State Bank & Trust Company v. Lil Al M/V et al

Filing 76

ORDER AND REASONS granting in part Plaintiff's 60 Motion for Summary Judgment and denying Defendants' 66 Motion to Dismiss for Lack of Jurisdiction. Plaintiff is entitled to judgment recognizing its preferred ship mortgage on the M /V Lil Al, Official Number 1250213, as valid. Plaintiff's request for a judgment recognizing a valid preferred ship mortgage on the M/V Mr. Alan, Official Number 1040047 and the M/V L/B Whitney, Official Number D644243, is DENIED. All other requests for relief by Plaintiff are DEFERRED. Signed by Judge Jane Triche Milazzo. (ecm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
STATE BANK AND TRUST CO.

CIVIL ACTION

VERSUS

NO: 16-5053

LIL AL M/V ET AL.

SECTION: “H”(1)

ORDER AND REASONS
Before the Court are Plaintiff State Bank & Trust Company’s Motion for
Summary Judgment (Doc. 60); and Defendants’ Motion to Dismiss for Lack of
Subject Matter Jurisdiction (Doc. 66). For the following reasons, Plaintiff’s
Motion is GRANTED IN PART, and Defendants’ Motion is DENIED.
BACKGROUND
Plaintiff State Bank & Trust Company (“State Bank”) is a financial
institution that loaned money to Defendant C & G Liftboats, LLC (“C&G”). On
July 16, 2014, C&G executed a promissory note in the sum of $8,055,000.00
payable to State Bank (the “Hand Note”). The Hand Note was secured by the
pledge of a first preferred ship mortgage note dated May 7, 2014 in the sum of
$8,500,000.00.

The preferred ship mortgage note was secured by a first
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preferred mortgage on the vessel M/V Lil Al. The Hand Note was further
secured by the pledge of preferred ship mortgage notes in the form of collateral
chattel mortgages by A.M.C. Liftboats, Inc. (“AMC”) on the M/V Mr. Alan and
the M/V L/B Whitney.

AMC also granted a commercial guaranty to State

Bank to guarantee the Hand Note. Finally, Polly and Adam Cheramie, the
owners of C&G and AMC, granted personal guarantees on the Hand Note.
Plaintiff alleges that on December 15, 2015, C&G defaulted on the Hand
Note, and Plaintiff made demand on Defendants C&G, AMC, and the
Cheramies. The failure of any Defendant to satisfy their obligation to State
Bank resulted in the filing of the instant action.
Plaintiff now moves for summary judgment recognizing its preferred
ship mortgages on the M/V Lil Al, the M/V Mr. Alan, and the M/V L/B Whitney
pursuant to the Ship Mortgage Act and its in personam claims against the
remaining Defendants. Defendants oppose this Motion and file their own
Motion to Dismiss for Lack of Subject Matter Jurisdiction, arguing that
collateral chattel mortgages are no longer valid instruments for mortgaging
movable property under Louisiana law, and Plaintiff therefore does not have a
preferred ship mortgage under the Ship Mortgage Act.

They argue that

because no preferred ship mortgage is at issue, this Court does not have federal
question jurisdiction pursuant to the Ship Mortgage Act.
consider each argument in turn.

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The Court will

LEGAL STANDARD
A. Subject Matter Jurisdiction
A Rule 12(b)(1) motion challenges the subject matter jurisdiction of a
federal district court. “A case is properly dismissed for lack of subject matter
jurisdiction when the court lacks the statutory or constitutional power to
adjudicate the case.” 1 In ruling on a Rule 12(b)(1) motion to dismiss, the court
may rely on (1) the complaint alone, presuming the allegations to be true, (2)
the complaint supplemented by undisputed facts, or (3) the complaint
supplemented by undisputed facts and by the court’s resolution of disputed
facts. 2 The proponent of federal court jurisdiction—in this case, the Plaintiff—
bears the burden of establishing subject matter jurisdiction. 3
B. Summary Judgment
Summary judgment is appropriate “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with 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.” 4 A genuine issue
of fact exists only “if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” 5
In determining whether the movant is entitled to summary judgment,
the Court views facts in the light most favorable to the non-movant and draws
all reasonable inferences in his favor. 6 “If the moving party meets the initial
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1998).

Home Builders Ass’n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir.

Den Norske Stats Oljesels kap As v. Heere MacVof, 241 F.3d 420, 424 (5th Cir. 2001).
See Physicians Hosps. of Am. v. Sebelius, 691 F.3d 649, 652 (5th Cir. 2012).
4 Sherman v. Hallbauer, 455 F.2d 1236, 1241 (5th Cir. 1972).
5 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
6 Coleman v. Houston Indep. Sch. Dist., 113 F.3d 528, 532 (5th Cir. 1997).
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burden of showing that there is no genuine issue of material fact, the burden
shifts to the non-moving party to produce evidence or designate specific facts
showing the existence of a genuine issue for trial.” 7 Summary judgment is
appropriate if the non-movant “fails to make a showing sufficient to establish
the existence of an element essential to that party’s case.” 8 “In response to a
properly supported motion for summary judgment, the non-movant must
identify specific evidence in the record and articulate the manner in which that
evidence supports that party’s claim, and such evidence must be sufficient to
sustain a finding in favor of the non-movant on all issues as to which the nonmovant would bear the burden of proof at trial.” 9 “We do not . . . in the absence
of any proof, assume that the nonmoving party could or would prove the
necessary facts.” 10 Additionally, “[t]he mere argued existence of a factual
dispute will not defeat an otherwise properly supported motion.” 11
LAW AND ANALYSIS
In its Motion for Summary Judgment, Plaintiff argues that it is entitled
to a judgment recognizing its preferred ship mortgages on the M/V Lil Al, the
M/V L/B Whitney, and the M/V Mr. Alan. 12 Plaintiff argues that it has valid

Engstrom v. First Nat’l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995).
Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
9 John v. Deep E. Tex. Reg. Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th
Cir. 2004) (internal citations omitted).
10 Badon v. R J R Nabisco, Inc., 224 F.3d 382, 394 (5th Cir. 2000) (quoting Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)).
11 Boudreaux v. Banctec, Inc., 366 F. Supp. 2d 425, 430 (E.D. La. 2005).
12 Although Plaintiff purports to move for summary judgment on all of its claims
against all Defendants, it does not present any argument as to its claims against the in
personam defendants. Accordingly, this Court finds that summary judgment on these claims
without briefing from the parties would be inappropriate at this time.
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preferred ship mortgages on these vessels pursuant to the Ship Mortgage Act
under 46 U.S.C. § 31325.
Defendants present two arguments to Plaintiff’s Motion. First, they
argue that Plaintiff does not have valid ship mortgages under the Ship
Mortgage Act because the mortgages are not valid under Louisiana law.
Second, they argue that the ne varietur notes used in the collateral mortgage
packages for the Mr. Alan and L/B Whitney are prescribed. Defendants have
also filed their own Motion to Dismiss for Lack of Subject Matter Jurisdiction,
arguing that because Plaintiff does not have a mortgage under the Ship
Mortgage Act, this Court does not have federal question jurisdiction. This
Court will consider each argument in turn.
A. Validity of Ship Mortgage
The issue before the Court is whether a collateral chattel mortgage can
constitute a preferred ship mortgage under the Ship Mortgage Act.
Defendants argue that a collateral chattel mortgage is no longer a valid method
for securing movable property under Louisiana law, and it therefore cannot be
a preferred mortgage under the Ship Mortgage Act. They contend that in order
for a mortgage to qualify as a preferred ship mortgage under the Ship Mortgage
Act, the mortgage must be valid under state law.
Another judge in this District recently addressed this identical issue. In
South Lafourche Bank & Trust Co. v. M/V Noonie G, 2017 WL 2634204 (E.D.
La. June 19, 2017), Judge Susie Morgan held that the Ship Mortgage Act does
not require that a mortgage be valid “under the law of a particular state for it

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to be considered a preferred ship mortgage.” 13 The court held that a mortgage
is a valid preferred ship mortgage under the Ship Mortgage Act if it meets all
of the requirements of the Ship Mortgage Act, regardless of whether it is valid
under state law. 14 This Court adopts the analysis of South Lafourche Bank in
full and for the same reason holds that the mortgages at issue here can be valid
preferred ship mortgages under the Ship Mortgage Act regardless of the
validity of a collateral chattel mortgage under Louisiana law.
Defendants do not espouse any additional arguments disputing the
validity of the mortgages at issue. Accordingly, this Court holds that the
mortgages satisfy all of the requirements of the Ship Mortgage Act. Plaintiff’s
mortgages on the M/V Lil Al, the M/V L/B Whitney, and the M/V Mr. Alan are
therefore valid preferred ship mortgages. Because this case involves valid
preferred ship mortgages, this Court has jurisdiction under the Ship Mortgage
Act. Accordingly, Defendants’ Motion to Dismiss for Lack of Subject Matter
Jurisdiction is denied.
B. Prescription
Defendants next argue that Plaintiff’s Motion for Summary Judgment
should be denied because the ne varietur notes used in the collateral mortgage
packages for the Mr. Alan and the L/B Whitney have prescribed. A collateral
mortgage package consists of the following: “an act of mortgage, a collateral
mortgage note (the ‘ne varietur’ note), and a pledge of the ne varietur note to
secure an indebtedness, usually represented by a hand note.” 15 In a collateral
S. Lafourche Bank & Tr. Co. v. M/V NOONIE G, No. 16-2880, 2017 WL 2634204, at
*6 (E.D. La. June 19, 2017).
14 Id.
15 Max Nathan, Jr., The Collateral Mortgage: Logic and Experience, 49 LA. L. REV. 39
(1988).
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mortgage, the act of mortgage secures the fictitious ne varietur note, which is
payable to bearer on demand. 16 The ne varietur note is then “pledged under a
collateral pledge agreement to secure the borrower’s true indebtedness under
one or more hand notes.” 17
Plaintiff accepted pledges of collateral mortgage packages on the Mr.
Alan and L/B Whitney as security for the July 16, 2014 Hand Note.

The ne

varietur note in the collateral mortgage package on the Mr. Alan was dated
December 5, 2007, and the ne varietur notes in the collateral mortgage
packages on the L/B Whitney were dated September 30, 2004 and November
22, 2005 respectively. Defendants argue that the ne varietur notes are subject
to a liberative prescription of five years and were therefore prescribed before
they were pledged to secure the Hand Note.
Defendants are correct that actions on promissory notes are subject to a
liberative prescription of five years. 18

“This prescription commences to run

from the day payment is exigible.” 19 Accordingly, prescription began to run on
the ne varietur notes at issue in 2004, 2005, and 2007 respectively, making
each prescribed on its face by the time they were pledged to secure the July 16,
2014 Hand Note.
Defendants argue that the constant acknowledgement rule prevents
prescription from running on the ne varietur notes. The constant
acknowledgement rule states, “Prescription does not run in favor of a debtor
whose debt is secured by a pledge as long as the thing pledged remains in the
CadleRock Joint Ventures Co. v. J. Graves Scaffolding Co., 152 So. 3d 1079, 1083,
(La. App. 2 Cir. 2014).
17 Id.
18 La. Civ. Code art. 3498.
19 Id.
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possession of the pledgee.” 20

Plaintiff argues that because it has had

continuous possession of the ne varietur notes, they remain in full force and
effect. Defendants argue, however, that Plaintiff’s reliance on the constant
acknowledgement rule is misplaced.

They contend that the constant

acknowledgment rule interrupts prescription as to the hand note if the ne
varietur note remains in constant possession, but constant possession of the ne
varietur note does not interrupt prescription on the ne varietur note itself.
Defendants are correct.
The Louisiana Supreme Court has cited with approval the following
description:
The ‘ne varietur’ note itself can prescribe, and being a demand
note, the prescriptive period on the ‘ne varietur’ note is five years.
For that reason, until recently, it has been the customary practice
to have the mortgagor sign a written acknowledgement on the ‘ne
varietur’ note within five years after execution of the note (and
thereafter to repeat the procedure within five year periods) to
prevent prescription from running. If he failed to do so, the ‘ne
varietur’ note prescribed, and while the hand note would
nonetheless remain a valid obligation, it would no longer be
secured by a mortgage and would simply reflect an unsecured debt
. . . . [T]he Louisiana legislature enacted a special statute in 1970
to remedy the problem of prescription on notes such as the ‘ne
varietur’ note as it is used in the collateral mortgage situation. 21
Louisiana Revised Statues § 9:5807 states that:
A payment by a debtor of interest or principal of an obligation shall
constitute an acknowledgement of all other obligations including
promissory notes of such debtor or his codebtors in solido pledged
by the debtor or his codebtors in solido to secure the obligation as
CadleRock Joint Ventures Co., 152 So. 3d at 1083.
Kaplan v. Univ. Lake Corp., 381 So. 2d 385, 390 (La. 1979) (quoting M. Nathan &
G. Marshall, The Collateral Mortgage, 33 LA. L. REV. 497 (1973)).
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to which payment is made. In all cases the party claiming an
interruption of prescription of such pledged obligation including a
promissory note as a result of such acknowledgement shall have
the burden of proving all of the elements necessary to establish the
same.
Accordingly, the ne varietur notes at issue were prescribed at the time
they were pledged to secure C&G’s indebtedness unless prescription was
interrupted by acknowledgement or payments of a debt secured by the pledge
of the ne varietur notes. Plaintiff has offered evidence of neither. Plaintiff is
therefore not entitled to summary judgment on its claims for foreclosure on the
Mr. Alan and L/B Whitney.

CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss for Lack of
Subject Matter Jurisdiction is DENIED. Plaintiff’s Motion for Summary
Judgment is GRANTED IN PART.

Plaintiff is entitled to judgment

recognizing its preferred ship mortgage on the M/V Lil Al, Official Number
1250213, as valid.

Plaintiff’s request for a judgment recognizing a valid

preferred ship mortgage on the M/V Mr. Alan, Official Number 1040047 and
the M/V L/B Whitney, Official Number D644243, is DENIED.

All other

requests for relief by Plaintiff are DEFERRED.
New Orleans, Louisiana this 31st day of August, 2017.
____________________________________
JANE TRICHE MILAZZO
UNITED STATES DISTRICT JUDGE
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