EPCO Carbondioxide v. JP Morgan Chase Bank

United States Court of Appeals
Fifth Circuit
F I L E D
October 6, 2006
Charles R. Fulbruge III
Clerk
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 05-30958
_______________
EPCO CARBON DIOXIDE PRODUCTS, INC.,
Plaintiff-Appellant,
VERSUS
JP MORGAN CHASE BANK, NA,
FORMERLY KNOWN AS BANK ONE, NA,
Defendant-Appellee.
_________________________
Appeal from the United States District Court
for the Western District of Louisiana
m 3:04-CV-2324
__________________________
Before JONES, Chief Judge, and
SMITH and STEWART, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
EPCO Carbon Dioxide Products, Inc.
(“EPCO”), appeals the dismissal of its breach
of contract, abuse of rights, and bad faith
claims against JP Morgan Chase Bank, NA
(“Chase”). Because EPCO’s complaint pleads
sufficient allegations to state a claim on which
relief can be granted, we reverse and remand.
I.
Because this case was resolved on motion
to dismiss, the allegations in the complaint
must be liberally construed in favor of the
plaintiff, and all facts pleaded in the complaint
must be taken as true. Lowery v. Tex. A&M
Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997).
The facts discussed below utilize that standard.
A.
EPCO, a liquid carbon dioxide producer,
acquires sites and manufacturing equipment

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for its production process through financing
from banking institutions. Chase provided fin-
ancing for three EPCO facilities, most recently
EPCO’s Eddyville, Iowa, facility.
In December 2002, EPCO and Chase made
a financing agreement for the Eddyville facil-
ity, providing for a “lower floater” corporate
note financing structure bywhich Chase would
issue an irrevocable direct pay letter of credit
for $3,350,000 that would support floating-
rate option notes issued by EPCO.1 EPCO
also executed Security Agreements in which it
granted Chase a security interest in various
collateral relating to the Eddyville facility.
Some financing documents contemplated a
subsequent issuance of notes up to an aggre-
gate amount of $7 million relating to the ac-
quisition of future projects, including a facility
in Monroe, Wisconsin.
In February 2003, Chase requested that
EPCO grant a security interest in additional
collateral in connection with discussions re-
garding the $7 million loan package. EPCO
informed Chase that its plans for additional
projects, including the Monroe facility, were
on hold and that it would not provide addi-
tional collateral. Chase, however, insisted on
the additional collateral.
In March 2003, Chase informed EPCO that
it wished to terminate the banking relationship
and did not intend to renew the letters of cred-
it on two EPCO facilities. Chase was aware
that a failure to renew letters of credit for
these facilities would cause defaults on the
bonds for those facilities as well as cross-
defaults with other lenders.
EPCO received a letter from Chase indicat-
ing that the only circumstance in which Chase
would renew the letters of credit was if EPCO
entered into a forbearance agreement in which
EPCO would admit certain technical defaults,
provide additional collateral, and pay addition-
al fees and higher interest rates. EPCO signed
that agreement.
Following a few additional months of ne-
gotiations, in May 2004 Chase made a written
offer by letter to EPCO to restructure the in-
debtedness associated with EPCO’s facilities
and extend the Eddyville letter of credit
through December 1, 2005. EPCO accepted
that offer on the terms set forth by Chase.
Notwithstanding EPCO’s acceptance, Chase
failed to comply with the terms of the May
2004 agreement and has made repeated threats
to put EPCO in default and impose even more
onerous conditions.
In September 2004 Chase informed EPCO
that it would not renew the letter of credit un-
less EPCO paid increased fees to Chase, and
paid all attorney fees incurred by Chase during
the negotiations since March 2003. Should
Chase fail to renew the letters of credit, EPCO
will suffer significant financial losses and ir-
reparable damage to its reputation.
B.
EPCO sued Chase in state court seeking
specific performance of the May 2004 agree-
ment, damages for breach of contract and
abuse of rights, and an injunction to prevent
1 “Lower Floater” financing is a security struc-
ture in which notes are underwritten and sold in the
public finance market to investors who will rely on
the letter of credit as a source of repayment. The
trustee of the letter of credit, Chase, will make
payments to the holders of the notes and can then
seek reimbursement from the debtor, EPCO,
pursuant to the terms of a Reimbursement
Agreement signed by the parties.

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Chase from failing to renew the letters of cred-
it. Chase removed the case to federal court
based on diversity of citizenship and moved to
dismiss under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim.
Chase’s principal contention in its motion
to dismiss was that all of EPCO’s claims stem
from an alleged breach of the May 2004 agree-
ment. Under Louisiana’s Credit Agreement
Statute, all actions based on a credit agreement
are barred unless the agreement is, inter alia,
in writing and signed by the creditor and
debtor. See LA. REV.STAT. 6:1121 et seq.;
Jesco Constr. Corp. v. Nationsbank Corp.,
830 So. 2d 989, 991-992 (La. 2002). Because
EPCO did not allege that the May 2004
agreement was in writing and signed by both
parties, Chase claimed that EPCO’s allegations
were insufficient on their face to state a claim.
The magistrate judge, in his report and rec-
ommendation, concluded that to bring a claim
for breach of a credit agreement, EPCO was
required to plead either “the existence of a
written agreement ‘that is signed by the cred-
itor and the debtor,’” or that “(1) EPCO ac-
cepted the offer by email, and (2) Chase
agreed to conduct business by electronic
means.” EPCO Carbondioxide Prods. v. JP
Morgan Chase Bank, NA, 2005 WL 1630096
(W.D. La. 2005). Because EPCO had failed
to meet these pleading requirements, EPCO’s
“conclusory” allegation that it had “accepted
the offer” was insufficient. Id. For the abuse
of right claim, the magistrate judge concluded
that EPCO was seeking to “create an implied
agreement obligating Chase to renew the loans
or letters of credit beyond their maturity
dates,” a cause of action precluded by the
Louisiana Credit Agreement Statute and
Louisiana jurisprudence. Id.
Although the magistrate judge based his de-
cision solely on the pleadings, he included a
footnote describing documents Chase had
attached to its reply memorandum in support
of the motion to dismiss. Id. In footnote 4 he
discussed several email documents submitted
by Chase that indicated that the May 2004
agreement required “execution of definitive
documentation” to be accepted and that EPCO
had initially rejected that offer by email. Id.
The district court accepted the magistrate
judge’s recommendation, with the exception of
footnote 4, and dismissed the claims.
II.
We review a dismissal under rule 12(b)(6)
de novo. See Bombardier Aerospace Employ-
ee Welfare Benefits Plan v. Ferrer, Poirot &
Wansbrough, 354 F.3d 348, 351 (5th Cir.
2003). We apply the same standard as does
the district court: A claim will not be dis-
missed unless the plaintiff cannot prove any set
of facts in support of its claim that would
entitle it to relief. Id.
A.
The Louisiana Credit Agreement Statute
operates as a “statute of frauds” for the credit
industry. King, 885 So. 2d at 546. Actions
brought by debtors based on credit agreements
cannot be maintained unless “the agreement is
in writing, expresses consideration, sets forth
the relevant terms and conditions, and is
signed by the creditor and the debtor.” LA.
REV. STAT. § 6:1122 (2005). The purpose of
the statute is “to prevent potential borrowers
from bringing claims against lenders based
upon oral agreements;” its effect is to bar “all
actions for damages arising from oral credit
agreements, regardless of the legal theory of
recovery asserted.” Jesco, 830 So. 2d at 992.
The statute has also been held to reach actions
based on implied agreements from a course of

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dealings or a “previous business relationship.”
King, 885 So. 2d at 548.
Louisiana has also enacted the Uniform
Electronic Transactions Act, LA. REV.
STAT. § 9:2601 et seq. (2005). This statute
allows an electronic signature to satisfy the
signature requirement for most legal docu-
ments. LA. REV. STAT. § 9:2607. The Act
applies only to transactions between parties
who have “agreed to conduct transactions by
electronic means.” LA. REV. STAT. § 9:2605-
(B)(1).
Taken together, these two statutes create a
significant evidentiary burden for EPCO.
Because it brings an action on a credit agree-
ment, EPCO must prove, as an element of its
claim, that there was a written credit agree-
ment signed by both parties. If EPCO asserts
that it submitted its signature electronically, it
must prove that the parties agreed to conduct
transactions by electronic means.
It is a well-known principle of federal law
that federal procedure requires only notice
pleading, “a short and plain statement of the
claim showing that the pleader is entitled to
relief.”2 Although dismissal under rule
12(b)(6) may be appropriate based on a suc-
cessful affirmative defense, that defense must
appear on the face of the complaint.3 The
Statute of Frauds has traditionally been con-
sidered an affirmative defense. See FED. R.
CIV. P. 8(c); Automated Med. Lab., Inc. v.
Armour Pharm. Co., 629 F.2d 1118 (5th Cir.
1980).
EPCO pleaded that a written offer was ex-
tended to EPCO by Chase on the date of the
May 2004 agreement. EPCO also pleaded that
it accepted this offer. Under the liberal notice-
pleading standard of rule 8, this was a suf-
ficient pleading to provide notice to Chase of
the factual basis for EPCO’s claim.4
Chase argues, and the magistrate judge
agreed, that EPCO should be required to plead
either that the May 2004 agreement was
2 FED. R. CIV. P. 8(a)(2); Hoshman v. Esso
Stand. Oil Co., 263 F.2d 499, 501 (5th Cir. 1959).
“A claimant does not have to set out in detail the
facts on which the claim for relief is based, but
must provide a statement sufficient to put the op-
posing party on notice of the claim.” 2 JAMES W.
MOORE ET AL., MOORE’S FEDERAL PRACTICE
§ 8.04[1][a], at 8-22 (Matthew Bender 3d ed.
2006). Although in some statutory contexts state
statutes have modified federal pleading require-
ments, see id., this court has not construed the
Louisiana Credit Agreement Statute as modifying
the rule 8 standard. Cf. In Re Dengel, 340 F.3d
(continued...)
2(...continued)
300, 312-14 (applying “no set of facts that would
entitle him to relief” standard to review of a rule
12(b)(6) motion for dismissal based on the Louisi-
ana Credit Agreement Statute). The traditional
Fifth Circuit rule is that “a complaint is sufficient
if it satisfies the Federal Rules, even though it
would be subject to demurrer in a state court for
failure to set forth facts sufficient to constitute a
cause of action.” Thompson v. Allstate Ins. Co.,
476 F.2d 746, 749 (5th Cir. 1973). We see no rea-
son to depart from this general rule in the instant
context.
3 2 MOORE, supra, § 12.34[4][b], at 12-74 (cit-
ing Kansa Reins. Co. v. Congressional Mortgage
Corp., 20 F.3d 1362, 1366 (5th Cir. 1994)).
4 See Gen. Elec. Capital Corp. v. Posey, 415
F.3d 391, 396, 398 (5th Cir. 2005) (describing the
“low bar” set out by rule 8a with the example de-
scribed as sufficient by form 9, “the simple state-
ment, ‘[D]efendant negligently drove a motor ve-
hicle against plaintiff . . . .’”).

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5
signed by the parties or that the parties agreed
to transact by electronic means. This argu-
ment misunderstands the rule 8 requirement.
“Parsing the allegations into elements has nev-
er been required.”5 EPCO’s pleadings need
not identify every element of its claim, partic-
ularly where the contested elements relate to
the affirmative defense of the statute of frauds.
Although courts in this circuit have previ-
ously dismissed claims under rule 12(b)(6) in
reliance on the Louisiana Credit Agreement
Statute, in those cases the non-moving party
either pleaded or conceded that its claim was
based on an oral or unsigned agreement. See
Dengel, 340 F.3d at 311-14; Bonvillain v.
U.S., 1999 WL 1072539, at *3 (E.D. La.
1999); Whitney Nat’l Bank v. Stack, 1991 WL
255376, at *1 (E.D. La. 1991). Instructive in
this regard is the analysis in Dengel.
There, the plaintiff brought a third-party
counterclaim against Bank One, alleging
breach of a loan commitment. Although plain-
tiff did not plead a written, signed credit
agreement in his counterclaim, we affirmed a
summary judgment, relying on the fact that
“the alleged credit agreement attached to the
third party claim is not signed by Dengel and
his wife as required by La. R.S. 6:1122.”
Dengel, 340 F.3d at 313.
EPCO has not conceded that its claim is
based on an oral representation of Chase or on
an unsigned agreement. Consistent with its
pleadings, EPCO may be able to show that its
acceptance was in the form necessary to satisfy
the Credit Agreement Statute, either by
submitting proof that its agreement with Chase
was in a written, signed document or proof
that it submitted its acceptance of Chase’s
offer electronically and that the two parties
had agreed to conduct business electronically.
Neither of these factual scenarios is foreclosed
by the face of EPCO’s pleadings, so dismissal
at this early stage was improper.6
B.
Although we have the authority to grant
judgment in favor of a party who did not move
for summary judgment in the district court, we
should do so only where “(1) there is no gen-
uine issue of material fact and (2) the opposing
party has had a full opportunity to (a) brief the
legal issues and (b) develop a record.” Rob-
inson v. Aetna Life Ins. Co., 443 F.3d 389,
396 (5th Cir. 2006). Chase submitted addi-
tional evidentiary material through an affidavit
attached to its reply memorandum in support
of its motion to dismiss. EPCO did not have
a chance to respond to that material or to chal-
lenge it by submitting contrary evidence.7 We
5 Posey, 415 F.2d at 396 n.5. “Indeed, the mere
fact that allegations can be characterized as
‘conclusional’ will not, alone, suffice to make them
insufficient.” Id. at 397 n.6. “[T]he test is whether
the complaint ‘outline[s] or adumbrate[s]’ a
violation of the statute or constitutional provision
on which the plaintiff relies . . . and connects the
violation to the named defendants.” 2 MOORE,
supra, § 8.04[1][a], at 8-24 (quoting Brownlee v.
Conine, 957 F.2d 353, 354 (7th Cir. 1992))
(brackets and ellipses in original).
6 We express no opinion as to the sufficiency of
any additional showing that EPCO may be able to
make or as to whether, in the event of an inade-
quate showing, EPCO would be subject to sanc-
tions.
7 In addition, the plain text of rule 56 creates a
notice requirement for summary judgment. FED.R.
CIV. P. 56(c) (“The motion shall be served at least
10 days before the time fixed for the hearing.”).
Although our circuit has not followed our sister
circuits by implying a hearing requirement, see
(continued...)

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therefore deem it prudent to remand these is-
sues to the district court, which may require
full briefing or receive additional evidence.
The summary judgment is REVERSED,
and this matter is REMANDED for further
proceedings.
7(...continued)
Jackson v. Widnall, 99 F.3d 710, 713 (5th Cir.
1996), “if there is no hearing, the adverse party
must have at least 10 days before the court makes
a ruling to respond to the motion for summary
judgment,” 2 MOORE, supra, § 56.10[2][a], at
56-49.

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