The High Court last week rejected Barclays Bank’s application for summary judgment over the liability of a former partner of failed US firm Dewey & LeBoeuf for a capital loan made in his name.
Mr Justice Popplewell said it was “not fanciful” to think that Charles Landgraf would be able to show at trial that the loan was actually aimed at keeping the firm afloat.
Mr Landgraf – former managing partner of Dewey & LeBoeuf’s Washington, DC office – is one of 50 former partners of the firm being pursued by the bank over the loan for a total of $15m.
The five-day trial of Barclays’ action to recover the $486,000 borrowed by Mr Landgraf is set for 1 December 2014 and even had summary judgment over the construction of the loan documentation been granted, the trial would still have gone ahead. Nonetheless, in Barclays Bank Plc v Landgraf  EWHC 503 (Comm) , Popplewell J said it was worth determining the application.
Mr Landgraf’s evidence was that his capital account – set at a third of his annual compensation – was always maintained and so he did not need a loan to meet his obligations. But as Dewey & LeBoeuf got into financial trouble, he said he was approached by the firm’s management and told about the Barclays Capital Loan Program (BCLP).
He claimed he was told that the BCLP was a mechanism through which the firm could finance the shortfall in its distributable income by substituting bank debt in the capital account, and that the burden of repaying the capital and interest of any loans was that of the firm, not its individual partners.
After the firm went bankrupt, Barclays demanded repayment of the loan and began the action when it was not made. Its submission was that its knowledge of the purpose of the loan was limited to the terms of the loan agreement; this said it was “to assist the borrower with a partnership capital subscription”.
Though accepting that the agreement, on its face, appeared to make Mr Landgraf liable, Popplewell J said: “However, it is not fanciful to think that, with the benefit of disclosure, the position at trial may well be that Mr Landgraf can show that all concerned, including the bank, knew that the true purpose of the loan was to provide the firm with the liquidity which it required to meet its day-to-day liabilities, not to enable him to make a capital contribution to the firm under the provisions of the partnership agreement…
“It is a possible inference that the BCLP was being used in order to enable the firm to obtain further capital in circumstances where such funding could not be given by the bank directly to the firm under the lending criteria of the bank. If this were established at trial, it would put the contractual documents in a completely different light.”
There was also an argument that the bank was fixed with the firm’s knowledge of the purpose of the loan even if it were not itself aware, the judge added. For these and other reasons, he rejected the application for summary judgment.
The trial will also hear arguments that the loan agreement was unfair under the Consumer Credit Act 1974, as well as a counterclaim alleging breach of a duty of care owed by the bank to advise Mr Landgraf of the financial health of Dewey & LeBoeuf.