Barbara Lynn, chief judge of the U.S. District Court for the Northern District of Texas, denied breach of contract and breach of guaranty claims by Balboa Capital against a group of 16 health care practices in a summary judgement earlier this month.

In 2016, Balboa Capital was brought on as a lender for a program conducted by now defunct America’s Medical Home Team that allowed participating physicians to “remotely supervise nurse practitioners making house calls in the physicians’ region.” To participate in the program, each physician had to set up a limited liability company to pay for licenses, software and other operational costs. The program went bankrupt in May 2017 and a month later, all physician LLCs had defaulted on their loan obligations, leading Balboa to file collection suits.

The court concluded that there was “no enforceable contract between Balboa and each respective physician,” and thus no basis for the breach of contract and breach of guaranty claims, because of a “lack of essential loan terms and evidence of mutual consent to contract.” More specifically, the court noted that Balboa failed to enter a document labeled “Exhibit A1” into the record. The document allegedly contained information on loan amounts and interest rates provided by Orange County, CA-based Balboa Capital, which are essential terms required under California law. These cases were originally filed in California before the parties agreed to transfer to Texas.

Dana Campbell, a shareholder and litigator at Dallas-based FBFK Law Firm, who led the case for five of the physicians, said that the distinction between a loan agreement and finance lease was key to the court’s ruling. Campbell said that because Balboa Capital’s “installment payment agreement” was a loan agreement, it had to include the principal amount of the loan and the interest rate, but if the agreement had been a true finance lease, the number of months and monthly payment would have been sufficient.

“We’re not aware of any other cases that have been decided against Balboa Capital based on the lack of essential terms, but given that it was their practice to not include the invoice from its customer in the borrowers’ package of loan documents, this case could be the tip of the iceberg,” Campbell said. “There is a sea of Balboa Capital filings on the docket daily, and only time will tell how many loans were made on that form of loan agreement and suffer from the same defect.

“Balboa Capital conflated the concepts and had a loan contract that had only the number of months and monthly payment but no principal and interest. As a result, the only way one could know the principal amount of the loan would be to see the invoice purportedly incorporated as Exhibit A1. So, it being undisputed that Exhibit A1 was not included as part of the loan agreement provided by Balboa Capital to the borrower, the principal and interest terms were missing, and the agreement was unenforceable.”

Judge Lynn also found that Balboa Capital’s loan documents did not reflect an agreement to make lump sum payments to its customer, America’s Medical Home Team, as only monthly payments were provided for in the license agreement.