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SE Property Holdings, LLC v. Unified Recovery Group, LLC

United States District Court, E.D. Louisiana

September 30, 2019

SE PROPERTY HOLDINGS, LLC
v.
UNIFIED RECOVERY GROUP, LLC, ET AL.

          ORDER & REASONS

          CARL J. BARBIER, UNITED STATES DISTRICT JUDGE.

         Before the Court are Motions for Summary Judgment filed by the United States of America (the “IRS”) (Rec. Doc. 145), SE Property Holdings, LLC (“SEPH”) (Rec. Doc. 146), and JKS-URG Management Co., LLC (“JKS”) (Rec. Doc. 151), as well as various responses. Having considered the motions and legal memoranda, the record, and the applicable law, the Court finds that JKS’s motion should be DENIED, SEPH’s motion should be DENIED, and the IRS’s motion should be GRANTED IN PART for the reasons set forth herein.

         FACTS AND PROCEDURAL BACKGROUND

         The facts of this case are set forth more fully in the Court’s initial opinion. See SE Prop. Holdings, LLC v. Unified Recovery Grp., LLC, 357 F.Supp.3d 537, 541-43 (E.D. La. Nov. 30, 2018). The central dispute here concerns whose interest has priority to funds pertaining to certain accounts receivables that were generated from work performed in the aftermath of Hurricanes Katrina and Isaac.

         St. Bernard Parish contracted with Unified Recovery Group, LLC (“URG”) to remove debris following Katrina (the “Katrina Contract”) and again after Isaac (the “Isaac Contract”). URG completed all of the debris removal by the end of 2012.

         On August 29, 2008, URG entered into two sets of transactions. One set, involving SEPH, [1] allowed URG to obtain revolving loans from SEPH and granted SEPH a security interest in, inter alia, “all of [URG’s] accounts of any kind . . . whether now existing or hereafter arising.”[2] SEPH filed a corresponding financing statement into the UCC registry of Louisiana on August 29, 2008, and has since filed routine continuation statements through August 1, 2018.[3]

         The second set of transactions restructured URG to effect a buyout of two of its members and created a new organization, JKS.[4] URG and JKS entered into a “Contribution Agreement” in which URG transferred its interest in “[a]ll accounts receivable of [URG] . . . billed on or before” August 29, 2008, to JKS.[5] JKS acknowledges that no document was ever filed in the public registry or record of any state giving notice of this transfer.[6]

         SEPH made its first advance to URG on September 2, 2008. URG did not repay the loans and, in 2013, SEPH obtained a money judgment against URG for more than $20, 000, 000.[7] Before that judgment issued, the IRS filed a notice of tax lien on January 29, 2013, with the East Baton Rouge Clerk of Court claiming unpaid federal taxes with interest.[8]

         St. Bernard Parish filed this interpleader action in 2014 for the Court to determine who had priority to $610, 081.45 in FEMA funds distributed to the parish to pay for the debris removal. The IRS intervened, claiming it is entitled to $311, 170.45 as of March 31, 2019, plus interest until paid and costs.[9]

         In its prior order, the Court determined that SEPH’s security interest in the Katrina Contract receivables had priority over the IRS’s lien but could not determine priority as to the Issac Contract funds based on the evidence submitted by the parties. SE Prop. Holdings, 357 F.Supp.3d at 551-53. However, because Invoice No. 801574[10]under the Katrina Contract had been billed before URG and JKS entered into the Contribution Agreement, the Court allowed JKS to intervene and argue its entitlement to the funds traceable to that invoice. Id. at 550.

         Accordingly, the Court granted partial summary judgment in favor of SEPH as to funds traceable to the Katrina contracts, excepting Invoice No. 801574, and ordered SEPH and the IRS to file new motions for summary judgment pertaining to the Isaac Contract invoices. Id. at 554. The parties’ motions for summary judgment are now before the Court on the briefs and without oral argument.

         PARTIES’ ARGUMENTS

         I. Invoice No. 801574

         JKS first contends that the provisions of UCC Article 9 (La. R.S. § 10:9-101 et seq., hereinafter “Chapter 9”) do not apply to Invoice No. 801574 because JKS acquired the account either “as part of a sale of the business out of which [the account] arose” or as “an assignment of accounts . . . for the purpose of collection only, ” invoking the exceptions under Louisiana Revised Statute § 10:9-109(d)(4)–(5). Next, JKS asserts that if Chapter 9 applies, SEPH, as successor in interest to Vision Bank, is estopped from asserting an interest in the account because Vision Bank recognized that it did not have an interest in the JKS receivables. JKS maintains that URG lacked authority to incur the $10, 000, 000 of indebtedness from the promissory note prior to executing the Contribution Agreement because doing so would have been outside the ordinary course of business and there is no evidence that a majority of URG’s members voted to do so. Finally, JKS argues it was not a “buyer” within the meaning of Chapter 9 for purposes of the Contribution Agreement.

         SEPH opposes JKS’s motion, arguing first that the exceptions JKS asserts do not apply because those provisions only pertain to situations “that, ‘by their nature, do not concern commercial financing transactions.’”[11] SEPH avers that JKS has failed to demonstrate that equitable estoppel applies, as JKS cites no authority for this argument, and further contends that the language of the Security Agreement is unambiguous, such that looking to extrinsic evidence of Vision Bank’s knowledge violates the parol evidence rule and Louisiana principles of contract interpretation. Finally, SEPH notes that JKS’s argument that it was not a “buyer” is inconsistent with its position that the transaction was a sale of accounts and again misinterprets the scope of Chapter 9.

         The IRS does not oppose JKS’s motion.[12] In its reply, JKS focuses only on its argument that Chapter 9 does not apply because the transaction was a sale of accounts as part of a sale of the business out of which the accounts arose.

         II. The Isaac Contract

         SEPH first argues, contrary to the Court’s prior order, [13] that documentation was not required as part of URG’s performance under the Isaac Contract because St. Bernard Parish retained its own representative, Witt O’Brien (“WO”), to document URG’s debris removal activities, as evidenced in a newly-submitted declaration by one of the parish’s representatives.[14] But assuming that a documentation requirement existed, SEPH contends that URG fulfilled the requirement on the day it surrendered its invoices and the documentation prepared by WO to the parish for payment, which means that SEPH has priority for six of the seven Isaac Contract invoices, totaling $226, 724.03. Finally, SEPH disputes that approval of URG’s documentation by St. Bernard was required for URG to complete performance, but maintains that if it was, SEPH has priority as to the IRS’s second notice of tax lien.

         The IRS contends that URG’s performance was not completed until January 20, 2016, the date on which the payment recommendations for the URG invoices were submitted to St. Bernard Parish by Barowka & Bonura Engineers & Consultants, LLC (“BBEC”), a consultant retained by the parish to help “resolve certain problems that were preventing it from obtaining FEMA reimbursements for the URG Invoices.”[15] Although the parish had first approved the URG invoices on March 3, 2014, and submitted its reimbursement request based on those invoices to FEMA on March 17, 2014, the IRS asserts that this approval was ineffective because the parish later revoked it after learning that the payment recommendations for these invoices were “materially deficient” and retained BBEC in February 2015 to resolve the problems preventing the parish from obtaining reimbursements from FEMA.[16] Thus, because approval came after March 16, 2013 (the 46th day after the IRS filed its notice of tax lien), the IRS’s interest takes priority over SEPH’s.

         LEGAL STANDARD

         Summary judgment is appropriate when “‘the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.’” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). When assessing whether a dispute as to any material fact exists, a court considers “all of the evidence in the record but refrains from making credibility determinations or weighing the evidence.” Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th Cir. 2008). All reasonable inferences are drawn in favor of the nonmoving party, but a party cannot defeat summary judgment with conclusory allegations or unsubstantiated assertions. Little, 37 F.3d at 1075. A court ultimately must be satisfied that “a reasonable jury could not return a verdict for the nonmoving party.” Delta, 530 F.3d at 399.

         If the dispositive issue is one for which the moving party will bear the burden of proof at trial, the moving party “must come forward with evidence which would ‘entitle it to a directed verdict if the evidence went uncontroverted at trial.’” Int'l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991). The nonmoving party can then defeat the motion by either countering with sufficient evidence of its own, or “showing that the moving party’s evidence is so sheer that it may not persuade the reasonable fact-finder to return a verdict in favor of the moving party.” Id. at 1265.

         If the dispositive issue is one for which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record is insufficient with respect to an essential element of the nonmoving party’s claim. See Celotex, 477 U.S. at 325. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See Id . at 324. The nonmovant may not rest upon the pleadings but must identify specific facts that establish a genuine issue at trial. See Id . at 325; Little, 37 F.3d at 1075.

         When examining matters of state law, the Court will employ the principles of interpretation used by the state’s highest court. Am. Int’l Specialty Lines Ins. Co. v. Rentech Steel LLC, 620 F.3d 558, 564 (5th Cir. 2010). Mindful of Louisiana’s distinction between primary and secondary sources of law, the Court will begin its analysis with reliance on the Louisiana Constitution and statutes before looking to “‘jurisprudence, doctrine, conventional usages, and equity, [which] may guide the court in reaching a decision in the absence of legislation and custom.’” Shaw Constructors v. ICF Kaiser Eng’rs, Inc., 395 F.3d 533, 546 (5th Cir. 2004) (quoting La. Civ. Code art. 1 rev. cmt. b). If the Court must make an “Erie guess” on an issue of Louisiana law, the Court will decide the issue the way that it believes the Supreme Court of Louisiana would decide it. Id. The Court is not strictly bound by the decisions of the state intermediate courts and will disregard them if the Court is “convinced that the Louisiana Supreme Court would decide otherwise.” In re Katrina Canal Breaches Litig., 496 F.3d 191, 206 (5th Cir. 2007).

         DISCUSSION

         Following the Court’s prior grant of summary judgment, two issues remain: (1) whether SEPH or JKS is entitled to the funds traceable to Invoice No. 801574; and (2) whether URG completed performance under the Isaac Contract before the 45-day state-lien grace period for the IRS’s tax lien expired on March 16, 2013.

         I. Invoice No. 801574

         The Court must first consider JKS’s argument that Chapter 9 does not apply to the Contribution Agreement. If the Court finds that it does, then the Court must consider JKS’s remaining arguments that SEPH is precluded from asserting its interest in the Invoice No. 801574 funds.

         A. Whether ...


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