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State Bank and Trust Co. v. Lil Al M/V

United States District Court, E.D. Louisiana

December 4, 2018

STATE BANK AND TRUST CO.
v.
LIL AL M/V ET AL.

         SECTION: “H” (2)

          ORDER AND REASONS

          JANE TRICHE MILAZZO, UNITED STATES DISTRICT JUDGE.

         Before the Court are Cross-Motions for Summary Judgment (Docs. 81, 94), Plaintiff's Partial Motion for Summary Judgment on In Personam Claims (Doc. 102), and Plaintiff's Motion for Interlocutory Sale of Seized Vessels (Doc. 88). For the following reasons, Plaintiff's Motions for Summary Judgment are GRANTED. Defendant's Motion is DENIED, and Plaintiff's Motion for Interlocutory Sale is GRANTED.

         BACKGROUND

         Plaintiff State Bank & Trust Company (“State Bank”) is a financial institution that loaned money to Defendant C & G Liftboats, LLC (“C&G”). On July 16, 2014, C&G executed a promissory note in the sum of $8, 055, 000.00 payable to State Bank (the “Hand Note”). The Hand Note was secured by the pledge of a first preferred ship mortgage note dated May 7, 2014 in the sum of $8, 500, 000.00. The preferred ship mortgage note was secured by a first preferred mortgage on the vessel M/V Lil Al. The Hand Note was further secured by the pledge of collateral chattel mortgage packages by A.M.C. Liftboats, Inc. (“AMC”) on the M/V Mr. Alan and the M/V L/B Whitney. AMC also granted a commercial guaranty to State Bank to guarantee the Hand Note. Finally, Polly and Adam Cheramie, the owners of C&G and AMC, granted personal guarantees on the Hand Note.

         Plaintiff alleges that on December 15, 2015, C&G defaulted on the Hand Note, and Plaintiff made demand on Defendants C&G, AMC, and the Cheramies. The failure of any Defendant to satisfy their obligation to State Bank resulted in the filing of the instant action.

         Plaintiff previously moved for summary judgment recognizing its preferred ship mortgages on the M/V Lil Al, the M/V Mr. Alan, and the M/V L/B Whitney pursuant to the Ship Mortgage Act. This Court recognized Plaintiff's preferred ship mortgage on the M/V Lil Al. The Court also held that the mortgages on the M/V Mr. Alan and the M/V L/B Whitney satisfied the requirements of the Ship Mortgage Act, but that the notes securing the mortgages on the M/V Mr. Alan and the M/V L/B Whitney were facially prescribed at the time they were pledged to secure the Hand Note, unless prescription was interrupted.

         Now pending before this Court are four motions. First, the parties have filed cross-motions for summary judgment on the issue of prescription as to the M/V Mr. Alan and M/V L/B Whitney. Plaintiff has also moved for summary judgment on its in personam claims against Defendants C&G, AMC, Polly Cheramie and Adam Cheramie. In addition, Plaintiff moves for an order authorizing the interlocutory sale of all three vessels and allowing it to credit bid at the sale of the vessels.

         LEGAL STANDARD

         Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”[1] A genuine issue of fact exists only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”[2]

         In determining whether the movant is entitled to summary judgment, the Court views facts in the light most favorable to the non-movant and draws all reasonable inferences in his favor.[3] “If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial.”[4] Summary judgment is appropriate if the non-movant “fails to make a showing sufficient to establish the existence of an element essential to that party's case.”[5] “In response to a properly supported motion for summary judgment, the non-movant must identify specific evidence in the record and articulate the manner in which that evidence supports that party's claim, and such evidence must be sufficient to sustain a finding in favor of the non-movant on all issues as to which the non-movant would bear the burden of proof at trial.”[6] “We do not . . . in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts.”[7] Additionally, “[t]he mere argued existence of a factual dispute will not defeat an otherwise properly supported motion.”[8]

         LAW AND ANALYSIS

         A. Cross-Motions for Summary Judgment on the M/V Mr. Alan and M/V L/B Whitney

         In its prior Order and Reasons addressing State Bank's Motion for Summary Judgment, this Court declined to grant summary judgment on State Bank's mortgages on the M/V Mr. Alan and the M/V L/B Whitney, holding that the notes used in the collateral mortgage packages for those vessels had prescribed on their face by the time they were pledged to secure the indebtedness.[9] Defendants now move for summary judgment holding that, in light of this Court's ruling, those mortgages are void. State Bank has filed a cross-motion for summary judgment seeking a holding that the mortgages remain valid.

         A collateral mortgage package consists of the following: “an act of mortgage, a collateral mortgage note (the ‘ne varietur' note), and a pledge of the ne varietur note to secure an indebtedness, usually represented by a hand note.”[10] In a collateral mortgage, the act of mortgage secures the fictitious ne varietur note, which is payable to bearer on demand.[11] The ne varietur note is then “pledged under a collateral pledge agreement to secure the borrower's true indebtedness under one or more hand notes.”[12]

         Plaintiff accepted pledges of collateral mortgage packages on the M/V Mr. Alan and M/V L/B Whitney as security for the July 16, 2014 Hand Note. The ne varietur note in the collateral mortgage package on the Mr. Alan was dated December 5, 2007, and the ne varietur notes in the collateral mortgage packages on the M/V L/B Whitney were dated September 30, 2004 and November 22, 2005 respectively. The ne varietur notes are subject to a liberative prescription of five years and were therefore prescribed before they were pledged to secure the Hand Note unless prescription was interrupted. Under Louisiana law, “where the debt, or the principal obligation, is represented by a note and the note becomes extinguished by prescription, the mortgage securing the note becomes without effect as there is no longer anything to secure, and no further reason for the mortgage to continue.”[13]

         State Bank argues however that the prescription of the ne varietur notes is irrelevant to the validity of the mortgages. It argues that Louisiana law does not apply to invalidate the mortgages because the mortgages meet all the requirements of the Ship Mortgage Act. This Court agrees. On second look at this issue, this Court holds that because the mortgages at issue satisfy the requirements of the Ship Mortgage Act, as previously held, it need not look to state law to consider the validity of the underlying debt.[14] Indeed, to do so “would introduce an undesirable lack of uniformity in the interpretation of Congressional enactments and would impede the harmony and uniformity sought by the [Ship Mortgage] Act.”[15] The ship mortgages at issue state the amounts that “may become secured by the mortgage, ” which is the sole requirement ...


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