Fnb of Picayune v. Pearl River Fabricators

• Decision Date: 16 November 2007
• Docket Number: No. 2006-CC-2195.,2006-CC-2195.
• Citation: 971 So.2d 302
• Parties: FIRST NATIONAL BANK OF PICAYUNE v. PEARL RIVER FABRICATORS, INC.
• Court: Louisiana Supreme Court

971 So.2d 302

FIRST NATIONAL BANK OF PICAYUNE v. PEARL RIVER FABRICATORS, INC.

No. 2006-CC-2195.

Supreme Court of Louisiana.

November 16, 2007.

Rehearing Denied January 7, 2008.

Adams and Reese, Thomas Eliot Gottsegen, Martin A. Stern, New Orleans, Patricia Barry McMurray, Baton Rouge, Raymond Peter Ward, New Orleans, for applicant.

Liskow & Lewis, George Denegre, Jr., Katherine Seegers Roth, Thomas E. Schafer, III, Shannon Skelton Holtzman, New Orleans, Miller & Williamson, Ira M. Williamson, for respondent.

Reginald James Laurent, New Orleans, for amicus curiae, E.H. Mitchell & Co., LLC.

KNOLL, Justice.

The difficult issue before us concerns our secured transaction laws pertaining to perfection of a security interest in collateral in one state and the failure to timely re-perfect the security interest in the collateral when the collateral is subsequently sold and moved to Louisiana. This troubling issue presented from these facts is res nova. Simply stately, the issue to be decided concerns the legal consequences which arise when the secured creditor does not re-perfect its security interest within a year after the transfer as required by LA. REV.STAT. ANN. § 10:9-316, infra. After resolving issues of mootness and appellate procedure, we affirm the decision of the Court of Appeal, First Circuit, which found the secured creditor's security interest lapsed because of its failure to timely reperfect its security interest in Louisiana.

FACTS

On December 11, 2000, Pearl River Fabricators, Inc. (Pearl River), a Mississippi business corporation with its principal office located in Picayune, Mississippi, borrowed $200,000 from the First National Bank of Picayune (FNB). To secure the loan, Pearl River executed a security agreement in favor of FNB, identifying certain collateral, including a "90 foot cutter head dredge" and a "sand and gravel shaker plant." On July 24, 2001, FNB filed and recorded a UCC-1 financing statement with the Chancery Clerk for Pearl River County, Mississippi, detailing its security interest in the above-described property.

The security agreement between Pearl River and FNB prohibited Pearl River from transferring "any of the collateral to any third party without the prior written consent of" FNB. Notwithstanding, on November 23, 2001, Pearl River, without notifying FNB, sold several pieces of equipment, including the cutter head dredge and the shaker plant it had at its Picayune, Mississippi plant, to Growth Fund Industries Inc. (GFI), a for-profit domestic corporation created on October 5, 2001, in Indiana. Pearl River financed the equipment sale to GFI. In its agreement with Pearl River, GFI made a down payment of $45,000 and agreed to pay the remaining balance ($453,000) in sixty-one monthly installments. GFI never took physical possession of the equipment.

On December 11, 2001, GFI sold the cutter head and shaker plant to Phoenix Associates Land Syndicate, Inc. (Phoenix), a Nevada business corporation with its principal office in Madisonville, Louisiana. In the agreement among these parties, Phoenix agreed to pay GFI a $45,000 down payment and to pay the balance without interest as follows: 60 payments of $7,500, 1 payment of $3,000 and 1 balloon payment of $1,468,999.95.¹ On January 9, 2002, GFI filed a UCC-1 financing statement with the Louisiana Secretary of State and the Clerk of Court for St. Tammany Parish, identifying it as the secured party and Phoenix as the debtor. The financing statement identified the secured property, in part, as including a "90' X 22' X 5' Dredge Completely Powered" and "(1) 6' X 16'—Deck Shaker W/Standard Washbox." In May 2002, the equipment Phoenix acquired from GFI was transported by Pearl River from its principal office in Picayune, Mississippi to Phoenix's principal office in Madisonville, Louisiana.

On November 17, 2003, FNB filed a Louisiana UCC-1 financing statement with the St. Tammany Parish Clerk of Court. The financing statement identified FNB as the secured party and Pearl River as the debtor. The collateral was identified, in part, as "One (1) 90' × 22' × 5' Dredge completely powered, [and] One (1) 6' × 16' 3 deck shaker plant with stand and washbox."

On January 13, 2004, after Pearl River defaulted on its loan obligation, FNB filed its petition for executory process and sequestration against Pearl River in St. Tammany Parish. FNB requested sequestration of the collateral which secured Pearl River's obligation to it, alleged that the collateral was now located in St. Tammany Parish, and requested notice to Phoenix or GFI as a third-party possessor of the collateral. Pursuant to FNB's request, the trial court issued a writ of sequestration for the dredge and the deck shaker with stand and washbox. It further ordered that the equipment be "seized and subsequently . . . sold according to law to the bidder with appraisal."

On March 11, 2004, Phoenix filed a motion to dissolve FNB's writ of sequestration and further sought damages from FNB for the wrongful issuance of the writ of sequestration.² Phoenix alleged that the property Pearl River provided as collateral for its loan from FNB was not the same equipment Phoenix purchased from GFI. Phoenix further alleged FNB did not have a security interest in the sequestered equipment because it failed to file its financing statement in Louisiana within one year of the date the collateral was transferred from Mississippi to Louisiana.

On May 3, 2004, the trial court denied Phoenix's motion to dissolve the writ of sequestration and its request for damages. It found the property Pearl River collateralized for its loan from FNB and the equipment Phoenix purchased from GFI was one and the same. The trial court further rejected Phoenix's contention that it was necessary for FNB to refile its UCC-1 financing statement in Louisiana within one year, finding FNB/Pearl River's security agreement perfected in Mississippi was valid and enforceable in Louisiana.

Following issuance of the trial court judgment, Phoenix filed a supervisory writ application with the Court of Appeal, First Circuit. Noting that intervention was the appropriate procedural vehicle under LA. CODE CIV. PROC. ANN. art. 3509³ for a third-party possessor to dissolve a writ of sequestration, and that Phoenix's writ application contained no documentation of its status before the trial court, the appellate court declined to consider the writ application.⁴ First National Bank of Picayune v. Pearl River Fabricators, Inc., 2004 CW 1102 (La.App. 1 Cir. 6/1/04) (unpublished).

Thereafter, Phoenix devolutively appealed from the trial court judgment, denying its motion to dissolve the writ of sequestration and for damages.⁵ In response to Phoenix's appeal, FNB filed a peremptory exception of no right of action and a motion to summarily dismiss the appeal, contending Phoenix had no standing to appeal because it had failed to intervene in the lawsuit.

Relying on its decision in Spiers v. Roye, 04-2189 (La.App. 1 Cir. 5/19/06), 927 So.2d 1158, a five-judge panel of the appellate court recognized that a judgment denying a motion to dissolve a writ of sequestration coupled with a demand for damages is a nonappealable interlocutory judgment. It further found Phoenix was not entitled to appeal this interlocutory judgment on the basis that it may cause irreparable injury. Accordingly, the appellate court concluded Phoenix was not entitled to appeal the trial court judgment. Nevertheless, pursuant to LA.CODE CIV. PROC. ANN. art. 2164 (an "appellate court shall render any judgment which is just, legal, and proper upon the record on appeal"), the appellate court, with two judges dissenting, denied FNB's peremptory exception of no right of action, converted Phoenix's appeal to a writ application and considered the issues raised therein.

In a split decision,⁶ a five-judge panel of the appellate court granted Phoenix's writ application and reversed the trial court's judgment. On the merits, the appellate court held FNB failed to re-perfect its security interest in the property within one year of the transfer of the equipment, causing its security interest to become unperfected. Accordingly, the appellate court reversed the trial court judgment and remanded the case to the trial court to consider Phoenix's damage request for the wrongful issuance of the writ of sequestration.

We granted FNB's writ application to this Court. First National Bank of Picayune v. Pearl River Fabricators, Inc., 2006-CC-2195 (La.2/16/07), 949 So.2d 416. Foremost among our reasons for granting FNB's writ application was to consider whether Phoenix's knowledge about the situs of its purchased property at the time of the sale from GFI and the delivery of that property from Mississippi to Phoenix's office in Louisiana should have defeated Phoenix's claim that FNB failed to timely re-perfect its security interest after Pearl River's collateralized property was moved to Louisiana. In addition to that question, issues were raised at oral argument of whether the sheriff's sale of the movable property prior to Phoenix's appeal rendered this case moot and whether the appellate court had jurisdiction to consider Phoenix's assignments of error.

MOOTNESS

It was brought to our attention at oral argument that the sequestered property had been advertized and sold before Phoenix devolutively appealed the trial court judgment. The question then becomes whether this matter is moot, should not have been considered in the appellate court, and is not properly before us.

The jurisprudence of this Court is well settled that courts will not decide abstract, hypothetical or moot controversies, or render advisory opinions with respect to such controversies. Cat's Meow, Inc. v. City of New Orleans Through Dept. of Finance, 98-0601 (La.10/20/98), 720 So.2d 1186, 1193. In order to avoid deciding abstract, hypothetical or moot questions, courts require cases submitted for adjudication to be...