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December 8, 1992


The opinion of the court was delivered by: VINCENT L. BRODERICK




 This case involves alleged breach by defendant ("Coaxial") of a commitment letter binding it to borrow and plaintiff ("TIAA") to lend $ 55 million to three related entities for ten years at 11.44% interest. As described below, both parties sought changes in several of the key provisions of the commitment letter. The key question in this litigation was which party (if not both) was responsible for the ultimate breakdown of negotiations to translate the commitment letter, which I held to be binding on both parties, into an actual loan agreement.

 After a jury trial, a verdict was rendered for defendant. TIAA has moved for a new trial pursuant to Rule 59, Fed.R.Civ.P., or in the alternative for judgment as a matter of law on the issue of liability under Rule 50, Fed.R.Civ.P.

 I find that the jury could reasonably have concluded from the evidence, and under my instructions as quoted below, that TIAA had effectively terminated the negotiations to implement the commitment letter prior to the time that Coaxial formally did so, and hence that Coaxial did not breach its commitment. Accordingly, I deny both motions.

 TIAA is one of the largest institutional investors in the United States, with a portfolio of approximately $ 27 billion (Tr. 541). It invests in both publicly traded and privately placed corporate bonds (see generally Tr. 539-43) including some which pay a high rate of interest. It frequently seeks what is termed "call protection" provisions for the purpose of providing TIAA greater stability in its investment income (Tr. 548). These provisions are designed to prevent borrowers from prepaying, or to make it expensive for borrowers to prepay, their obligations to TIAA. *fn1" This is the latest in a series of cases in recent years brought in this court concerning such provisions. See Teachers Ins. & Annuity Ass'n v. Walter Kidde & Company, Inc., No. 76-5128 (S.D.N.Y. July 28, 1978); Teachers Ins. & Annuity Ass'n v. Butler, 626 F. Supp. 1229 (S.D.N.Y. 1986); Teachers Ins. & Annuity Ass'n v. Tribune, 670 F. Supp. 491 (S.D.N.Y. 1987); Teachers Ins. & Annuity Ass'n v. Ormesa Geothermal, 791 F. Supp. 401, 1991 U.S. Dist. LEXIS 14473 (S.D.N.Y. 1991).


 In the fall of 1987, TIAA's private placement division was less successful than its public bond division in placing investments *fn2" and committed to lend $ 55 million for ten years at 11.44% interest to three borrowers: Coaxial, a cable television operator based in Ohio, and two nonoperating partnerships. Coaxial asked that the loan include the partnerships, which had negative net worths, for tax reasons. *fn3"

 Implementation of the transaction required negotiation of a final loan agreement containing detailed and complex terms (Tr. 998-99, 1002-05). Outside counsel for TIAA (Milbank, Tweed et al.), found difficulty with this structure, although all of the three borrowers - one of which was Coaxial - would be jointly liable for the full amount of the loan (Tr. 433-37, 951, 064-651079-81, 1104-05). At first, neither Milbank nor TIAA informed Coaxial as to the nature of their difficulty, but eventually articulated it as a technical fraudulent conveyance issue (see Tr. 292, 374-75, 943-784, 1079-84, 1101-1108). The negotiations continued for periods significantly longer than originally expected (Tr. 216-20, 937-40, 1098-1106). Ultimately, Milbank prepared a 64-page draft loan agreement, although numerous technical issues remained open. See Tr. 425, 444-46, 938, PX 186.

 By this time, Coaxial began to explore other options and requested TIAA to permit it to withdraw from the transaction at any time upon payment of a prepayment premium to be agreed upon by the parties. Coaxial made this request directly to a high TIAA official, bypassing in the first instance the TIAA transaction manager directly involved. The manager expressed anger upon discovering that Coaxial negotiators had gone over his head. See Tr. 298, 401-408.

 The TIAA manager thereafter told Coaxial that its request would be granted but on terms Coaxial would not like (Tr. 195, 408). These terms involved a 15% prepayment premium based on the $ 55 million amount contained in the commitment letter, thus amounting to approximately $ 8 million; this premium was to have been calculated based on the assumption that bare Treasury bill rates (rather than universally higher corporate bond yields) represented the value of money to TIAA after any prepayment. *fn4" See Tr. 195-96, 298-99, 404-05; see also Tr. 243-44.

 At the same time TIAA, without consulting or informing Coaxial, told Milbank to cease technical work on the transaction (Tr. 410-11, 486-88, 637-38, 1000-01, 1085), assertedly to save Coaxial (which was to pay TIAA's out of pocket expenses) money (Tr. 411). Coaxial learned of this stoppage for the first time when Milbank refused to accept Coaxial's comments on the latest draft of the final loan agreement. *fn5" See 487-88, 1000-01, 1085. Coaxial thereafter informed TIAA that it would no longer proceed (Tr. 1117-18) with the transaction and TIAA brought this lawsuit.

 TIAA's argument at trial was that Coaxial had terminated the transaction because interest rates were lower in January 1988 than in October 1987, since when stock prices fell dramatically on and after October 19, 1987 ("Black Monday"), the Federal Reserve System enhanced the currency supply.

 According to the evidence submitted by the parties, the Coaxial offering to TIAA, at 11.44%, would have fallen almost precisely on the boundary between issues which rose and those which fell in value and effective yield as of the time of the breakdown of the negotiations. *fn6" This would indicate that there was little or no gain or loss to either party as a result of the cancellation of the transaction (other than out-of-pocket expense which Coaxial was required to pay and which the jury awarded to TIAA).


 Prior to trial, both parties moved for summary judgment. I found the commitment letter in this case to be a binding agreement, but denied TIAA's motion for summary judgment:

 I find that there is no substantial issue of fact with respect to the thrust of the agreement. The agreement of September 30th and the [superseding] agreement of October 26th [1987] were agreements to lend and to borrow a specific amount of money at a specific rate of interest. They were binding agreements.

 I am not prepared to proceed from that finding to conclude that the plaintiff is entitled to summary judgment with respect to liability. I note first that other cases involving the same fact pattern have been in practice fact driven. I am not prepared to say that having found there was a binding agreement here there are not questions ...

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