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Whitney Bank v. SMI Companies Global, Inc.

United States District Court, W.D. Louisiana, Lafayette Division

June 14, 2018

WHITNEY BANK
v.
SMI COMPANIES GLOBAL, INC. AND VAUGHN S. LANE

          MEMORANDUM RULING

          PATRICK J. HANNA UNITED STATES MAGISTRATE JUDGE

         Currently pending is the motion for summary judgment (Rec. Doc. 46), which was filed by the plaintiff, Whitney Bank. The motion is opposed, and oral argument was heard on May 31, 2018. Considering the evidence, the law, and the arguments of the parties, and for the reasons fully explained below, the motion is DENIED.

         Background

         In this commercial dispute, Whitney Bank is seeking to collect amounts allegedly owed by the defendants pursuant to two promissory notes executed by SMI Companies Global, Inc. and guaranteed by SMI's director, officer, and shareholder, Vaughn S. Lane. The bank is also seeking recognition of the enforceability of the bank's security interest in SMI's accounts receivables. The defendants asserted affirmative defenses and counterclaims against the bank.

         It is undisputed that the bank entered into two agreements with the defendants, by which the bank loaned money to SMI and the loans were guaranteed by Mr. Lane.

         On December 12, 2012, SMI executed a promissory note in favor of Whitney Bank in the principal amount of $1 million along with a commercial security agreement. The loan agreement was perfected by the filing of a UCC financing statement. On December 5, 2013, the note was renewed as evidenced by a promissory note dated December 5, 2013 in the principal amount of $1 million. On August 12, 2014, the bank increased the amount of the loan as evidenced by a promissory note dated August 12, 2014 in the principal amount of $1.5 million. On that same date, SMI executed a commercial security agreement. On June 22, 2015, the August 2014 note was renewed as evidenced by a promissory note dated June 22, 2015 in the principal amount of $1.5 million. This note had a maturity date of July 31, 2016. This loan is sometimes referred to in the parties' briefing as “Loan 1” or “Line 1.”

         On April 3, 2015, Whitney Bank and SMI entered into a Business Loan Agreement, and SMI executed a promissory note payable to Whitney Bank in the amount of $900, 000. The original maturity date of the note was extended to July 3, 2016 by an allonge dated April 4, 2016. On that same date, SMI executed a commercial security agreement, which was perfected by the filing of a UCC financing statement. This loan is sometimes referred to in the parties' briefing as “Loan 2” or “Line 2.” The purpose of this loan was to “provide funds for a particular contract with Halliburton.” (Rec. Doc. 50-10 at 1).

         Whitney Bank contends that both loans are in default, that the amounts due under the loans are undisputed, that only the obligations expressly set forth in writing in the loan documents may be enforced, and that it did not breach any contractual obligations in its dealings with SMI. The defendants contend, however, that their failure to repay any amounts owed should be excused because Whitney Bank substantially breached the contract between them.

         The defendants contend that Whitney Bank undertook the second loan - which was in the nature of a revolving line of credit - in order to finance SMI's construction of eight tanks or vessels that were to be installed in ships pursuant to a contract between SMI and Halliburton. The defendants contend that the bank was fully apprised of the terms and conditions of the contract between SMI and Halliburton and committed to continue loaning money under the line of credit until the Halliburton job was completed. The defendants contend that the bank knew that Halliburton intended to pay for the vessels only after all of them had been completed and that the project was to be completed approximately in September 2016, and Henry Schexnayder, Whitney Bank's Metro Baton Rouge market president at relevant times, confirmed in his deposition testimony that he was aware of that arrangement. (Rec. Doc. 50-5 at 23, 26). The Business Loan Agreement executed on April 3, 2015 states that the purpose of the loan is for a temporary overline to provide funds for a particular contract with Halliburton. (Rec. Doc. 50-10 at 1). The Business Loan Agreement became effective on April 3, 2015 and was to “continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full. . . or the parties may agree in writing to terminate this Agreement.” Under the agreement, “Lender has agreed to consider making Loan Advances to Borrower, from time to time, one or more times, on a revolving line of credit basis up to a maximum principal amount. . . [of] $900, 000.00 or such other amounts as to which Lender may agree.” The Business Loan Agreement also stated that the lender would have no obligation to make loan advances or to disburse loan proceeds if any one of four things occurred: (a) the borrower or guarantor was in default under this agreement or any other agreement with the bank; (b) the borrower or guarantor died, became incompetent, became insolvent, or filed for bankruptcy protection; (c) a materially adverse change in the borrower's or guarantor's financial condition or the value of the collateral occurred; or (d) a guarantor sought to revoke its guaranty of this or any other loan. (Rec. Doc. 50-10 at 3). Additionally, the lender could refuse to extend Loan Advances (as defined in the agreement) if (a) the maximum line of credit was exceeded; (b) the borrower failed to comply with the lender's procedure or requirements; (c) the borrower failed to provide the lender with satisfactory documentation supporting its requests; (d) the lender believed the borrower was not complying with the terms or conditions of the agreement or was in default; or (e) the lender deemed itself insecure with regard to repayment of the loan. (Rec. Doc. 50-10 at 1).

         The defendants contend that the bank substantially breached the contract on June 28, 2016, when the bank first confirmed that it would fund SMI's payroll but then, two hours before the funding was to occur, withdrew its commitment to do so, forcing Mr. Lane to use $87, 000 from VS Lane & Company to cover SMI's payroll. (Rec. Doc. 50-3 at 63-68).

         The defendants also contend that, on July 10, 2016, Whitney Bank dishonored a check written by SMI to Corrosion Materials, a critical vendor on the Halliburton project, after having expressly agreed to fund the check. (Rec. Doc. 50-3 at 101-104).

         The defendants also contend that, thereafter, SMI approached Halliburton and secured Halliburton's agreement to pay its vendors directly and - at the suggestion of Henry Schexnayder of Whitney Bank - secured Halliburton's agreement that it would make interim payments on its contract with SMI. (Rec. Doc. 50-3 at 105-108). The defendants contend that Halliburton actually paid for the first two vessels soon after they were completed rather than waiting for all eight of the vessels to be finished. (Rec. Doc. 50-3 at 108-109).

         The defendants contend that, at some point in June or July 2016, Whitney Bank employee Omer Davis devised a workout plan by which the bank would continue to fund the Halliburton project through its completion and advance a sum of $270, 000 over-line but the plan was never reduced to writing and the bank failed - without explanation - to implement the plan. (Rec. Doc. 50-6 at 15-16, 37-41, 54-55). At relevant times, Mr. Davis was an executive vice president and credit approver for the bank. (Rec. Doc. 50-6 at 5-6). In his deposition testimony, Mr. Davis confirmed that he approved a workout plan (Rec. Doc. 50-6 at 15-16, 37, 87) and did not know why that plan was not implemented. (Rec. Doc. 50-6 at 55).

         The defendants contend that Whitney Bank merged the two loans and transferred both of them to the bank's special assets department. (Rec. Doc. 50-3 at 111-113). Mr. Davis testified that he does not know why the loans were transferred to the bank's special assets department. (Rec. Doc. 50-6 at 55). David Campbell, the commercial loan officer with whom SMI primarily dealt, testified that the transfer was Mr. Davis's decision. (Rec. Doc. 50-4 at 104). Louis Dubos, the bank's supervisor of special assets (Rec. Doc. 50-7 at 6) does not know who made the decision to transfer the loans to special assets. (Rec. Doc. 50-7 at 8). Calvin Cranfield, a team leader for the bank's special assets department (Rec. Doc. 50-8 at 6), assumes that it was a committee decision. (Rec. Doc. 50-8 at 8).

         The defendants contend that, on July 21, 2016, Mr. Campbell advised Mr. Lane that there would be no further communications between Whitney Bank's Commercial Loans Department and SMI or Halliburton. (Rec. Doc. 50-3 at 113- 115). Mr. Campbell confirmed that he advised SMI that the commercial loan department would take no future phone calls from SMI or Halliburton even though the line of credit was still in existence. (Rec. Doc. 50-4 at 109). Halliburton then canceled its contract with SMI. (Rec. Doc. 50-3 at 115).

         The defendants contend that, after the loans were transferred to the bank's special assets department and communication with SMI and Mr. Lane was discontinued, Whitney Bank and its counsel refused to provide information to SMI or Mr. Lane regarding its collection efforts. (Rec. Doc. 50-3 at 127-128, 132).

         The defendants contend that certain collection efforts undertaken by Whitney Bank were inappropriate. For example, the defendants contend that Whitney Bank's counsel sent notices to SMI's customers without coordinating collection efforts with SMI, resulting in demand letters being sent to customers who did not owe money to SMI or from whom SMI had already ...


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