. We affirm,
largely for the reasons explained by the district court.2
II
LNV presents a panoply of issues and arguments on appeal, all of which
revolve around one central contention: that the district court erred in awarding
LNV no damages. Despite the participation agreement’s complicated nature, we
agree with the district court that the case is resolvable by reference to fundamental
tenets of contract law.
By its terms, the participation agreement is “governed by, and [is to be]
construed in accordance with, the law of the State of Georgia.” It is hornbook law
in Georgia, as elsewhere, that in order to recover damages for breach of contract, a
plaintiff must separately prove both breach and damages. See Simmons v. Boros,
335 S.E.2d 662, 663 (Ga. Ct. App. 1985), aff’d, 341 S.E.2d 2 (Ga. 1986)
(explaining that plaintiff must show “both the breach and the damage”) (emphasis
in original); see also Norton v. Budget Rent A Car System, Inc., 705 S.E.2d 305,
306 (Ga. Ct. App. 2010) (“The elements for a breach of contract claim in Georgia
are the (1) breach and the (2) resultant damages (3) to the party who has the right
2 BB&T crossed-appealed, asking us to reverse the district court’s determination that BB&T breached the agreement. Because the district court’s breach ruling was not necessary to its decision in BB&T’s favor, it has no preclusive effect, See Bobby v. Bies, 556 U.S. 825, 835 (2009). Accordingly, because BB&T prevailed in the district court, and is not otherwise aggrieved by that court’s breach ruling, we dismiss BB&T’s cross-appeal. See Agripost, Inc. v. Miami-Dade Cnty., ex rel. Manager, 195 F.3d 1225, 1229–30 & n. l2 (11th Cir. 1999). 5 Case: 16-14801 Date Filed: 01/11/2018 Page: 6 of 15
to complain about the contract being broken.”) (internal quotations, citations
omitted).
Whether BB&T did or didn’t breach the participation agreement—the
district court found that it did—is a difficult question. The contract seems to us to
be a maze of internally contradictory provisions that interact with each other in
inconsistent ways. Fortunately for us, the issue of breach is ultimately irrelevant
because we hold that the district court correctly concluded that LNV failed to
prove its damages with sufficient (or really any) certainty. Bad facts make bad
law—so too with bad contracts. Since we needn’t determine whether BB&T
breached the agreement, we won’t. Instead, we’ll move directly to a consideration
of LNV’s damages arguments.
First, some contract-damages basics. Under Georgia law, damages for
breach of contract “are given as compensation for the injury sustained as a result of
the breach of a contract,” and “[d]amages recoverable for a breach of contract are
such as arise naturally and according to the usual course of things from such
breach and such as the parties contemplated, when the contract was made, as the
probable result of its breach.” Ga. Code Ann. §§ 13-6-1, 13-6-2; see also, e.g.,
Council of Superior Court Judges of Georgia, Suggested Pattern Jury Instructions,
Vol. I: Civil Cases, § 18.010 (5th ed. 2017) (“Damages recoverable for a breach of
contract are such as arise naturally and according to the usual course of things from
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the breach and such as the parties contemplated when the contract was made as the
probable result of the breach.”). Accordingly, Georgia courts have explained that a
plaintiff suing for breach of contract should, if successful, recover the full benefit
of his bargain, but no more. See Al & Zack Brown, Inc. v. Bullock, 518 S.E.2d
458, 461 (Ga. Ct. App. 1999) (explaining that a damage award should “put [the
plaintiff] in as good a position as if the defendant had fully performed the
contract”) (internal quotation marks omitted); Gainesville Glass Co., Inc. v. Don
Hammond, Inc., 278 S.E.2d 182, 185–86 (Ga. Ct. App. 1981) (“[A]n injured party
cannot be placed in a better position than he would have been in if the contract had
not been breached.”).
Importantly here, Georgia courts have held—in common with the prevailing
understanding—that while a plaintiff need not prove a precise measure of
damages, it must provide “data sufficient to enable [the factfinder] to estimate with
reasonable certainty the amount of the damages.” Simmons, 335 S.E.2d at 663.
The factfinder, that is, “cannot be left to speculation, conjecture and guesswork.”
Id.; see also, e.g., McCannon v. McCannon, 499 S.E.2d 684, 686 (Ga. Ct. App.
1998) (damages must be proved “to a reasonable certainty”); Restatement (Second)
of Contracts § 352 (1981) (“Damages are not recoverable for loss beyond an
amount that the evidence permits to be established with reasonable certainty.”). In
this lawsuit, LNV thus had the burden of proving a “reasonabl[y] certain[]”
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estimation of its expectation interest—or whatever benefit its bargain with BB&T
warranted. As we explain below, we agree with the district court that LNV failed
to prove this essential cornerstone.
A
Before getting into the specifics of LNV’s damages claim, we must first
address LNV’s preliminary contentions (1) that Georgia law tasks it with only a
minimal burden of proof and (2) that the district court’s analogy to legal-
malpractice cases was legally erroneous.
Burden of proof—how much, and who has it—features prominently in
LNV’s damages argument. LNV attempts to minimize its burden with two lines of
argument: first, it argues that “[o]nce LNV established the amount it was
presumptively owed, the burden shifted to BB&T to prove any reduction of this
amount”; second, LNV contends that “[o]nce the fact of causation is established,
the burden of proving damages is much less severe.” Br. of Appellant at 26, 39.
Neither argument withstands scrutiny. To support its first line of attack, LNV
focuses on dicta in an unrelated antitrust opinion, Willesen v. Ernest
Communications, Inc., 746 S.E.2d 755 (Ga. Ct. App. 2013). Even setting
Willesen’s off-point-ness aside, LNV fails to meet the seemingly lighter burden
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that it seeks to invoke because—as we explain below—LNV failed (to use its
phrase) to “establish[] the amount it was presumptively owed.”
LNV’s second argument fares no better. LNV repeatedly suggests that it
need not prove damages with exact precision because it effectively proved
causation of damages—i.e., breach—even if it did not prove these damages’
precise quantum. But this supposedly reduced burden of proof is really just the
well-established “reasonable certainty” requirement, already discussed, which—for
reasons we will also explain—LNV fails to meet.
LNV’s second broadside is to suggest that the district court’s invocation of
damage calculations in legal-malpractice suits constituted reversible legal error.
LNV’s contention is unavailing. Not only does LNV overstate the district court’s
reliance on the malpractice framework—although the court noted that it found the
approach “instructive,” nowhere in its opinion did the court claim to adopt the
malpractice standards wholesale—but contrary to LNV’s critique, the basic
damages framework that applies in legal-malpractice cases is applicable to the
instant case.
The district court looked to legal-malpractice claims to conceptualize
expectation interest—an essential component of any damages calculation—and
found that the success of BB&T’s litigation against the loan guarantor Duncan and
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the subsequent collectability of the loan’s payout from Duncan necessarily affected
LNV’s legitimate expectation. Despite LNV’s assertions, this approach strikes us
as neither particularly novel nor unique. Rather, it represents a commonsensical
intuition that applies across various contexts: damages reflect expectations;
expectations must account for the uncertainty of contingent inputs necessary to
produce the expected outcome; therefore, damages must be discounted by the
contingencies’ probability of occurring. Cf. In re Advanced Telecomm. Network,
Inc., 490 F.3d 1325, 1335 (11th Cir. 2007) (reasoning that “the proper approach [to
valuing an asset] would have simply discounted the expected value of the
judgment by the probability of its ever occurring”).
The district court analogized to legal malpractice lawsuits because there, as
here, a court has to discount the face value of a potential recovery by the
probability that requisite events—winning the underlying lawsuit and then
collecting the award—will occur. Such analysis is not “appropriate only in certain
legal malpractice cases,” as LNV contends, Br. of Appellant at 29 (emphasis
added), but is instead a rational extension of malpractice lawsuits’ probabilistic
analysis. The district court therefore did not err when it sought to determine the
ways in which the probability of events essential to recovery affected the value of
LNV’s legitimate expectation, and hence its recovery.
* * *
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Having dealt with LNV’s global critiques of the district court’s
methodology, we turn to its more particularized efforts to meet the “reasonable
certainty” standard for proving its damages.
B
Unpredictability enshrouds every facet of the participation agreement’s
potential payouts, and thus sets a high hurdle for LNV in its attempt to prove
damages to a reasonable certainty. As already explained, the malpractice-suit
analogy is helpful insofar as it illustrates that, in order to determine damages, a
court must discount any likely recovery by the probability of success in both the
litigation and the post-litigation collection. The district court applied these
principles to the instant case, holding that “LNV failed to show that BB&T likely
would have obtained a favorable judgment against Duncan, and how much, if any,
of a favorable judgment it likely would have collected from him.” Without
proving the probability of the necessary inputs, LNV failed to provide any
guidance in determining an appropriate expected outcome. The district court
therefore had no benchmark against which it could assess the payout that LNV
actually received, which left the court with no choice but to award zero damages.
The same deficiency persists before us.
On appeal, LNV principally argues that our damages analysis should begin
and end with the $34.6 million face value of the Owls Head loan. In particular,
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LNV points to Paragraph 14(b) of the participation agreement and asserts that
“[a]warding LNV damages under [that provision] is … consistent with the
principles governing benefit of the bargain damages” because “the parties
bargained for a specific price that BB&T would pay LNV in the event BB&T
wished to materially modify the loan documents without obtaining LNV’s
consent.” Br. of Appellant at 20–22. We fail to understand the argument—and to
the extent we understand it, we reject it. Paragraph 14(b) reads (with our emphasis
added) as follows:
(b) If Participant [i.e., LNV] is unwilling to consent to any amendment or modification of, or waiver of compliance with, the Loan Agreement or any other Loan Document (where the consent of Participant is required), Seller [i.e., BB&T] shall have the right, but not the obligation, to repurchase Participant’s Participation at such time for a purchase price equal to (A) Participant’s Share of any and all unpaid advances of the Loans made by Seller to Borrower under the Loan Agreement, and (B) any and all unpaid interest thereon and fees in connection therewith in which Participant shares hereunder (but subject to Seller’s right of offset under Section 6(d) hereof, if applicable).
There can be no serious argument that Paragraph 14(b) required BB&T to
repurchase LNV’s shares at full face value—here, 23.08% of $34.6 million. By its
plain terms, the provision gave a “right”—i.e., an option—to buy out LNV, but it
expressly did “not” impose any “obligation” on BB&T to do so. Accordingly,
contrary to LNV’s lead argument, the parties did not “bargain for a specific price
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that BB&T would pay LNV,” but rather agreed only that BB&T could buy out
LNV in order to modify the Owls Head loan.
Since the participation agreement never mandated such a payout, LNV’s
damages model necessarily presumes (1) that BB&T would have prevailed in what
surely would have been a lengthy litigation against Duncan, the guarantor; (2) that
following its triumph in court, BB&T would have collected a hundred cents on the
dollar from Duncan; and (3) that this eventuality accurately reflected the parties’
bargain and expectations. Full face-value recovery on a defaulted loan
collateralized by recession-wrecked Florida real estate would seem to defy even
the most expansive conception of “expectation interest,” leaving LNV with a steep
uphill climb in its efforts to prove its damages to a reasonable certainty.
Those efforts are unavailing. In its attempt to satisfy the first contingency
on its road to recovery—that is, to prove that BB&T would have prevailed in its
suit against Duncan—LNV cites to a memorandum from August 2010 in which
BB&T’s attorneys expressed optimism concerning its litigation prospects. Along
with other pleadings, LNV suggests that this document “satisfied any burden to
show that BB&T would have obtained a judgment against Duncan for the full
amount of the loan.” Br. of Appellant at 31. In the same memo, however, the
attorney wrote that “the more time this [litigation] takes the more likely a success
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by way of a paper judgment may be rendered meaningless by an inability to
collect.”
The memo and other pleadings to which LNV cites are not only insufficient
to show that BB&T would have recovered “the full amount of the loan” for
BB&T’s breach, but, even assuming success at trial, none of LNV’s proffered
evidence convincingly demonstrates what LNV and BB&T would have ultimately
collected from Duncan. As BB&T points out, LNV does nothing to engage with
the collectability issue, except to erroneously argue that it is not required to engage
with the collectability issue. Nor does LNV persuasively demonstrate that it
reasonably expected or bargained for some payout that was reasonably certain to
exceed what it received.
In the event of breach, the breaching party should make the party that
suffered the breach whole; that is, the breaching party should pay the non-
breaching party the difference between expectation interest and any recovery that
the non-breaching party subsequently obtains. We know the precise figure of
LNV’s post-breach recovery—$577,000 (on a $197,000 investment). What we
still do not know—because LNV has not shown us—is what LNV expected to
receive, or what the parties “bargained” for. To be sure, full face value recovery is
not LNV’s only theory of damages—on appeal, LNV argues (albeit seemingly for
the first time) that it is entitled to at least some damages either (1) because the
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proceeds of the $10 million settlement were unfairly allocated between the JLD
and Owls Head loans or (2) because the district court should have awarded relief
based on the value of the underlying collateral. But LNV’s failure to prove its
expectation dooms every damage theory to a common fate; without offering
serious evidence of its expectation interest or the benefit of its bargain with BB&T,
LNV cannot prove that the $577,000 payout it received was damagingly
inadequate. The district court therefore rightly rejected LNV’s primary and
auxiliary damages arguments. 3
III
For the foregoing reasons, we AFFIRM the district court’s judgment.
3 Finally, LNV asserts that it is entitled to a remand on the issue of attorneys’ fees. That is incorrect. The district court correctly held that Georgia law prohibits an award of attorneys’ fees in the absence of other monetary or affirmative relief. See, e.g., Benchmark Builders, Inc. v. Schultz, 711 S.E.2d 639, 640 (Ga. 2011)). 15