holding that in order to enforce a promissory note, a plaintiff must, among other things, show that the defendant has defaulted; and as to an assignee, present evidence of a chain of assignmentsSummary of this case from Bayview Loan Servicing, LLC v. Atkins
2017 CA 1628
Jill S. Willhoft Rachal Chance Kramar New Orleans, LA Attorneys for Plaintiffs/Appellees Dawn Falgout Hebert and Kelly Falgout Jude C. Bursavich Nicole Gould Frey Danielle L. Borel Baton Rouge, LA Attorneys for Defendant/Appellant Richard Torbert
NOT DESIGNATED FOR PUBLICATION On Appeal from the Seventeenth Judicial District Court In and for the Parish of Lafourche State of Louisiana
No. 129372, Div. "D" The Honorable Christopher J. Boudreaux, Judge Presiding Jill S. Willhoft
Rachal Chance Kramar
New Orleans, LA Attorneys for Plaintiffs/Appellees
Dawn Falgout Hebert and Kelly
Falgout Jude C. Bursavich
Nicole Gould Frey
Danielle L. Borel
Baton Rouge, LA Attorneys for Defendant/Appellant
Richard Torbert BEFORE: McDONALD, CRAIN, AND HOLDRIDGE, JJ. HOLDRIDGE, J.
In this case arising out of a breach of contract claim for two related promissory notes, the defendant, Richard Torbert, appeals from a summary judgment in favor of the plaintiffs, Dawn Falgout Hebert and Kelly Falgout, ordering the defendant to pay the unpaid balance of the two promissory notes. For the following reasons, we reverse and remand for further proceedings.
FACTS AND PROCEDURAL HISTORY
Offshore Towing International, LLC was formed in February 2013 by the plaintiffs, the defendant, and John Gravois as owners each having equal shares. The defendant allegedly did not have the $100,000.00 capital contribution when Offshore was incorporated, resulting in the plaintiffs and Gravois loaning him $100,000.00. On May 16, 2013, the defendant signed a promissory note (Note 1) that required repayment of $50,000.00 on or before December 31, 2013 to Gravois. On May 21, 2013, the defendant signed a second promissory note (Note 2) that required repayment of $50,000.00 on or before December 31, 2013 to the plaintiffs. Both notes were secured by shares of stock in Offshore in the name of the defendant. On March 12, 2014, Gravois allegedly sold Note 1 to the plaintiffs by an act of sale in stock of Offshore.
We note that the act of sale in stock is not in the record before us evidencing Gravois's sale of his rights in Note 1 to the plaintiffs.
On March 2, 2016, the plaintiffs filed a petition against the defendant for breach of contract alleging that he defaulted on the two promissory notes owed to them. The plaintiffs alleged that the defendant was indebted to the plaintiffs in the amount of $100,000.00, together with interest and attorney fees. On May 9, 2016, the defendant answered the petition, denying all allegations. On January 20, 2017, the plaintiffs filed a motion for summary judgment arguing that there was no genuine issue of material fact and that the defendant owed the plaintiffs the sum of $100,000.00 on the two promissory notes plus interest, attorney's fees, and costs as prayed for in their petition. In support of their motion for summary judgment, the plaintiffs submitted several exhibits with their memorandum, which included both promissory notes and the deposition of the defendant. The evidence revealed that the defendant acknowledged his signature on both promissory notes, understood the terms of both promissory notes, understood that both promissory notes were due on December 31, 2013, and understood that both promissory notes were owed in the total sum of $100,000.00. The documentary evidence further revealed that in Note 1, the defendant "promise[d] to pay to the order of John Gravois ... the sum of ... $50,000.00[.]" However, there was no documentary evidence submitted by the plaintiffs evidencing that Gravois transferred his rights in Note 1 to the plaintiffs. The defendant did not file a memorandum in opposition to the plaintiffs' motion for summary judgment.
On April 10, 2017, the trial court held a hearing on the plaintiffs' motion for summary judgment. The defendant's counsel did not appear at the hearing. The trial court granted the plaintiffs' motion for summary judgment in open court. A judgment was signed by the trial court on June 15, 2017, in accordance with its oral ruling, awarding the plaintiffs the sum of $100,000.00 together with legal interest beginning from the date of the demand until paid, court costs, expenses, and attorney's fees in the amount of 10% of the total amount of the judgment. The defendant subsequently appealed the June 15, 2017 judgment.
After an opportunity for adequate discovery, a motion for summary judgment shall be granted if the motion, memorandum, and supporting documents show that there is no genuine issue as to material fact and that the mover is entitled to judgment as a matter of law. La. C.C.P. art. 966A(3). In determining whether summary judgment is appropriate, this court will review the evidence de novo using the same criteria governing the trial court's determination of whether summary judgment is appropriate. Thompson v. Center for Pediatric and Adolescent Medicine, L.L.C., 2017-1088 (La. App. 1 Cir. 3/15/18), 244 So.3d 441, 444, writ denied, 2018-0583 (La. 6/1/18), 243 So.3d 1062. Even if the nonmoving party does not respond, the court still is obligated to inquire whether the moving party has met its burden to demonstrate undisputed facts entitling him to summary judgment as a matter of law. National Collegiate Student Loan Trust 2003-1 v. Thomas, 48,627 (La. App. 2 Cir. 11/20/13), 129 So.3d 1231, 1233. The burden of proof rests with the mover. La. C.C.P. art. 966D(1).
Louisiana Code of Civil Procedure article 966 was amended by Acts 2015, No. 422, effective January 1, 2016. Because the motion for summary judgment was filed on January 20, 2017, after the effective date of the amendments, the amendments to the summary judgment articles apply in this case.
A fact is material if it potentially insures or precludes recovery, affects a litigant's ultimate success, or determines the legal outcome of the dispute. Id. Because the applicable substantive law determines materiality, whether a particular fact in dispute is material must be viewed in light of the substantive law applicable to the case. Thompson, 244 So.3d at 445. A genuine issue is one as to which reasonable persons could disagree. If reasonable persons could reach only one conclusion, there is no need for trial on that issue and summary judgment is appropriate. Id.
On appeal, the defendant argues that the trial court erred in granting the plaintiffs' motion for summary judgment because their evidence was insufficient to establish that the plaintiffs were entitled to judgment as a matter of law. Specifically, the defendant argues that the plaintiffs' evidence does not establish their legal right to enforce Note 1 because the note was made payable to Gravois, and there was no documentary evidence establishing that the plaintiffs purchased Note 1 by an act of sale in stock or that it was assigned to them by Gravois. The plaintiffs only offered to allow the trial court to perform an in-camera inspection of the act of sale in stock for Note 1 if required. An offer to the trial court to perform an in-camera inspection of an essential document necessary to establish a fact is not appropriate for a motion for summary judgment proceeding. See La. C.C.P. art. 966, comments—2015, comment (c). At the hearing for the motion for summary judgment, the trial court stated that the plaintiffs did not have to submit the act of sale in stock or any other evidence of the transfer of Note 1. The defendant argues because the act of sale in stock is not in the record, there is no evidence indicating the assignment of Note 1, the purchase amount for Note 1, or any transfer of Note 1 to the plaintiffs. Thus, there is no evidence that the plaintiffs are the holders and assignees of Note 1, and therefore there is a genuine issue of material fact as a matter of law as to whether the plaintiffs are entitled to enforce Note 1.
Louisiana Code of Civil Procedure article 966(A)(4) states "[t]he only documents that may be filed in support of or in opposition to the motion are pleadings, memoranda, affidavits, depositions, answers to interrogatories, certified medical records, written stipulations, and admissions." This article makes clear that the documents relied upon in support of a motion for summary judgment must be filed into the record within the time periods prescribed in La. C.C.P. art. 966(B). --------
In order to enforce a promissory note, a plaintiff must: 1) produce and present the note into evidence; 2) show that it was signed by the defendant; 3) show that the defendant has defaulted; and 4) as to an assignee, present evidence of a chain of assignments. See National Collegiate Student Loan Trust 2003-1, 129 So.3d at 1233-34 (emphasis added). Once the plaintiff, in an action to recover on a promissory note, submits sufficient evidence, the summary judgment burden then shifts to the defendant to submit evidence establishing the existence of a triable issue of fact with respect to a bona fide defense. Thomas v. Bryant, 597 So.2d 1065 (La. App. 2d Cir. 1992); Id. at 1234.
In their motion for summary judgment, the plaintiffs did not meet their burden of proof and therefore there is a genuine issue of material fact as to whether the plaintiffs were assigned or were the holders of Note 1. We find that since the plaintiffs failed to introduce any documentary evidence of the assignment of Note 1 to Gravois, they failed to prove that they were the assignees of Note 1 or that they had any right to enforce Note 1.
Louisiana Revised Statute 10:3-301 provides, in relevant part, that an instrument may be enforced by the "holder of the instrument" or a "nonholder in possession of the instrument who has the rights of a holder." A "holder" is a "person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession[.]" See La. R.S. 10:1-201(21)(A). In the present case, the plaintiffs as the possessors of Note 1 bear the burden of proving their right to enforce the note because it is not payable to bearer or to the person in possession of the note. See JP Morgan Chase Bank, N.A. v. Boohaker, 2014-0594 (La. App. 1 Cir. 11/20/14), 168 So.3d 421, 426. Although La. R.S. 10:3-301 does not indicate how a nonholder-possessor can obtain the rights of a holder, the statute's comment explains the rights can be acquired under La. R.S. 10:3-203(a) and are vested in any other person who under applicable law is a successor to the holder or otherwise acquires the holder's rights.
Louisiana Revised Statute 10:3-203(a) addresses the "transfer" of an instrument, which occurs when a note "is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." The transfer "vests in the transferee any right of the transferor to enforce the instrument[.]" La. R.S. 10:3-203(b). Comment 2 to La. R.S. 10:3-203 explains:
Because the transferee is not a holder, there is no presumption under Section 3-308 that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the
transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it. Proof of a transfer to the transferee by a holder is proof that the transferee has acquired the rights of a holder. At that point the transferee is entitled to the presumption under Section 3-308.Thus, the plaintiffs' failure to present any documentary evidence of the chain of assignments of Note 1 or that they were the nonholders in possession of Note 1 who had the rights of a holder precludes the granting of summary judgment in their favor. See Security Nat. Partners, Limited Partnership v. Baxley, 37,747 (La. App. 2 Cir. 10/29/03), 859 So.2d 890, 894. In a motion for summary judgment, it is incumbent upon the mover to prove by documentary evidence his right as an assignee to bring an action on a promissory note. See Id.
After a de novo review of the record, we find that the trial court improperly granted the motion for summary judgment in favor of the plaintiffs, which requested a judgment for the full of amount of both notes, because they failed to meet their burden of producing evidence of a legal transfer of Note 1. The absence of evidence of the March 12, 2014, act of sale in stock from Gravois to the plaintiffs, wherein Gravois allegedly assigned Note 1 to the plaintiffs, is a fatal flaw since the documentary evidence attached to the plaintiffs' motion for summary judgment fails to prove that they had a right to collect on Note 1. Thus, there is a genuine issue of material fact as to whether as a matter of law there was a legal transfer of Note 1 from Gravois to the plaintiffs.
We note that the plaintiffs may have met their burden of proving their right to enforce of Note 2 by presenting sufficient evidence that they are the holders of the note by producing it into evidence, which revealed that it was made payable to the plaintiffs, signed by the defendant, and that the defendant defaulted. However, since the plaintiffs prayed in their petition for the sum of $100,000.00 for both notes and there is a genuine issue of material fact as to whether the plaintiffs as a matter of law had the right to enforce Note 1, summary judgment must be denied. Therefore, we reverse the judgment of the trial court on the grounds that there is a genuine issue of material fact regarding the plaintiffs' right to enforce Note 1.
For the reasons stated above, we find that the motion for summary judgment granted in favor of the plaintiffs, Dawn Falgout Hebert and Kelly Falgout, was improperly granted. Therefore, we reverse the June 15, 2017 judgment and remand for further proceedings. All costs are assessed equally to the plaintiffs, Dawn Falgout Hebert and Kelly Falgout, and the defendant, Richard Torbert.
REVERSED AND REMANDED.