State Bank & Trust Co. v. Boat DJ Griffin, Civ. A. No. 84-3383.

• Decision Date: 08 January 1991
• Docket Number: Civ. A. No. 84-3383.
• Citation: 755 F. Supp. 1389
• Parties: STATE BANK & TRUST COMPANY OF GOLDEN MEADOW v. BOAT "D.J. GRIFFIN", Its Engines, Tackle, Apparel, etc. BOAT "JOEY G", Its Engines, Tackle, Apparel, etc. in Rem. Derris Griffin Boat Operators, Inc. in Personam.
• Court: U.S. District Court — Eastern District of Louisiana

755 F. Supp. 1389

STATE BANK & TRUST COMPANY OF GOLDEN MEADOW v. BOAT "D.J. GRIFFIN", Its Engines, Tackle, Apparel, etc. BOAT "JOEY G", Its Engines, Tackle, Apparel, etc. in Rem Derris Griffin Boat Operators, Inc. in Personam.

Civ. A. No. 84-3383.

United States District Court, E.D. Louisiana.

January 8, 1991.

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Robert E. Barkley, Jr., Barkley & White, Patricia D. Tunmer, Sessions & Fishman, New Orleans, La., John D. Ziober, Shockey & Ziober, Baton Rouge, La., for plaintiff.

Lloyd N. Shields, Susan Tart, Simon, Peragine, Smith & Redfearn, New Orleans, La., for defendant and plaintiff-in-counterclaim, Derris Griffin Boat Operators, Inc.

MEMORANDUM OPINION

MENTZ, District Judge.

This matter was tried before the Court for six days beginning on September 13, 1990. After considering the record and the evidence adduced at trial, the Court finds as follows.

To the extent that any of the following findings of fact constitute conclusions of law, they are adopted as such; to the extent that any of the conclusions of law constitute findings of fact, they are so adopted.

Introduction

This suit was filed by State Bank & Trust Company of Golden Meadow ("State Bank"), as an in rem action to foreclose on preferred maritime mortgages on two vessels, the "D.J. GRIFFIN" and the "JOEY G", owned and operated by Derris Griffin Boat Operators, Inc. ("Boat Operators"), and as an in personam action against Boat Operators on the basis of an endorsement of a promissory note for $1,310,000 dated December 23, 1982. The vessels were subsequently seized by the United States Marshal and sold at auction on October 19, 1984, for a total of $205,000. Said sums were then deposited into the registry of the Court pending further orders of the Court.

In response, Boat Operators denied liability on the promissory note and denied that the vessel mortgages were validly pledged to secure it. Additionally, in 1985 Elta Griffin, derivatively for the benefit of and on behalf of Boat Operators, sued State Bank in counterclaim for wrongful seizure of its vessels.¹ The primary issue before the Court is whether Derris Griffin, as president of Boat Operators, had authority to endorse the $1,310,000 hand note made by two separate Derris Griffin corporations on behalf of Boat Operators and pledge Boat Operators' assets for an indebtedness of those two unrelated corporations. In connection with this issue, the Court must also decide whether State Bank knew or should have known that Derris Griffin was acting outside his authority when he endorsed the hand note and pledged the assets of Boat Operators to secure the indebtedness of the two unrelated corporations. A further issue to be decided by the Court is specifically what kind of mortgages were created with respect to the two Boat Operators vessels. A final issue to be resolved is whether State Bank acted in bad faith, with malice, or gross negligence in seizing the two Boat Operators vessels.

Findings of Fact

1. At all pertinent times, plaintiff, State Bank, was a Louisiana banking corporation, having its principal place of business in Lafourche Parish, Louisiana.

2. At all pertinent times, defendant, Boat Operators was a Louisiana corporation having its principal place of business in Lafourche Parish, Louisiana.

3. The M/V D.J. GRIFFIN, at all material times owned and operated by Boat Operators, is an offshore supply vessel measuring approximately 104 feet in length and bearing the official number 578168.

4. The M/V JOEY G, at all material times owned and operated by Boat Operators, is an offshore utility vessel measuring approximately 72 feet in length and bearing the official number 291880.

5. Boat Operators was formed as a Louisiana corporation on May 27, 1968. During the time of the events in question, on the books of the corporation, eight of the ten outstanding shares of the corporation were in the name of Derris Griffin and the remaining two shares were in the name of Elta Griffin. Elta Griffin subsequently acquired all outstanding shares and is presently the sole shareholder of the corporation.

6. On March 2, 1982, Elta Griffin and Derris Griffin were legally separated, thereby dissolving the community of acquets and gains existing between them. A judgment of divorce was rendered on March 29, 1984. There has been no partition of the community property.

7. At the time of the incorporation and at all times material herein, Derris J. Griffin and Elta C. Griffin were on the board of directors of Boat Operators.

8. The articles of incorporation of Boat Operators empowered the corporation, in carrying out its stated object and purposes, "to borrow money, and to issue from time to time, to any extent necessary and convenient in the opinion of the Board of Directors of this corporation, negotiable notes, coupons, registered or other bonds, or obligations of this corporation, and to secure the payment of the principal and interest on the same by mortgage or pledge of all or any part of the property, rights, franchises and privileges of the corporation then owned or which may thereafter be acquired by the corporation...."

9. By resolution dated November 3, 1969 ("1969 Resolution"), the board of directors of Boat Operators authorized Derris Griffin or Elta Griffin, in the name of and for the account of Boat Operators, to borrow any sum or sums of money from State Bank and to pledge and/or mortgage any property of Boat Operators "to secure the payment of any indebtedness, liability or obligation of Boat Operators to said Bank ..." (emphasis added). On November 3, 1969, Derris J. Griffin was President, Elta C. Griffin was Vice-President, and Janice G. Rebstock was Secretary-Treasurer of Boat Operators. State Bank had a copy of the 1969 Resolution in its files at all material times.

10. On January 31, 1977, a first preferred marine mortgage in the amount of $450,000 on the M/V D.J. GRIFFIN was executed by Derris Griffin, as president of Boat Operators, in favor of State Bank to secure an indebtedness evidenced by a promissory note dated January 31, 1977, in the sum of $450,000, bearing interest at the rate of 8% per annum ("ship mortgage no. 1").

11. Boat Operators executed a promissory note payable to the order of "ITSELF" dated January 31, 1977, in the sum of $450,000, bearing interest at the rate of 10% per annum, which was paraphed that same date ne varietur for identification with ship mortgage no. 1 ("mortgage note no. 1").

12. On June 30, 1977, a first preferred mortgage on the M/V JOEY G was executed by Derris Griffin, as president of Boat Operators, in favor of State Bank to secure an indebtedness evidenced by a promissory note dated January 31, 1977, in the principal sum of $150,000, bearing interest at the rate of 8% per annum ("ship mortgage no. 2").

13. Boat Operators executed a promissory note payable to the order of "ITSELF" dated June 30, 1977, in the sum of $150,000, bearing interest at the rate of 10% per annum, which was paraphed that same date ne varietur for identification with ship mortgage no. 2 ("mortgage note no. 2").

14. On February 14, 1977, Boat Operators borrowed the sum of $582,000 from State Bank, which loan was secured by, among other collateral, a pledge of the $450,000 mortgage note no. 1, dated January 31, 1977. The purpose of this loan was to secure the funds necessary to pay for the construction of the M/V D.J. GRIFFIN.

15. Subsequently, the $150,000 mortgage note no. 2, dated June 30, 1977, was pledged to further secure the $582,000 loan.

16. The loan made on February 14, 1977, by State Bank to Boat Operators was paid in full on May 17, 1982.

17. The mortgages were both made by Boat Operators in favor of a particular creditor, State Bank. Both mortgages were for a specific debt. In addition, neither mortgage states that the notes which the mortgages secure were intended to be used to raise funds, nor was either made in favor of any future holder(s). Further, the mortgages do not contain language that the ne varietur note, paraphed for identification with it, was to be negotiated and might be placed as security for future obligations; nor do the mortgages contain language that the collateral notes could be issued and reissued without being extinguished.

18. The first preferred mortgages state as follows:

PROVIDED, HOWEVER, that if Owner, his heirs, executors, administrators or its assigns shall perform and observe all and singular the terms, covenants and agreements herein, then this Mortgage shall cease, otherwise to remain in full force and effect.

19. The first preferred mortgage on the M/V JOEY G states that it secures an indebtedness "evidenced by a promissory Note dated January 31, 1977, in the principal sum of One Hundred Fifty Thousand and No/100 ($150,000.00) Dollars." There is no promissory note for $150,000 dated January 31, 1977. Rather, the $150,000 promissory note is dated the same date as the first preferred mortgage on the M/V JOEY G, June 30, 1977.

20. There was no separate written pledge agreement underlying either of these mortgage transactions.

21. The intent of the Griffins when the original pledge of the preferred mortgages took place was that the mortgages were not to secure future advances; rather, the mortgages were for a particular and specific debt, and that the funds evidenced by this debt were to be used to pay for the construction of the M/V D.J. GRIFFIN.

22. Derris Griffin Boat Rentals, Inc. ("Boat Rentals") was at all material times a corporate entity separate and distinct from that of Boat Operators, and whose stock was at all material times owned by Derris Griffin.

23. From December 16, 1981 to May 24, 1982, a series of nine unsecured loans were made by State Bank to Boat Rentals, resulting in an unpaid balance, on May 24, 1982, of $1,310,000. All proceeds from these loans were disbursed to, and for the benefit of, Boat...