RECENT DEVELOPMENTS IN LOUISIANA CASELAW …RECENT DEVELOPMENTS IN LOUISIANA CASELAW RELATING TO...

RECENT DEVELOPMENTS IN LOUISIANA CASELAW

RELATING TO

SECURITY DEVICES, TITLE MATTERS AND OTHER ISSUES OF INTEREST TO BANKS

L. David CromwellPettiette, Armand, Dunkelman, Woodley, Byrd & Cromwell, L.L.P.

Chase Tower, 400 Texas Street, Suite 400 Shreveport, Louisiana 71101

(318) [email protected]

Louisiana Bankers Association2009 Bank Counsel Conference

New Orleans, LouisianaNovember 12, 2009

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Table of Contents

Chapter 9 security interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Priority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Rights against third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Judicial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Reinscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Public records doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Prescription of mortgages/accessorial obligation rule . . . . . . . . . . . . . . . . . . . . . . 9

Bonds for deed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Foreclosure/collection actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Executory process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Injunctive relief/annulment of sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Deficiency judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Ordinary process foreclosure/collection actions . . . . . . . . . . . . . . . . . . . . . . . . . 15Summary judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Dismissal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Remission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Execution of judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Seizure of litigious rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Garnishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Homestead exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Public property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Revival of judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Tax sales/Mennonite issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Tax sale cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Other Mennonite-related cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Lender liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Credit Agreement Statute/breach of commitment . . . . . . . . . . . . . . . . . . . . . . . . 29Consumer litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Bankruptcy preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Other Uniform Commercial Code litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Chapters 3 and 4: Negotiable instruments/deposit accounts . . . . . . . . . . . . . . . . 37Chapter 5: Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

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Arbitration agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Validity of arbitration agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Attorney malpractice cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Jurisdictional issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Federal subject matter jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Diversity jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Personal jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Acts of the 2009 Regular Session . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

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Table of Cases

Aaron & Turner, L.L.C. v. Perret, 2007-1701 (La. App. 1st Cir. 5/4/09); ____ So. 3d ____ . . 18

Advocate Financial, L.L.C. v. Longenecker & Associates, Ltd., 08-490(La. App. 5th Cir. 11/25/08); 3 So. 3d 1, 67 UCC Rep. Serv. 2d. 1034 . . . . . . . . . . . . . 4

Aguillard v. Auction Management Corp., 2004-2804 (La. 6/29/05); 908 So. 2d 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 43, 47, 48

AJB Properties, LLC v. Gegenheimer, 08-669 (La. App. 5th Cir. 2/1009); 8 So. 3d 697 . . . . . . 8

American Bank v. Saxena, 553 So. 836 (La. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ASP Enterprises, Inc. v. Guillory, 2008-2235 (La. App. 1st Cir. 9/11/09); ___ So. 3d. ___ . . 38

Auto Refinance Source, Inc. v. HSBC North America Holdings Inc., 584 F.Supp.2d 899 (E.D. La. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Automotive Leasing Specialists, L.L.C. v. Little, 392 B.R. 222, (W.D. La. 2008); 66 UCC Rep. Serv. 2d 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Avery v. Citi Mortgage, Inc., 2008-2052 (La. App. 1st Cir. 5/13/09); 15 So. 3d 240 . . . . . . . 12

Biz Capital Business & Industrial Development Corp. v. Union Planter's Corp., 03-2208 (La. App. 4th Cir. 9/8/04); 884 So. 2d 623 . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Bradstreet v. Kinchen, 2008-0126 (La. App. 4th Cir. 4/01/09); 10 So. 3d 331 . . . . . . . . . . . . 10

Breeden v. Winfrey, 2009-0235 (La. App. 4th Cir. 7/15/09); 16 So. 3d 1176 . . . . . . . . . . . . . . 7

Buckeye Check Cashing, Inc. v.Cardegna, 546 U.S. 440 (2006) . . . . . . . . . . . . . . . . . . . . . . 47

Burns v. Clutter, 2008-2082 (La. App. 1st Cir. 5/13/09); 15 So. 3d 251 . . . . . . . . . . . . . . . . . 11

C & C Energy, L.L.C. v. Cody Investments, L.L.C., 44,630 (La. App. 2d Cir. 9/2/09); ____ So. 3d ____ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Cannata v. Bonner, 2008-36 (La. App. 3d Cir. 5/7/08); 982 So. 2d 968 . . . . . . . . . . . . . . . . 8, 9

Casares v. James M. Brown Builder, Inc., 44,561 (La. App. 2d Cir. 8/19/09); ____ So. 2d ____ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Central Progressive Bank v. Kuntz, 2008 WL 5264260 (E.D. La. 2008) . . . . . . . . . . . . . . . . 53

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Chase Bank U.S.A. v. Roach, 2007-1172 (La. App. 3d Cir. 3/5/08); 970 So. 2d 1103 . . . . . . 46

Chase Bank USA, N.A. v. Leggio, 43,567 (La. App. 2d Cir. 11/19/08); 997 So. 2d 887 . . . . . 44

Chase Bank USA, N.A. v. Leggio, 43,751 (La. App. 2d Cir. 12/3/08); 999 So. 2d 155 . . . . . . 43

Chase Home Finance, L.L.C. v. Davis, 43,816 (La. App. 2d Cir. 12/10/08); 1 So. 3d 643 . . . 22

Clower v. Bank of America, 44,034 (La. App. 2d Cir. 2/25/09); 5 So. 3d 983 . . . . . . . . . . . . 51

Coleman v. Jim Walter Homes, Inc., 2007-1574 (La. App. 3d Cir. 5/7/08); 982 So. 2d 341 . . 43

Cottingim v. Vliet, 2008-1263 (La. App. 4th Cir. 8/12/09); ___ So. 3d. ___ . . . . . . . . . . . . . 12

Credit Recoveries, Inc. v. Crow, 43,314 (La. App. 2d Cir. 8/13/08); 989 So. 2d 233 . . . . . . . 20

Davis Oil Company v. Mills, 873 F. 2d 774 (5th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . 26

Deutsche Bank Trust Company Americas v. Dudek, 2009-0129 (La. App. 4th Cir. 8/12/09); ____ So. 3d ____ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Elders v. Unopened Succession of Davis, 2009-132 (La. App. 3d Cir. 7/8/09), 16 So. 3d 558 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Estate of Petrovich v. Jules Melancon, Inc., 08-185 (La. App. 5th Cir. 9/30/08); 996 So. 2d 520 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Farmco., Inc. v. Morris, 2008-1996 (La. App. 1st Cir. 9/4/09); ____ So. 3d ____ . . . . . . . . . 29

Farmco, Inc. v. Morris, 2008-1996 (La. App. 1st Cir. 9/4/09); ____ So. 3d ____ . . . . . . . . . . 29

Farmers Home Administration v. Muirhead, 42 F. 3d 964 (5th Cir. 1995) . . . . . . . . . . . . . . . 10

Fidelity National Bank of Baton Rouge v. Calhoun, 2008-1685 (La. App. 1st Cir. 3/27/09); 11 So. 3d 1119 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Firefighters' Retirement System v. Regions Bank, 598 F. Supp. 2d 785 (M.D. La. 2008) . . . . 51

First Bank & Trust v. Swope, 2008 WL 4059860 (E.D. La. 2008) . . . . . . . . . . . . . . . . . . . . . 52

First Louisiana Bank v. Morris & Dickson, Co., 44,187 (La. App. 2d Cir. 4/08/09); 6 So. 3d 1047 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

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Franklin Management Corporation v. Gray, 2007-1433 (La. App. 4th Cir. 1/14/09); 2 So. 3d 598 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Fransen v. City of New Orleans, 2008-0076 (La. 7/1/08);988 So. 2d 225 . . . . . . . . . . . . . . . 25

George Engine v. Southern Ship Building Corp., 350 So. 2d 881 (La. 1977) . . . . . . . . . . . . 45

GSK, LLC v. Sonnier, 2009 WL 1444849 (W.D. La. 5/22/09) . . . . . . . . . . . . . . . . . . . . . . . . 7

Hamilton v. International Petroleum Corp., 934 So. 2d 25 (2006) . . . . . . . . . . . . . . . . . . . . . 27

Hibernia National Bank v. Rivera, 07-962 (La. App. 5th Cir. 9/30/08); 996 So. 2d 534 . . . . . 17

Holly & Smith Architect's, Inc. v. Saint Helena Congregate Facility, Inc., 2008-2451 (La. App. 1st Cir. 6/19/09), 2009 WL 1717172 . . . . . . . . . . . . . . . . . . . . 23

In re Craig, 2009 WL 910423 (Bkrtcy. W.D. La.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

In re Entringer Bakeries, Inc., 548 F. 3d 344 (5th Cir. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . 36

In re Fife Oil Co., Inc., 2009 WL 541303 (Bkrtcy. W.D. La. 3/3/09) . . . . . . . . . . . . . . . . . . . . 6

Irons v. U.S. Bank, Inc., 966 So. 2d 646 (La. App. 4th Cir. 8/14/07) . . . . . . . . . . . . . . . . . . . . 2

Jesco Construction Corp. v. Nationsbank Corp., 830 So. 2d 989 (La. 2002) . . . . . . . . . . . . . 30

JPMorgan Chase Bank v. Andrus, 2008-1160 (La. App. 3d Cir. 6/03/09); 10 So. 3d 1286 . . . 39

Keenan v. Donaldson, Lufkin and Jenrette, Inc., 529 F. 3d 569 (5th Cir. 2008) . . . . . . . . 29, 32

Keenan v. Donaldson, Lufkin and Jenrette, Inc., 575 F. 3d 483 (5th Cir. 2009) . . . . . . . . . . . 30

King v. Illinois National Insurance Company, 2008-1491 (La. 4/3/09); 9 So. 3d 780 . . . . . . . 21

King v. Parish National Bank, 885 So. 2d 540 (La. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Knight v. Parish National Bank, 457 So. 2d 1219 (La. App. 1st Cir. 1984) . . . . . . . . . . . . . . 23

Knox v. West Baton Rouge Credit, Inc., 2008-1818 (La. App. 1st Cir. 3/27/09); 9 So. 3d 1020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Koeppen v. Raz, 702 So. 2d 337 (La. App. 2d Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

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Labarge Pipe & Steel Co. v. First Bank, 550 F. 3d 442, 67 UCC Rep. Serv. 2d 582 (5th Cir. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Lacombe v. Bank One Corp., 06-1374 (La. App. 3d Cir. 3/7/07); 953 So. 2d 161, writ denied 07-0746 (La. 6/1/07), 957 So. 2d 177 . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Lewis v. Succession of Johnson, 05-1192 (La. 04/04/06); 925 So. 2d 1172 . . . . . . . . . . . . . . 27

LLP Mortgage, Ltd. v. Food Innovisions, Inc., 08-422 (La. App. 5th Cir. 10/28/08); 997 So. 2d 628 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Lorick v. Direct General Insurance Company of Louisiana, 43,716 (La. App. 2d Cir. 1/21/09); 2 So. 3d 1209 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

McGuire v. Mosley Rogers Title Company, L.L.C., 43,554 (La. App. 2d Cir. 9/17/08); 997 So. 2d 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

MCI Telecommunications Corp. v. Exalon Industries, Inc., 138 F. 3d 426 (1st Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,49

Mennonite Board of Missions v. Adams, 462 U.S. 791 (1983) . . . . . . . . . . . . . . . . . . . . 26, 27

Mooring Financial Corporation 401(k) Profit Sharing Plan v. Mitchell, 2008-1250 (La. App. 4th Cir. 6/10/09); 15 So. 3d 311 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Mortgage Electronic Registration Systems, Inc. v. Daigle, 08-1203 (La. App. 5th Cir. 3/24/09); 10 So. 3d 288 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

NCO Portfolio Management, Inc. v. Gougisha, 07-604 (La. App. 5th Cir. 4/29/08); 985 So. 2d 731, writ denied 992 So. 986, 2008-1146 (La. 9/26/08) . . . . . . . . . . . 47, 49

NCO Portfolio Management, Inc. v. Walker, 2008-1011 (La. App. 3d Cir. 2/04/09); 3 So. 3d 628 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Northside Furniture of Ruston, Inc. v. First Tower Loan, Inc., 43,736 (La. App. 2d Cir. 12/03/08); 999 So. 2d 151 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Padilla v. Schwartz, 2006-1517 (La. App. 4th Cir. 3/11/09); 11 So. 3d 6 . . . . . . . . . . . . . . . . 26

Peak Performance Physical Therapy & Fitness, L.L.C. v. Hibernia Corporation, 2007-2206 (La. App. 1st Cir. 6/06/08); 992 So. 2d 527, 65 UCC Rep. Serv. 2d 1002 . . . . . . . 37, 39

Pero's Steak Spaghetti House v. Lee, 90 S.W. 3d 614 (Tenn. 2006) . . . . . . . . . . . . . . . . . . . . 37

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Philadelphia Gear Corp. v. Central Bank, 717 F. 2d 230 (5th Cir. 1983) . . . . . . . . . . . . . . . . 42

Priola Construction Corporation v. Profast Development Group, Inc., 2009-342 (La. App. 3d Cir. 10/7/09); ____ So. 3d ____ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Rao v. Towers Partners, L.L.C., 688 So. 2d 709 (La. App. 1997) . . . . . . . . . . . . . . . . . . . . . 14

Richardson Oil v. Herndon, 102 So. 2d 310 (La. 1924) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Richmond v. Board of Commissioners of the Orleans Levee District, 2008-0774 (La. App. 4th Cir. 11/26/08); 2 So. 3d 485 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Rodriguez v. Ed's Mobile Homes of Bossier City, Louisiana, 04-1082 (La. App. 3d Cir. 12/8/04); 899 So. 2d 461 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Saavedra v. Dealmaker Developments, LLC, 2008-1239 (La. App. 4th Cir. 3/18/09); 8 So. 3d 758 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Small Engine Shop, Inc. v. Cascio, 878 F. 2d 883 (5th Cir. 1989) . . . . . . . . . . . . . . . . . . . . . 26

Smith Stag, L.L.C. v. Wilson & Meyer Custom Theater Interiors, L.L.C., 2008-1251 (La. App. 4th Cir. 2/18/09);6 So. 3d 921 . . . . . . . . . . . . . . . . . . . . . . . . . 53

Sutter v. Dane Investments, Inc., 2007-1268 (La. App. 4th Cir. 6/4/08); 985 So. 2d 1263 . . . . 25

Systems Services Technologies, Inc. v. Boykins, 2009-0128 (La. App. 4th Cir. 5/13/2009); 13 So. 3d 732 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The Conerly Corporation v. Regions Bank, 2008 WL 4975080 (E.D. La. 2008) . . . . . . . . . . 31

Ticos, L.L.C. v. Hartman, 43,940 (La. App. 2d Cir. 2/25/09); 4 So. 3d 973 . . . . . . . . . . . . . . 22

Tietjen v. City of Shreveport, 44,190 (La. App. 2d Cir. 5/13/09); 17 So. 3d 17 . . . . . . . . . . . 26

United States v. Jesco Construction Corporation, 528 F. 3d 372 (5th Cir. 2008) . . . . . . . . . . . 2

United States v. Oliver, 2008 WL 215398 (W.D. La. 1/24/08) . . . . . . . . . . . . . . . . . . . . . . . . 9

Valteau v. Mellon Mortgage Co., 881 So. 2d 122 (La. App. 4th Cir. 2004) . . . . . . . . . . . . . . 16

Vander v. Safeway Insurance Co. of Louisiana, 2008-888 (La. App. 3d Cir. 2/25/09); 5 So. 3d 968 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Vickers v. Interstate Dodge, 882 So.2d 1236 (La.App. 3d Cir.2004) . . . . . . . . . . . . . . . . . . . 35

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Wells Fargo Home Mortgage v. Celestin, 08-691 (La. App. 5th Cir. 1/27/09); 8 So. 3d 634 . . 16

Whitney National Bank v. Rockwell, 661 So. 2d 1325 (La. 1995) . . . . . . . . . . . . . . . . . . . . . 30

Young v. U.S., 535 U.S. 43 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Zeno v. Colonial Mortgage and Loan Corporation, 08-246 (La. App. 5th Cir. 11/25/08); 4 So. 3d 93 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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RECENT DEVELOPMENTS IN LOUISIANA CASELAW

RELATING TO

SECURITY DEVICES, TITLE MATTERS AND OTHER ISSUES OF INTEREST TO BANKS

I. Chapter 9 security interests.

A. Creation.

1. Automotive Leasing Specialists, L.L.C. v. Little, 392 B.R. 222, (W.D. La.2008); 66 UCC Rep. Serv. 2d 11. At the time of execution of an instrumententitled "Motor Vehicle Lease Agreement," the lessee made a $1,200 downpayment. The lease agreement provided the lessee a purchase option at theend of the lease term for $206. The lease agreement further provided that,in the event of early termination, the lessee would owe a termination fee of$350, together with the amount by which the "Unpaid Adjusted Capital Cost"exceeded the vehicle's fair market wholesale value, plus "all other amountsthen due under this lease". The lease agreement also contained a statementthat the parties intended that the lease would be a "true lease" rather than a"financed lease" or security interest. Nonetheless, the lease provided that, ifa court determined the lease to be a financed lease, the lessee granted asecurity interest in the vehicle to the lessor. In its Chapter 13 plan, the lesseeproposed to treat the lease agreement as a secured transaction. Thebankruptcy court denied the lessor's objection to this treatment and confirmedthe plan. The district court affirmed.

Applying La. R.S. 10:1-207(37), as in effect at the time the lease was enteredinto (although the court observed that the 2001 revision of Chapter 9 did noteffect a substantive change in the law), the court held that a lease creates asecurity interest if the lessee's obligations are not subject to termination bythe lessee and at least one of four factors is satisfied. The fourth of thesefactors is that the lessee has an option to become the owner of the goods forno additional consideration or nominal additional consideration. Finding noLouisiana jurisprudence under this statute, the court looked to case law inother states, which had held that the nominal consideration test is satisfied "ifonly a fool would fail to exercise the option". Applying this test, the courtheld that the $206 purchase price was clearly nominal. With respect to thelessee's purported right of termination, the court held that the bankruptcyjudge correctly construed the words "all other amounts then due under thislease" to include the remaining lease payments, in view of an admonition inthe lease that "the earlier you end the lease, the greater this charge is likelyto be." In any event, it was clear that the lessee would be liable to pay moneyto the lessor if she chose to terminate the lease early and the lessee thereforedid not have a right to terminate her obligation (as opposed to the lease

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itself). The lessor's final argument was that, even if the lease created asecurity interest, the Lease of Movables Act, La. R.S. 9:3310(B), providesthat a lessor retains full legal and equitable title and ownership even thougha financed lease creates a security interest under Chapter 9. The courtdeclined to rule on this issue, since the bankruptcy court had notsubstantively addressed the contention; however, the court mentioned that thelessor appeared to have contracted for a contrary result by including languagein the lease to the effect that a security interest would be granted in thevehicle if it were determined that the lease constituted a financed lease.

2. United States v. Jesco Construction Corporation, 528 F. 3d 372 (5th Cir.2008). The Corps of Engineers commenced an interpleader action withrespect to funds owed to Jesco Construction Corporation for the constructionof pile dikes on the Mississippi River. Two of Jesco's creditors intervenedseeking entitlement to the money: G.E., which claimed a perfected securityinterest in Jesco's accounts for the payment of unrelated loans, and Jesco'sbonding company which asserted an equitable subrogation claim againstJesco's assets by virtue of having paid for the completion of an unrelatedproject in South Carolina. The district court granted summary judgment infavor of G.E., and the court of appeals affirmed. G.E. held a perfectedsecurity interest in all assets of Jesco, including the funds that had beendeposited in the registry of the court in the interpleader action. By contrast,the bonding company held only a common law equitable subrogation claim,which Louisiana courts have consistently declined to recognize. While thebonding company might have had a right of subrogation under La. Civ. Codeart. 1829 to the rights of the Corps against Jesco arising out of the SouthCarolina project, that subrogation would have simply allowed the bondingcompany to recover from Jesco to the extent of the performance which thebonding company rendered to the Corps under that contract. Jesco's defaultunder the South Carolina contract created no security interest in favor of theCorps to which the bonding company could be subrogated in order to asserta claim against the funds due Jesco in connection with the work in Louisiana.

B. Priority.

Vander v. Safeway Insurance Co. of Louisiana, 2008-888 (La. App. 3d Cir.2/25/09); 5 So. 3d 968. After an insured vehicle suffered both fire and enginedamage during Hurricane Rita, the insurer contended that it was responsible only forthe fire damage. To press his claim, the owner hired an attorney on a one-thirdcontingency basis, and a settlement was reached the day before trial. The insurerthen issued a settlement check payable to the insured owner and his secured creditor.The owner's attorney returned the check, demanding that the creditor's name beremoved. The insurance company responded by convoking a concursus naming theowner, his attorney and the secured creditor as defendants. After a hearing, the trialcourt held that all proceeds belonged to the secured creditor. On appeal, the courtfound that the trial court had erred in failing to recognize the attorney's specialprivilege for his fees under La. R.S. 37:218. Following Irons v. U.S. Bank, Inc., 966

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So. 2d 646 (La. App. 4th Cir. 8/14/07), the court held that La. R.S. 37:218 providesthat an attorney's special privilege is superior to all other privileges and securityinterests. This is especially true where, as in this case, the attorney's efforts causedthe secured party's recovery to increase three-fold, making it only reasonable toconclude that it would violate traditional notions of fairness to prevent the attorneyfrom reaping the benefits of his efforts. Turning then to the owner's contention thatthe remaining settlement proceeds should have been disbursed to him, rather than tothe secured party, the court held that the language of the retail installment contractindicated that the owner granted the creditor a security interest in any proceeds froman insurance settlement for damage to the vehicle. The court also rejected theowner's argument that the written settlement agreement constituted a compromisehaving the force of a thing adjudged and the insurer breached it by issuing a jointcheck when the settlement agreement did not provide for joint checks. The terms ofthe settlement agreement could not alter the security interest granted to the securedparty in the retail installment contract. Finally, on the basis of language in the retailinstallment contract providing that the secured party would be entitled to attorney'sfees if it hired an attorney to enforce the contract, the court held that the securedparty was not only entitled to an award of attorney's fees but was also entitled to anincrease in attorney's fees for services rendered on appeal, rejecting priorjurisprudence suggesting that an increase on appeal is not appropriate if the party isless than 100% successful in sustaining its position in the appeal.

C. Rights against third parties.

1. First Louisiana Bank v. Morris & Dickson, Co., 44,187 (La. App. 2d Cir.4/08/09); 6 So. 3d 1047. Shortly after issuing a purchase order hiring acontractor to install equipment in a warehouse, the owner of the warehouseissued a letter to the contractor's lender to the effect that the owner wouldinclude the lender as an additional payee on all checks issued to thecontractor in payment of the purchase order. The contractor gave the lendera security interest in the purchase order. The contractor then defaulted onboth the contract and its loan. Learning that the owner had issued checkspayable only to the contractor without including the lender as a payee, thelender made demand upon the owner and ultimately brought suit.Contending that these claims were essentially based on a theory ofdetrimental reliance, the owner filed an exception of prescription since morethan one year had elapsed between the lender's demand letter and the filingof the suit. The trial court sustained the exception, but the court of appealreversed. The same actions or omissions may constitute breaches of generalduties as well as contractual duties, giving rise to causes of action in both tortand contract. A plaintiff may assert both actions at once and is not requiredto plead a theory of his case. While any recovery in tort in this case wouldclearly have prescribed, the allegations of the lender's petition supportpotential claims for breach of contract, subject to a ten-year prescriptiveperiod. In reaching this holding, the court also noted that, under Section 9-406(a) of the Uniform Commercial Code, the letter issued by the ownermight have been tantamount to an acknowledgment of notice of the

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assignment of the account to the lender. Once notice of an assignment isgiven, an account debtor may discharge its obligation only by paying theassignee. According to the court, "this discharge of obligation provisionunder the UCC relates to the contractual obligations of [the owner] as anaccount debtor and would be governed by the prescriptive period forcontractual actions rather than actions in tort."

2. Advocate Financial, L.L.C. v. Longenecker & Associates, Ltd., 08-490(La. App. 5th Cir. 11/25/08); 3 So. 3d 1, 67 UCC Rep. Serv. 2d. 1034.Both a personal injury plaintiff and her attorney borrowed funds from achamperty lender, each granting the lender a security interest in the proceedsof the personal injury litigation. These security interests were perfected bythe filing of financing statements. Shortly before trial of the personal injurysuit, the lender's counsel sent a letter to the defendant insurer notifying theinsurer of the lender's perfected security interest. Several weeks later, thepersonal injury suit went to trial, resulting in a judgment in favor of theplaintiff. When the judgment became final, the insurer tendered a checkpayable solely to the personal injury plaintiff and her attorney in satisfactionof the judgment. The lender then filed suit against the insurer and obtainedsummary judgment, which was affirmed on appeal.

Section 9-412 of Chapter 9 of the Louisiana Uniform Commercial Codecontains a non-uniform provision that, after receipt of an authenticatednotification of the existence of a security interest in a tort claim, the personobligated on the claim may discharge his obligation only by paying thesecured party. Contrary to the insurer's assertions in this case, basedprimarily on the wording of the Louisiana Direct Action Statute, the securityinterest in this case was not an assignment of a claim under a policy ofinsurance excluded from the UCC, but rather was an assignment of rights tothe proceeds of a lawsuit. The fact that the proceeds were payable from aninsurance policy issued by the insurer to the tortfeasor did not alter thisresult. The court also rejected an argument that the insurer was not indebtedto the plaintiff's attorney directly, for the fact that the check was madepayable jointly to the plaintiff and her attorney constituted the insurer'srecognition that the attorney had a right to a portion of the proceeds of thelitigation. Moreover, the fact that the amount of proceeds due to the attorneywas unproved did not warrant a remand of the suit for calculation. Theattorney clearly assigned to the lender the entirety of his share of theproceeds, not a particular dollar amount. If the attorney and his clientdisagreed about how the lender was to apply those amounts to theirrespective debts, that would be a matter between them and the secured party,not the insurer.

The court also rejected a litany of other arguments made by the insurer.Contrary to the insurer's contention, the notification letter was effective eventhough it came from the secured party's attorney. It is "a black-letter tenet ofour law of mandate" that when a client engages an attorney to perform legal

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services, a principal-relationship is established and there is nothing in theUniform Commercial Code that prohibits an attorney from acting on behalfof the secured party. The notification was clearly "authenticated", since theUniform Commercial Code defines "authenticate" to include a signing. Thenotice was not ineffective because it was sent only to the insurer's litigationcounsel, rather to its agent for service of process, in light of the definition of"notice" in Chapter 1 of the Uniform Commercial Code, the court specificallyholding that litigation counsel is a proper person to receive notice.Moreover, it was undisputed that the insurer had actual notice of theassignment, since it undertook discovery about the assignment followingreceipt of the notification. The insurer's final argument was that the trialcourt should have applied the defense of contributory and comparativenegligence to the secured party in claim in view of the "lengthy history ofinaction and delays" on the part of the insurer in the enforcement of its rights.A plain reading of Section 9-412 shows that use of the remedy under thatstatute does not require the secured party to initiate or exhaust other legalremedies that may be available.

3. Lorick v. Direct General Insurance Company of Louisiana, 43,716 (La.App. 2d Cir. 1/21/09); 2 So. 3d 1209. After a vehicle subject to a securityinterest in the plaintiff's favor was damaged, the insurance company issueda check in the amount of repair costs of $7,700 payable jointly to the vehicleowner and the secured party, which was named as loss payee under thepolicy. Three days later, the insurance adjuster realized she had made amistake, since the vehicle had been a total loss and had a value of only$2,500. She thus stopped payment on the check and, that same day,contacted the secured party, obtaining a lien release statement to the effectthat the secured party would release its security interest upon receipt of$2,500. She never mentioned to the secured party that she had stoppedpayment on the $7,700 check, explaining at trial that " that was not the properprocedure." A week later, the vehicle owner endorsed the $7,700 check overto the secured party, which deducted the balance owed and gave the ownera check for the excess. The secured party then mailed the title to theinsurance company, which took possession of the vehicle and disposed of it.When the $7,700 check was returned unhonored, the secured party contactedthe adjuster, who informed him that the secured party had been at fault incashing the check. The secured party then sent demand letters under R.S.9:2782.2, which allows the holder in due course of a check to collectdamages of twice the amount owing when the drawer of a check stopspayment when there is no justifiable dispute. The trial court grantedjudgment in the full amount of the check plus penalties under this statute andattorney's fees. The court of appeal reduced the judgment to the $2,500 valueof the wrecked vehicle. Although the failure of the adjuster to inform thesecured party that payment had been stopped on the check was "inexplicableand egregious behavior," La. R.S. 9:2782.2 must be strictly construed andapplied as written. In its initial contact with the secured party, the adjuster'scorrespondence had indicated that the secured party would receive only

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$2,500 for the vehicle. The secured party then signed and returned theagreement to the insurance company, agreeing to tender a lien-free title uponreceipt of a settlement check in that amount. Since the penalty statute wasinapplicable, the secured party was not entitled to penalties and attorney'sfees.

II. Mortgages.

A. Judicial mortgages.

1. Deutsche Bank Trust Company Americas v. Dudek, 2009-0129 (La. App.4th Cir. 8/12/09); ____ So. 3d ____ (not yet released for publication inthe permanent law reports). A judgment creditor recorded a Californiafederal court judgment in the mortgage records without first having itregistered in a United States district court in Louisiana. A month later theregistration procedure was followed, but the registration was not recorded inthe mortgage records. The following year, the judgment debtor granted amortgage to another creditor, and, in the ensuing ranking dispute between thejudgment creditor and the mortgagee, the court held that the mortgagee wins.La. R.S. 13:4204 provides that judgments rendered by United States courtsof original jurisdiction in Louisiana or those registered in accordance with 28U.S.C. §1963 rank as judicial mortgages when recorded in the mortgagerecords to the same extent as recorded judgments of the courts of this state.The clear and plain language of the statute contemplates that the judgmentwill be registered in accordance with 28 U.S.C. §1963 first and then recordedin the mortgage records. Foreign judgments filed before compliance with 28U.S.C. §1963 do not rank as judicial mortgages. Because proof ofcompliance with the registration procedure under 28 U.S. C. §1963 was notfiled in the mortgage records before the conventional mortgage was filed, thelatter had priority. The court also held that, since the California judgment didnot purport to act as a judicial mortgage, the conventional mortgagee was notunder any obligation to take additional steps to ascertain its validity or cancelits inscription.

2. In re Fife Oil Co., Inc., 2009 WL 541303 (Bkrtcy. W.D. La. 3/3/09). ATexas judgment, which had been recognized in Louisiana under the UniformEnforcement of Foreign Judgments Act, was recorded in the mortgagerecords before the 30-day stay period under La. R.S. 13:4244 had elapsed.More than 90 days after the judgment was recorded, but less than 90 daysafter the 30-day stay period expired, the judgment debtor filed for bankruptcyprotection, and its bankruptcy trustee sold immovable property of thejudgment debtor located in the parish where the mortgage had been recorded.The judgment creditor contended that its judicial mortgage attached to theseproperties, and the court agreed. Since La. Civ. Code art. 3304 provides thata judicial mortgage is not affected or suspended by a suspensive appeal or astay of execution, and since La. R.S. 13:4242 treats a recognized foreignjudgment in the same manner as a judgment of a court of this state, the

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recordation of the Texas judgment and the resulting judicial mortgage weregoverned by La. Civ. Code art. 3304, and a judicial mortgage arose uponrecordation of the Texas judgment with the Louisiana recognition judgment.Because recordation occurred more than 90 days prior to the bankruptcyfiling, the judgment creditor had no voidable preference.

3. Breeden v. Winfrey, 2009-0235 (La. App. 4th Cir. 7/15/09); 16 So. 3d1176. In his role as an attorney in prior litigation, the plaintiff obtained forhis client a judgment granting specific performance of a third party<sobligation to convey immovable property to the client. The attorney thenfiled an affidavit for "attorney and fees lien" against the property inaccordance with La. R.S. 9:5001 and La. R.S. 37:218, based upon acontingency fee contract allowing him 40% of any amount recovered fromthe defendant. More than three years after the last date on which he workedfor his former client, the attorney filed a petition against the client to enforcewhat he claimed was a judicial mortgage. The client responded with anexception that the attorney had failed to state a cause of action for anownership interest in the client's property based on a contingency feeagreement. The client also filed an exception of prescription, which wassustained by the trial court and affirmed on appeal. La. Civ. Code art. 3494provides that an action for the recovery of professional fees is subject to aliberative prescriptive period of three years. The attorney<s suit was anattempt to recover compensation for services rendered to his client and wastherefore subject to this prescriptive period and consequently time-barred.

B. Reinscription

GSK, LLC v. Sonnier, 2009 WL 1444849 (W.D. La. 5/22/09). Under the terms ofa credit sale that was properly recorded in the conveyance and mortgage records, thevendee<s promissory note was to mature five years from the date of the document.Subsequently, the credit sale documents were amended to change the maturity dateto a date that was eight years from the date of the original sale; however, the act ofcredit sale was not reinscribed within the period of ten years from the date of thesale. In a ranking dispute with the mortgagee under a subsequently grantedmortgage, the holder of the vendor's privilege contended that the bankruptcy courtshould exercise its equity powers in balancing public interests and private needs, and,since Louisiana law on reinscription is effectively a tolling statute, the ten-yearreinscription period should be equitably tolled under Young v. U.S., 535 U.S. 43(2002). This equitable tolling argument was based upon a claim that the mortgageeknew that the borrower had been dealing in bad faith and that the attorney whoissued the title policy to the mortgagee was in constant communication with the bankregarding the earlier loan. This was allegedly tantamount to knowledge which couldbe imputed to the mortgagee. Rejecting this argument, the court observed that theholder of the vendor's privilege had not provided the court "with a scintilla ofcompetent evidence" supporting its allegations that the mortgagee participated infraudulent conduct which induced or tricked the holder of the vendor's privilege intoallowing the reinscription deadline to pass. Under the Louisiana Civil Code, the

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recordation of the vendor's privilege lapsed when its holder failed to file a notice ofreinscription. The court also rejected a contention that the recordation andreinscription provisions merely serve to provide notice to third parties and cannotdivest a party of any substantive rights. This argument confused lien validity withlien ranking. Finally, the fact that the holder of the vendor's privilege might alsohave a right of dissolution was of no moment, because the vendor had not asserteda claim for dissolution nor satisfied the requirements of dissolution, includingrestoration of the purchase price already paid by the buyer.

C. Cancellation

AJB Properties, LLC v. Gegenheimer, 08-669 (La. App. 5th Cir. 2/1009); 8 So.3d 697. A title attorney and notary public executed a request for cancellationasserting that he had received a lost mortgage note from the last holder of the noteand was informed that the debt was cancelled, but the note had been destroyed duringHurricane Katrina. Based upon this request, the clerk of court noted in the mortgagerecords that the mortgage was cancelled. Asserting that the note had not beensatisfied nor the mortgage properly released, the mortgagee filed a petition formandamus seeking by summary proceeding to undo the cancellation. The titleattorney, who was included among the defendants, filed an exception of unauthorizeduse of summary proceedings. The trial court took the matter up on the merits,ordering that the cancellation be set aside and that the mortgage be re-inscribed. Thecourt of appeal reversed and vacated the judgment. The use of mandamus was notproper because it would have required the clerk of court to determine whether or notcancellation of the mortgage was proper and valid. Thus, the clerk was not beingasked to perform a purely ministerial duty. La. R.S. 44:114 does not overrule ornegate the years of jurisprudence holding that a mandamus proceeding may not beused for non-ministerial acts or in doubtful cases.

D. Public records doctrine.

1. Cannata v. Bonner, 2008-36 (La. App. 3d Cir. 5/7/08); 982 So. 2d 968. Three years after the rendition of a judgment declaring that the lessee undera lease-purchase agreement was entitled to the ownership of certain propertythat had been the subject of a lease, the former lessor filed a motion to amendthe judgment on the basis that only half of the property was intended to becovered by the lease-purchase agreement. The trial court denied the motionas untimely. In a prior unpublished decision, the court of appeal held that themotion to amend was in the nature of an action for reformation prescribed byten years and, finding that all parties were well aware of the erroneousdescription, the court ordered the description reformed. No notice of lispendens was ever filed. While an appeal of the trial court judgment denyingthe motion to amend was pending, the former lessee, which appeared ofrecord to own the entirety of the property, executed a collateral mortgageencumbering the property in favor of a mortgagee. Shortly after the renditionof the reformation decision by the appellate court, the mortgagee filed anexecutory process petition, claiming that the mortgage was in default in view

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of a clause in the mortgage defining a default to include the filing of anylegal proceeding to enforce a claim against the property. The former lessorsought to enjoin the executory proceeding with respect to the half of theproperty that the earlier opinion had found was excluded from the sale. Apermanent injunction was issued by the trial court and affirmed on appeal.

Although the court agreed that the description of the property could not bereformed to the prejudice of an innocent third party, it found that themortgagee was not an innocent third party since his attorney was the sameattorney who was representing the mortgagor (former lessee) in his disputewith the former lessor. An agent's knowledge acquired while the agencyexists is notice to his principal. Thus, the mortgagee's counsel's knowledgeof the pending lawsuit affecting ownership of the property was imputed tothe mortgagee at the time the mortgage was executed in the attorney's office.Citing Richardson Oil v. Herndon, 102 So. 2d 310 (La. 1924) for theproposition that actual notice obviates the need for a notice of lis pendens,the court held that, although a notice of lis pendens "would have definitelyput any third party on notice that there was pending litigation affecting titleto the property," in this case a notice of lis pendens was unnecessary becausethe third person in question had actual notice of the pending litigation.

2. In re Craig, 2009 WL 910423 (Bkrtcy. W.D. La.). A mortgage in favor ofRegions Bank was recorded in the wrong parish and, by the time it had beenrecorded in the correct parish, a collateral mortgage had been executed infavor of another creditor. In proceedings to rank the two encumbrancesagainst each other, Regions Bank contended that the holder of the collateralmortgage was aware of the Regions Bank mortgage and intended thecollateral mortgage to be a second ranking mortgage. This argument waspremised upon the contention that Cannata v. Bonner, 2008-36 (La. App. 3dCir. 5/7/08); 982 So. 2d 968 created an exception to the public recordsdoctrine in cases where a person has actual knowledge of an existingunrecorded matter. The court found that the Cannata decision did not createthe broad exception to the public records doctrine asserted by the bank. InCannata, there was ongoing litigation regarding ownership of property and,while an appeal was pending, a mortgage was taken. The court held that themortgagee was not an innocent third party protected by the doctrine, becausehis attorney was the same attorney involved in the litigation surrounding theproperty ownership dispute. Cannata should be limited to its specific facts.There is established jurisprudence that a lis pendens is not necessary whena third person has actual notice of pending litigation. This rationale simplydoes not apply to a mortgage, and extending Cannata as urged by RegionsBank would undercut the policies underlying the public records doctrine.

E. Prescription of mortgages/accessorial obligation rule.

1. United States v. Oliver, 2008 WL 215398 (W.D. La. 1/24/08). In 1986, themortgagor delivered a promissory note to the Farmers Home Administration,

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payable in 42 monthly installments. The mortgagor's last payment was madein 1992. In 2007, the Farmers Home Administration filed a complaint forforeclosure seeking an in rem judgment without a personal deficiencyjudgment. The defendant answered claiming that the note had prescribed.On cross-motions for summary judgment, the court ruled in favor of theFarmers Home Administration. Federal law ultimately controls thegovernment<s rights and responsibilities under a nationwide federal loanprogram. The United States and its agencies are not subject to a statute oflimitations unless Congress has otherwise provided. The federal six-yearstatute of limitations did not bar this suit, because the Farmers HomeAdministration was seeking only a judgment in rem under its mortgage andnot a personal money judgment. Following Farmers Home Administrationv. Muirhead, 42 F. 3d 964 (5th Cir. 1995), in which the Fifth Circuit had heldthat the Farmers Home Administration could foreclose a Mississippimortgage even though under Mississippi law a mortgage cannot be enforcedwhen the underlying debt is barred, the court reached the same result here,rejecting attempts of the mortgagor to distinguish Muirhead on the basis ofLouisiana's accessorial obligation rule. When La. Civ. Code art. 3498,establishing a five year prescriptive period on promissory notes, and La. Civ.Code art. 3285, providing that a mortgage is extinguished when the principaldebt is extinguished, are read together, it is clear that Louisiana, likeMississippi, forecloses an action to enforce a lien not brought within the timefor commencing a suit on the debt. Muirhead is indistinguishable andcompels a ruling in favor of the Farmers Home Administration.

2. LLP Mortgage, Ltd. v. Food Innovisions, Inc., 08-422 (La. App. 5th Cir.10/28/08); 997 So. 2d 628. The assignee of certain Small BusinessAdministration notes executed in 1995 brought an ordinary process suit toenforce them and for recognition of the mortgages securing them. The trialcourt held that the notes and mortgages were barred by prescription, and thecourt of appeal affirmed. The plaintiff did not dispute that the promissorynotes themselves were prescribed pursuant to federal law, but claimed thatunder federal law a federal lien on property is not subject to state statutes oflimitations. La. Civ. Code art. 3282 clearly provides that a mortgage is anaccessory to the obligation it secures and can be enforced only to the extentof the obligation. This Civil Code article is not a prescriptive period anddoes not impermissibly establish a prescriptive period applicable to a federallien. The trial court correctly held that the mortgage could be enforced onlyto the extent of the secured obligation and, since there was no longer anyenforceable underlying obligation, the mortgage could not be enforced.

III. Bonds for deed.

A. Bradstreet v. Kinchen, 2008-0126 (La. App. 4th Cir. 4/01/09); 10 So. 3d 331. Adocument entitled "Installment Option Agreement" listed a contract price of$151,500, provided for an initial down payment by the person granted the option,stated an interest rate of 9.5% and required monthly payments of $1,293. An escrow

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agent was appointed under the agreement to accept and disburse these payments tothe mortgagee holding a mortgage on the property. The agreement (i) specificallyprovided that it was not a sale, transfer or conveyance but only an agreement to sell,transfer and convey property in the future provided that all terms were timely met bythe purchaser, (ii) gave the purchaser immediate possession and a usufruct of theproperty during the term of the option, (iii) made the purchaser responsible for thepayment of taxes, insurance and maintenance of the property; and (iv) contained anarbitration clause. Nearly a year after the contract was entered into, the escrow agentnotified the purchaser that the amount of the monthly payment was being increaseddue to an increase in the adjustable interest rate on the underlying mortgage. Thepurchaser began making payments in the increased amount but defaulted thefollowing year. The seller ultimately notified the escrow agent that, in view of thepurchaser<s breach of the agreement, the escrow agent should stop accepting anyfurther payments. The escrow agent then resigned, and the purchaser filed a petitionfor damages against the seller, the escrow agent, the attorney who handled thetransaction and the title insurer, claiming that the contract was a bond for deed underLouisiana law and was legally defective because it failed to satisfy the requirementsof the bond for deed statute. The escrow agent responded with an exception ofprematurity based upon the arbitration clause. The trial court sustained theexception, and the court of appeal affirmed.

Under La. Civ. Code art. 2620, an option is a contract whereby one party gives toanother the right to accept an offer to sell or to buy a thing within a stipulated time.Characterizing the contract in this case as an option is consistent with its languagethat it is not a sale but only a written agreement to convey property in the future.Moreover, under a bond for deed, the seller is absolutely obligated to deliver title tothe buyer after payment of a specific sum. In this case, the seller was notautomatically obligated to transfer title after the required payments. Rather, thecontract vested the purchaser with the right to acquire ownership and provided thatcomplying with all obligations would be deemed to be an election to exercise thisoption. The contract also provided that if the purchaser made all the payments theseller could require the purchaser to take title and if the purchaser failed to do so theoption would lapse. According to the court, there was no automatic transfer of title,and the agreement was "clearly an option contract as opposed to a bond for deedcontract."

Finally, the court rejected the purchaser<s contention that the arbitration provisionsconstituted a contract of adhesion. Citing Aguillard v. Auction Management Corp.,2004-2804 (La. 6/29/05); 908 So. 2d 1, the court observed that the arbitration clausein this case was a full paragraph under a section of the contract entitled "BINDINGARBITRATION.? The clause was legible and unambiguous, and the purchaser didnot dispute that she signed the agreement. Thus, no doubt existed as to whether sheconsented to the contract<s terms, including the arbitration clause. A strongpresumption of arbitrability exists under both Aguillard and cases of the FourthCircuit.

B. Burns v. Clutter, 2008-2082 (La. App. 1st Cir. 5/13/09); 15 So. 3d 251. A 1977

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act of cash sale provided that the seller would have a right of first refusal torepurchase the property upon the same terms and conditions by which the propertywas conveyed in the event the buyer ever ?desired to sell the property.? No term wasplaced on the right of first refusal. In 1995, the buyer entered into a bond for deedcontract. In 2007, the succession representative of the original seller filed a petitionto have the bond for deed contract rescinded and seeking recognition of her right topurchase the property. The trial court sustained an exception of prescription basedon a retroactive application of La. Civ. Code art. 2568, which now imposes a ten-year time limitation on the right of first refusal. The court of appeal found theretroactive application of that article to be improper but nonetheless affirmed the trialcourt<s holding. Even though the 1995 bond for deed contract did not result in animmediate transfer of ownership, it was sufficient to indicate a "desire" to sell theproperty. Thus, the execution of the bond for deed contract in 1995 was a breach ofthe earlier act of cash sale. The general prescriptive period applicable to breach ofcontract claims is ten years, and the present action to enforce the right of first refusalhad therefore prescribed.

C. Cottingim v. Vliet, 2008-1263 (La. App. 4th Cir. 8/12/09); ____ So. 3d. ____ (notyet released for publication in the permanent law reports). Under a residentialbond for deed transaction entered into in 1991, the purchasers made a $2,000 downpayment and agreed to pay off the seller's $55,000 mortgage by February 1, 1994.The purchasers were unable to do so, but nonetheless remained on the property,making extensive repairs and finally paying off the mortgage in 2005. When thatoccurred, the seller refused to convey title to the property but instead offered to doso in exchange for an additional payment of 10% of the current market value of theproperty. The purchasers filed a petition for specific performance and, after trial, thetrial court ruled in their favor. The court of appeal affirmed. Although in this casethere was no written extension of the time required under the bond for deed contractfor payment of the seller's mortgage, verbal amendments to contracts for thepurchase of the immovable property can be enforceable if the seller "lulls theplaintiff" into inaction. In this case, by allowing the purchasers to remain inpossession of the property, make significant repairs and pay off the mortgage, whilefailing ever to demand that the purchasers vacate the property, the seller lulled thepurchasers into believing that an extension had been granted.

IV. Foreclosure/collection actions.

A. Executory process.

1. Injunctive relief/annulment of sale.

Avery v. Citi Mortgage, Inc., 2008-2052 (La. App. 1st Cir. 5/13/09); 15So. 3d 240. Following an executory process foreclosure upon his residence,the mortgagor filed suit against the mortgagee for annulment of the sale andfor damages, alleging that the mortgagee had improperly credited paymentstendered on his behalf and had been unjustly enriched by retaining fundsrightfully belonging to him. The mortgagee responded with peremptory

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exceptions of res judicata and no cause of action, both of which weresustained by the trial court. The court of appeal partly reversed. Accordingto the court, to dismiss the action of the basis of res judicata, the court mustfind that (i) the judgment in the executory process lawsuit was valid, (ii) thejudgment was final, (iii) the parties are the same, (iv) the causes of actionasserted in the present suit existed at the time of the final judgment, and (v)the causes of action asserted in the present suit arose out of the sametransaction that was the subject matter of the earlier executory proceedings.Noting that the mortgagor was procedurally prohibited from bringing hisordinary negligence action in the executory proceedings, the court held thathis failure to attempt to arrest the seizure and sale by injunction or to makea timely appeal of the executory process judgment was of no momentbecause he was not claiming that the debt was legally unenforceable or thatit had been extinguished, as is required to obtain injunctive relief. "Thecomplicated procedural posture of the respective actions in relation to eachother and the unsettled nature of the law constitute exceptional circumstancesjustifying relief from the effect of the doctrine as to the claim for damages asa result of [the mortgagee's] alleged improper crediting of payments . . . andfor unjust enrichment caused by [the mortgagee's] alleged retention of fundsrightfully belonging to him." Thus, the court of appeal held that the trialcourt erred in dismissing the claim for damages but that the trial courtcorrectly dismissed that portion of the petition seeking annulment of theexecutory process judgment and return of the residence, since any of theasserted grounds for annulment would have existed at the time of the finaljudgment.

Knox v. West Baton Rouge Credit, Inc., 2008-1818 (La. App. 1st Cir.3/27/09); 9 So. 3d 1020. Following proper service upon the mortgagor,collateral was sold at an executory process sale to a third person for anamount more than sufficient to pay the creditor's debt, the excess proceedsbeing distributed to the mortgagor. More than one year later, the mortgagorsought declaratory judgment that the executory process sale was a nullitybecause her signature on the mortgage was forged. The trial court dismissedthe suit on the basis of prescription, and the court of appeal affirmed. Byfailing to seek an injunction or to appeal the order of executory process priorto the sale, a mortgagor waives all defenses and procedural objections;however, defects in an executory proceeding amounting to fraud or illpractice may be raised for the first time in an action to annul a judgment.The applicable prescriptive period is one year from the discovery of fraud orill practice. An alleged forgery has an element of fraud and thus is a vice ofsubstance that is grounds for a relative nullity. In this case, when themortgagor was personally served with notice of seizure she knew or shouldhave known that something was wrong and the one-year prescriptive periodbegan to run at that time.

Mortgage Electronic Registration Systems, Inc. v. Daigle, 08-1203 (La.App. 5th Cir. 3/24/09); 10 So. 3d 288. In response to the mortgagee's

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executory process petition, the mortgagor filed a petition for preliminaryinjunction and for damages. After the preliminary injunction was denied, thesale was rescheduled but not held due to Hurricane Katrina. Two monthsafter the hurricane, the loan was paid off at a private sale. The mortgageethen obtained a summary judgment dismissing the claim for damages on theground that it had been improperly filed in the executory proceeding. Uponmotion for new trial, the court recognized that the damage claim could notproceed in the executory process suit; however, since the executoryproceeding had been dismissed, the court nonetheless allowed the damageclaim to proceed under the same suit number. The mortgagee then re-urgedits motion for summary judgment on the same grounds it had argued inopposition to the mortgagor's application for a preliminary injunction.Summary judgment was granted by the trial court and affirmed on appeal.

The court rejected the mortgagor's contention that the affidavit submitted bythe mortgagee's representative was improper since it was not based onpersonal knowledge. La. R.S. 9:5555 provides that affidavits may be madebased on personal knowledge or upon information and belief derived fromrecords kept in the ordinary course of the mortgagee's business. The courtalso rejected the mortgagor's contention that there was a genuine issue as towhether payments had been made as agreed. According to the mortgagee'saffidavit, no payment was made in March 2004; thus the payment made at theend of April was applied to the March installment and the May payment wasapplied to the April installment. Although the court agreed with themortgagor that there was a dispute as to which payments were made or whichwere missed, it was clear that no payments were made after May 2004, andthe foreclosure was not instituted until July 2004. The issue of whichpayment was not made was not an issue of material fact precluding summaryjudgment on the damage claim since, under Rao v. Towers Partners, L.L.C.,688 So. 2d 709 (La. App. 1997), a technical deficiency in an executoryproceeding does not give the obligor a damage claim where the obligoractually owed the debt. Finally, with regard to the mortgagor's claim that shewas not given notice of default as required by the mortgage, the court foundthat issue to be irrelevant to the damage suit since she had to know that nopayments were made after May 2004.

2. Deficiency judgment.

Estate of Petrovich v. Jules Melancon, Inc., 08-185 (La. App. 5th Cir.9/30/08); 996 So. 2d 520. The plaintiff had sold several state oyster bedleases to the defendant by an act of credit sale which recognized a vendor'sprivilege, granted the plaintiff a mortgage and waived the benefit ofappraisal. After the defendant defaulted, the plaintiff sought to foreclose byexecutory process with benefit of appraisal. While the defendant'sapplication for a preliminary injunction against the sale was pending, thestate deposited into the registry of the court funds representing payment forits reclamation of two of the mortgaged oyster bed leases. After the

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defendant was unsuccessful in its attempt to obtain a permanent injunction,the plaintiff purchased the oyster bed leases at foreclosure sale, withoutbenefit of appraisal, for less than $2,000. The plaintiff then filed, bysummary process, a petition for deficiency judgment and a motion towithdraw the funds held on deposit in the registry of the court. Thedefendant excepted to the improper use of summary process and also assertedthat the plaintiff was not entitled to a deficiency judgment because it hadavailed itself of a waiver of appraisement. Concluding that the amount of thedeposit was an exchange of collateral, the trial court ruled in favor of theplaintiff. The court of appeal reversed.

The court first summarily rejected the plaintiff's contention that the funds ondeposit were "substitute collateral." Remarking simply that the mortgageinstruments did not contain any provision for "substitution of collateral," thecourt of appeal held that the trial court erred in awarding the entire amountof deposit to the plaintiff on that basis. The court then turned to the issue ofwhether the plaintiff was entitled to a deficiency judgment. Since theplaintiff had chosen to proceed to judicial sale without benefit of appraisal,the Deficiency Judgment Act barred it from a deficiency judgment. Theprovisions of La. R.S. 13:4108.1, allowing a creditor in commercialtransactions to pursue a debtor for the amount of the secured obligationminus the reasonably equivalent value of the property sold, were unavailingto the plaintiff, since there was no evidence that the parties had entered intoa debt reduction agreement or agreed to attribute value to the property forthis purpose. The court also remarked that the trial court should havesustained the defendant's exception to the improper use of summaryproceedings.

Nonetheless, the court held that these rulings did not end its inquiry. Thestatute enabling the state to reclaim oyster bed leases provides that the stateis to pay to the leaseholder the determined amount of compensation, less anyamount due on recorded liens. According to the statute, funds representingthe amount of recorded liens are to be paid directly to the lienholder. Thetrial court should have made a determination of the plaintiff's compensableinterest, if any, in the leases in question. Citing an eminent domain case fromNew Jersey for the proposition that, when there has been a partial taking ofmortgaged property, the lienholder cannot enforce his lien against thecondemnation award unless the remaining collateral is of insufficient valueto satisfy the lien, the court held that the mortgagee must prove impairmentof collateral. Thus, the court remanded the matter to the trial court for adetermination of whether the parties had an agreement with the stateconcerning the distribution of proceeds and whether the remaining collateralwas of insufficient value to satisfy the mortgage.

B. Ordinary process foreclosure/collection actions.

1. Summary judgment

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Wells Fargo Home Mortgage v. Celestin, 08-691 (La. App. 5th Cir.1/27/09); 8 So. 3d 634. A note and mortgage covering the defendant'simmovable property were assigned to GE Capital Mortgage Services, L.L.C.When GE's servicing company, Wells Fargo, later brought an ordinaryprocess foreclosure, its motion for summary judgment was denied on thebasis of the defendant's challenge to Wells Fargo's status as holder of thenote. Thereafter, Wells Fargo and GE moved to substitute GE as the properparty plaintiff in the suit, alleging that GE was the holder of the note and thatWells Fargo was merely the servicer. After the substitution was granted, asecond summary judgment motion filed by GE was denied for reasons thatwere unclear. Sometime thereafter, GE and Wells Fargo moved to substituteWells Fargo as the party plaintiff, asserting that GE had in fact assigned thenote in question to Wells Fargo. When Wells Fargo moved yet again forsummary judgment, the defendant opposed the motion on the ground thatgenuine issues of material fact remained as to whether the assignment of thenote from GE to Wells Fargo was the sale of a litigious right under La. Civ.Code art 2652 entitling the debtor to litigious redemption. In response todiscovery conducted by the defendant, Wells Fargo asserted that theassignment of the note was erroneous and that GE had in fact only assignedthe servicing rights to the note. Summary judgment was denied. A fewmonths later, a fourth summary judgment was filed by Wells Fargo, arguingthat all issues raised by the defendant had been addressed. The trial courtgranted the summary judgment, and the court of appeal affirmed.

In a suit on a promissory note, the plaintiff must merely produce the note inquestion to make out a prima facie case. The burden then shifts to thedefendant to prove any affirmative defenses. In support of its motion forsummary judgment, Wells Fargo acknowledged the defendant's contentionthat the assignment from GE to Wells Fargo was the sale of a litigious right.However, Wells Fargo demonstrated that the purported assignment had beenprepared in error and that GE had obtained an act of notarial correction inorder to cure the error. Wells Fargo also produced affidavits from GE to theeffect that the note in question was never transferred to Wells Fargo and thatGE had not been not paid consideration for any assignment of the note.Federal law, 42 U.S.C. Section 4003(a), defines a servicing agent to be aperson responsible for receiving scheduled, periodic payments from aborrower. Case law in Louisiana, such as Valteau v. Mellon Mortgage Co.,881 So. 2d 122 (La. App. 4th Cir. 2004), describes a servicing agent as amandatary. As servicing agent, Wells Fargo had the procedural capacity tosue to enforce the rights of its principal. Even though the pleadings statedthat Wells Fargo was the holder of the note while the supporting affidavitsindicated otherwise, there was no genuine issue of material fact as to theidentity of the holder of the note, since the supporting affidavits from bothGE and Wells Fargo were in agreement that GE was the holder of the noteand Wells Fargo was merely assigned servicing rights.

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Franklin Management Corporation v. Gray, 2007-1433 (La. App. 4thCir. 1/14/09); 2 So. 3d 598. After a preliminary injunction was issuedagainst an executory process foreclosure, the mortgagee converted the suitto ordinary process and moved for summary judgment, relying on the loandocuments that had been attached to the original executory process petitionas well as by an affidavit from the plaintiff's account manager attesting to thedefendant's default on the note and the balance owing on the note accordingto the plaintiff's business records. In opposition, the mortgagor offered onlythe affidavit of his own lawyer, setting forth the lawyer's personal analysisand interpretation of the loan payment history submitted by the plaintiff.Summary judgment was granted and affirmed on appeal. According to thecourt, under recent amendments to La. C.C.P. art. 966, once the movant forsummary judgment has made a prima facie showing that the motion shouldbe granted, the burden shifts to the non-moving party to present competentevidence that material factual issues remain. If he fails to do so, summaryjudgment is mandated. In a suit on a note, American Bank v. Saxena, 553So. 836 (La. 1989) holds that the burden of proof in Louisiana with respectto an affirmative defense of payment rests with a defendant attempting toassert that a note has been paid or the obligation otherwise extinguished.Under the Rules of Professional Conduct, a lawyer is precluded except invery narrow circumstances from acting as an advocate in a matter in whichhe is likely to be a necessary witness. Thus, in this case, the lawyer'saffidavit did not constitute competent evidence sufficient to defeat the motionfor summary judgment. No showing was made that the defendant was unableto provide banking records or cancelled checks evidencing payments on theloan or that the defendant was unavailable or otherwise unable to provideaffidavit evidence that he had made payments on the note and was not indefault. In addition, the defendant's argument rested solely on the businessrecords of the plaintiff and the argument of counsel. The court cited Saxenafor the proposition that a defendant in the suit on a note cannot establishpayment as a defense by relying on the business records of his creditor.Judge Bonin concurred, on the basis that the attorney's affidavit was notsufficient countervailing evidence regardless of the identity or status of theaffiant, and there was no good reason "to climb a tree to exclude thesubmission when it can be done simply by standing on the ground." Onrehearing, the court explained that the defendant had apparently madeadditional payments on his indebtedness, but never informed the creditor thatthese payments were advance payments on future monthly installments.Accordingly, the creditor properly applied these payments to reduce theprincipal, and these extra payments did not absolve the defendant of hisobligation to continue to make timely payment of monthly installments asthey became due.

Hibernia National Bank v. Rivera, 07-962 (La. App. 5th Cir. 9/30/08);996 So. 2d 534. Following the voluntary surrender of a leased vehicle, thelessor filed a petition to collect a deficiency balance owing as "liquidateddamages" based on the value for which the vehicle was disposed of. The

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lessor filed a motion for summary judgment on the basis of an affidavit thatits employee attesting to the execution of the lease agreement, the voluntarysurrender and the disposition of the vehicle. In opposition to the motion, thelessee introduced his own affidavit, stating that he did not speak, read orunderstand the English language well and that when a person came to pickup the leased vehicle and arranged for his signature on the voluntarysurrender form, that person told him he would have no further liability underthe lease. The trial court granted summary judgment in favor of the lessor.On appeal, the lessee argued that the lessor's memorandum in support of itsmotion for summary judgment did not comply with Uniform Rule 9.10,because it did not contain a list of the essential legal elements necessary forthe mover to be entitled to judgment or a list of the material facts that werenot disputed. The court held that even if the lessor failed to comply with therequirements of Rule 9.10, that would not be grounds to reverse the trialcourt<s findings, because the trial court is vested with discretion to dispensewith the strict application of local rules. Moreover, the court rejected thelessee's argument that the supporting affidavit was not based on personalknowledge since the bank officer was not present when the lease was signedand had no dealings with the lessee. Where business records are concerned,courts deem the requirements of personal knowledge satisfied when theaffiant is qualified to identify the business records as such. Nonetheless, thecourt reversed the grant of summary judgment, in view of the lessee<saffidavit to the effect that he had been told by an employee of the dealershipthat the lease term was only for three years and that the terms of thevoluntary surrender had been misrepresented to him. Although the voluntarysurrender did contain a statement that the debtor had read the notice or thatthe notice was read and explained to him, whoever presented the documentto him failed to sign the acknowledgment on the document. The lessor failedto controvert the lessee's affidavit on these points outside of the documentsthemselves; therefore, material facts remained precluding summaryjudgment.

Aaron & Turner, L.L.C. v. Perret, 2007-1701 (La. App. 1st Cir. 5/4/09);____ So. 3d ____ (not yet released for publication in the permanent lawreports). The plaintiff law firm handled a residential mortgage refinancingtransaction by which the defendant's mortgage on her home was to berefinanced with proceeds of a loan made available by ABN. Several yearsafter the loan closing, the law firm discovered that ABN had never actuallyfunded the loan. The law firm then took an ostensible assignment from ABNof its rights under the note, demanded full payment from the debtor then fileda suit to recover the outstanding balance of the note. Subsequently, the lawfirm filed a separate proceeding for executory process in a different divisionof the same court. The defendant's efforts to enjoin the executoryproceedings were unsuccessful because her home had already been sold. Inthe ordinary proceedings, the defendant filed a motion for summary judgmentseeking to dismiss all claims on the mortgage and note and also filed areconventional demand for damages allegedly sustained as a result of the

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plaintiff's malpractice in performing the loan closing. The plaintiff law firmfiled a motion for summary judgment seeking dismissal of the reconventionaldemand. The trial court denied the defendant's motion for summaryjudgment but granted the motion for summary judgment filed by the plaintiff,dismissing the reconventional demand. On application for rehearing, thecourt appeal reversed both summary judgments.

The court first noted that the trial court erred in believing that the ruling inthe executory process suit denying injunctive relief was res judicata in theinstant case. A ruling in an executory proceeding denying injunctive reliefaddresses only the propriety of injunctive relief and does not satisfy therequirements for the application for the doctrine of res judicata.

Turning to the merits, the court of appeal observed that the parties and thelower court had incorrectly analyzed the defendant's arguments as beingbased upon a failure of consideration. Under the revised obligation articles,cause is not consideration but rather is simply the reason a party bindshimself. This reason need not be to obtain something in return or to securean advantage. An obligor may bind himself by gratuitous contract or by hiswill alone. The former reference in La. C.C.P. art. 1005 to pleading failureof consideration as an affirmative defense, and various other references toconsideration sprinkled throughout Louisiana law, reflect no intent by thelegislature to change or modify the codal doctrine of cause. In this case, eachparty had cause to enter into the contract. ABN's non-performance of apromise might constitute a breach of an obligation giving rise to the remediesof specific performance or damages but did not constitute a failure of cause.

The court then found that the more appropriate legal question concernedwhether there was a meeting of the minds or an agreement to contractbetween ABN and the defendant. A contract is formed by the consent of theparties established through offer and acceptance. In this case, whether ABNconsented to the contract was not established. The fact that it never fundedthe loan militates in favor of a conclusion that it did not consent to contractwith the defendant. The law firm<s right to proceed under the note wasderived solely by the assignment by ABN, which conveyed to the law firmonly the rights ABN actually had in the contract documents. In order toprevail, the law firm must first establish that ABN had rights to convey inthese contractual documents, i.e. that ABN had actually consented to enterinto the contract. No evidence was presented to resolve this issue, andsummary judgment was therefore inappropriate.

With respect to the defendant's reconventional demand for malpractice, inorder to prevail on summary judgment the law firm was required to point outto the court that there was an absence of factual support for one or moreelements essential to the claim. The law firm's argument in support of itsmotion for summary judgment was simply that no damages can follow as amatter of law from the proper use of an executory proceeding. In this case,

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however, the law firm was not simply a note holder but also acted as counselduring the closing. The law firm could be guilty of negligence in transactinga closing, regardless of whether the note and mortgage were invalid orunenforceable. Since the law firm did not make the requisite showing tosupport summary of judgment, the burden of proof never shifted to thedefendant to show that she should could come forward with sufficient proofon the negligence action asserted in her reconventional demand.

Judge Pettigrew concurred asserting that the "procedural quagmire" of thepresent case was attributable to the fact that the creditor had improperly fileda suit for executory process after first having filed an ordinary proceeding onthe promissory note. Judge Guidry concurred, observing that "in a verylengthy and strained construction" the majority ignores the fact that nodispute was ever raised by any party or even by ABN concerning whether itconsented to the transaction and that only ABN could assert the relativenullity of the contract arising from a failure of its consent.

2. Dismissal.

Systems Services Technologies, Inc. v. Boykins, 2009-0128 (La. App. 4thCir. 5/13/2009); 13 So. 3d 732. A deficiency judgment rendered against thedebtor on a motor vehicle loan in 2004 was set aside in 2008. Shortlythereafter, the debtor learned that the judgment creditor had previouslytransferred ownership of the debt to a third party, with whom the debtormade an arrangement for new payment terms. When this was brought to theattention of the original creditor, which was the plaintiff in the suit, it soughta dismissal of its claims without prejudice. The debtor objected, contendingthat the dismissal should only be with prejudice. The trial court granted adismissal without prejudice, and the debtor appealed. Under La. C.C.P. art.1671, after a defendant has made an appearance, the court may refuse togrant a motion for dismissal except with prejudice; however, the court cannotforce a dismissal with prejudice upon the plaintiff, who has the option ofeither accepting a dismissal with prejudice or proceeding with the case. Tothe extent that the debtor was complaining that the trial court had abused itsdiscretion in refusing to impose this option upon the plaintiff, the court ofappeal held that no abuse of discretion had occurred since nothing in therecord established that the original debt had been extinguished or novated.Novation is the extinguishment of an existing obligation by the substitutionof a new one; the intent to extinguish the original obligation must be clearand unequivocal. Mere modification of an obligation, made withoutintention to extinguish it, does not effect a novation. Thus, it would not havebeen appropriate for the trial judge to refuse to grant the voluntary dismissalunless the original creditor acceded to a dismissal with prejudice.

3. Remission.

Credit Recoveries, Inc. v. Crow, 43,314 (La. App. 2d Cir. 8/13/08); 989

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So. 2d 233. In 1988, the bank made a loan to the debtor due in 90 days. Thedebtor failed to pay the loan, and, in early September 1994, the bank issuedto him an IRS form 1099-C reciting cancellation of debt in the amount of$7,991 on September 8, 1994. The bank apparently at some point alsoreturned three payments made in 1994 to the debtor, with a cover letterterming the attempted payments as "overpayments." On September 30, 1994,the bank sold the note and three dozen others to the plaintiff for $1,500,without recourse, representation or warranty of any kind. The plaintiff thenbrought suit upon the note. The trial court granted judgment in favor of thedefendant on the basis of remission, and the court of appeal affirmed. UnderLa. Civ. Code art. 1888, a remission of debt may be express or tacit. "Realworld consequences" follow actions such as returning proper note paymentsas overpayments and issuing an IRS form 1099-C with adverse tax impactsfor the recipient.

Elders v. Unopened Succession of Davis, 2009-132 (La. App. 3d Cir.7/8/09), 16 So. 3d 558. Under the terms of an act of credit sale, the vendee<spromissory note would be automatically cancelled upon the vendor's death.When the vendor died, the buyers sought declaratory judgment to cancel themortgage and vendor's privilege. Since the cancellation upon death clausewas contained in the act of sale executed contemporaneously with theexecution of the note and was therefore a negotiated element of theunderlying contract, the court held that the provision in the act of credit salewas an express remission of debt, rather than a gratuitous disposition ofproperty. Judge Amy dissented, believing that the cancellation clause fitsquarely within the definition of a donation mortis causa since it was an actto take effect at the death of the donor by which he disposed of the whole orpart of his property.

C. Execution of judgments.

1. Seizure of litigious rights.

King v. Illinois National Insurance Company, 2008-1491 (La. 4/3/09); 9So. 3d 780. After obtaining a judgment against an underinsured driver, apersonal injury plaintiff obtained a writ of fieri facias directing seizure of thedefendant driver's claims against her insurer for failure to settle within policylimits. Thereafter, the personal injury plaintiff brought suit against theinsurer in the plaintiff's alleged capacity as transferee of the defendant'sinchoate rights against the insurer. Arguing that any inchoate rights theinsured defendant had against her insurer were neither transferrable norsubject to involuntary seizure, the insurer sought summary judgment. Thecourt of appeal reversed the trial court's denial of the motion. The SupremeCourt affirmed the holding of the court of appeal. However, unlike the courtof appeal, the Supreme Court found it unnecessary to consider whether anunexercised right to institute a lawsuit may be assigned. Instead, the courtlimited its analysis to the issue of whether a potential right to file suit may be

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seized under a writ of fieri facias. Strict construction of provisions relatingto writs of fieri facias is warranted because the seizure process implicates theconstitutional due process protections afforded the judgment debtor.Although the defendant driver did not raise an objection to the validity of theseizure, the court nonetheless addressed the propriety of the plaintiff'sforcible taking of the defendant driver's inchoate rights. According to thecourt, a decision whether to file a lawsuit is premised on an individual'ssubjective judgment and is made through a conscious determination dictatedby one's mind and will. As such, it is a strictly personal right not subject toinvoluntary relinquishment unless expressly provided for in the law. To holdotherwise would be a deprivation of property without due process of law.The court also observed that it had reached a practical result because holdingotherwise would leave the execution of money judgments to the unfettereddiscretion of judgment creditors and would be an endorsement of thepotential abuse of an artfully crafted procedural mechanism enacted by thelegislature to provide proper redress to creditors for their monetary losses.The court also rejected a contention by the plaintiff that she had acquired thedefendant's rights against the insurer by three years acquisitive prescription.According to the court, the right to institute suit is strictly a personal rightthat is not subject to adverse possession. Justice Kimball dissented, on theground that the majority had insufficient support for their position that thedecision of whether to file suit is a strictly personal right, that the majorityaddressed constitutional due process issues that the purportedly aggrievedparty never raised and that the majority imagined future abuse by the use ofoverly broad and vague language to support their result.

2. Garnishment

Ticos, L.L.C. v. Hartman, 43,940 (La. App. 2d Cir. 2/25/09); 4 So. 3d973. After obtaining a money judgment, the judgment creditor filed a ruleagainst the judgment debtor's husband, seeking to garnish his wages. Beforethe rule could be heard, the judgment debtor obtained a judgment of divorcefrom her husband. The court of appeal vacated the trial court's grant of thejudgment creditor's motion to enforce its judgment against the formerhusband's salary. Under La. Civ. Code art. 2357, an obligation incurred bya spouse before or during the community may be satisfied after terminationof the regime from the property of the former community and from theseparate property of the spouse who incurred the obligation. Clearly, thecommunity property regime was terminated by the divorce retroactive to thedate of filing. At the time the trial court's order was signed authorizing theseizure of the husband's salary, the salary had become his separate property.Since the husband had not incurred the obligation, his separate propertycould not be seized to satisfy the judgment.

3. Homestead exemption

Chase Home Finance, L.L.C. v. Davis, 43,816 (La. App. 2d Cir.

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12/10/08); 1 So. 3d 643. A husband and wife acquired a residence in 1997as community property. They divorced in 2000 and, following the divorce,the wife and their minor children continued to live in the residence. In 2006,the house was refinanced, and both of the former spouses executed amortgage waiving the homestead exemption. Shortly thereafter, a judgmentcreditor recorded a judgment against the husband. When the mortgagee laterforeclosed, the property brought proceeds of approximately $15,000 inexcess of the mortgage balance. The former wife claimed entitlement tothese proceeds based upon the homestead exemption. The judgment creditorclaimed entitlement to the former husband's share of the excess proceeds.The trial court awarded all of the excess proceeds to the former wife, and thecourt of appeal affirmed. According to the court, "the intent was that [theformer husband] would pay off the debt and [the former wife] would own thehome." At that time, [the former wife] and her minor children were the onlyoccupants; [the former husband] had moved out and remarried years earlier.Therefore, under these circumstances [only the former wife] was entitled tothe homestead exemption and, accordingly, she alone was the person towhom the exempt proceeds belonged." In reaching this decision, the courtrelied upon Knight v. Parish National Bank, 457 So. 2d 1219 (La. App. 1stCir. 1984), which had held that a former wife living alone with her childrenin a house that was property of the former community was the only personentitled to the homestead exemption and was therefore entitled to waive it.Even though Knight dealt with the waiver of the homestead exemption ratherthan excess proceeds subject to the claimed exemption, the court found thatthe principle applies equally and that the former wife was therefore entitledto claim the homestead exemption and receive all excess funds up to andincluding $25,000.

4. Public property.

Holly & Smith Architect's, Inc. v. Saint Helena Congregate Facility, Inc.,2008-2451 (La. App. 1st Cir. 6/19/09), 2009 WL 1717172. An architecturalfirm obtained a judgment against a political subdivision for architectural fees.In a prior decision reported at 943 So. 2d 1037, the Supreme Court held thatthe recordation of this judgment did not give rise to a judicial mortgage uponimmovable property owned by the political subdivision. Thereafter, thearchitectural firm filed a motion for the issuance of a writ of fieri faciasagainst funds being paid to the political subdivision by the federalgovernment. The trial court denied the motion, and the court of appealaffirmed. The Louisiana Constitution delegates to the legislature the powerto determine how judgments rendered against the state and its politicalsubdivisions will be executed. The legislature acted on this authority byenacting La. R.S. 13:5109(B)(2), providing that judgments against politicalsubdivisions may be paid only out of funds appropriated for that purpose bythe named political subdivision. Thus, in the absence of a specificappropriation to pay the judgment, the plaintiff is constitutionally andstatutorily prohibited from seizing the property of a political subdivision to

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satisfy the judgment.

D. Revival of judgments.

Fidelity National Bank of Baton Rouge v. Calhoun, 2008-1685 (La. App. 1st Cir.3/27/09); 11 So. 3d 1119. In 1981, Fidelity National Bank obtained a moneyjudgment by default. In 1990, Hibernia National Bank, as successor to Fidelity, fileda petition to revive this judgment, obtaining a revival judgment in 1992. In 2002,another petition to revive the judgment was filed by The Cadle Company. Thougha second revival judgment was obtained, notice of judgment was not served upon thedefendant until 2008, at which time the defendant appealed. The court of appealaffirmed.

The defendant's argument was premised primarily upon the failure of The CadleCompany to demonstrate how it possessed rights under the judgment. However, inthe suit on appeal, The Cadle Company offered certificates from the United StatesComptroller of the Currency, reflecting that Fidelity merged into Hibernia in 1987.The court held that articles 201 and 202 of the Louisiana Code of Evidenceauthorized it to take judicial notice of the name change and subsequent merger.Thus, Hibernia was unquestionably a party "having an interest in a money judgment"with proper capacity to seek revive the judgment at the time of the first revival suit.Hibernia, as the owner of the judgment, also had the right to transfer it. La. Civ.Code art. 2643 provides that an assignment of a right is effective against a debtoronly from the time the debtor has actual knowledge. The Cadle Company's petition,though it incorrectly described the 1992 revival judgment as having been renderedin The Cadle Company<s favor, affirmatively alleged that it was entitled to have thejudgment revived. Thus, service of The Cadle Company's revival petition itself wassufficient to constitute notice of the assignment of the judgment. Moreover, the courtheld that lack of notice under La. Civ. Code art. 2643 was an affirmative defense thatthe defendant had failed to specially plead.

The defendant also contended that The Cadle Company should have filed a motionto substitute itself as party plaintiff in order to revive the original judgment. Thecourt disagreed, holding that the civil action, having been adjudicated by a finaljudgment, had ceased to exist. The Code of Civil Procedure articles bearing onsubstitution of parties apply only to pending civil actions, not to actions reduced tojudgment. Moreover, there was no need for The Cadle Company's attorney to filea motion to become substituted as attorney of record in the suit, since the filing ofan initial pleading on behalf of a client, such as the second revival petition in thiscase, automatically makes the attorney the attorney of record without the need of amotion to enroll. Finally, with regard to the alleged insufficiency in the bankofficer's affidavit in support of the first revival action in 1992 (which incorrectlyreflected the name of the debtor to be the affiant himself), the court held that this wasnothing more than an obvious typographical error that at best gave rise to a relativenullity cured by the expiration of one year from the date of service of the secondpetition to revive. The defendant may not now collaterally attack the 1992 judgment.

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V. Tax sales/Mennonite issues.

A. Tax sale cases.

1. Fransen v. City of New Orleans, 2008-0076 (La. 7/1/08);988 So. 2d 225.Acting pursuant to its home rule charter, the council of the City of NewOrleans enacted an ordinance imposing a 3% penalty on delinquent advalorem taxes, 1% per month interest, and a 30% penalty if a delinquencyremaining after April 1 were referred for to an attorney or a collection agentfor collection. The ordinance also authorized the city to file suit to forecloseits lien securing payment of the tax, rather than resorting to traditional taxsale procedures. Upon discovering that their taxes were delinquent, twotaxpayers paid the penalty under protest and then filed suit challenging theconstitutionality of the ordinance. Even though the city had not actuallyresorted to foreclosure suits in these particular cases, the Supreme Courtnonetheless held that the plaintiffs had standing because they were faced withthe choice of either paying the penalty or having their property subjected tosuit. On the merits, the court found the ordinance to be unconstitutional.When acting pursuant to a home rule charter, a municipality's home rulepower is limited by the constitution, whether that limitation is express orimplied. The provisions of Article VII, Section 25 of the 1974 Constitutionimplicitly prohibit any collection mechanism other than the tax saleprocedure provided for in the constitution itself, in light of the long historyof this provision in previous constitutions, the 1974 delegates' rejection of anamendment that might have permitted other means of collection, and acomment by the Law Institute in the projet to the 1974 Constitution.Likewise, the court held that the 30% penalty in the event of referral ofdelinquent taxes to an attorney for collection was also unconstitutional, sincecollection by an attorney or collection agency is unnecessary and prohibited.Finally, with respect to the penalties imposed by the ordinance, theconstitution provides that the tax collector shall sell the property for theamount of the taxes, interests and costs. The exclusion of penalties from thisprovision was intentional; thus, the ordinance was unconstitutional to theextent that it imposed a penalty on delinquent ad valorem property taxes onimmovables, as those penalties would not be collectible at a tax sale.

2. Sutter v. Dane Investments, Inc., 2007-1268 (La. App. 4th Cir. 6/4/08);985 So. 2d 1263. Even though the act of sale by which it had acquired theproperty at issue was recorded in January 1992, the property owner, acorporation, was not given notice of the delinquency of unpaid taxes prior toa tax sale held in November 1995. Nearly nine years after the tax sale, thetax sale buyer brought an action to confirm his tax title and, after serving theproperty owner through the secretary of state, obtained a default judgment.The following year, the property owner filed suit to declare the tax sale anullity. The trial court declared the tax sale null and vacated the defaultjudgment in favor of the tax sale buyer. The court of appeal affirmed. Sincethe uncontradicted evidence showed that the property owner did not receive

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prior notice of the tax sale, the tax sale offended the owner's right to dueprocess under Mennonite Board of Missions v. Adams, 462 U.S. 791 (1983).Moreover, analogizing to the rule of La. Civ. Code art. 2030 that anabsolutely null contract cannot be confirmed, the court held that the invalidtax sale could not be confirmed by a subsequent judgment since the tax salewas an absolute nullity.

3. Padilla v. Schwartz, 2006-1517 (La. App. 4th Cir. 3/11/09); 11 So. 3d 6.Following a tax sale, the tax vendee filed a suit to quiet the tax title. Aformer owner of the property, who held a mortgage and vendor's privilegeupon the property under an act of credit sale which "was filed and dulyregistered in the Conveyance records of Orleans Parish," intervened seekingto annul the sale on account of the failure of the tax collector to give himnotice of the tax sale. The act of credit sale identified the seller/mortgageebut gave no address other than stating that he was domiciled in OrleansParish. The trial court held the tax sale null, and the court of appeal affirmed.Under Mennonite Board of Missions v. Adams, 462 U.S. 791 (1983), amortgagee is entitled to notice of an impending tax sale since he possessesa substantial property interest that would be significantly affected by a taxsale. Neither the tax buyer nor the city submitted any evidence disputing themortgagee's evidence that he received no prior notice of the tax sale. Thus,the tax sale was an absolute nullity. In reaching this holding, the courtobserved that the failure of the mortgage to list an address for theseller/mortgagee was not fatal to his claim, because advances in informationtechnology would have allowed the city through reasonable diligence toascertain his physical address in order to give notice of the sale. The courtalso found there to be no merit in the tax vendee's argument that the sellerhad waived his right to notice by failing to request notice under La. R.S.47:2180.1. As the United States Fifth Circuit held in Davis Oil Company v.Mills, 873 F. 2d 774 (5th Cir. 1989) and Small Engine Shop, Inc. v. Cascio,878 F. 2d 883 (5th Cir. 1989), this statute merely supplements Louisiana'spre-existing constructive notice provisions, and the failure of a mortgagee torequest notice does not constitute a waiver of his due process rights. Onapplication of rehearing, the court remanded the case for a determination, inorder that the status quo ante be restored, of the amount of money the taxvendee had expended in remediating the property following HurricaneKatrina.

4. Tietjen v. City of Shreveport, 44,190 (La. App. 2d Cir. 5/13/09); 17 So.3d 17. Prior to a city tax sale, the tax collector sent notice of the delinquencyof taxes to the tax debtor at the property address, where it was received by anemployee of the tax debtor's professional physical therapy corporation. Noeffort was made to give notice to the mortgagee, nor did the city give noticeto either the tax debtor or the mortgagee after the tax sale. Several yearslater, the tax debtor and the mortgagee filed suit to annul the sale. Ruling infavor of the plaintiffs, the trial court found that a due process violation underboth federal and state constitutions had occurred. The court of appeal

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reversed. On the issue of notice to the tax debtor himself, the tax debtor hadtestified only that he did not recall seeing the notice and admitted that anemployee might have signed for it on his behalf. Thus, the trial court erredin finding that the city failed to provide the tax debtor with adequate notice.With respect to the issue of notice to the mortgagee, the court observed thatLa. R.S. 47:2180.1 requires that notice be given to a mortgagee only if he hasnotified the tax collector of his recorded mortgage and that a tax sale cannotbe annulled due to lack of notice to the mortgagee. Although the court citedMennonite Board of Missions v. Adams, 462 U.S. 791 (1983) in its ruling,it did not appear to address specifically the constitutionality of the requestnotice provisions of La. R.S. 47:2180.1 but instead relied on its own priorholding in Koeppen v. Raz, 702 So. 2d 337 (La. App. 2d Cir. 1997), in whichthe court had held that a mortgagee could not annul a tax sale when he hadfailed to comply with the request notice procedure. The court found thewording of the statute to be clear and free of ambiguity and held that the taxsale was not invalid for failure of notice to the mortgagee, recognizing, butdeclining to follow, contrary holdings of other Louisiana appellate courts.The court did not address the plaintiffs' argument that La. R.S. 47:2180.1 wasunconstitutional because, even though the unconstitutionality of the statutewas pleaded in the lower court, the lower court did not rule on that issue andthe plaintiffs did not answer the appeal to urge that point. The court alsofound that the city's failure to give notice after the sale was of no moment,because the Supreme Court had held in Hamilton v. International PetroleumCorp., 934 So. 2d 25 (2006) that the legislature did not provide a penalty forfailure to give the statutorily required notice post-sale. Judge Carawaydissented to the denial of rehearing, pointing out that the plaintiffs' rights andremedies were against the tax sale purchaser for return of the property, notagainst the municipality to which the taxes were unquestionably owed.

5. C & C Energy, L.L.C. v. Cody Investments, L.L.C., 44,630 (La. App. 2dCir. 9/2/09); ____ So. 3d ____ (not yet released for publication in thepermanent law reports). Following the death of his wife, a survivingspouse and his seven children were recognized by judgment of possession tobe owners of an immovable. However, the surviving spouse was the only co-owner to receive notice of a subsequent tax sale held by the Caddo Parishsheriff. In ensuing litigation brought to annul the tax sale, the court of appealobserved that the Louisiana Supreme Court had held in Lewis v. Successionof Johnson, 05-1192 (La. 04/04/06); 925 So. 2d 1172, that each co-owner isentitled to notice of a tax sale and that the lack of notice is fatal. Thus, noticegiven solely to the surviving spouse was insufficient. The court thenaddressed the issue of whether the tax sale was valid at least with respect tothe interest of the surviving spouse who did receive notice. Althoughstatements in Lewis could give rise to an inference that a tax sale is validagainst a co-owner who receives notice, the court held that, since one co-owner cannot pay his own portion of the tax and prevent the sale of allproperty, notice must be given to all co-owners before a tax sale occurs.Without such notice to all co-owners, a tax sale is null and void in its

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entirety, even with respect to the interest of a co-owner who does receivenotice.

6. Mooring Financial Corporation 401(k) Profit Sharing Plan v. Mitchell,2008-1250 (La. App. 4th Cir. 6/10/09); 15 So. 3d 311. More than five yearsafter a tax sale, a tax vendee filed suit to quiet the tax title against both thetax debtor and a mortgagee. Service upon the mortgagee was made pursuantto the Louisiana Long-Arm Statute; however, a preliminary default was takenless than 30 days after the filing into the record of the affidavit of long-armservice. A default judgment was then confirmed against both defendantsbased upon affidavit evidence without a hearing in open court. The judgmentwas appealed by the tax debtor, but the mortgagee never participated in anystage of the litigation. Neither party at any time sought to annul thejudgment in the district court. The court held that the tax debtor did not havestanding to raise objections that might have been asserted by the mortgagee.The court found that this ruling made it unnecessary to consider the taxdebtor's contention that the tax vendee had improperly confirmed its defaultjudgment without an evidentiary hearing in open court. Judge Tobiasdissented, finding nothing to excuse the tax debtor from the requirement ofintroducing live testimonial evidence sufficient to support its claims.

B. Other Mennonite-related cases.

1. Richmond v. Board of Commissioners of the Orleans Levee District,2008-0774 (La. App. 4th Cir. 11/26/08); 2 So. 3d 485. The defendant leveeboard granted a 25-year lease of a boat slip to the plaintiff, who prepaid therent for the entire term. Shortly before Hurricane Katrina, the lessee granteda collateral mortgage on the boat slip. After the hurricane, the lessee, withoutthe joinder of the mortgagee, filed suit to cancel the lease on the basis of anassertion that the levee board had failed to repair the roof, pilings andstructural supports of the boat slip and the common areas in the marina. Theplaintiff moved for summary judgment with, as the court of appeal noted, "adearth of evidence presented by plaintiff to support the motion." The leveeboard filed both an opposition to the summary judgment as well as aperemptory exception of nonjoinder, alleging that the mortgagee was anecessary party. Without service upon or notice to the levee board, the trialcourt granted ex parte the lessee’s motion for summary judgment. The courtof appeal reversed, finding that the trial court erred in denying the leveeboard’s peremptory exception of nonjoinder. Under La. Civ. Code art. 3286,the lessee's rights in the lease of an immovable are susceptible of mortgage.Since the termination of the lease would adversely affect the rights of themortgagee, the trial court erred in adjudicating the rights to the lease withoutthe mortgagee’s presence. Moreover, the failure to join and provide noticeto a creditor having rights in the property subject to the litigation created dueprocess issues under both the United States and Louisiana constitutions,which require that all interested parties be given notice and an opportunityto be heard before their rights can be affected. According to the court, this

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right of notice and an opportunity to be heard is so strong that any judgmentrendered without the required joinder is an absolute nullity.

2. Farmco, Inc. v. Morris, 2008-1996 (La. App. 1st Cir. 9/4/09); ____ So. 3d____ (not yet released for publication in the permanent law reports).Plaintiffs, who purchased a tract of land at a U.S. marshal's sale held in 1997upon foreclosure of 1979 mortgage, sought to enjoin the defendants fromcrossing the property. Upon the close of the plaintiffs' case, the court grantedan involuntary dismissal, predicated primarily upon a finding that the formerowner, the mortgagor under the 1979 mortgage, had granted them a servitudein 1987. The court of appeal reversed the involuntary dismissal, finding thatforeclosure of a mortgage extinguishes a conventional servitude granted bythe mortgagor after the mortgaging of the property. Thus, the servitudeinvolved in this case was an inferior encumbrance which was extinguishedby the foreclosure. With regard to the defendant's alternative claim of theacquisition of a servitude by acquisitive prescription, there was insufficientevidence in the record in view of the involuntary dismissal, and the matterwas remanded to allow the defendants to offer additional evidence in supportof this claim. Note: The opinion contained no discussion of whether thedefendants were given notice of the mortgage foreclosure or the possibleimplications of Mennonite.

VI. Lender liability

A. Credit Agreement Statute/breach of commitment to grant financialaccommodations

1. Keenan v. Donaldson, Lufkin and Jenrette, Inc., 529 F. 3d 569 (5th Cir.2008). When a corporate borrower fell into technical default of its loansfrom a banking syndicate, the borrower's founder and chief executive officermade a personal, unsecured loan of ̂ 6.6 million to the borrower, which usedthe proceeds of this personal loan to cure the alleged default and also tosupply additional working capital. This personal loan was apparently madepursuant to an oral agreement between the chief executive officer and thebanking syndicate to the effect that, if the loan were made, the bankingsyndicate would waive the technical default of the existing credit facility,develop a long term credit facility and provide further funding to theborrower until its liquidity crisis had been resolved. The banking syndicatedid in fact waive the existing technical default, but refused to extendadditional credit to the borrower, with the result that the borrower was forcedinto receivership in the United Kingdom. In the ensuing liquidation process,the banking syndicate was paid in full, but only a fraction of the chiefexecutive officer's personal loan was repaid. The chief executive officer thenbrought suit against the banking syndicate alleging that it had failed to informhim that it had already decided not to extend further credit. The bankingsyndicate moved to dismiss on the basis of the Louisiana Credit AgreementStatute, La. R.S. 6:1121 et seq. The district court treated the motion as one

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for summary judgment, which it granted in the favor of the bankingsyndicate, finding that, even though the chief executive officer had no debtor-creditor relationship with the banking syndicate as those terms are commonlyunderstood, he did enter into a "credit agreement" as defined in the statute,and was therefore a statutory "debtor." The court of appeal reversed.

According to the court, the case presented a conceptual clash betweencommon understandings of the terms "creditor" and "debtor" and thestatutory definitions of those terms. The court looked first to Louisiana caselaw articulating the origin and purpose of the statute. As explained by theLouisiana Supreme Court in Whitney National Bank v. Rockwell, 661 So. 2d1325 (La. 1995), Jesco Construction Corp. v. Nationsbank Corp., 830 So. 2d989 (La. 2002) and King v. Parish National Bank, 885 So. 2d 540 (La. 2004),the statute was intended as a "statute of frauds" for the credit industry,designed to have the "primary purpose" of limiting lender liability lawsuitsby preventing borrowers from bringing claims against lenders based uponoral agreements. Even though the court in Jesco used the term "primarypurpose," it did not suggest any alternative purposes. In light of thisunderstanding of the purpose of the statute, an application in this case of thestatute to bar the claims of the chief executive officer, who is not a borrowerin any sense and who does not bring a lender liability suit, would beinconsistent with the primary purpose of the statute.

The court then reviewed jurisprudence of other states having similar creditagreement statutes, but, even though some of those decisions had applied thestatute to disputes between two creditors, the court found those decisionsunpersuasive. According to the court, notwithstanding similarities in thelanguage used in the statutes and the fact that they were enacted atapproximately the same time, "each legislature may not have decided tomake the same array of adjustments to business as usual in its respectivestate." Even though the banking syndicate's argument comports with theliteral statutory definitions of the statute, "a literal fit is not always enough."The Louisiana Supreme Court's observations of the primary purpose of thestatute, when combined with the directive of La. Civ. Code art. 11 to theeffect that statutory words are to be construed in keeping with "theirgenerally prevailing meaning," leaves the court to interpret the statute withthe meaning that best conforms to the purpose of the law. This interpretationavoids any bold departure from what the state courts of Louisiana has so fardeclared. The court was unwilling to "take the statute in such an uncertaindirection, unmapped by either the state's legislature or judiciary." Thedefendants' construction of the definitions used in the statute "would give anunusual meaning to common terms, a meaning that is beyond the recognizedstatutory purpose and which modifies what has so far been established underthe statute."

2. Keenan v. Donaldson, Lufkin and Jenrette, Inc., 575 F. 3d 483 (5th Cir.2009). Following remand, the defendants moved for summary judgment,

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asserting that the plaintiff's claims had prescribed. The district court foundthat all claims were subject to a one-year prescriptive period, which it heldbegan to run at the time the plaintiff's loan was not repaid in 2000. The courtof appeal affirmed in part and reversed in part.

Acknowledging that it had in prior cases applied both the ten-yearcontractual statute of limitations and the one-year delictual statute oflimitations to claims denominated as "detrimental reliance," the courtobserved that it is the nature of the action, rather than its label, that governswhich limitations period applies. In this case, since the plaintiff's detrimentalreliance claims derived from breach of promise, they are subject to the ten-year prescriptive period, and the district court erred in granting summaryjudgment on them on the basis of prescription.

With respect to the plaintiff's claims for breach of fiduciary duty, the courtdid not reach the prescription issue, because it agreed with the defendantsthat there was no basis for the imposition of any fiduciary duty upon them inlight of the fact that there was no evidence that the defendants agreed to actfor the plaintiff's benefit regarding the loan and no evidence of a closepersonal relationship creating such a duty.

The plaintiff's fraud claim was that the defendants committed fraud bymaking a promise without any intent to perform the promise. According tothe court, a simple broken promise alone is not sufficient to state a cause ofaction for fraud of this nature; rather, the fraud must be based upon thepromisor's intention not to perform at the time the promise is made. Thatbeing the case, the district court erred in holding that mere knowledge thata promise had not been kept was sufficient to trigger the running of theprescriptive period. Since a breach of promise, standing alone, is not enoughfor a fraud claim, it follows that mere failure to perform a promise, withoutmore, is not enough to incite inquiry starting the running of the prescriptiveperiod or to end the contra non valentem tolling period. The plaintiff did notunderstand that he had a fraud claim until the depositions of the defendantrepresentatives, who admitted their intention not to perform when thepromise was made. Since that event occurred less than one year prior to suit,the fraud claims were not prescribed.

By contrast, the plaintiff's claims of negligence and negligentmisrepresentation do not require any intent to deceive nor any presentintention not to perform a promise. Once the plaintiff knew that the creditfacility was not being extended and that his note had matured withoutpayment, he also knew that any representations made to him were inaccurate.At that point, he had a duty to inquire further, and since he did not bring suitwithin one year, those claims have prescribed.

3. The Conerly Corporation v. Regions Bank, 2008 WL 4975080 (E.D. La.2008). During the course of a construction project financed by the defendant

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bank, a bank employee allegedly threatened to replace the contractor if workdid not progress faster. The bank officer also allegedly promised thecontractor that all the work that was approved by the architect would be paidin full. Allegedly in reliance upon this promise, the contractor continued towork until the bank officer informed the contractor that no more paymentswould be forthcoming in view of the borrower's default. The contractor'sbonding company advanced the contractor money to complete the projectand, shortly thereafter, the bank foreclosed upon the property. The contractorand its bonding company then brought suit against the bank and its officer forbreach of contract, bad faith, unjust enrichment, detrimental reliance andnegligent and intentional misrepresentation. Primarily on the basis of theLouisiana Credit Agreement Statute, the defendants filed a Rule 12(b)(6)motion to dismiss, which was denied by the court.

Though a credit agreement clearly existed between the bank and theborrower, the contractor was not a party to that agreement nor was thecontractor a "debtor" who had a "credit agreement" under the statute.Whatever understanding existed between the bank and the contractor, it wasnot "an agreement to lend or forbear payment of money or goods or tootherwise extend credit." In making these observations, the court citedKeenan v. Donaldson, Lufkin and Jenrette, Inc., 529 F. 3d 569 (5th Cir.2008), noting that no Louisiana Supreme Court case had applied the creditagreement statute outside of the traditional debtor-creditor relationship.

The court also rejected the defendants' contention that the claims against thebank officer were barred by La. R.S. 6:291(B), which provides that a directoror officer of a bank is not personally liable to the corporation or itsshareholders for monetary damages unless the director or officer acted in agrossly negligent manner. By its terms, this statute does not apply to the casein question, in which the plaintiff is neither the bank nor its shareholders.Even though Section E of the statute provides that the provision of thissection "shall be the sole and exclusive law governing the relation andliability of directors and officer to their bank or to any other person orentity," no case has construed the statute to be applicable to claims broughtby third parties. However, the court agreed that no cause of action had beenstated against the bank officer for negligence since it was clear that he wasacting in his corporate capacity at all times and did not cause a physicalinjury. To the extent that the cases cited by the plaintiff hold an officerpersonally liable for non-fraudulent acts done in the commercial context, theyare contrary to the rule applicable in Louisiana as stated by the majority ofcourts. Thus, the court dismissed all of the plaintiff's claims against the bankofficer with the exception for the claim for intentional misrepresentation.

With regard to the claims against the bank itself, the court rejected the bank'sdefense that the allegations of breach of contract and detrimental reliance donot sound in tort and therefore are not encompassed within the universe forwhich an employer may be held liable under La. Civ. Code art. 2320. While

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that may be correct, a principal is nonetheless liable for actions of hismandatary within the scope of his mandate under La. Civ. Code art. 3020.Turning then to the issues of whether the plaintiffs sufficiently pleaded theirseveral causes of action, the court rejected contentions by the bank that thebreach of contract claim was one of suretyship requiring a writing. The courtalso found that, insofar as the negligence claim against the bank wasconcerned, the only contested element of the plaintiff's claims was whetherthe bank owed a duty to the plaintiff. Having made the choice to involveitself significantly in the contractor's work in view of its financial interest inseeing that the collateral for its loan was completed, the bank was requiredto exercise ordinary care. The court felt that imposing a duty upon the bankwould not result in "an unreasonable burden upon, and disruption of, regularand normal banking transactions."

The court also held that the shareholder of the plaintiff corporation had notstated a cause of action personally because of the rule in Louisiana that ashareholder has no separate or independent right of action for wrongscommitted against a corporation.

4. Priola Construction Corporation v. Profast Development Group, Inc.,2009-342 (La. App. 3d Cir. 10/7/09); ____ So. 3d ____ (not yet releasedfor publication in the permanent law reports). Following discussions witha commercial loan officer at Capital One, a lessee entered into a lease ofseveral floors of the Capital One building. Later, the loan officer introduceda representative of the plaintiff construction company to the lessee.Ultimately, the lessee and the construction company entered into a letteragreement under which the construction company agrees to performsubstantial renovation work upon proof that the lessee had obtained a line ofcredit in an amount not less than $600,000. No evidence of any such line ofcredit was ever provided to the construction company, but instead itsrepresentative contacted the loan officer to inquire whether the bank hadagreed to finance the improvements. The bank officer responded that "theywere collecting information, had one more piece of information to get. Theygot it, and it looked great and it was more than what they hoped for and thatthe commitment process would begin when he got back in the office."Thereafter, the construction company completed the improvements at a costin excess of $1,000,000 and also entered into other contracts with the lesseefor additional work. When the loan application was actually submitted by thelessee, the bank rejected it. The construction company then brought suitagainst the bank on the basis of negligent misrepresentation, detrimentalreliance and breach of contract. The trial court granted summary judgmentin favor of the bank, and the court of appeal affirmed.

In an effort to avoid the effect of the Louisiana Credit Agreement Statute, theconstruction company contended that the bank had voluntarily assumed aduty to disclose information pertaining to the loan request and was liable fordisclosing inaccurate and misleading information. In support of this

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argument, the plaintiff cited Biz Capital Business & Industrial DevelopmentCorp. v. Union Planter's Corp., 03-2208 (La. App. 4th Cir. 9/8/04); 884 So.2d 623, which had involved lenders suing third party banks for negligentmisrepresentation and detrimental reliance claims. In allowing these claims,the Fourth Circuit had reasoned that "the letter of the law should not lead tothe absurd result that a bank should be rewarded for misleading a customeror third party."

With respect to the claim for negligent misrepresentation, the court observedthat under the jurisprudence a required element of this cause of action is afiduciary relationship or contract. In view of the provisions of La. R.S.6:1124 to the effect that a bank has no fiduciary duty in the absence of awritten agreement undertaking one, the court found that the trial court actedcorrectly in granting summary judgment on claims for negligentmisrepresentation. With respect to the claim of detrimental reliance, thecourt observed that the plaintiff had, based solely on the verbalcommunication with the loan officer, begun remodeling work without everrequesting the commitment letter required by its own contract. Theconstruction company also admitted that it never performed an independentevaluation of the lessee's ability to pay. The court felt that the bank hadmade no deliberate attempt to mislead the contractor, which proceeded at itsown risk without waiting for the commitment letter required under itscontract.

Finally, the construction company attempted recovery under the property lawdoctrine of accession based on La. Civ. Code art. 495, which allows one whoincorporates things into an immovable of another the right to remove themsubject to his obligation of the restoring the property to its former condition.In this case, however, there was a lease providing that the lessee would notbe reimbursed for any improvements; thus, article 495 did not apply. Evenif it did apply, there was no testimony that the bank had demanded removalof the improvements and therefore a condition precedent to any ability by theplaintiff to claim compensation under article 495 had not been satisfied.

5. Northside Furniture of Ruston, Inc. v. First Tower Loan, Inc., 43,736(La. App. 2d Cir. 12/03/08); 999 So. 2d 151. The plaintiff was a furniturestore which had, over a period of time, assigned 331 retail installmentcontracts to the defendant finance company. After the relationship began tosour, the finance company preliminarily approved for purchase three loanapplications. The initial paperwork was completed, but the assignmentswhich appeared on the reverse side of the retail assignment contracts werenever completed. A representative of the furniture store telephoned thefinance company, asking when she could bring the original documents andreceive the funding. An employee of the finance company responded that itwould no longer be doing business with the furniture store and would not befunding the three loans at issue. The furniture store then brought suit againstthe finance company seeking damages for the amount of the accounts plus

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damages for embarrassment, loss of income, attorney's fees and otherdamages. The finance company defended on the basis that no contractexisted between the parties and that reliance upon oral promises was notreasonable. The trial court ruled in favor of the finance company, and thecourt of appeal affirmed. The parties' practice indicated that they clearlycontemplated that the assignment of the contracts would be in writing. Sincethe assignments were never executed, the trial court correctly concluded thatno contract existed and the issue of breach was never reached. With regardto the furniture store's alternative argument of detrimental reliance, the courtobserved that estoppel is not favored in Louisiana law and claims ofdetrimental reliance must be examined strictly and carefully. Since theparties' practice was that signed documents would be provided to the financecompany simultaneously or prior to funding of the accounts, and since thefurniture store retained the power to take the accounts to another lendinginstitution or to collect payments from the borrowers directly, it was notreasonable for the furniture store to rely upon the finance company's promiseto fund the accounts without first executing the assignments.

B. Consumer litigation

1. Auto Refinance Source, Inc. v. HSBC North America Holdings Inc., 584F.Supp.2d 899 (E.D. La. 2008). The assignee of a retail installment contractexecuted in connection with the sale of a new vehicle brought a class actionclaiming that the defendant had charged interest in violation of the terms ofthe contract. The defendant filed a Rule 12(b)(6) motion to dismiss,contending that the Louisiana Motor Vehicle Sales Finance Act provides theexclusive cause of action for a dispute arising from a motor vehicle credittransaction and preempts any breach of contract claim. In denying themotion, the court cited Vickers v. Interstate Dodge, 882 So.2d 1236 (La.App.3d Cir. 2004), which had affirmed a judgment that forging a customer'sinitials on a contract constituted a violation of the LMVSFA but reversed anaward of damages under the Louisiana Unfair Trade Practices Act becausethe plaintiff had failed to demonstrate actual damages as required to warrantrelief under the latter statute. There was no suggestion in Vickers that theplaintiff was precluded from bringing a claim under the Unfair TradePractices Act because he was also seeking remedies under LMVSFA. Thecourt also compared the LMVSFA with a number of other Louisiana statutesthat unquestionably do provide a plaintiff with an exclusive cause of action,such as the workers' compensation statute and the Louisiana ProductsLiability Act. In contrast to those statutes, the LMVSFA makes no mentionof "rights" or "theories of liability," nor does it indicate that violators of thestatute are immune from liability under other state law simply because theunderlying transaction falls within the scope of the statute. Accordingly, thedistrict court concluded that the LMVSFA did not deprive the plaintiff of anyrights that it may have under other federal or state law.

2. Zeno v. Colonial Mortgage and Loan Corporation, 08-246 (La. App. 5th

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Cir. 11/25/08); 4 So. 3d 93. A consumer brought a Truth-in-Lending Actclaim against her lender, asserting a variety of violations of state and federallaw and seeking rescission of the mortgage she had granted. One of theclaimed violations was the inclusion in the loan documents of a prepaymentpenalty. The Homeowners Equity Protection Act, 15 U.S.C. §1601, forbidsa prepayment penalty if the consumer's monthly indebtedness paymentsexceed 50% of his monthly gross income. Under the facts of the case, theborrower's own income, which consisted only of social security payments,was insufficient to permit a prepayment penalty; however, if her husband'sincome were considered, a prepayment penalty would be allowed. The Truth-in-Lending Act essentially defines a "consumer" to be the person whocontracts a loan. The lender asserted that the definition of the word"consumer" in the Truth-in-Lending Act refers only to the types of loans thatare subject to the act and the definition does not apply where the act speaksof monthly installment payments and income "of the consumer." In supportof this argument, the lender sought to apply by analogy bankruptcy casesinvolving means testing under Chapter 7 of the Bankruptcy Code. The trialcourt granted a partial summary judgment finding liability on the part of thelender, and the court of appeal affirmed. Bankruptcy laws and consumerdebt collection laws were enacted for different purposes, and there is noanalogy between them. The court also observed that the lender's argumentthat a prior refusal on the part of the trial court to grant summary judgmentconstituted law of the case was misplaced; a denial of summary judgment isalways an interlocutory judgment, which the trial court may change at anytime up until final judgment.

C. Bankruptcy preference.

In re Entringer Bakeries, Inc., 548 F. 3d 344 (5th Cir. 2008). A bank made a$180,000 bridge loan to a corporate borrower pending the funding of long-termfinancing from another lender. After several delays, funding of the long-termfinancing occurred, and the proceeds were distributed to the borrower, who the nextday used a portion of the proceeds to pay the bank’s debt in full. The borrower filedfor bankruptcy shortly thereafter, and the collateral which it had given the permanentlender was liquidated for $74,000. The bankruptcy trustee filed an adversaryproceeding claiming that the entirety of the money paid to the bank constituted avoidable preference. The lower court applied the equitable "earmarking" doctrine,holding that the payments of earmarked funds to an unsecured creditor, such as thebank in this case, were voidable as a preference only to the extent of the value of thecollateral given to the new lender. On appeal, the court of appeals rejected thetrustee's argument that the earmarking doctrine is no longer a viable exception to apreferential transfer claim under Section 547(b) of the Bankruptcy Code. However,in this case, the borrower had dispositive control over the permanent lender's loanproceeds once they were deposited into the borrower's general deposit account. Theborrower could have done anything it wanted to do with the money from thepermanent lender's loan; thus, the money was not "earmarked" for purposes ofpayment of the bank’s loan. The fact that the permanent lender had the unilateral

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belief that the loan proceeds would be used for that purpose was of no moment,because the borrower still had the power to do with the money as it wished once themoney entered its general account. Thus, the entire payment to bank was voidableas a preference. With regard to the bank’s contention that the payment fit within theordinary course of business exception under Section 547(c)(2), the court held that thefact that the loan to the borrower was contrary to the bank’s own policy because theinterest rate was below prime and the borrower was undercapitalized with little orno cash flow belied its assertion that the debt was incurred in the ordinary course ofbusiness.

VII. Other Uniform Commercial Code litigation

A. Chapters 3 and 4: Negotiable instruments/deposit accounts

1. Peak Performance Physical Therapy & Fitness, L.L.C. v. HiberniaCorporation, 2007-2206 (La. App. 1st Cir. 6/06/08); 992 So. 2d 527, 65UCC Rep. Serv. 2d 1002. The bookkeeper of a professional physicaltherapy firm embezzled $182,000 over the course of more than three yearsby depositing checks made payable to the firm or its individual therapistmembers into her joint checking account at Hibernia. A large number of thechecks at issue were deposited more than one year prior to the time the firmfiled suit. The trial court denied the bank's exception of prescription as tothose checks and rendered summary judgment in favor of the plaintiff for thefull amount of all checks at issue. Reversing both rulings, the court of appealheld the suit prescribed as to all checks deposited more than one year beforesuit was filed and remanded for further proceedings on the checks that wereembezzled less than one year before suit.

When a defendant establishes a prima facie case of prescription, as the bankdid in this case with respect to all checks filed more than one year prior tosuit, the burden shifts to the plaintiff to prove that its claim is not prescribed.To carry its burden of proof in this case, the plaintiff relied upon the doctrineof contra non valentem, which had been applied to check conversion claimsin several cases including Lacombe v. Bank One Corp., 06-1374 (La. App.3d Cir. 3/7/07); 953 So. 2d 161, writ denied 07-0746 (La. 6/1/07), 957 So. 2d177. However, Lacombe and similar cases simply assumed, without analysis,that the doctrine was properly applicable. One of the goals of the UniformCommercial Code is to promote interjurisdictional uniformity. Thus, thecourt felt persuaded by the holding of the Tennessee Supreme Court in Pero'sSteak Spaghetti House v. Lee, 90 S.W. 3d 614 (Tenn. 2006), which had heldthat the "discovery rule", a common law equivalent to one component ofLouisiana's doctrine of contra non valentem, was inapplicable, since the "vastmajority of courts hold that in the absence of fraudulent concealment on thepart of the defendant asserting the statute of limitations defense, thediscovery rule does not apply to toll the statute of limitations on an action forconversion of negotiable instruments." The court further observed thatapplication of the doctrine would circumvent the express policy of the UCC

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of allowing parties to determine their liability without resort to expensive anddelaying litigation. Thus, the court held that the doctrine of contra nonvalentem applies to check conversion cases only in instances in which thereis fraudulent concealment by the defendant asserting prescription.

Turning to the merits of the summary judgment motion with respect to theunprescribed checks, the court held that the evidence established a primafacie case of fault on the part of the bank since its employees consistentlyfailed to follow the bank's own internal procedures on verification of theadequacy of endorsements. However, genuine issues of material fact existedon the issue of whether the employer could be faulted for entrusting a singlestaff member with the responsibility of handling its billing andreimbursement data and placing that employee in a position of uncheckedcontrol over its accounts receivable. Thus, genuine issues of material fact asto the adequacy of the plaintiff's managerial oversight of the employee andthe degree and extent of the parties' respective comparative fault precludedsummary judgment.

2. ASP Enterprises, Inc. v. Guillory, 2008-2235 (La. App. 1st Cir. 9/11/09);____ So. 3d. ____ (not yet released for publication in the permanent lawreports). When the owner of a small family business began to experiencehealth problems, he allowed a commission salesman, who was "like a son tohim," eventually to assume full control of the business<s financial affairs anddaily operations. This employee began to embezzle money from thecompany through a number of methods, including forging the owner's nameson third party customer checks and issuing forged checks on the company'sbank account. When the scheme came to light following a verbal altercationbetween the owner's actual son and this employee, the company filed UCCclaims, negligence claims and RICO claims against the employee, the bankand others who were alleged to have facilitated the employee'sembezzlement. The trial court granted summary judgment in favor of thebank on both the RICO claims and the state law claims. The RICO judgmentwas not appealed; however, the plaintiff appealed the balance of thejudgment assigning numerous errors, all of which were rejected by the courtof appeal in affirming the judgment.

The plaintiff's threshold contention was that the bank was not a holder in duecourse, but was rather a mere transferee, and thus was not entitled to assertthe benefit of any "safe harbor" prescription and other defenses to its claims.Although the court declined to address this argument because it was raisedfor the first time on appeal, it nonetheless commented in a footnote that therewas no Louisiana support for this proposition and that the lone Texas casewhich was offered as support was inapposite.

The court then addressed the plaintiff's claims with respect to the third partychecks that had allegedly been converted under Section 3-420 of the UCCwhen the bank made payment on them. Since most of these checks had been

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negotiated more than one year prior to suit, the bank defended on the basisof prescription. Reaffirming its earlier decision in Peak PerformancePhysical Therapy & Fitness, L.L.C. v. Hibernia Corp., 07-2006 (La. App. 1stCir. 6/6/08); 992 So. 2d 527, the court held that the general doctrine ofcontra non valentem cannot be applied to suspend prescription of a cause ofaction for the conversion of a negotiable instrument except in the case offraudulent concealment by the defendant asserting prescription. Moreover,the "displacement" concept embodied in Section 1-103(b) of the UCCdisplaces any non-UCC state law claims for conversion and negligence. Theplaintiff's contention that the bank was guilty of fraudulent concealment byits alleged "stalling" in producing copies of the cancelled checks wasinsufficient to give rise to any inference of fraud or fraudulent concealment.With regard to the few third party checks that had been deposited within theone year prescriptive period, the court held that the plaintiff was barred fromrecovery on them by virtue of Section 3-405(b) of the UCC, which providesthat, where an employer entrusts an employee with responsibility withrespect to an instrument and the employee makes a fraudulent endorsement,the instrument is effective as the endorsement of the person to whom theinstrument is payable.

With respect to the forged checks that had been drawn by the employee onthe plaintiff's bank account, Section 4-406 of the UCC provides that when abank sends a statement of account to a customer, the customer must exercisereasonable promptness in examining the statement and reporting anyunauthorized signature within a reasonable time, not to exceed 30 days. Ifit fails to do so, the customer is precluded from asserting against the bank thecustomer<s unauthorized signature on any other item by the same wrongdoer.In this case, the plaintiff failed to comply with this duty, and the courtrejected the plaintiff's contention that Section 4-406 does not apply in caseswhere the bank simply makes available a statement of account rather thancopies of the actual checks. The court also held that the plaintiff failed tocome forward with competent evidence of the bank's failure to exerciseordinary care in honoring the checks, and the plaintiff's conclusoryallegations that the bank had failed to follow its own procedures wereinsufficient to carry the plaintiff<s burden. The mere fact that a forgery of asignature on a check is not detected does not prove that a bank's signatureverification procedures are not in accordance with reasonable commercialstandards.

3. JPMorgan Chase Bank v. Andrus, 2008-1160 (La. App. 3d Cir. 6/03/09);10 So. 3d 1286. After depositing a $99,000 check into his bank depositaccount, the depositor wrote a number of checks payable to himself and tohis friend, on whose behalf he was claiming to act in running the $99,000check through his account. When it turned out that the check wascounterfeit, the bank offset it against the remaining balance of the depositor'saccount, creating an $25,000 overdraft which the bank filed suit to collect.The depositor responded with a reconventional demand seeking unspecified

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damages on account of wrongful set-off. The trial court granted summaryjudgment, which the court of appeal affirmed. The depositor's affidavit to theeffect that he had no relationship with the maker of the check and believedthat the check was part of a Nigerian real estate investment scheme did notcreate a genuine issue of material fact, nor did the several "what-if" scenariosthat he posited as to the reason that the check was issued. The bank was ina position to verify that the funds drawn on the account were unauthorizedand obtained through fraud. It was immaterial whether the check wasactually counterfeit. Nor was it important whether the depositor had intentto commit fraud. Though that issue might have been relevant in a criminaltrial, the only issue before the court was whether the depositor was requiredby law to honor his contractual obligation to pay overdrafts. The plainlanguage of the deposit account agreement provided the bank with thecontractual right to collect an overdraft created by the depositor in hisaccount. Once a contract is established, it becomes the law between theparties under La. Civ. Code art. 1983. The bank also acted correctly insetting off the amount of the overdraft against the deposit account, since thataction was clearly authorized by La. R.S. 6:316.

B. Chapter 5: Letters of credit.

Labarge Pipe & Steel Co. v. First Bank, 550 F. 3d 442, 67 UCC Rep. Serv. 2d582 (5th Cir. 2008). As security for its obligation to pay the purchase price for ashipment of goods, the buyer applied for the issuance of a standby letter of credit forthe benefit of the seller. Revisions to the draft letter of credit were discussed, and theissuing bank then faxed a copy of the executed letter of credit to the seller. Underthe terms of the letter of credit, each draw had to be accompanied by the original ofthe letter of credit so that the draw could be endorsed on it. The letter of creditprovided that it was governed by the Uniform Customs and Practices forDocumentary Credits, International Chamber of Commerce Brochure 400 ("UCP400"). The seller's representative informed the bank officer that the seller did notwant to ship the goods unless the purchase price was fully secured by the letter ofcredit, and the bank officer allegedly assured the seller's representative that the bankwas obligated to pay if the purchaser defaulted on its obligation. It was unclear whatbecame of the original signed version of the letter of credit, but it was apparentlynever delivered to the seller. A few months later, there were discussions between theseller and the bank concerning the documentation the seller needed to present inorder to draw on the letter of credit. During these conversations, the seller'semployees informed the bank that they could not locate the original letter of creditand had only the facsimile copy. At that point, the bank informed the seller that itwould not honor a presentation without the original credit. Nonetheless, the sellerattempted to draw on the letter of credit, submitting the letter of credit facsimile ithad received along with the other documentation required by the terms of letter ofcredit. Also included was an affidavit to the effect that the original letter of creditcould not be produced because it had not been delivered to the seller. The bankrefused to honor the letter of credit on account of the seller's failure to present theoriginal letter of credit. The seller then filed suit for wrongful dishonor, breach of

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a letter of credit, detrimental reliance, breach of the obligation of good faith andnegligent misrepresentation. The district court granted summary judgment in favorof the bank, but the court of appeals reversed.

According to Section 5-116(c) of the Uniform Commercial Code, Chapter 5 of theUCC governs letters of credit made subject to the UCP, except in the case of aconflict with the chosen UCP, in which event the chosen UCP will apply. Thus, thecourt felt that both UCP 400 and the UCC provide guidance as to what form a letterof credit can take. The comments to Section 5-104 of the UCC indicate that lettersof credit may be issued electronically rather than as hard copies. Moreover, underUCP 400, when an issuing bank instructs another bank by any teletransmission toadvise a credit, the teletransmission is deemed to be the operative credit instrument,unless the teletransmission states that specific details are to follow or states that themail confirmation is the operative credit instrument. Since no such languageappeared in the facsimile involved in this case, the facsimile itself might beconsidered the operative credit instrument. However, the terms of this letter of creditspecifically required the beneficiary to present the "original" letter of credit in orderto draw. The term "original" was not defined in the letter itself, Chapter 5 or UCP400. Consulting Black's Law Dictionary, the court found that the "original" was theactual first copy of the document. Though a facsimile might qualify as an operativecredit instrument, it is not necessarily the "original" of the letter of credit. Moreover,the provision in the letter of credit to the effect that draws would be endorsed on theoriginal obviously contemplated that there would be only one original. The courtrejected the seller's contention that the bank officer's transmittal of the fax in whichhe stated "here is the letter of credit you requested" had the effect of making thefacsimile copy an original. Moreover, the alleged statements of the bank officer thatthe seller had "everything necessary to secure payment" under the creditdemonstrated only that the bank gave faulty information, not that the facsimile copyshould be considered an original. Thus, the district court properly concluded that theseller did not present the original when it attempted to draw on the letter of credit.

Nonetheless, the court observed that the issuing bank had failed to comply with itsobligations under UCP 400, Article 16(c), which requires a bank dishonoring a letterof credit to give notice to that effect "without delay" and to state whether the bankwill hold the documents or return them to the beneficiary. Under Article 16(e),where a bank fails to do so, it is precluded from claiming that the documents are notin accordance with the terms and conditions of the credit. The district court erred inapplying Section 5-108(b) of the Uniform Commercial Code, which suggests thatnotice of dishonor and of discrepancies in the presentation are always timely if givenwithin three business days of presentment, since UCP 400 requires notice "withoutdelay". Cases that have interpreted this provision have construed it to requireinstantaneous notice. Thus, as a matter of law, the bank did not notify the sellerwithout delay that it would dishonor the presentation.

The court then turned to possible exceptions under the case law to the preclusiveeffect of UCP 400, Article 16(e), specifically (i) presentation of documents withknown defects and (ii) presentation of documents with incurable defects. The first

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possible exception arose from a prior holding of the Fifth Circuit in PhiladelphiaGear Corp. v. Central Bank, 717 F. 2d 230 (5th Cir. 1983), in which the court hadheld that "it would be a strange rule indeed under which a party could tender draftscontaining defects of which it knew and yet attain recovery on the ground that it wasnot advised of them." However, the court distinguished this holding on the groundthat it had been based upon UCP 290, rather than UCP 400, which contained astronger preclusion rule. Moreover, the warranty provisions of Chapter 5 of theUniform Commercial Code were changed after Philadelphia Gear was decided andnow limit a beneficiary's warranty to the absence of fraud or forgery, not that apresentation complies exactly with the terms of the credit. Finally, in a case decidedin 2002, the court had recognized that beneficiaries often present defectivedocuments to issuers in part because the applicant may waive the deficiencies inpresentation. Thus, the court declined to apply Philadelphia Gear's exception to therule of preclusion under UCP 400, Article 16(e).

With respect to the incurable defect exception, the court acknowledged the existenceof cases holding that the reason for UCP 400, Article 16(e) is to provide abeneficiary with the opportunity to cure defects and, if the defects cannot be cured,the preclusion rule should not be enforced. However, other cases strictly enforce thepreclusion rule. More importantly, the court felt that Louisiana courts would rejectthe incurable defect exception. Section 5-108 of the UCC, effective January 1, 2000,plainly indicates the legislative intent to apply a rule of strict preclusion, rather thanprejudice to the beneficiary, in respect of the issuer's failure to give timely notice ofdishonor required under the UCC. The comments cite a similar provision of the UCPas the source of this rule, observing that the rule of preclusion is intended to promotecertainty and finality. This, coupled with the fact that the jurisprudence is dividedin other states, persuaded the court that Louisiana courts would not adopt anincurable defect exception to the rule of preclusion. Since that the bank was thusstrictly precluded by UCP 400 from raising the defects in the seller's presentation,the seller was entitled to judgment for the amount of its draw on the letter of creditalong with its attorney's fees and other litigation expenses (but not its other claims)under Section 5-111(e) of the UCC.

Finally, concerning the claims for detrimental reliance and negligentmisrepresentation, the court noted that under La. Civ. Code art. 1967 one of theessential elements of a claim for detrimental reliance is that the party who reliedsuffered damages as a result of his justifiable reliance on a misrepresentation. Thecourt felt that the seller in this case did not act reasonably in relying on oralrepresentations from bank representatives in determining whether to ship the goods.The terms of the letter of credit explicitly required the original to be presented forpayment. The seller was a well-established company with vast experience in thebusiness of shipping pipe and should have known that it could not reasonably relyon statements made by a bank employee in contradiction of the express terms of theletter of credit.

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VIII. Arbitration agreements

A. Validity of arbitration agreement

1. Coleman v. Jim Walter Homes, Inc., 2007-1574 (La. App. 3d Cir.5/7/08); 982 So. 2d 341. In this case involving a redhibition claim arisingout of the sale of a "build on your lot" home pursuant to a purchaseagreement that contained an arbitration agreement, the court unabashedlybegan its opinion with an observation that it has "consistently refused toenforce an arbitration agreement, stripping the unsuspecting buyer of hisright of access to the courts for redress of a grievance." Under the facts ofthe case, the lot owners had made several trips to the builder's place ofbusiness in Shreveport to discuss selecting a home and negotiating the termsof the sale. During these discussions, the fact that the financing agreementwould contain an arbitration was never mentioned, though the house wasagreed upon as was its purchase price. At the time of closing, the builderpresented the lot owners with a purchase agreement which contained, incapital letters, a reference to an attached arbitration agreement. Thisarbitration agreement carved out exceptions under certain circumstances infavor of the builder, such as the right to foreclose. Testimony from thebuilder's officer indicated that the process would have stopped, and no salewould have occurred, if the lot owners had objected to the arbitrationagreement. Following its earlier decision in Rodriguez v. Ed's MobileHomes of Bossier City, Louisiana, 04-1082 (La. App. 3d Cir. 12/8/04); 899So. 2d 461, and without even a passing mention of the Supreme Court'ssubsequent decision in Aguillard v. Auction Management Corp., 2004-2804(La. 6/29/2005); 908 So. 2d 1, the court held that a party cannot unilaterallyassign additional consideration for the perfection of a sale once all the termsof the contract of the sale have already been agreed upon. In this case, thelot owners were unaware that relinquishing their right of access to the courtswas a condition of the sale when they were negotiating the terms of thecontract. The defendant unilaterally added the arbitration clause to the finalcontract of sale and, had the owners refused to sign the document, the processwould have stopped. Thus, the lot owners' consent to arbitration was vitiatedby error.

2. Chase Bank USA, N.A. v. Leggio, 43,751 (La. App. 2d Cir. 12/3/08); 999So. 2d 155. After obtaining arbitration awards, the bank filed petitions toconfirm them in the Shreveport City Court, which refused to confirm them.On appeal, the plaintiff argued that, under 9 U.S.C. §12, a motion to vacatean award must be served on the adverse party within three months after theaward is filed or delivered. Since the defendant had failed to do so, theplaintiff argued that the defendant was barred from raising a defense to thearbitration. The court of appeal disagreed, observing that the determinationof whether there is a valid written agreement to arbitrate is a first andnecessary step in any confirmation proceeding before a court, citing MCI

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Telecommunications Corp. v. Exalon Industries, Inc., 138 F. 3d 426 (1st Cir.1998). The time limitation imposed by 9 U.S.C. §12 is not at issue unlessthere is a valid written agreement to arbitrate. Thus, contrary to the plaintiff'scontention, the defendant was entitled to raise the lack of a valid contractualagreement to arbitrate as a defense to the confirmation of the arbitrationawards. Turning to the issue of whether there was such an agreement, thecourt noted that the record contained an unsigned, generic copy of acardmember agreement in "such tiny, closely-spaced print as to bepracticably unreadable." Though arbitration appeared to be addressed in theagreement, there was no evidence that a copy of the agreement was providedto the defendant when the credit card was initially issued. Although courtshave held that a consumer's use of a credit card creates liability for creditpurchases without the consumer's signature on the agreement, the mere useof a credit card does not logically give rise to a presumption that theconsumer understood that he was consenting to arbitration, particularlywhere there is no showing that he received notice of the alleged arbitrationclause. Here, the plaintiff failed to show that the defendant ever received orsigned the card member agreements which contained the arbitration clause.Thus, his use of the card is insufficient to show, by itself, that he was put onnotice of and agreed to arbitration.

In a companion case between the same parties published as Chase BankUSA, N.A. v. Leggio, 43,567 (La. App. 2d Cir. 11/19/08); 997 So. 2d 887,the court reversed, on the basis of identical reasoning, an arbitration awardthat had been confirmed by the Shreveport City Court in other proceedings.

3. Saavedra v. Dealmaker Developments, LLC, 2008-1239 (La. App. 4thCir. 3/18/09); 8 So. 3d 758. The parties, who were located in differentstates, entered into a purchase agreement by which the plaintiff was topurchase from the defendant property that was to be part of a plannedsubdivision that the seller was developing in Texas. Though the buyer paidthe purchase price, the seller never transferred title to him becausedevelopment of the planned subdivision became impracticable. Arepresentative of the seller then entered into a subsequent written agreementpromising that an unrelated property in Georgia would be sold in order toraise proceeds to pay the buyer the funds owed to him. Though the originalpurchase agreement contained an arbitration clause, this subsequentagreement did not. When that sale failed to occur, the plaintiff filed suit fora refund of the purchase price, alleging breach of contract, fraud, intentionalmisrepresentation, conversion, and violations of the Unfair Trade PracticesAct. The defendants filed exceptions of prematurity and lack of subjectmatter jurisdiction based upon an arbitration provision contained in thepurchase agreement. The trial court ultimately overruled the exceptions, andthe defendants purported to take an appeal.

The court of appeal first considered, and rejected, the defendant's claims thatthe Federal Arbitration Act, which provides that an order denying arbitration

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may be appealed, preempts Louisiana procedural law precluding an appealfrom an order denying arbitration. The Louisiana procedural rule limitingreview of an interlocutory judgment denying arbitration to a discretionarysupervisory writ does not undermine the goals and purposes of the federalact. Then considering the appeal as a writ application, the court held that theproper procedural device to raise the issue of a party's failure to submit toarbitration is by filing either a dilatory exception of prematurity or a motionto stay pending arbitration. The threshold issue a court must decide iswhether the parties agreed to argue their dispute, based upon a two-foldinquiry: (i) whether there is a valid arbitration agreement, and (ii) whetherthe dispute in question falls within the scope of that agreement. In this case,the plaintiff contended that his tort claims, including fraud, intentionalmisrepresentation and conversion, lay outside the scope of the arbitrationagreement. However, the court found that the arbitration provision at issuewas a broad one covering "any and all claims, issues or disputes of anynature arising out of this contract in any way, to include claims under tortlaw, contract law, statutory law, or common law." Thus, the dispute fellwithin the scope of the arbitration agreement, but the court had to address theissue of whether the alleged fraud in the inducement vitiated consent to thearbitration agreement itself. Federal courts that have considered contractswith a broad arbitration provision and an allegation of invalidity of thecontract due to fraud in the inducement invoke the "separability doctrine",which is the legal fiction that an arbitration provision is an independentcontract from the main contract in which it is contained. Under this doctrine,the arbitration provision is treated as severable from the main agreement, andthe issue of fraudulent inducement of the main contract, as well as otherclaims made by a party to a contract containing a broad arbitrationagreement, go directly to arbitration, unless it is clearly shown that the partiesintended to withhold the issue from the arbitrator. Although the LouisianaSupreme Court in George Engine v. Southern Ship Building Corp., 350 So.2d 881 (La. 1977) rejected the separability doctrine in cases governed by theLouisiana Binding Arbitration Law, federal law must be applied to this case,because the contract in question affected interstate commerce. Since thefraud claim was directed to the purchase agreement as a whole, rather thansimply the arbitration provision, it must be arbitrated.

The plaintiff also contended that the subsequent agreement by which theseller's representative promised that the unrelated property would be sold toraise funds to repay the plaintiff constituted a novation of the earlier purchaseagreement and, since it did not contain an arbitration provision, thearbitration clause had been superseded. The court found that this argumentwas belied by the plaintiff's own petition which sought recovery under theoriginal purchase agreement. Moreover, the original purchase agreementcontained a provision to the effect no amendment would be valid unless setforth in a writing signed by both parties. The subsequent agreement in thiscase was signed by neither of them.

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4. Casares v. James M. Brown Builder, Inc., 44,561 (La. App. 2d Cir.8/19/09); ____ So. 2d ____. Prior to selling subdivision lots, a subdivisiondeveloper executed and recorded a mineral deed transferring the mineralsunderlying the subdivision to a related entity. Thereafter, the developer soldlots to the plaintiffs by deeds that neither contained a mineral reservation normade reference to the prior transfer. At the closings, each plaintiff executedsigned a "Builder Application for Home Enrollment" to a home warrantyprogram, receiving a warranty booklet containing an arbitration clause.During the "leasing frenzy" that followed publicity surrounding theHaynesville Shale play, the plaintiffs learned that they did not own theminerals underlying their residential lots and filed a class action allegingfraud, unfair trade practices, breach of warranty, breach of contract andnegligent misrepresentation. The defendant responded with an exception ofprematurity, asserting that under the home warranty contract, the disputemust be submitted to binding arbitration. The trial court granted theexception, but the court of appeal reversed. Though both state and federallaws embody a liberal policy favoring arbitration, the court must firstdetermine whether the parties agree to submit a dispute to arbitration.However, the question of arbitrability - whether an agreement creates a dutyfor the parties to arbitrate the particular grievance - is undeniably an issue forjudicial determination. Unless the agreement clearly and unmistakablyprovides otherwise, the question of whether dispute is arbitrable is for thecourt, rather than the arbitrator, to decide. In this case, the arbitrationagreement pertains to disputes "arising from or related to this Warranty, tothe subject Home, to any defect in or the subject Home or the real propertyon which the subject Home is situated, or the sale of the subject Home by thebuilder." The court's analysis focused on whether the dispute fell within thescope of a defect in or to the real property. Under the written terms of thewarranty, the only type of real property defect covered by the warranty wasa deficiency in site work. Thus, the parties never intended for a mineralrights dispute to be submitted to arbitration, and the trial court erred inleaving it to the arbitrator to decide the reach of the arbitration agreement.

B. Confirmation.

1. Chase Bank U.S.A. v. Roach, 2007-1172 (La. App. 3d Cir. 3/5/08); 970So. 2d 1103. A credit card agreement contained a provision providing forarbitration under the Federal Arbitration Act in the federal judicial districtthat includes the credit card holder's billing address. When the credit cardholder, who lived in Lafayette, defaulted in making her payments, the creditcard issuer filed a claim for arbitration. When the card holder did notrespond or appear, an award was issued out of the New Orleans office of thearbitrator. The credit card issuer then filed a suit in the city court ofLafayette to confirm the award. The city court dismissed the suit on theground of improper venue in light of La. R.S. 9:4209, which provides that anarbitration award must be confirmed in the parish where the award was made.The court of appeal reversed. The arbitration clause on its face provided that

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it was governed by the Federal Arbitration Act, which provides forconfirmation of an award in the county where the award is made, the countywhere the debtor resides or signed the contract, or the county designated inthe agreement. However, the Fair Debt Collection Practices Act restrictsconfirmation to the county in which the contract was signed or the debtorresides. Thus, venue in Lafayette was proper. In a single paragraph, thecourt then rejected a contention that the award should not be confirmed.Since the defendant raised no challenge to the arbitration, the motion toconfirm the arbitration award must be granted.

2. NCO Portfolio Management, Inc. v. Gougisha, 07-604 (La. App. 5th Cir.4/29/08); 985 So. 2d 731, writ denied 992 So. 986, 2008-1146 (La.9/26/08). In consolidated cases, various credit card companies filed petitionsto confirm awards that had been rendered against consumer debtors inarbitration proceedings held pursuant to purported arbitration agreementscontained in the credit card agreements. Since the debtors did not take actionwithin 90 days of the arbitration awards to have the awards vacated orcorrected, as required by the Federal Arbitration Act (9 U.S.C. Section 10),the creditors argued that the court was bound to confirm the awards.Rejecting this contention, the court held that the validity of the arbitrationawards rested on whether there were valid arbitration agreements to startwith and that the time limit imposed in the Federal Arbitration Act does notcome into play unless there is a valid written agreement to arbitrate. Thequestion of the existence of a binding arbitration agreement is reviewedindependently by the courts, which are not bound by any finding of thearbitrator that arbitration was proper. The court analogized a motion toconfirm an arbitration award to a motion to make a foreign judgmentexecutory: Although a judgment debtor does not have the right to attack themerits of the judgment, he retains the right to contest the jurisdiction of theforeign court or, in the case of an arbitration proceeding, the power of thearbitrator to resolve the dispute. Thus, the creditors had the burden ofproving that a valid arbitration agreement existed. In this case, the creditorssought to rely upon "barely legible" copies of credit card agreements andamendments thereto; however, the debtors' names or signatures did notappear anywhere on these documents, nor were supporting documentsintroduced to show a relationship between these documents and thedefendants. There was no evidence that the credit card holders were put onnotice of or agreed to the arbitration agreement. The court distinguishedAguillard v. Auction Management Corp., 2004-2804 (La. 6/29/2005); 908So. 2d 1, on the ground that the person against whom arbitration was soughtin that case had signed a two-page document containing an arbitrationprovision and there was nothing in the contract document that "would callinto question the validity of the plaintiff's consent to the terms of theagreement as indicated by his signature." The court also held that BuckeyeCheck Cashing, Inc. v.Cardegna, 546 U.S. 440 (2006) does not precludejudicial review of the validity of the arbitration agreement but actuallysupports the court's ability to do so, since the ruling in Buckeye was that

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contract validity is considered by the arbitrator in the first instance "unlessthe challenge is to the arbitration clause itself."

The dissent argued that, in one of the consolidated cases, the plaintiff had infact proved the existence of a valid arbitration agreement, particularly inview of the defendant's failure to respond to a request for admission that hiscredit card agreement had authorized the arbitration process and thedefendant's failure even to raise the issue of the existence of an arbitrationagreement before appeal. In the other consolidated cases, the lower court hadnot actually even considered the issue of whether a valid arbitrationagreement existed, and the dissent felt that the case should be remanded fora hearing and decision on that issue.

3. NCO Portfolio Management, Inc. v. Walker, 2008-1011 (La. App. 3d Cir.2/04/09); 3 So. 3d 628. After the assignee of a credit card debt obtained anarbitration award pursuant to an arbitration clause in the credit cardagreement, it filed suit to confirm the award. Upon being served with thissuit, the debtor filed a motion to vacate the arbitration award along withexceptions of no cause and no right of action, essentially arguing that she hadnever entered into a contract with the assignee and that the indebtedness hadprescribed because the assignee had not filed suit within three years of herlast payment. Thereafter, the assignee filed a summary motion to confirm theaward, attaching the evidence required by La. R.S. 9:4201, and asserting thatthe debtor's motion to vacate the award was untimely because it had not beenfiled within three months of the date of the award. The trial court denied thedebtor's exceptions and granted the motion to confirm the award. The courtof appeal affirmed.

The court recognized that Louisiana has adopted the federal policy favoringarbitration, as enunciated by the Louisiana Supreme Court in Aguillard v.Auction Management Corp., 2004-2804 (La. 6/29/2005); 908 So. 2d 1 (La.2005). Although the United States Supreme Court has made it clear that thesubstantive provisions of the Federal Arbitration Act preempt inconsistentstate law and govern all arbitration agreements in contracts affectinginterstate commerce, state and federal statutes contain nearly identicallanguage addressing the issues under consideration in the case. Both statutesprovide that a party to the arbitration may apply to the court for an orderconfirming the award any time within one year after the award is made andthat the court must grant the order unless the award is vacated, modified orcorrected. The grounds for vacating an award, set forth in La. R.S. 9:4210,are very limited and are exclusive. Notice to vacate, modify or correct anaward must be served upon the adverse party within three months after anaward is filed or delivered. Unless grounds for vacating an award areestablished, the award must be confirmed, and the burden of proof is on theparty attacking the award. The court cannot substitute its conclusion for thatof the arbitrator.

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In this case, the assignee complied with the procedures outlined in thestatutes for obtaining and confirming an award on the credit card debt,obtaining an arbitration award following proper arbitration proceedings andthen submitting the documentation required to confirm the award,specifically, the written arbitration agreement, the arbitration award andappropriate affidavit confirming that notices of the arbitration proceedingswere properly provided to the debtor. The debtor's motion to vacate assertednone of the grounds regarding fraud or arbitrator misconduct recognized inthe state or federal arbitration acts. The debtor's defense on appeal wassimply that she had not entered into an arbitration agreement with theplaintiff; however, she did not deny an agreement with the original creditcard creditor or provide evidence that the credit card agreement entered intoevidence was other than the one delivered to her, that it was invalid due toadhesion or that her consent was vitiated by error.

The court also specifically rejected the debtor's contention that the threemonth limitation period on filing a motion to vacate an arbitration awarddoes not come into play unless there is admissible proof of a valid agreementto arbitrate, declining to follow language to that effect in NCO PortfolioManagement, Inc. v. Gougisha, 07-604 (La. App. 5th Cir. 4/29/08); 985 So.2d 731, writ denied 992 So. 986, 2008-1146 (La. 9/26/08). The courtquestioned the wisdom of allowing a debtor's delayed challenge to thevalidity of an arbitration agreement after confirmation of an arbitration awardis sought, since the very purpose of arbitration is to relieve the courts ofunnecessary litigation. The court also felt that the Gougisha court had placedimproper reliance on MCI Telecommunications Corp. v. Exalon Industries,Inc., 138 F. 3d 426 (1st Cir. 1998), which misinterpreted the FAA byrequiring a party seeking arbitration to petition the court for an orderenforcing the agreement so that the validity of the arbitration agreement canbe determined. The Federal Arbitration Act merely permits, but does notrequire, a party to affirmatively petition a court for an order enforcingarbitration.

With regard to the debtor's arguments consisting of "mostly rhetoricalquestions for the court about the unfairness of credit card companies andtheir agreements in general, and specifically their attempt to amendagreements at any time they wish," the court held that a financial institution'sagreement with its customer may be amended if, following notice of a changein the terms of the agreement, the customer continues performance under theagreement.

Finally, with regard to the debtor's exception of prescription, the court heldthat the applicable prescriptive period to the claim for recognition of thearbitration award is the one-year prescriptive period set forth in thearbitration act. If the debt itself had already prescribed at the time arbitrationproceedings were filed, the debtor should have asserted prescription in thearbitration proceedings.

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IX. Attorney malpractice cases

A. McGuire v. Mosley Rogers Title Company, L.L.C., 43,554 (La. App. 2d Cir.9/17/08); 997 So. 2d 23. Sellers of real estate hired the defendant attorney to handlean owner-financed sales transaction. The sellers specifically told the attorney thatthey wanted personal guaranties from the members of the buyer, which was a limitedliability company. The attorney then referred the sellers to his partner, a non-lawyer,to handle the transaction, allegedly assuring the sellers that personal guaranties werein place. The sellers alleged that at the time of the closing in 2003 they did not meetwith either the attorney nor his partner but instead attended a closing where "papers[were] shuffled past them in a hurried fashion with indications where to sign." Thesellers then received a copy of the documents by certified mail on March 31, 2003,but did not open the envelope until more than a year later after the buyer had stoppedmaking payments. At that time, they discovered that there were no personalguaranties. Within a year after that date, they filed a malpractice suit against theattorney and his title company. The trial court sustained the defendants' exceptionof prescription, and the court of appeal affirmed. Insofar as the claims for legalmalpractice were concerned, La. R.S. 9:5605 establishes two peremptive periods:one year from the date of the alleged malpractice or one year from the date theplaintiff discovered or should have discovered the malpractice within a three-yeartime limit from the date of the alleged malpractice. Since the statute thus includesan equitable suspension of the one-year peremptive period in a manner thatresembles a discovery rule contained within the doctrine of contra non valentem, thejurisprudence holds that contra non valentem does not apply to legal malpracticeclaims. Thus, the pertinent issue was when it would have been reasonable for thesellers to discover the alleged legal malpractice. One of the sellers testified that ifhe had opened the envelope and reviewed the documents he would have discoveredthe missing personal guaranties. By requiring personal guaranties and seeking theservices of the attorney, the sellers demonstrated that they understood the potentialrisk and level of complexity of the transaction. Thus, it was unreasonable that theydid not at the very least open and review the closing documents when they receivedthem in March 2003, and the legal malpractice claims were therefore prescribed.

Insofar as the claims against the title company were concerned, the legislatureenacted La. R.S. 35:200 (with similar limitations periods) after the allegedmalpractice occurred in this case. However, the statute contained a provision makingit applicable to existing claims with a two-year savings period enduring through July1, 2007. The court held that the savings period did not guarantee the seller throughthe expiration of the two-year period within which to file suit, but rather wasintended to avoid barring lawsuits where claimants are ignorant of malpractice thatwas committed before the enactment of the statute. Since the statute did not extendthe one-year period from the time the malpractice was discovered or should havebeen discovered, the savings clause does not benefit the sellers in this case. On theissue of whether the alleged negligence in failing to obtain guaranties fell within thescope of the limitations statute applicable to notaries, the court noted that La. R.S.35:2 defines the general powers of a notary public to include making contracts andinstruments of writing. Thus, the alleged error in document preparation fell within

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the ambit of the limitations statute and the claims against the title company were thuslikewise time-barred since suit had not been brought within one year of the date themalpractice should have been discovered. Judge Caraway dissented both as to theholding with respect to the savings clause and also with respect to the holding thatthe preparation or non-preparation of the personal guaranties fell within the functionsof a notary public. The fact that a title agent has employees who are notaries doesnot make every obligation of a title company subject to the prescriptive period of La.R.S. 35:200.

B. Clower v. Bank of America, 44,034 (La. App. 2d Cir. 2/25/09); 5 So. 3d 983. Theattorney appointed to represent an absentee landowner in a partition suit wrote theabsentee a letter advising that he had been appointed "curator to effectuate serviceupon you in this case." The landowner made no reply, and the appointed attorneyapparently took no further steps in defense of the suit. A few months later, the trialcourt ordered the property partitioned by licitation and entered an order relieving theattorney of his appointment. A year later, the landowner filed a malpractice actionagainst the attorney, who moved for summary judgment on the basis of the priororder relieving him of responsibility. The trial court granted the summary judgment.The other parties to the partition suit then capitulated and agreed that the licitationsale would be vacated. On the appeal of the summary judgment granted in themalpractice action, the court of appeal affirmed but on different grounds. The courtobserved that, given the other parties' agreement to set the sale aside, the onlypossible complaint the plaintiff could have was the legal costs he had incurred inhaving those parties agree to vacate the sale. Though an appointed attorney hasresponsibilities beyond merely accepting service of process and filing an answer, itwas uncontested in this case that the plaintiff took no action whatever after receivingnotification from the attorney. The attorney could not be expected to take actionagainst the judicial sale without even knowing what his client's desires were. Theplaintiff chose to keep the attorney in the dark, and the attorney did not knowwhether the plaintiff opposed the judicial sale, supported it or cared in the slightest.Moreover, even if the plaintiff had taken an interest in the judicial proceeding, hewould still have suffered the very legal fees that he was presently claiming.

X. Jurisdictional issues.

A. Federal subject matter jurisdiction.

Firefighters' Retirement System v. Regions Bank, 598 F. Supp. 2d 785 (M.D. La.2008). A retirement system brought a state court action against the defendant bank,alleging that it had been misled into investing funds in a proprietary fund maintainedby the bank. No federal cause of action was overtly pleaded; instead the plaintiffsimply alleged violations of the Louisiana Blue Sky Law, negligence claims,detrimental reliance claims and other similar causes of actions. The defendantsremoved the action to federal court contending that the securities claim, thoughcouched as one arising out of state law, sought relief that was available only underfederal law, and a federal question therefore existed. The district court adopted themagistrate judge's report and recommendation and remanded the suit to state court.

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The defendant's attempt to rely upon the "well-pleaded complaint" rule representeda misapplication of that rule, which actually makes the plaintiff the master of his owncomplaint and allows him to avoid federal jurisdiction by exclusive reliance on statelaw. Where no federal issues are apparent from the face of the plaintiff's petition, acase has been properly brought in state court unless the plaintiff's have engaged in"artful pleading," a exception to the well-completed complaint rule which holds thata plaintiff may not avoid federal question jurisdiction by characterizing a federalclaim as a state claim. The artful pleading doctrine is implicated when Congress hascompletely preempted an area of state law or when the state claim contains asubstantial and disputed federal issue. In this case, it was admitted that Louisiana'ssecurities law is not completely preempted by federal securities law. In support oftheir contention that a federal claim existed, the defendants asserted that theplaintiff's claims for lost investment profits and opportunities is a remedy that isavailable only under federal law. Though it may be true that the only securities lawunder which such damages are available is federal, those remedies could be obtainedunder other non-securities state law theories of recovery. The court also rejected thedefendants' argument that, in order for the plaintiff to prove its allegations, it wouldnecessarily have to rely upon federal law because issues related to valuation, pricingand liquidation of securities are highly regulated by federal law. The mere presenceof federal issues in a state cause of action does not automatically confer federalquestion jurisdiction. In this case, the limited consultation of federal securities lawon issues of valuation and liquidity do not support the defendants' assertion thatplaintiff's claims raise a substantial question of federal law but rather merelyprovides a factual basis for the plaintiff's state law claims.

B. Diversity jurisdiction.

First Bank & Trust v. Swope, 2008 WL 4059860 (E.D. La. 2008). A mortgagee,whose citizenship for diversity purposes was in Louisiana, commenced an executoryproceeding against the mortgagors, a husband and wife who at the time of filing ofthe suit were domiciled in New York and Louisiana, respectively. Subsequently, themortgagee converted the suit to an ordinary proceeding and added other defendantswhose citizenship was diverse from the mortgagee. The defendants then removedthe matter to federal court on the basis of diversity jurisdiction, claiming thatbetween the filing of the original executory process petition and the filing of theamended petition converting the suit to ordinary process, the wife had become acitizen of Texas, thereby creating complete diversity. Remand was ordered. Thecourt agreed with the contention of the defendants that a federal court cannot issuea writ of seizure and sale in an executory proceeding because the lack of arequirement of citation and judgment before seizure do not comport with Rules 4(b)and 12(a) of the Federal Rules of Civil Procedure. Thus, the executory process suitwas not removable at the time it was filed. However, this does not answer thequestion of when the citizenship of the parties is tested. Under the 1960 commentsto La. C.C.P. art. 2634, the petition in an executory proceeding is governed by therules applicable to petitions in ordinary proceedings. Thus, the filing of a petition forexecutory process is treated the same as a filing of an ordinary proceeding underLouisiana law, and all subsequent filings by the plaintiff are amendments to the

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original petition. Finding no reason to deviate from the rule that diversityjurisdiction is determined at the time suit is filed, the court concluded that therelevant date to determine diversity was when the original executory process petitionwas filed, even though the suit would not then have been removable with evencomplete diversity of citizenship.

C. Personal jurisdiction

1. Central Progressive Bank v. Kuntz, 2008 WL 5264260 (E.D. La. 2008).In connection with a mortgage loan secured by property in Florida, out-of-state defendants executed commercial guaranty agreements providing thatthey were to be governed by Louisiana law and specifying that paymentunder the guaranty would be made to the bank at an address in Louisiana.All of the loan documents were prepared by the bank in Louisiana and weredelivered to the bank in Louisiana after the defendants had signed them inOhio. Following default by the borrower, the bank brought suit in Louisianaagainst the out-of-state defendants, who moved to dismiss on the basis oflack of personal jurisdiction. In denying the motion, the court observed thatcontact with a foreign state may create general or specific personaljurisdiction. Specific personal jurisdiction exists when the defendant'scontacts with the forum arise from and are directly related to the cause ofaction. Specific jurisdiction is present when a non-resident defendant haspurposely directed his activities at residents of the forum and litigationresults from alleged injuries that arise out of or relate to those activities.Following previous holdings, the court found that minimal contacts withLouisiana are established when a non-resident defendant voluntarily executesa guaranty in favor of a Louisiana entity to induce it to provide credit. In thiscase, the defendants personally solicited the bank to lend them money fortheir business. Although the loan documents were signed outside Louisiana,they were all prepared by the bank's attorneys in Louisiana, delivered to thebank in Louisiana, and all payments on these agreements were to be made inLouisiana. The guaranties also provided that they are governed by Louisianalaw. Accordingly, the defendants had sufficient minimum contacts with thestate to justify the assertion of personal jurisdiction. The burden thus shiftsto the defendants to show that the assertion of jurisdiction is unfair andunreasonable. In this case, the defendants' assertions that it would be unfairto force them to litigate in Louisiana were unavailing, because the reverseargument could be made by the bank if it were forced to litigate in Ohio orFlorida. Moreover, suit was brought upon the loan agreement and guaranties,not upon the Florida mortgage; thus the situs of the mortgaged property wasirrelevant. For somewhat similar reasons, the defendants' argumentsconcerning improper venue and their request for a transfer of venue werelikewise denied.

2. Smith Stag, L.L.C. v. Wilson & Meyer Custom Theater Interiors,L.L.C., 2008-1251 (La. App. 4th Cir. 2/18/09);6 So. 3d 921. In connectionwith various construction contracts, the plaintiffs wired money to the

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contractor's bank account at a small, one branch bank in Texas. An employeeat the bank, who was apparently married to an officer of the contractor, thencaused the money to be wired to other accounts, allegedly conspiring tocommit fraud with her husband, who at the time was in Louisiana. The bankexcepted to the court's personal jurisdiction, and the court of appeal affirmedthe trial court's finding that personal jurisdiction over the bank did not exist.The bank itself had absolutely no contacts with Louisiana. The bankemployee was a Texas domiciliary and had no contacts with Louisiana. Heralleged role was limited to transferring funds in Texas, after the plaintiffs hadvoluntarily transferred funds from Louisiana to Texas. Neither the bank northe employee conducted any activities in Louisiana, even though it wasalleged that the employee's co-conspirators did. Jurisdiction was thereforenot proper over either of the employee or the bank. Judge Belsomedissented, contending that the actions of the co-conspirators within the Stateof Louisiana were sufficient to subject the bank employee to the jurisdictionof the courts of this state and, under the doctrine of respondeat superior, togive the court jurisdiction over the bank itself.

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LEGISLATIVE APPENDIXActs of the 2009 Regular Session

Fraudulent disposition of collateral

Act 152 amends La. R.S. 14:72.4 to make fraudulent disposal or concealment of securedcollateral a felony (punishable by a fine of not more than $1,000 and/or imprisonment with orwithout hard labor for not more than one year) when the value of the collateral exceeds $1,000.

Homestead exemption; judicial mortgages

Act 201 amends La. R.S. 20:1 to increase the homestead exemption from $25,000 to$35,000. This act also enacts La. R.S. 13:3851.1, which prohibits a judgment creditor holding ajudgment for "consumer credit card charges" from causing the seizure and sale of the judgmentdebtor's homestead. The creditor may nonetheless file its judgment in the mortgage records andthereby obtain a judicial mortgage entitling him to be paid, according to the ranking of his judicialmortgage, from any proceeds resulting from the sale of the homestead through other means. Thepreclusion does not apply to a creditor holding a conventional mortgage on the debtor's homestead.A violation of the section may not be asserted against third person who purchases the homestead ata sheriff's sale or later private sale from the judgment creditor. An action to annul a sheriff's saleheld in violation of the act is prescribed by one year from the date of the sheriff's sale deed. Anyaction for damages arising from a violation of the section is prescribed by one year from the dateof service of notice of seizure.

Outboard motor titling

Act 508 amends the recently enacted (but not yet effective) Vessel Titling Act (La. R.S.34:852.1 et seq.), as well as corresponding provisions of Chapter 9 of the Uniform CommercialCode, to include the titling of outboard motors. It also delays the effectiveness of the entire act, bothwith respect to vessels and outboard motors, until January 1, 2011. An outboard motor is definedto mean a mechanical combustion engine manufactured to produce 25 or more horsepower anddesigned to be attached outboard to the transom of a vessel.

Payable on death accounts

Act 499 amends La. R.S. 6:314 to remove provisions that had limited the possiblebeneficiaries of a payable on death account to the depositor's spouse, children, grandchildren,parents or siblings. Any one or more persons may now be designated as beneficiaries, withoutregard to their relation to the depositor. A bank may conclusively rely upon an affidavit of theirdesignation for the disbursement of funds following receipt of a death certificate. Similar revisionsare made in analogous provisions of law applicable to credit unions and savings and loanassociations. No change was made to the existing rule that succession rights are not impaired.

Residential mortgage fraud

Act 197 enacts a specific statute, La. R.S. 14:71.3, that criminalizes mortgage fraud whichis made punishable by up to 10 years at hard labor. The statute covers any fraud in connection with

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a "residential mortgage lending activity," which is defined to include virtually any activity relatedto a consumer loan secured by a mortgage on residential property.

Residential mortgage lender licensing

Act 522 enacts the Louisiana Secure and Fair Enforcement of Mortgage Licensing Act,revising the Louisiana Residential Mortgage Lending Act. The bill is intended to place Louisianain compliance with the Federal S.A.F.E. Act of 2008, which mandated the licensing and registrationof all mortgage lenders.

Small successions

Act 81 increases the ceiling on "small successions" subject to La. C.C.P. art. 3421 et seq. to$75,000 and now permits a small succession where the only immovable property owned is "smallsuccession immovable property," which is defined to include (in addition to cemetery plots) a lotor contiguous lots on which a single residential structure is located and in which the deceased orsurviving spouse resided at the time of death (or which was their last place of residence if neitherwas residing there on account of illness, incapacity, natural disaster or destruction). The successionmay be accomplished by the execution of an affidavit of two persons as to certain specified facts.The affidavit, along with a copy of the death certificate, is recorded in the conveyance records afterat least 90 days have elapsed from the date of death. An action by an unrecognized successor toassert an interest in small succession immovable property against a third party is prescribed by twoyears from the date of recording of the affidavit.

Uniform Commercial Code Chapter 7 - Documents of Title

Act 207 is a comprehensive Louisiana State Law Institute-sponsored revision of Chapter 7of the Uniform Commercial Code, dealing with documents of title. Apart from updating andclarifying existing rules, the primary innovation of the revision is to provide for electronicdocuments of title.

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