Article courtesy of Andrew Thomison (of Baker Botts)
Collection actions taken by bank did not amount to tortious interference with borrower’s business relations.
In Whitney Bank v. SMI Cos. Global, 949 F.3d 196 (5th Cir. 2020), the 5th Circuit Court of Appeals was called upon to review, among other things, a magistrate judge’s determination that actions taken by a lender after default on a loan amounted to breach of contract and tortious interference with business relationships.
Whitney Bank (“Whitney”) loaned funds to SMI Companies Global, Inc. (“SMI”) under two loan agreements for the purpose of funding SMI’s general business operations and financing a significant manufacturing project with one of SMI’s customers. Both loans were secured by SMI’s accounts receivable. SMI failed to repay the loans on their respective maturity dates, and, after a brief workout attempt, Whitney commenced collection measures which included notifying SMI’s customers to direct payments to Whitney’s counsel and, eventually, suing for the unpaid balance of the loans.
At trial, SMI claimed it had no obligation to repay the loans due to, among other things, Whitney’s breach of contract and tortious interference with SMI’s business relationships. The magistrate judge ruled in favor of SMI on a number of accounts, finding that, among other things, (i) Whitney breached the terms of one of the loans by failing to advance funds through the duration of the manufacturing project (despite the maturity date of the loan having already occurred), and (ii) by sending collection notices to several of SMI’s customers (without regard as to whether those customers actually owed money to SMI), Whitney had tortuously interfered with SMI’s business relations and resulted in the cancellation of a number of customer contracts. As a result, the magistrate judge relieved SMI from its repayment obligations on one of the loans and awarded SMI substantial damages against Whitney.
On appeal, the 5th Circuit reversed the magistrate judge’s decision with respect to the breach of contract claim and tortious interference claim, among other things. The court determined that, based on the plain reading of the loan agreement, there was no obligation for Whitney to continue to advance loans after the stated maturity date until the completion of the manufacturing project, since interpreting the contract in that manner would render the stated maturity date meaningless. The Court also noted that any oral assurances made by Whitney to SMI, such as promises to make payment through completion of the manufacturing project or to extend the maturity date, were held unenforceable under the Louisiana Credit Agreement Statute, since any such oral assurances amount to financial accommodations and forbearances from exercising remedies and must be in writing and signed by both parties to be enforceable. With respect to the tortious interference claim, the Court noted that, under Louisiana law, a plaintiff must prove that the defendant “improperly influenced others not to deal with the plaintiff” and was “motivated by actual malice” in doing so. As the Court noted, Louisiana’s requirement of actual malice is a deviation from the common law standard for a tortious interference claim. The Court stated that there was no evidence Whitney was driven by malice when it contacted SMI’s customers (even customers who did not owe money to SMI) and instructed them to make payments directly to its counsel—it simply wanted to collect what was owed to it under the loan. In fact, the express terms of the loan documents allowed Whitney to collect directly from SMI’s customers because both loans were secured by SMI’s accounts receivable.
