VFS US LLC v. Southwinds Express Construction, LLC et al
Filing
26
ORDER & REASONS: granting 12 Plaintiff's Motion for Summary Judgment; FURTHER ORDERED that within fourteen (14) days, Plaintiff shall file a properly supported motion for attorneys' fees and costs which itemizes all fees and expenses. Defendants shall file any response to the motion within seven (7) days thereafter. Signed by Judge Carl Barbier on 6/30/14. (sek)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
VFS US, L.L.C.
CIVIL ACTION
VERSUS
NO: 14-126
SOUTHWINDS EXPRESS
CONSTRUCTION, L.L.C., ET AL
SECTION: J
ORDER AND REASONS
Before the Court is a Motion for Summary Judgment brought by
Plaintiff VFS US, L.L.C. (Rec. Doc. 12), Defendants' Opposition
(Rec. Doc. 22), and Plaintiff's Reply (Rec. Doc. 25). Having
considered the motion, the parties’ submissions, the record, and
the applicable law, the Court finds, for the reasons expressed
below, that the motion should be GRANTED.
PROCEDURAL AND FACTUAL BACKGROUND
Between December 29, 2010 and September 9, 2011, Defendant
Southwinds executed five (5) secured promissory notes in favor of
Plaintiff
for
the
financed
purchase
of
various
construction
equipment. The details of those five (5) notes are as follows:
(1) Note 1: On or about December 29, 2010, Southwinds entered
into a contract with Plaintiff to finance the purchase of a 2010
Volvo EC360CL (serial number ...0547) for $232,246.14, to be paid
in thirty-six (36) monthly installments in accordance with a
payment addendum. Southwinds granted Plaintiff a security interest
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in the 2010 Volvo EC360CL to secure payment of the note, as well as
all other debts owed at any time by Southwinds to Plaintiff.
Plaintiff perfected its security interest in the 2010 Volvo EC360CL
on or about January 24, 2011. By September 2012, Southwinds owed
delinquent payments and late fees of $21,391.85 under Note 1. For
that reason, the parties entered into a Modification Agreement on
September 12, 2012, which provided the following modification to
Note 1: beginning on June 14, 2012, Southwinds would make four (4)
consecutive monthly payments of $0.00, and then eighteen (18)
consecutive monthly payments of $7,598.05. Plaintiff alleges that
currently, payments have not been made on Note 1 for more than five
(5) months.
(2) Note 2: On or about March 28, 2011, Southwinds entered
into a contract with Plaintiff to finance the purchase of a 2011
Geith MTP 450 (serial number ...7203). On the same date, Southwinds
executed an Additional Collateral Addendum in connection with Note
1, granting Plaintiff a security interest in the 2011 Geith MTP 450
to secure payment of Note 1. Plaintiff perfected the security
interest in the 2011 Geith MTP 450 on April 11, 2011. Note 2 has
been paid in full and is not the subject of this litigation, except
to the extent that Plaintiff contends that the 2011 Geith MTP 450
secures the debt owed pursuant to Note 1.
(3) Note 3: On or about April 20, 2011, Southwinds entered
into a contract with Plaintiff to finance the purchase of a 2011
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Geith MT45 (serial number ...7205). Note 3 has been paid in full
and is not the subject of this litigation.
(4) Note 4: On or about June 21, 2011, Southwinds entered into
a contract with Plaintiff to finance the purchase of a 2011 Volvo
EC360CL (serial number ...0558) for $204,635.64, to be paid in
thirty-six (36) monthly installments. Southwinds granted Plaintiff
a security interest in the 2011 Volvo EC360CL to secure payment of
the note, as well as all other debts owed at any time by Southwinds
to Plaintiff. Plaintiff perfected its security interest in the 2011
Volvo
EC360CL
on
or
about
July
5,
2011.
By
September
2012,
Southwinds owed delinquent payments and late fees of $20,396.50
under
Note
4.
For
that
reason,
the
parties
entered
into
a
Modification Agreement on September 12, 2012, which provided the
following modification to Note 4: beginning on June 21, 2012,
Southwinds would make four (4) consecutive monthly payments of
$0.00, and then twenty-three (23) consecutive monthly payments of
$7,084.96. Plaintiff alleges that currently, payments have not been
made on Note 4 for more than eight (8) months.
(5) Note 5: On or about September 9, 2011, Southwinds entered
into a contract with Plaintiff to finance the purchase of a 2011
Volvo L220G (serial number ...2127) for $371,667.37, to be paid in
forty-two (42) monthly installments in accordance with a payment
addendum. Southwinds granted Plaintiff a security interest in the
2011 Volvo L220G to secure payment of the note, as well as all
3
other debts owed at any time by Southwinds to Plaintiff. Plaintiff
perfected its security interest in the 2011 Volvo L220G on or about
September 16, 2011. By September 2012, Southwinds owed delinquent
payments and late fees of $29,022.58 under Note 5. For that reason,
the parties entered into a Modification Agreement on September 12,
2012,
which
beginning
on
provided
July
9,
the
following
2012,
modification
Southwinds
would
to
make
Note
three
5:
(3)
consecutive monthly payments of $0.00, and then thirty-two (32)
consecutive monthly payments of $9,821.56. Plaintiff alleges that
currently, payments have not been made on Note 5 for more than
thirteen (13) months.
On or about December 29, 2010, Defendants Flaherty, Promuto,
and Central Rock executed a continuing guaranty pursuant to which
they guaranteed the performance of all payments due by Southwinds
to Plaintiff, including all obligations under the promissory notes.
Those same Defendant guarantors signed on as guarantors for the
Modification Agreement of September 12, 2012, which affected Notes
1, 4, and 5.
Plaintiff filed suit on January 17, 2014, alleging that
Defendants owe Plaintiff $378,615.18, plus interest, late charges,
and attorneys' fees and costs, pursuant to three promissory notes
(Note 1, Note 4, and Note 5), the Additional Collateral Addendum,
and the continuing guaranty. Defendants contend that the 2011 Volvo
L220G (serial number ...2127), which is the loader equipment
4
(hereinafter "the loader") that is the subject of Note 5, was
defective and unfit for its intended use. Defendants estimate that
Plaintiff made more than 100 unsuccessful attempts to repair the
loader, after which Southwinds returned the loader to the local
Volvo dealer. Defendants argue that they should be granted a credit
against the amount owed in light of the extensive repair issues.
Defendants allege that they were in the midst of negotiations with
Plaintiff to agree on a reasonable credit amount at the time
Plaintiff filed this suit.
PARTIES' ARGUMENTS
Plaintiff
argues
that
it
is
entitled
to
declare
all
outstanding indebtedness immediately due and payable and to recover
late charges and a default interest rate of 18% from the date of
judgment until payment is made. Plaintiff also argues that it is
entitled to an award of reasonable attorneys' fees and costs.
Additionally, Plaintiff argues that it is entitled to return of the
secured collateral and to sell that collateral at private sale.
Both Plaintiff and Defendants agree that North Carolina law
applies in this case. Plaintiff argues that under North Carolina
law, even if the loader were defective, that fact would not provide
Defendants with a defense to payment of Note 5. According to
Plaintiff, Defendants' only remedies under North Carolina law would
be to file a counterclaim, either a breach of warranty claim or a
claim in recoupment. Plaintiff points out that Defendants' answer
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fails to set forth any counterclaims, and because both available
counterclaims are compulsory, Defendants have fatally failed to
avail themselves of either remedy, and Plaintiff's motion should be
granted.
Defendants do not appear to contest that they have defaulted.
However, they argue that the Court should defer ruling on the
instant
motion
for
a
reasonable
discovery
period
because
Plaintiff's discovery responses were only due to be turned over to
Defendant on June 9, 2014, and Defendants believe that those
responses could contain relevant information concerning the issues
raised in this motion. Plaintiff does not respond to this argument.
Defendants also argue that Plaintiff seeks double recovery by
requesting both the return of the collateral and a judgment for the
full amount of the outstanding debt. Plaintiff points out that any
proceeds from the sale of the collateral would be used to satisfy
the outstanding debt on each respective note.
LEGAL STANDARD
Summary judgment is appropriate when "the pleadings, the
discovery and disclosure materials on file, and any affidavits show
that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law." Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986) (citing FED. R. CIV. P. 56©);
Little v. Liquid Air Corp., 37 F.2d 1069, 1075 (5th Cir. 1994).
6
When assessing whether a dispute as to any material fact exists,
the Court considers "all of the evidence in the record but refrains
from making credibility determinations or weighing the evidence."
Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d
395, 398 (5th Cir. 2008). The Court will examine the evidence in
the light most favorable to the nonmoving party. Naquin v. Fluor
Daniel Servs. Corp., 935 F. Supp. 847, 848 (E.D. La. 1996) (citing
United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). While
all reasonable inferences are drawn in favor of the nonmoving
party, a party cannot defeat summary judgment with conclusory
allegations or unsubstantiated assertions. Little, 37 F.2d at 1075.
A Court ultimately must be satisfied that "a reasonable jury could
not return a verdict for the nonmoving party." Delta, 530 F.3d at
399.
If the dispositive issue is one on which the moving party will
bear the burden of proof at trial, the moving party "must come
forward with evidence which would 'entitle it to a directed verdict
if the evidence went uncontroverted at trial.'" Int'l Shortstop,
Inc. v. Rally's, Inc., 939 F.2d 1257, 1263-64 (5th Cir. 1991)
(citation omitted). The nonmoving party can then defeat the motion
by either countering with sufficient evidence of its own, or
"showing that the moving party's evidence is so sheer that it may
not persuade the reasonable fact-finder to return a verdict in
favor of the moving party." Id. at 1265.
7
If the dispositive issue is one on which the nonmoving party
will bear the burden of proof at trial, the moving party may
satisfy its burden by merely pointing out that the evidence in the
record is insufficient with respect to an essential element of the
nonmoving party's claim. See Celotex, 477 U.S. at 325. The burden
then shifts to the nonmoving party, who must, by submitting or
referring to evidence, set out specific facts showing that a
genuine issue exists. See id. at 324. The nonmovant may not rest
upon the pleadings but must identify specific facts that establish
a genuine issue for trial. See, e.g., id. at 325; Little, 37 F.3d
at 1075.
DISCUSSION
North Carolina law pertaining to negotiable instruments
states:
(a) Except as stated in subsection (b) of this section,
the right to enforce the obligation of a party to pay an
instrument is subject to the following:
(1) A defense of the obligor based on (i) infancy of the
obligor to the extent it is a defense to a simple
contract,
(ii)
duress,
lack
of
legal
capacity,
or
illegality of the transaction which, under other law,
nullifies the obligation of the obligor, (iii) fraud that
8
induced the obligor to sign the instrument with neither
knowledge nor reasonable opportunity to learn of its
character or its essential terms, or (iv) discharge of
the obligor in insolvency proceedings;
(2) A defense of the obligor stated in another section of
this Article or a defense of the obligor that would be
available
if
the
person
entitled
to
enforce
the
instrument were enforcing a right to payment under a
simple contract; and
(3) A claim in recoupment of the obligor against the
original payee of the instrument if the claim arose from
the transaction that gave rise to the instrument; but the
claim of the obligor may be asserted against a transferee
of the instrument only to reduce the amount owing on the
instrument at the time the action is brought.
N.C. Gen. Stat. Ann. § 25-3-305 (West 1995). Defendants have not
raised defenses under Subsection (1) or Subsection (2) of the
statute.
Neither
have
Defendants
raised
a
counterclaim
in
recoupment under Subsection (3). The comments to § 25-3-305 state
as follows:
9
Subsection (a)(3) is concerned with claims in recoupment
which can be illustrated by the following example. Buyer
issues a note to the order of Seller in exchange for a
promise of Seller to deliver specified equipment. If
Seller
fails
equipment
to
that
is
deliver
the
equipment
rightfully
rejected,
or
delivers
Buyer
has
a
defense to the note because the performance that was the
consideration for the note was not rendered. Section 3303(b). This defense is included in Section 3-305(a)(2).
That defense can always be asserted against Seller. This
result is the same as that reached under former Section
3-408.
But suppose Seller delivered the promised equipment and
it was accepted by Buyer. The equipment, however, was
defective. Buyer retained the equipment and incurred
expenses with respect to its repair. In this case, Buyer
does not have a defense under Section 3-303(b). Seller
delivered the equipment and the equipment was accepted.
Under Article 2, Buyer is obliged to pay the price of the
equipment which is represented by the note. But Buyer may
have a claim against Seller for breach of warranty. If
Buyer has a warranty claim, the claim may be asserted
against Seller as a counterclaim or as a claim in
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recoupment to reduce the amount owing on the note.
Id. at cmt. 3.
In this case, Plaintiff delivered the promised equipment to
Southwinds, and Southwinds accepted it. Despite Defendants' claim
that the equipment was defective, North Carolina law is clear that
in this type of factual scenario, Defendants are obligated to pay
the
amount
due
under
the
note.
It
is
therefore
clear
that
Defendants have no defense to payment of the notes. Defendants
could, however, have a claim in recoupment or a breach of warranty
claim to reduce the amount owing on the note. Defendants have
failed to raise a counterclaim in recoupment or a counterclaim for
breach of warranty. Under the current Scheduling Order (Rec. Doc.
11), the deadline for amendments to pleadings expired on May 12,
2014.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Plaintiff's Motion for Summary
Judgment (Rec. Doc. 12) is GRANTED.
IT
IS
FURTHER
ORDERED
that
within
fourteen
(14)
days,
Plaintiff shall file a properly supported motion for attorneys'
fees and costs which itemizes all fees and expenses. Defendants
shall file any response to the motion within seven (7) days
thereafter.
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New Orleans, Louisiana this 30th day of June, 2014.
________________________________
CARL J. BARBIER
UNITED STATES DISTRICT JUDGE
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