U.S. v. Jesco Const. Corp.

• Decision Date: 14 May 2008
• Docket Number: No. 06-31007.,06-31007.
• Citation: 528 F.3d 372
• Parties: UNITED STATES of America, Plaintiff, v. JESCO CONSTRUCTION CORPORATION, et al., Defendant. United States Fire Insurance Company, Intervenor-Appellant, v. General Electric Capital Corporation; Phoenixcor, Inc., Intervenors-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

528 F.3d 372

UNITED STATES of America, Plaintiff, v. JESCO CONSTRUCTION CORPORATION, et al., Defendant.

United States Fire Insurance Company, Intervenor-Appellant, v. General Electric Capital Corporation; Phoenixcor, Inc., Intervenors-Appellees.

No. 06-31007.

United States Court of Appeals, Fifth Circuit.

May 14, 2008.

William John Perry, Galloway, Johnson, Tompkins, Burr & Smith, New Orleans, LA, Louis A. Modugno (argued), Eric J. Hughes, McElroy, Deutsch, Mulvaney & Carpenter, Morristown, NJ, for Intervenor-Appellant.

Henry A. King (argued), Michael L. Vincenzo, King, Krebs & Jurgens PLLC, New Orleans, LA, for Intervenors-Appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before DeMOSS, DENNIS and OWEN, Circuit Judges.

DENNIS, Circuit Judge:

This is an appeal from a summary judgment of the United States District Court, Eastern District of Louisiana, resolving claims in this statutory interpleader action filed pursuant to 28 U.S.C. § 1335. The United States commenced this action on behalf of its agency, the U.S. Army Corps of Engineers ("the Corps"), and deposited in the district court $230,000 owed by the Corps to Jesco Construction Company ("Jesco") for the construction of pile dikes on the Mississippi River between Baton Rouge and the Gulf of Mexico ("Mississippi River Project"). The United States named several defendants who adversely claimed authority to receive payment on behalf of Jesco.¹ However, two of Jesco's creditors intervened, each claiming a superior and exclusive right to the funds: (a) General Electric Capital Corporation ("G.E.") asserted a perfected U.C.C. security interest in Jesco's assets for the payment of substantial loans it made to Jesco for the purchase of dredge boats and other business purposes, and (b) United States Fire Insurance Company ("U.S.Fire"), Jesco's bonding company on a different Corps project in Charleston, South Carolina, ("Charleston, S.C.Project"), asserted an equitable subrogation claim against Jesco's assets by virtue of having paid for the completion of that project after Jesco defaulted. G.E. and U.S. Fire filed cross-motions for summary judgment. Three of the named defendants filed no response, and two others supported the supremacy of G.E.'s claim. In ruling on the motions, the district court held that G.E.'s perfected security interest in the $230,000 due Jesco for its work on the Mississippi River Project had priority over U.S. Fire's claim to an interest in the funds. U.S. Fire appealed, and we AFFIRM for the reasons hereinafter assigned.

As the facts are not in dispute, we review the district court's summary judgment de novo to determine whether it was rendered according to law. See Nationwide Mut. Ins. Co. v. Lake Caroline, Inc., 515 F.3d 414, 418 (5th Cir.2008). Louisiana's substantive law governs our decision because Louisiana is the forum state in this diversity-based statutory interpleader case,² and Louisiana's own law is the proper choice of law under the facts and its conflicts of law rules.³ Although the parties disregarded Louisiana law in their written and oral arguments, they have not expressly chosen or clearly relied on the law of another state.⁴ It is undisputed that under Louisiana U.C.C. law G.E. has a perfected security interest in the assets of Jesco, including the funds due Jesco deposited by the United States in this interpleader action;⁵ and that U.S. Fire has asserted only a common-law equitable subrogation claim, which the Louisiana courts have consistently declined to recognize.⁶ Accordingly, we conclude that, under Louisiana law, G.E.'s perfected security interest takes precedent over the unsecured, un-perfected creditor's claim asserted by U.S. Fire.⁷

Further, even though U.S. Fire's claim might have been recognizable as a right of subrogation by operation of law under Louisiana Civil Code Article 1829(3),⁸ that right would have entitled U.S. Fire only to avail itself of the action and any security of the Corps against Jesco arising from Jesco's default upon the Charleston, S.C. Project contract;⁹ and it would have enabled U.S. Fire to recover from Jesco only to the extent of the performance U.S. Fire rendered to the Corps under that contract.¹⁰ According to our legal and record research, Jesco's default upon the Charleston, S.C. Project contract created no security interest under Louisiana law that U.S. Fire could have obtained by subrogation to assert against the funds due Jesco for its performance of the Mississippi River construction work in Louisiana. Therefore, we conclude that U.S. Fire could have asserted as a legal subrogee, at most, only the right and action of an unsecured creditor¹¹ of Jesco against the funds due for its work on the Mississippi River Project between Baton Rouge and the Gulf. As such, under Louisiana law, U.S. Fire's unsecured claim still would have been outranked by G.E.'s perfected security interest claim.

The magistrate judge, who undertook the arduous task of analyzing the tortuous argument of U.S. Fire based on the vagaries of the common-law equitable subrogation doctrine, concluded that U.S. Fire's argument lacked merit because its suggested application of equitable subrogation would yield an inequitable result in this case. We are inclined to agree, but we do not address the equitable subrogation doctrine here because it has been rejected by Louisiana courts. Under the applicable Louisiana law it is clear that G.E.'s perfected security interest claim takes precedence over U.S. Fire's unsecured claim.

For these reasons, the judgment of the district court is AFFIRMED.

1. The United States named as defendants: Jesco Construction Corporation, a Louisiana corporation; Jesco Construction Corporation of Mississippi, a Mississippi corporation; Osborn & Osborn A.P.L.C., a Louisiana corporation; ...