Lawyers are never without an argument. If lawyers simply said, "You're right, I give up," then we wouldn't need judges and juries. The first commandment of litigation is: If you can't win on the facts, and you can’t win on the law, distort both and dazzle them with confusion.

Taking a page from Johnny Cochran, the lawyers for Citibank (C), Credit Suisse (CS), Deutsche Bank (DB), Morgan Stanley (MWD), Wachovia (WB), and Royal Bank of Scotland (RBS.H) have, in essence, argued to the Texas state judge in Clear Channel’s lawsuit: If Clear Channel didn’t sign and material terms are missing, then this lawsuit, your Honor, you must be dismissing.

Specifically, the banks wrote in their answering papers, “The law is clear that when there are open material terms left in a contract, courts will not try to resolve those open issues for the parties by specifically enforcing one side’s version over another’s.”

The banks are correct, but their argument is irrelevant. It confuses both the facts and the law. Courts can enforce agreements by interpreting the terms of the contract and the understanding of the parties. The Texas Court did not order that the banks offer any specific terms that might be open. The court ordered that the banks provide terms that comply with the commitment. The terms to be negotiated are not fully open, as the banks are arguing.

The credit commitment states that the loan agreement will contain the same terms as the credit commitment. It is clear that as to that requirement, there is nothing open. The commitment further requires that as to any terms not specifically stated in the credit commitment, that those terms shall be "no less favorable" to the borrowers than similar terms contained in prior agreements between the borrowers and the banks.

The clear meaning of those words is that the banks must provide some precedent in prior agreements for any open terms that are not in the commitment and that are considered by the borrowers to be unfavorable. The banks do not have complete leeway to offer any terms they like.

The court is not dictating which terms the banks should pick from precedent agreements. To comply with their commitment, the banks can choose any terms most favorable to them if there is precedent for such terms. The prerequisite, however, that there must be precedent for all terms considered unfavorable is not an open matter. It is that prerequisite that is enforceable by the Court. Compliance with the credit commitment terms can be proven by presentation of prior agreements. The banks have failed to produce any support in prior agreements for the objectionable terms in their loan offer.

The distinction between forcing particular terms and enforcing compliance with a prerequisite to those terms is subtle but important. .

The banks did not argue in their defense that they have precedent for the terms to which the borrowers object. Instead, counsel for the banks have attempted to confuse the issue by arguing that the terms of the loan agreement should be treated as if they were completely open, and subject to no requirements. The judge is unlikely to be confused, and if he is, the attorneys for Clear Channel are sure to clarify the difference for him.

In addition to their argument that missing terms cannot be inserted by the Court, the banks argue that the action in Texas must be dismissed due to the fact that Clear Channel is not a party to the loan agreements, and therefore has no standing to enforce them. Interestingly, the same banks asked the New York court to include Clear Channel as a party to the contract enforcement action in New York. The banks will likely have the humiliating distinction of making opposing arguments and losing them both.

Disclosure: The author is long Clear Channel common, Clear Channel calls, Clear Channel put/call strangles, and Clear Channel call bull spreads for his own account or accounts under his control. The author has no current position in any of the banks mentioned.

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Robert Kronenberg

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