Lsref2 Baron, L.L.C. v. Tauch

• Citation: 751 F.3d 394
• Decision Date: 07 May 2014
• Docket Number: No. 11–30846.,11–30846.
• Parties: LSREF2 BARON, L.L.C., Plaintiff–Appellee v. Kyle D. TAUCH, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

751 F.3d 394

LSREF2 BARON, L.L.C., Plaintiff–Appellee

v.Kyle D. TAUCH, Defendant–Appellant.

No. 11–30846.

United States Court of Appeals, Fifth Circuit.

May 7, 2014.

Bruce Victor Schewe, Esq., Dan Brian Zimmerman, Phelps Dunbar, L.L.P., New Orleans, LA, for Plaintiff–Appellee.

Stephen L. Williamson, Esq., Ryan Matthew McCabe, Montgomery Barnett, L.L.P., New Orleans, LA, for Defendant–Appellant.

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

Before HIGGINBOTHAM, OWEN, and HIGGINSON, Circuit Judges.

HIGGINSON, Circuit Judge:

Kyle D. Tauch executed a Limited Guaranty Agreement with former party Regions Bank as security for a Loan Agreement between Regions Bank and First KT Lending, L.L.C. First KT defaulted on the loan, and Regions sued Tauch for the total amount due under the Guaranty. In his answer, Tauch made general denials but raised no affirmative defenses. Regions filed a motion for summary judgment; in response, Tauch claimed that First KT had made payments that reduced the amount Tauch owed. The district court granted the motion for summary judgment, finding that the payment claim was an affirmative defense that Tauch failed to plead in his answer and thus waived. Tauch appeals from the grant of summary judgment. For the reasons that follow, we AFFIRM.

I.

This case arises out of a Loan Agreement and Term Note between former Plaintiff–Appellee Regions Bank (“Regions”) and First KT Lending, L.L.C. (“First KT”) and a Limited Guaranty Agreement (“Guaranty”) executed by Defendant–Appellant Kyle D. Tauch (“Tauch”) as security for the loan. LSREF2 Baron, L.L.C. (“Baron”) has since acquired all of Regions's rights against Tauch and is now Plaintiff–Appellee. In December 2007, Regions made a loan to First KT to finance the purchase of promissory notes issued to Regions by two entities that owned an apartment complex (“the property”). The Loan Agreement defines the “Lender” as Regions and the “Borrower” as First KT. To secure First KT's purchase of this debt, Tauch executed the Guaranty, wherein he guaranteed the full payment of 25% of the sum of the outstanding principal balance, accrued and unpaid interest, and late charges upon default by First KT. The Guaranty provides for a reduction of the maximum amount that Tauch owes in the event of certain types of payments on the property—such as capital investments, taxes, and insurance—by Tauch or a “Related Party.” ¹ The Guaranty defines Related Party, by reference to the Loan Agreement, as “any Person other than an individual in which Kyle D. Tauch individually owns and/or controls 51% of the ownership thereof, or any non-profit entity created directly or indirectly by Kyle D. Tauch.”

In June and July 2010, First KT defaulted on the loan, and Regions sent First KT and Tauch a notice of default. Chiron Equities, L.L.C. (an entity allegedly owned in part by Tauch) attempted to make partial payment by check, but the check was dishonored for insufficient funds. In October 2010, Regions filed its complaint against Tauch to enforce the Guaranty. Regions attached copies of the Term Note, the Loan Agreement, and the Guaranty Agreement to the complaint. Tauch filed an answer in which he made general denials but did not raise any affirmative defenses. At the end of the answer he stated: “Defendant further reserves the right to supplement and amend this answer upon further investigation.”

The case was assigned to Judge McNamara, who issued an order setting specific deadlines for the case, including a deadline of February 12, 2011 for amended pleadings. In April 2011, Regions filed a motion for summary judgment on the ground that it was entitled to judgment as a matter of law on the full amount of the Guaranty: 25% of the sum of the outstanding principal, interest, and late charges—a total asserted to be $2,205,109.93–plus collection costs, attorney's fees, and related third-party expenses. Regions argued that the terms of the Guaranty were clear and unambiguous and that Tauch had raised no defenses in his answer. Tauch opposed summary judgment on multiple grounds, including that there was a genuine issue of material fact as to the amount due under the Guaranty. Tauch further argued that First KT made capital investments with respect to the property that “offset” the amount due by entitling Tauch to “a dollar-for-dollar reduction” of, or “dollar-for-dollar credit against,” the amount due under the Guaranty. Specifically, he alleged that representatives of Tauch and First KT met with a Senior Vice President of Regions to obtain approval to make capital investments in the property using a portion of a property-insurance settlement. Tauch further alleged that although First KT could have used the settlement proceeds to pay down the principal, which also would have reduced the amount due under the Guaranty, First KT and Regions agreed that the capital investments were in the best interest of the parties. Thus, First KT spent $1,355,648 in capital investments. Tauch also alleged that an additional $769,500 was provided to the property for payment of insurance premiums.

In reply, Regions argued that Tauch waived his defenses by failing to raise them in his answer and that Regions relied on the answer when moving for summary judgment and thus would be prejudiced if the court allowed Tauch to raise the defenses belatedly. The district court granted Regions's summary-judgment motion, finding that “set-off/recoupment and termination/extinguishment” are affirmative defenses under Louisiana law that must be pleaded in the defendant's answer and that Regions was “unquestionably prejudiced in its ability to respond.” The court entered judgment against Tauch in the full amount Regions requested plus reasonable attorney's fees, costs, and expenses.

After Judge McNamara's retirement, the case was reassigned to Judge Fallon. Regions moved to amend the judgment to add an award of pre- and post-judgment interest. Tauch moved to alter or amend the judgment, arguing that the original district judge improperly granted Regions's motion for summary judgment. Judge Fallon granted Regions's motion and denied Tauch's motion. In denying Tauch's motion, Judge Fallon reviewed the law and found no manifest error in Judge McNamara's decision.

Tauch timely filed a notice of appeal from the orders of both district judges. Regions then filed a motion to substitute Baron as Plaintiff because Regions had assigned its rights and claims to Baron,² which the district court granted.³

II.

Federal Rule of Civil Procedure 8(c)(1) states: “In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense.” Fed.R.Civ.P. (8)(c)(1). Failure to timely plead an affirmative defense may result in waiver and the exclusion of the defense from the case. Morris v. Homco Int'l, Inc., 853 F.2d 337, 342–43 (5th Cir.1988). A defendant must plead with “enough specificity or factual particularity to give the plaintiff ‘fair notice’ of the defense that is being advanced.” Rogers v. McDorman, 521 F.3d 381, 385–86 (5th Cir.2008) (quoting Woodfield v. Bowman, 193 F.3d 354, 362 (5th Cir.1999)).

In a diversity case, substantive state law determines what constitutes an affirmative defense. See, e.g., Arismendez v. Nightingale Home Health Care, Inc., 493 F.3d 602, 610 (5th Cir.2007) (citing Lucas v. United States, 807 F.2d 414, 417 (5th Cir.1986)). Louisiana Code of Civil Procedure Article 1005 sets out a list of affirmative defenses: “The answer shall set forth affirmatively negligence, or fault of the plaintiff and others, duress, error or mistake, estoppel, extinguishment of the obligation in any manner, failure of consideration, fraud, illegality, injury by fellow servant, and any other matter constituting an affirmative defense.” La.Code Civ. Proc. Ann. art. 1005 (2012); see also Trinity Carton Co., Inc. v. Falstaff Brewing Corp., 767 F.2d 184, 193 n. 15 (5th Cir.1985). “It is well-settled in Louisiana law” that the list is “illustrative, not exclusive.” Bienvenu v. Allstate Ins. Co., 819 So.2d 1077, 1079 (La.Ct.App.2002). Similarly, a claim is not automatically an affirmative defense simply because it falls within an enumerated category; it is a fact-specific inquiry, dependent on the circumstances of a case. Id. at 1080. An affirmative defense “raises a new matter, which assuming the allegations in the petition are true, constitutes a defense to the action.” Id.

However, “a technical failure to comply precisely with Rule 8(c) is not fatal.” Levy Gardens Partners 2007, L.P. v. Commonwealth Land Title Ins. Co., 706 F.3d 622, 633 (5th Cir.2013) (citing Aunt Sally's Praline Shop, Inc. v. United Fire & Cas. Co., Inc., 418 Fed.Appx. 327, 330 (5th Cir.2011) (unpublished) (citing Allied Chem. Corp. v. Mackay, 695 F.2d 854, 855 (5th Cir.1983))). A defendant does not waive a defense if it was raised at a “pragmatically sufficient time” and did not prejudice the plaintiff in its ability to respond. Rogers, 521 F.3d at 386. A district court has discretion to determine whether the party against whom the defense was raised suffered prejudice or unfair surprise as a result of the delay. Levy Gardens, 706 F.3d at 633.

We review a district court's grant of summary judgment and interpretation of state law de novo. Levy Gardens, 706 F.3d at 628. We review a district court's decision to prevent a party from untimely pleading an affirmative defense for abuse of discretion. Aunt Sally's, 418 Fed.Appx. at 330–31;see also Levy Gardens, 706 F.3d at 633.

A.

We ask first whether Tauch's claim that First KT made payments that reduced the amount Tauch owes constitutes an affirmative defense under Louisiana law. Consistent with Louisiana Article 1005's statutory clause on extinguishment of obligation, Louisiana courts have held, in numerous contexts, that “setoff” is an affirmative defense that must be specifically pleaded. Town of Basile v. Clark, 769 So.2d 591, 597 (La.Ct.App.2000...