General Elec. Capital Corp. v. Southeastern Health Care, Inc.

• Decision Date: 27 December 1991
• Docket Number: No. 90-3278,90-3278
• Citation: 950 F.2d 944
• Parties: GENERAL ELECTRIC CAPITAL CORP., Plaintiff-Appellant, v. SOUTHEASTERN HEALTH CARE, INC., and Prentiss E. Smith, Jr., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 944

950 F.2d 944

GENERAL ELECTRIC CAPITAL CORP., Plaintiff-Appellant, v. SOUTHEASTERN HEALTH CARE, INC., and Prentiss E. Smith, Jr. Defendants-Appellees.

No. 90-3278.

United States Court of Appeals Fifth Circuit.

Dec. 27, 1991.

Linton W. Carney, Richard W. Bussoff, Monroe & Lemann, New Orleans, La., for plaintiff-appellant.

Randall A. Smith, Marc D. Winsberg, Stone, Pigmann, Walther, Witmann & Hutchinson, New Orleans, La., for defendants-appellees.

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

Before BROWN, SMITH and WIENER, Circuit Judges.

WIENER, Circuit Judge:

This Louisiana diversity case involves a dispute arising from the lease of an aircraft (the Lease). The lessor, General Electric Capital Corporation (GECC), appeals the district court's grant of a summary judgment on motion of the lessee, Southeastern Health Care, Inc. (Southeastern), and its President, owner, and guarantor under the lease, Prentiss E. Smith, Jr., M.D. Finding that, before the instant suit was filed, Southeastern had complied with GECC's notice of default, the district court held that such compliance vitiated that notice, necessitating a new default as a prerequisite to suit. Based on that holding, the district court granted Southeastern's motion for summary judgment, denied GECC's counter motion for summary judgment, and dismissed GECC's suit. 734 F.Supp. 716. Disagreeing as a matter of fact with the district court's determination that Southeastern complied with GECC's notice of default, and disagreeing as a matter of law with the district court's prognostication that the Supreme Court of Louisiana would require "renotification" if the notice issue of this case were before it, we reverse and remand.

I. FACTS AND PROCEEDINGS

In November, 1981, GECC and Southeastern entered into the Lease for a ten- year term. The object of the Lease was a Beechcraft KingAir. Individually, Smith executed a guaranty agreement covering Southeastern's obligations under the Lease.

For the first several years of the Lease Southeastern met its obligations to the general satisfaction of GECC, but by early 1987, the situation had deteriorated to a point deemed unacceptable by GECC. By letter dated April 7, 1987 (the Notice), GECC formally advised Southeastern that GECC had "elected to institute the provisions of default" under the Lease and to "accelerate the account balance in accordance with the terms of the Lease." The Notice listed each item comprising the so-called "account balance," a term used in the Lease to mean the total delinquency thereunder: regular monthly installments for February and March of 1987, property taxes due under the Lease for calendar years 1986 and 1987, the monthly installment due on April 6th, sales tax on rental and on property taxes, late charges, and the aircraft's so-called "Casualty Value"--another term of art in the Lease. The Notice is annexed hereto as Appendix I.

On April 23, 1987, Smith responded to the Notice by letter, advising GECC that he realized he was behind on his payments under the Lease and that he fully intended to comply with the terms of the Lease within the year, as soon as his cash flow problems abated. Smith also stated that he would like to "work out something" with GECC so that he could continue to lease the aircraft. Shortly thereafter, Southeastern sent GECC two checks representing the delinquent installments for February and March of 1987. Apparently nothing was said about, and no payments were remitted to cover, the delinquent ad valorem tax payments, the April rent installment which by then was delinquent, or any of the other sums called for in the Notice. The two checks were not immediately deposited by GECC but instead were held until late in May of 1987.

On May 13 of 1987, while GECC was still holding checks for the February and March installments, representatives of GECC met with Smith as he had requested. Although there is some dispute as to what if anything was accomplished at the May 13th meeting, the parties stipulated that efforts to reach an accommodation proved unsuccessful. After the meeting GECC requested return of the aircraft and deposited the checks for the February and March installments. Southeastern returned the aircraft on June 19, 1987. After spending $39,443.54 to put the aircraft in condition for sale, GECC sold it on the open market for $950,000.00. Thus, the proceeds recognized by GECC on the sale of the aircraft were $910,556.46.

GECC then filed the instant suit seeking a money judgment against Southeastern and Smith. GECC claimed that under the terms of the Lease, the net deficiency owed by Southeastern was $607,064.89, plus interest and attorneys' fees. Southeastern filed a motion for summary judgment and GECC filed a counter motion for summary judgment. The district court granted Southeastern's motion and dismissed GECC's lawsuit. The court held that GECC had failed to notify Southeastern of its default in accordance with required notification procedures. The district court did not specify whether the notification procedures to which it referred were those called for in the Lease or supplied by the law of Louisiana or both. It did find, however, that Southeastern's payment of the February and March installments, and GECC's negotiation of those payments, constituted compliance with the Notice, vitiating any further efficacy, and thereby making a renotification a prerequisite to suit. The district court also denied GECC's counter motion for summary judgment, and GECC timely filed a notice of appeal.

II. ANALYSIS

A. Standard of Review.

This court reviews the grant of summary judgment motion de novo, using the same criteria used by the district court in the first instance. ¹ We "review the evidence and inferences to be drawn therefrom in the light most favorable to the non-moving party." ² Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." ³ A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." ⁴ "Material facts" are "facts that might affect the outcome of the suit under the governing law." ⁵

Additionally, as this diversity case turns on the district court's interpretation of state law in an area not previously addressed by the highest court of the State, we must ensure that the district court's determination fully comports with the law and policies of Louisiana as the situs state. We therefore review the district court's interpretation of state law without affording any deference to that court's determination. ⁶

B. Partial Compliance with Notice; Renotification.

The district court found that by remitting checks in April to cover the delinquent installments for February and March, Southeastern complied with GECC's demand contained in the Notice. Based on that determination, the district court held that GECC's suit was improperly filed because Southeastern's compliance with the Notice had nullified its future efficacy as a prerequisite to suit, thereby requiring a new putting in default--"renotification"--before litigation could be instituted.

In our de novo review, we find as a preliminary matter that if Southeastern complied with the Notice at all, it did so only partially. Even if we disregard the fact that the April installment was due by the time Southeastern purported to comply with the Notice, and accept the fact that the April installment was not delinquent when the Notice was mailed, Southeastern still complied only partially. Payments required under the Lease were not just the stated monthly installments. Rather, Southeastern as lessee was obligated to pay such costs, expenses and charges, as property (ad valorem) taxes on the aircraft, sales taxes on the rent and on the ad valorem taxes. Property taxes, sales taxes and late charges were among the delinquencies listed in the Notice, not to mention the Casualty Value of the aircraft. That Southeastern was delinquent in ad valorem taxes for two years, and for sales tax, at the time it received the Notice from GECC is undisputed. Clearly, payment of the delinquent monthly installments for February and March was, at most, a partial compliance with the Notice.

More significantly, as will be explored in greater depth below, the Notice was mischaracterized by the district court. It treated the Notice as a mere request by GECC that Southeastern "catch up" its delinquent rent. But both in fact and in law the Notice was GECC's exercise of one of its optional remedies under the Lease--termination coupled with recovery of possession of the leased aircraft and all sums accrued through the effective date of lease termination--including past due monthly installments, taxes, late charges, "liquidated damages" or "casualty value" of the plane, and the like. We believe that recognition of the true legal character of the Notice as an exercise of GECC's option to terminate the Lease and an amicable demand to the former lessee to comply with its remaining obligations--as distinguished from a mere notice to a lessee to make the Lease current or face the consequences--requires reversal of the district court's grant of Southeastern's motion for summary judgment. But, as the district court's decision involved substantial issues of Louisiana law, we are constrained to exhaust the legal matters thus implicated.

We agree with the district court that, as to Louisiana leases of immovable (real) property, the lessor's acceptance of even partial payment of rent in response to a formal demand for payment vitiates that demand totally. We do not agree, however, that it is more likely than not that the Supreme Court of Louisiana, when faced squarely with that issue in ...