Bank of the W. v. Prince

• Decision Date: 12 November 2019
• Docket Number: No. 18-30970,18-30970
• Parties: BANK OF THE WEST, Plaintiff - Appellee Cross-Appellant v. Danny K. PRINCE, Defendant - Appellant Cross-Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

942 F.3d 697

BANK OF THE WEST, Plaintiff - Appellee Cross-Appellant

v.Danny K. PRINCE, Defendant - Appellant Cross-Appellee

No. 18-30970

United States Court of Appeals, Fifth Circuit.

November 12, 2019

M. Thomas Arceneaux, Blanchard, Walker, O'Quin & Roberts, Shreveport, LA, for Plaintiff-Appellee Cross-Appellant.

Roger Joseph Naus, Seth Michael Moyers, Wiener, Weiss & Madison, A.P.C., Shreveport, LA, for Defendant-Appellant Cross-Appellee.

Before HIGGINBOTHAM, SMITH, and SOUTHWICK, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Bank of the West and Danny K. Prince cross-appeal the district court’s damages award in this breach-of-contract suit. We agree with the district court that the liquidated damages provision of the parties’ contract is unenforceable because it contravenes the Louisiana Lease of Movables Act. However, we hold that the district court erred by basing its alternative damages calculation on the expectations of the lessor’s assignee, Bank of the West, rather than those of the original lessor, Summit Funding Group. We therefore affirm the district court’s holding that Bank of the West was not entitled to contractual liquidated damages, but we vacate the district court’s alternative damages award and remand for recalculation.

I.

In May 2014, Gladiator Energy Services, LLC¹ leased a trailer-mounted frac unit ("the Equipment") from Summit Funding Group, Inc. Danny K. Prince and Steven Cloy Gantt personally guaranteed the Lease on behalf of Gladiator. The Lease, which was to last until November 2018, set a base rent of just under $20,000 per month. It provided that, in the event of default, Summit could exercise one or more of a range of remedies, including:

(iv) recover from Lessee all accrued and unpaid amounts, (v) recover from Lessee, as liquidated damages for loss of bargain and not as a penalty, the present value of all amounts to be paid by Lessee for the remainder of the Firm Term, or any successive period then in effect, discounted at the rate of 2% per annum, which amount will become immediately due and payable, (vi) demand that Lessee return the Equipment in strict compliance with the terms hereof ... (xi) recover from Lessee all amounts incurred by Lessor in enforcing its rights and remedies hereunder, including, but not limited to, Lessor’s repossession costs ... reasonable attorneys’ fees, and reasonable internal costs ....

Summit subsequently assigned its interest in the lease to Bank of the West through a nonrecourse promissory note for $832,147.91. In February 2016, Gladiator defaulted on the lease by failing to make its monthly payment. In July 2016, Gladiator voluntarily surrendered the Equipment to the Bank at Gladiator’s facility in Arcadia, Louisiana. The Bank then sold the Equipment at auction for $320,964.00.

On July 26, 2016, the Bank sued Prince and Gantt to recover the remaining amount due under the lease, plus costs and attorneys’ fees. The case against Gantt was stayed when he filed for bankruptcy in September 2016, so only Prince participated as a defendant in the litigation. In July 2017, the district court granted the Bank’s motion for summary judgment as to Prince’s liability but denied it as to damages, finding the Bank’s evidence "insufficient ... to determine the amount of the debt." Shortly thereafter, Prince obtained new counsel and the Bank filed an amended complaint. The district court denied the parties’ cross-motions for summary judgment in January 2018 and ordered additional briefing on damages.

The parties agreed that Prince owed past-due rent of $118,916.46. However, they disagreed about what else, if anything, the Bank was entitled to collect. The Bank contended that Prince also owed contractual liquidated damages, defined by the Lease as the full amount of future rental payments discounted to present value at a rate of two percent per annum. After subtracting the proceeds of the Equipment sale, the Bank calculated its contractual liquidated damages at $333,628.79.² Prince argued that the Lease’s liquidated damages clause was invalid under the Louisiana Lease of Movables Act ("LLMA"), so he should be held accountable only for the agreed-upon sum of past-due rent.³

The district court agreed with Prince in part, holding that the LLMA barred the Bank from both repossessing the Equipment and recovering accelerated rent. However, the court reasoned, "some award of reasonable damages" was still warranted. It therefore set out to determine an appropriate figure on its own. It started with what it termed the Bank’s "initial investment"—the $832,147.91 the Bank had loaned Summit in exchange for Summit’s assignment of the Lease. Reasoning that the liquidated damages award should approximate the Bank’s loss, the court calculated as follows:

                Bank's Initial Investment            $832,147.91
                  Lease Payments Made                  ($237,832.92)
                  Proceeds from Equipment Sale         ($320,964.00)
                  Past Due Rent Owed                   ($118,916.46)
                                                       _____________
                  Total                                 $154,434.53
                

Thus, in addition to past-due rent and attorneys’ fees, the district court awarded the Bank $154,434.53 in liquidated damages—far less than it sought under the Lease but far more than Prince conceded he owed. These cross-appeals followed.

II.

A.

We review "a grant of summary judgment de novo , applying the same standard as the district court."⁴ "Summary judgment is called for only ‘if the movant shows there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ "⁵

B.

The LLMA "applies to all leases of movable property located in" Louisiana.⁶ It provides that in the event of default by the lessee, the lessor may either (1) sue "to recover accelerated rental payments and additional amounts that are then due and outstanding and that will become due in the future over the full base term of the lease"; or (2) cancel the lease, repossess the leased property, "and recover such additional amounts and liquidated damages as may be contractually provided under the lease agreement."⁷ The statute expressly states that its remedies "are not cumulative in nature."⁸ In other words, "[t]he lessor may not seek to collect accelerated rental payments under the lease and also to cancel the lease and recover possession of the leased equipment."⁹

In any case, a court may "award liquidated damages to the lessor only if it finds the amount thereof to be reasonable."¹⁰ If the court finds the contractual liquidated damages "unreasonable, or if there is no such stipulation, then the court may, in its discretion, award liquidated damages to the lessor."¹¹ In short, regardless of the language of the parties’ contract, a lessor has a "right to recover liquidated damages" only "to the extent the court finds them reasonable."¹²

Of course, even when a court elects to create its own liquidated damages award, it must still follow Louisiana law. Louisiana Civil Code Article 1995, which governs damages in breach-of-contract cases, provides that "[d]amages are measured by the loss sustained by the obligee and the profit of which he has been deprived."¹³ In other words, a "stipulated damage clause should reasonably approximate the lessor’s loss and profits [but] should not be penal."¹⁴ This Court reviews the "imposition of liquidated damages ... for abuse of discretion."¹⁵

III.

A.

As noted above, the LLMA requires lessors to choose between two exclusive sets of remedies: (1) cancelling the lease and collecting accelerated rental payments, or (2) repossessing the property and collecting liquidated damages.¹⁶ "Any provision of a lease agreement to the contrary notwithstanding, the lessor is allowed to select one remedy or the other, but he is not allowed to cumulate both."¹⁷ In the event of default, the Summit Lease provides for liquidated damages of "the present value of all amounts to be paid by [Gladiator] for the remainder of the" Lease term. By defining liquidated damages in terms of future rental payments, the Lease straddles the line between the LLMA’s two exclusive remedial classes: Whereas the statute prohibits lessors from pursuing both repossession and accelerated rent, the Lease provides for just that combination of remedies, albeit under the label of liquidated damages. We must decide whether the Lease’s liquidated damages provision is enforceable despite its apparent conflict with the governing statute.

The Bank claims the Lease’s language is consistent with the second set of remedies under the LLMA.¹⁸ After all, the Lease does not call for repossession and accelerated rental payments; it calls for repossession and liquidated damages in the amount of accelerated rental payments discounted to present value. The Bank disclaims any attempt to circumvent the LLMA—although "based on future rental payments, [the contractual liquidated damages provision] is not accelerated rent but a means of calculating the loss of an expected return on investment" for the Bank. Thus, the Bank argues, we should hold the Lease fully enforceable or, "[a]t a very minimum,... affirm the District Court’s award" of reduced liquidated damages. The Bank emphasizes that the parties freely bargained for the remedial provision, and it attempts to distinguish the Lease’s liquidated damages provision from accelerated rent on the ground that the Lease imposes a two percent discount.

In Prince’s view, the present-value discount is immaterial: The Lease contravenes the LLMA by defining liquidated damages—a remedy available only under the second set of statutory remedies—as the total of all future rental payments, a sum available only under the first set of remedies. Moreover, neither arms-length bargaining nor artful drafting can create an exception to a governing statute.¹⁹

We agree with Prince and the district court that following "the formula provided in the Lease for calculating liquidated damages" would "circumvent Louisiana law."...