Opinion
No. 99-3705
October 16, 2000
ORDER AND REASONS
Before the Court are cross-motions for summary judgment submitted by Plaintiff, 5-Star Premium Finance ("5-Star") and Defendants, Corwyn Dale Wood and Corwyn Financial Services, Inc., whose motion was joined by Defendants Miles B. Wood, Cheryl D. Wood, and Executive Benefits, Inc.' For the reasons explained below, Defendants' Motion for Summary Judgment with regard to the Plaintiff's Louisiana Unfair Trade Practices and Consumer Protection Law claim is GRANTED, Defendants' affirmative defense of novation is hereby DISMISSED and the remainder of Plaintiff's and Defendants' Motions for Summary Judgment is DENIED.
On October 10, 2000, Plaintiff filed a Motion to Dismiss all claims against Cheryl D. Wood and Miles B. Wood, (Rec. Doc. 44), but maintained its state law claims against Executive Benefits, Inc. Therefore, the Court will not address the allegations against Cheryl D. Wood and Miles B. Wood in their personal capacity. Because 5-Star has not yet filed an Answer to the counter-claims lodged by Cheryl D. Wood and Miles B. Wood (Rec. Doc. 25), the Court also explicitly reserves judgment on those claims.
I. Background
Plaintiff 5-Star and Defendants participated in a series of transactions whereby 5-Star made funds available to Defendants as insurance premium financing. However, Plaintiff alleges, and the Defendants have not specifically denied, that the insurance policies were non-existent. Therefore, Plaintiff seeks relief under multiple theories: (1) the federal civil RICO statute, 18 U.S.C.A. § 1962 and § 1964; (2) Louisiana Unfair Trade Practices and Consumer Protection Law, La. R.S. 51:1401 et seq., (3) conversion/theft; (4) fraud, La. Civil Code art. 1953; (5) restitution due to the payment of a thing not owed, La. Civil Code arts. 2299 2300; and (6) unjust enrichment. Defendants argue that they owe no obligation to Plaintiff because (1) Corwyn Financial Services was no involved in the transaction; (2) Plaintiffs have received partial payment of the amount owed; (3) Plaintiff accepted mortgage interests in Defendants' property and promissory notes, which constituted a novation of the debt and/or (4) the receipt of the negotiable instruments by the Plaintiff constituted a transaction and compromise, which means that Plaintiffs sole remedy is traditional foreclosure of the mortgages.
This Court can grant a motion for summary judgment only when the "`pleadings, depositions answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."' Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)). Upon such a showing, the burden shifts to the non- moving party to produce evidence of the existence of a genuine issue for trial. Id. A factual dispute is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Beck v. Somerset Techs.. Inc., 882 F.2d 993, 996 (5th Cir. 1989) (citing Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248 (1986)).
II. Louisiana Unfair Trade Practices and Consumer Protection Law ("LUPTA")
Although many of these issues presented in these motions are not appropriately decided on summary judgment, the Court can dispose of one of Plaintiff's claims, the Louisiana Unfair Trade Practices and Consumer Protection Law ("LUPTA"). Under Louisiana law, "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful" La. R.S. § 1405. Private parties who is harmed by another party's unfair or deceptive practice may bring suit to recover actual damages. See La. R.S. § 1409. Although the text of§ 1409 suggests that "any person who suffers any ascertainable loss" may bring suit, the Fifth Circuit has given this statute a much narrower reading, limiting relief to personal consumers or business competitors, and denying a cause of action to business consumers. See Orthopedic Sports Injury Clinic v. Wang Laboratories. Inc., 922 F.2d 220, 226 (5th Cir. 1991) (holding that the act covers only those transactions "primarily intended for personal, family or household use.") Although this Court has previously expressed doubt about the current understanding of LUPTA's reach, See discussion inHamilton v. Business Partners. Inc., 938 F. Supp. 370, 372 (E.D. La. 1996), the Fifth Circuit's interpretation still stands. See, e.g., KFC Ventures. L.L.C. v. Metairie Med. Equip. Leasing Corp., 2000 WL 1252596 (E.D. La. Sept. 1) (Barbier, J.). In light of the expansive language offered by the Louisiana Court of Appeals in Capitol House Preservation Co., L.L.C. v. Perryman Consultants. Inc., 725 So.2d 523, 530 (La.App. 1st Cir. 1998), reconsideration of the Fifth Circuit position regarding LUPTA may be appropriate. For now, however, the Court is prevented from entertaining Plaintiff's prayer for relief under this statute. Therefore, this claim is DISMISSED WITH PREJUDICE.
III. Novation
Another issue that the Court can address presently is whether the transactions between Plaintiff and Defendants constituted a novation. "Novation is the extinguishment of an existing obligation by the substitution of a new one." La. Civil Code art. 1879. Under the Louisiana Civil Code, the burden of proof is extremely high for the party alleging that a novation has taken place: "The intention to extinguish the original obligation must be clear and unequivocal. Novation may not be presumed." La. Civil Code art. 1880.
According to the numerous deposition excerpts offered by the Plaintiff and Defendants, it is apparent to the Court that Defendants will not be able to satisfy the difficult burden of a showing clear and unequivocal intention of 5-Star to a novation. Clarence Zahn, and Cheryl Wood (and to some extent even Corwyn Dale Wood) have indicated through their deposition testimony and/or affidavits that the purpose of the mortgages and promissory notes was to secure the original debt. See Zahn Affidavit, 14 ("These promissory notes [secured by mortgages] were given as partial security for the original debt, and not as a payment or substitute for the original debt."); Cheryl A. Wood Deposition, at 55 ("The mortgages were to secure the stolen money that Dale stole.); Corwyn Dale Wood Deposition, at 96 — 102 (discussing how the sale of the mortgage notes would be used to reduce the amount he owed to 5-Star).
Defendants' relies on Louisiana Health Serv. and Indem. Co. v. McNamara, 561 So.2d 712 (1990), in an attempt to shift the presumption against novation in their favor. In McNamara, the Louisiana Supreme Court reiterated that "[o]ur courts have generally interpreted acknowledgment by notes or checks to constitute implicit novations of the obligations whenever this interpretation is favorable to the creditor." Id. at 719. However, in this case, Defendants were not released from their obligation to pay the debt due to the prescription, as was the case in McNamara. Second, the presumption of novation does not apply in this case because such an interpretation would not be favorable to the creditor, 5-Star. Therefore, McNamara does not support Defendants' efforts to overcome the presumption against novation. For all these reasons, it is clear that the Defendants will not be able to demonstrate that they executed a novation with 5-Star, and therefore its defense of novation is DENIED AS A MATTER OF LAW.
IV. The Fifth Amendment and the Plaintiffs' Motion for Summary Judgment
In its motion for summary judgment, Plaintiff insists that the Court may weigh the fact that Defendant Corwyn Dale Wood's invoked his Fifth Amendment right against self incrimination during his deposition when considering its motion for summary judgment. In support of this position, Plaintiff cites Farace v. Independent Fire Ins. Co., 699 F.2d 204 (5th Cir. 1983) and offers an extended quote from Baxter v. Palmagiano, 425 U.S. 308, 318-19 (1976) both of which hold that a court may draw an adverse inference from a party's refusal to testify in a civil case.
In Baxter, the Supreme Court noted that "the prevailing rule [is] that the Fifth Amendment does not forbid adverse inferences against parties to civil actions when they refuse to testify in response to probative evidence offered against them: the Amendment does not preclude the inference where the privilege is claimed by a party to a Civil cause. . . ." 425 U.S. at 318.
The constitutional considerations are more complicated, however, in the context of a motion for summary judgment. The Supreme Court has insisted that while the exercise of one's Fifth Amendment rights will not always be cost-free, the exercise of the privilege against self-incrimination must not be unduly costly. See Spevack v. Klein, 385 U.S. 511, 515 (1967) ("The Fourteenth Amendment secures against state invasion the same privilege that the Fifth Amendment guarantees against federal infringement — the right of a person to remain silent unless he chooses to speak in the unfettered exercise of his own will, and to suffer no`penalty' for such silence. In this context, "penalty' is not restricted to fine or imprisonment. It means . . . the imposition of any sanction which makes assertion of the Fifth Amendment privilege `costly.') (internal citations omitted). Acknowledging this principle in United States v. White, 589 F.2d 1283 (5th Cir. 1979), the Fifth Circuit wrote that "[w]e accept the proposition that a grant of summary judgment merely because of the invocation of the fifth amendment would unduly penalize the employment of the privilege." Id. at 1287. More recently, the Seventh Circuit suggested that "drawing inferences against the [defendant] on the basis of [his exercise of Fifth Amendment rights] seems to be in tension with the ordinary summary judgment rule that all reasonable inferences must be drawn in favor of the nonmovant." LaSalle Bank Lake View v. Seguban, 54 F.3d 387, n. 7 (7th Cir. 1995). Therefore, the Seventh Circuit concluded that "deeming an allegation of a complaint to be admitted based on the invocation of the Fifth Amendment privilege without requiring the complainant to produce evidence in support of its allegations would impose too great a cost and exceed the authorization of Baxter. " Id. at 391. This Court finds the Seguban opinion highly persuasive, and approaches these motions with the same concerns as were articulated by the Seventh Circuit in mind.
In this case, Plaintiff offers little more than the deposition testimony of Corwyn Dale Wood to support its federal and state claims. Specifically, the Plaintiff calls to the Court's attention the approximately seventy-five occasions where the Defendant asserted his Fifth Amendment rights when asked whether specific companies, for whom insurance premium financing had been obtained, actually existed. Beyond that, however, Plaintiff offers little, if any, evidence to support its claims, and has certainly not satisfied its burden on a motion for summary judgment).
Former Defendant Cheryl D. Wood professed ignorance regarding a substantial portion of Corwyn Dale Wood's transactions.
Under these circumstances, the Plaintiff has two options- continue to trial or petition the Court to stay the proceedings until the Defendant no longer is exposed to criminal liability for his alleged conduct, at which time he will no longer be able to refuse Plaintiff's questions by invoking the Fifth Amendment. Either way, the Court is unwilling to sacrifice the important protections embodied in the Fifth Amendment by granting a motion for summary judgment based solely on negative inferences drawn from a defendant's invocation of his constitutional privilege against self- incrimination. For this reason, the Court finds that Plaintiff's remaining claims are not appropriate for summary judgment. Therefore, Plaintiff's motion for summary judgment is DENIED.
V. Defendants' Motion for Summary Judgment
The Court finds that there are disputed issues of material fact with regard to Defendants' remaining defenses — specifically, whether Corwyn Dale Wood acted in an individual capacity or with real and/or apparent authority on behalf of Corwyn Financial Services when he engaged in transactions with 5-Star; the extent to which Defendants' obligations to Plaintiff have been satisfied, and whether the parties executed a transaction and compromise under Louisiana Civil Code art. 3071. Therefore, Defendants' motion for summary judgment, with the exception of Plaintiff's claims under LUPTA, is DENIED.