Article courtesy of Ariel Emmanuel (King & Spalding)
Cadence Bank v. Johnson, No. 24 10812 (5th Cir. Nov. 24, 2025).
In July 2022, Bridgelink Engineering LLC defaulted on its loan obligations. The loans dated back to August 2021, when Bridgelink entered a $20 million loan agreement with Cadence Bank and a $14 million loan agreement with Century Bank. The loans were guaranteed by Bighorn Construction and Reclamation LLC, Bighorn Sand and Gravel LLC, and Bighorn Investments and Properties, LLC, all entities managed by Cole Wayne Johnson and Cord Henry Johnson.
The Johnsons’ guaranty agreement included an early release clause: this would allow the LLCs to be released from their obligations if they could prove (1) that the loan was not in default, (2) that they’d complied with financial covenants for two consecutive quarters, and (3) that they’d complied with prepayment requirements contained in the agreement for two consecutive quarters. In Q1 of 2022, Bridgelink reported its financial compliance, which was subsequently approved by the banks. However, within two months of this first report, the loan was in default. The banks agreed to waive this default if the Johnsons agreed to pay $170,000 as a waiver fee and if they agreed that Q1 2022 would not count towards the satisfaction of the release requirements. Although the banks did not call the loan or sue yet, no waiver fee was ever paid.
By Q4 2022, Bridgelink had defaulted again and no payments were made through Q1 2023 by either Bridgelink or Guarantors. This nonpayment led the banks to file suit. The lower court granted summary judgment in favor of the banks, finding that there was no dispute of material fact as to whether the Johnsons had been released from their guaranty obligations— they clearly had not. On appeal, the Johnsons argued that the case should be dismissed for lack of subject matter jurisdiction on the theory that Cadence Bank was both a citizen of Texas and Mississippi, and therefore that diversity jurisdiction (which placed the case in federal court), was inappropriate.
The Johnsons’ argument that Cadence Bank was a citizen of Texas, rather than Mississippi, hinged on two arguments. First, they argued a number of supporting points that Cadence Bank was actually a citizen of Texas including that the bank’s executive officers resided in Houston, their SEC filings are reported as based in Houston, and that “other publications and company actions” suggested this basis. To these points, the Court raised the Hertz nerve center test, holding that where the bank’s CEO was based in Mississippi, a majority of corporate officers were based in Mississippi, and the majority of the Management Committee resided in Mississippi, the company’s nerve center was clearly in Mississippi.
However, the Johnsons also raised a theory of judicial estoppel, claiming that because Cadence Bank allegedly pled before to be a citizen of Texas for purposes of subject matter jurisdiction, they could not now claim to be a citizen of Mississippi. To this, the Court examined the alleged previous pleadings and determined that the Bank had merely previously stated that its corporate headquarters is in Houston and its bank headquarters is in Texas— neither of which rose to the level of affirmatively claiming to be a citizen of one state or the other, and both true statements. The Court declined to apply judicial estoppel.
Moving on to the merits of the case, the Court evaluated the banks’ breach of contract claims. The Johnsons did not dispute nonpayment— only that their LLC entities were released from their guarantor obligations prior to December 2022. The Court evaluated the three release requirements: that the loan not be in default, that they be compliant with financial covenants for at least two consecutive quarters, and that they comply with prepayment obligations for two consecutive quarters. The Court found that there was no dispute that the loan was in default since Q1 2022, making satisfaction of all three requirements impossible prior to December 2022.
However, the Court also noted that even in the event they did not consider the loan’s default, there was no dispute of material fact that the Johnsons were in compliance with the financial covenant and prepayment conditions where there was no evidence that the banks confirmed Bridgelink’s compliance in Q3 2022. This is because, the Court stated, the banks regularly confirmed receipt of the compliance documentation and then confirmed compliance later on. In Q3, the later confirmation never came. Thus, there could not have been compliance for two consecutive quarters. The court affirmed the decision in the district court and the Johnsons were held liable for their breach.
