Newtek Small Bus. Fin., LLC v. Baker
| Decision Date | 24 May 2022 |
| Docket Number | 2021 CA 0882 |
| Citation | 342 So.3d 926 |
| Parties | NEWTEK SMALL BUSINESS FINANCE, LLC as Successor in Interest by Merger to Newtek Small Business Finance, Inc., v. Robert A. BAKER and Elsa M. Baker. |
| Court | Court of Appeal of Louisiana — District of US |
Jill S. Willhoft, New Orleans, Louisiana, Attorney for Plaintiff/Appellant, Newtek Small Business Finance, LLC
Andrew T. Lilly, New Orleans, Louisiana, Attorney for Defendants/Appellees, Robert and Elsa Baker
BEFORE: McDONALD, LANIER, AND WOLFE, JJ.
Newtek Small Business Finance, LLC, as successor in interest by merger to Newtek Small Business Finance, Inc., (Newtek) appeals the trial court's March 22, 2021 judgment that granted partial summary judgment to Robert A. Baker and Elsa M. Baker and denied summary judgment to Newtek. We affirm.
In 2011, Baker Sales, Inc. (BSI), obtained two loans from Newtek through a Small Business Association (SBA) subsidized program. Newtek executed promissory notes in the amounts of $1,960,000.00 and $1,215,000.00, which were secured by mortgages on BSI's commercial property. Additionally, both Robert and Elsa Baker executed agreements unconditionally guaranteeing payment of all amounts owed under the notes. The Bakers’ guaranty agreements were secured by conventional mortgages on their home in Lacombe, Louisiana.
In 2013, BSI filed a petition for bankruptcy relief under Chapter 7 of the U.S. Bankruptcy Code. Newtek filed a proof of claim, asserting a secured claim of $3,044,569.46 against BSI's estate, representing the outstanding balance of the loans. The Bankruptcy Court then granted Newtek's request to lift the automatic bankruptcy stay to allow Newtek to enforce its rights under state law and foreclose on BSI's commercial real estate serving as collateral to secure repayment of BSI's debt to Newtek. Newtek filed a petition for executory process in state court, naming BSI and the Bakers as defendants and requesting seizure and sale of BSI's property without benefit of appraisal. Newtek purchased BSI's seized property, which was appraised at $2,800,000.00 in 2011, for $81,130.00 at the 2014 sheriff's sale. Thereafter, the bankruptcy case was closed. See In re: Baker Sales, Inc., 2022 WL 362908, *1 (Bankr. E.D. La. 2022) (slip opinion).
On March 7, 2016, Newtek commenced this second state court suit by filing a petition for executory process against the Bakers as guarantors of BSI's debt, seeking to foreclose on the mortgages on the Bakers’ home. Twice, the trial court signed orders for executory process but then revoked the writs of seizure and sale due to improper procedure.1 On February 10, 2018, the trial court issued a judgment preliminarily enjoining the sale of the Bakers’ property and converting the nature of the proceeding from executory to ordinary.2
The Bakers then filed a petition seeking a declaration under the Louisiana Deficiency Judgment Act (LDJA)3 that the underlying debt was extinguished and, consequently, Newtek can no longer pursue them as guarantors of BSI's debt and the mortgages against their home are terminated. Newtek answered the petition, raising affirmative defenses and denying that the Bakers’ mortgages had terminated.
The Bakers and Newtek filed cross motions for summary judgment on the issue of whether the LDJA applies to bar Newtek from pursuing the Bakers as guarantors of BSI's debt. After a hearing, the trial court denied Newtek's motion for summary judgment and partially granted the Bakers’ motion for summary judgment on March 22, 2021. Pertinently, the trial court rendered judgment declaring that Newtek's rights vis-a-vis the debt are a deficiency action subject to the LDJA, which applies to extinguish the debt. The trial court further ordered Newtek to immediately cancel the inscription of the mortgages executed by the Bakers from the records of St. Tammany Parish. The trial court certified the judgment as final and appealable under La. Code Civ. P. art. 1915B(1).
Newtek now appeals, contending the trial court erred in finding that the LDJA applies to its claims against the Bakers, in partially granting the Bakers’ motion for summary judgment, and in denying its cross motion for summary judgment.
Appellate courts review summary judgments de novo , using the same criteria that govern the trial court's determination of whether summary judgment is appropriate. Larson v. XYZ Insurance Company, 2016-0745 (La. 5/3/17), 226 So.3d 412, 416. That is, after an opportunity for adequate discovery, a motion for summary judgment shall be granted if the motion, memorandum, and supporting documents show there is no genuine issue of material fact, and the mover is entitled to judgment as a matter of law. La. Code Civ. P. art. 966A(3). A fact is material if it potentially ensures or precludes recovery, affects a litigant's ultimate success, or determines the outcome of the legal dispute. A genuine issue of material fact is one as to which reasonable persons could disagree; if reasonable persons could reach only one conclusion, there is no need for a trial on that issue and summary judgment is appropriate. Any doubt is resolved in the non-moving party's favor. The court's role is not to evaluate the weight of the evidence or to determine the truth of the matter, but to determine if there is a genuine issue of material fact. Larson, 226 So.3d at 416.
The burden of proof is on the party filing the motion for summary judgment. See La. Code Civ. P. art. 966D(1). If the mover will not bear the burden of proof on the subject issue at trial, he is not required to negate all essential elements of the adverse party's claim, action, or defense. However, the mover must produce supporting evidence that points out the absence of factual support for one or more elements of the adverse party's claim, action, or defense. See La. Code Civ. P. art. 966A(4) and D(1). Thereafter, the burden of proof shifts to the non-moving party to produce factual support, through the use of proper documentary evidence, that establishes the existence of a genuine issue of material fact or that the mover is not entitled to judgment as a matter of law. See La. Code Civ. P. art. 966D(1).
As an initial procedural matter, the Bakers argue that Newtek's opposition to their motion for summary judgment was untimely filed and cannot be considered. The Bakers are correct. See Auricchio v. Harriston, 2020-1167 (La. 12/10/21), 332 So.3d 660 (). However, where there are cross motions for summary judgment raising the same issues, this court can review the interlocutory denial of a summary judgment in addressing the appeal of the grant of a cross motion for summary judgment. Harris v. Imperial Fire and Casualty Insurance Company, 2020-1323 (La. App. 1st Cir. 7/21/21), 328 So.3d 1208, 1214 n.3, writ denied, 2021-1282 (La. 11/17/21), 327 So.3d 994. On appeal, in addition to arguing that the Bakers are not entitled to summary judgment, Newtek argues that its own motion for summary judgment should be granted. Thus, although Newtek's opposition to the Baker's motion for summary judgment cannot be considered in this appeal, we review Newtek's motion for summary judgment that the trial court denied in addressing the trial court's judgment that granted the Baker's motion. See Harris, 328 So.3d at 1214 n.3 ; Huggins v. Amtrust Insurance Company of Kansas, Inc., 2020-0516 (La. App. 1st Cir. 12/30/20), 319 So.3d 362, 367. In this posture, we turn to the parties’ opposing arguments regarding the LDJA and its application to this case.
The LDJA, together with La. Code Civ. P. arts. 2771 and 2772,4 govern deficiency judgments. A deficiency judgment is a judgment rendered in favor of a creditor for the difference between the amount of a debt and the amount realized in a judicial (public) sale held for the satisfaction of that debt. Echo, Inc. v. Power Equipment Distributors, Inc., 96-1771 (La. App. 1st Cir. 8/7/98), 719 So.2d 79, 92, writ denied, 98-2392 (La. 11/20/98), 729 So.2d 555. The purpose of the LDJA is to protect a debtor from an over-reaching creditor by preventing the inequity inherent in a creditor foreclosing on a debtor's property without appraisal, buying the property for a low price at judicial sale, then obtaining a personal judgment against the debtor for a greater amount than if the property had been sold pursuant to a valid appraisal.
Thomas v. Livingston Parish Sheriff's Office, 2004-1822 (La. App. 1st Cir. 9/23/05), 923 So.2d 662, 666, writ denied, 2005-2264 (La. 3/31/06), 925 So.2d 1254. Thus, the LDJA requires an appraisal prior to judicial sale for the creditor to preserve its right to pursue the debtor for any unsatisfied portion of the debt. La. R.S. 13:4106. Due to the strong public policy it embodies, the LDJA requires strict compliance and operates as an absolute bar to a mortgage creditor who seeks to obtain a deficiency judgment where said creditor provokes a sale (judicial or private) without the benefit of appraisal. Thomas, 923 So.2d at 666 ; Echo, Inc., 719 So.2d at 97.
Specifically, La. R.S. 13:4106 of the LDJA provides:
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Newtek Small Bus. Fin. v. Baker
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