In this case, “[t]wo lenders seek to collect more than $58 million from Michael Lockwood.” Lockwood Int’l, Inc. v. Wells Fargo, Nat’l Ass’n, No. 20-40324, 2021 WL 3624748, at *1 (5th Cir. Aug. 16, 2021)). The case arises out of a personal guaranty and forbearance agreements signed by Lockwood guaranteeing his companies’ $90 million revolving lines of credit extended by Wells Fargo and Trustmark.

Lockwood’s companies provided services to the oil and gas and construction industries. They ‘entered into two revolving credit notes in 2015, borrowing $70 million from Wells Fargo and $20 million from Trustmark.’ Id at *1. By 2016, the companies had breached some of their obligations under the notes, and the parties entered into an agreement to modify the obligations and reduce the total debt to $72 million. Lockwood executed a personal guaranty of the debts. Wells Fargo and Trust Mark (the “Lenders”) also insisted that a chief restructuring office – CRO – be engaged to help “turn the companies around.” Id at *1.

Unfortunately, the Lockwood companies continued to be in default of the notes. As a result, the Lenders required Lockwood to “give the CRO “full authority to operate [Lockwood’s companies]” or face acceleration of the loans. Id at *1. Lockwood complied and gave full authority to the CRO. However, Lockwood’s companies continued to remain in default.

This time, in order to avoid acceleration, the Lenders required Lockwood and his companies to sign a forbearance agreement containing “a waiver and release of all “setoffs, counterclaims, adjustments, recoupments, defenses, claims, causes of action, actions or damages of any character or nature” against the Lenders. Id at *1.

Later, a second forbearance agreement was signed to avoid acceleration. When the second forbearance agreement expired, the loans remained uncured and the Lenders accelerated the lines of credit. As a result, a lawsuit ensued between the Lockwood parties and the Lenders. The Lockwood parties sought more than $1.5 billion in damages including for fraud and conversion. Of course, the Lenders made claims for breach of the loans and of the guaranty agreement.

‘After a trip through federal, state, and bankruptcy courts, nothing ultimately became of the Lockwood companies’ tort claims against the Lenders.’ Id at *2. However, the Lenders’ breach of guaranty claim against Lockwood survived, and the Lenders filed a motion for summary judgment. Lockwood asserted that fact issues remained as to his affirmative defenses, including for duress. The trial court granted the Lenders’ motion for summary judgment and entered judgment in favor of the Lenders and against Lockwood for in excess of $58 million.

Lockwood appealed contending that his defense of duress barred the Lenders from recovering on their loan agreements. He contended that he signed the guaranty and forbearance agreements under duress. In signing the first forbearance agreement, Lockwood contended that the Lenders pressured him into relinquishing full control of his companies to the CRO.

The appellate court said that duress requires more. In order to prove the legal defense of duress, one must prove “(1) a threat to do something a party has no legal right to do, (2) an illegal exaction or some fraud or deception, and (3) an imminent restraint that destroys the victim’s free agency and leaves him without a present means of protection.”

Here, “Lockwood’s duress defense falters at the first step because he has not proven that the lenders threatened to take any unauthorized action.” Id at *4. There is simply nothing that prohibits a lender from demanding a change in management as a condition to modifying a loan. The court went onto say:

Lockwood has not established that the lenders perpetrated any “bad acts” to obtain his signature on the first forbearance agreement. The duress defense fails.

Id at *4.

At the end of the day, the Lender’s prevailed on their $58 million judgment. The moral of the story is that leveraging financial pressure against an opposing party in negotiations, alone, is insufficient to support the defense of financial duress.