Schwegmann Bank & Trust Co. of Jefferson v. Simmons

• Decision Date: 17 August 1989
• Docket Number: No. 88-4674,88-4674
• Citation: 880 F.2d 838
• Parties: 9 UCC Rep.Serv.2d 602 SCHWEGMANN BANK & TRUST COMPANY OF JEFFERSON, Plaintiff-Appellee, v. Cecil R. SIMMONS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 838

880 F.2d 838

9 UCC Rep.Serv.2d 602

SCHWEGMANN BANK & TRUST COMPANY OF JEFFERSON, Plaintiff-Appellee, v. Cecil R. SIMMONS, Defendant-Appellant.

No. 88-4674.

United States Court of Appeals Fifth Circuit.

Aug. 17, 1989.

Rehearing Denied Sept. 18, 1989.

Chris Boswell, Harlingen, Tex., for defendant-appellant.

James R. Madison, Jeffrey W. Weiss, Wiener, Weiss, Madison & Howell, Shreveport, La., for plaintiff-appellee.

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

Before GEE, GARZA, and JONES, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Dr. Cecil R. Simmons contests on several grounds the trial court's entry of summary judgment, holding him liable for his promissory note in the face amount of $117,864, together with interest, attorneys fees and costs. Finding no reversible error in the trial court's decision, we affirm.

BACKGROUND

Dr. Simmons was persuaded to enter into a limited partnership whose purpose was the purchase of investment real estate located in Tarrant County, Texas. The promoters of this limited partnership and numerous similar ventures were headquartered in Louisiana. On July 31, 1985, Simmons's participation in the venture was memorialized by a subscription agreement in the East Pointe Land Partners 1985 Limited Partnership; a promissory note payable to Q-L Investments, Inc., the general partner in East Pointe; and a security agreement pledging to Q-L Simmons's partnership unit. Q-L endorsed Simmons's note to its related company Quinn-L Capital Corporation. Quinn-L next endorsed Simmons's note to the Bank of Commerce of Shreveport, Louisiana (BOC), as security for a loan from the Bank of Commerce to Quinn-L.

For present purposes, it need only be added that BOC had agreed to furnish a $4 million line of credit in favor of Quinn-L and related companies and sought out participant banks in the line of credit because it had reached its legal lending limit for those entities. On September 11, 1985, Schwegmann Bank and Trust Company of Jefferson, Louisiana, agreed to a $1 million participation. BOC continued to hold the Quinn-L note and limited partner investor notes for two limited partnerships which secured that note. BOC was the "lead" bank and trustee for Schwegmann, the participant, funding bank. When BOC shortly afterward experienced severe financial difficulties, threatening its existence, Schwegmann Schwegmann began corresponding with Simmons to advise him of his responsibility to direct payments to Schwegmann rather than Quinn-L. Although Simmons initially decided that he did not want to be associated with Quinn-L's bankruptcy and attempted to relinquish his partnership interest, he later changed his mind and continued making interest payments on the note until April 1987.

determined to take over the Quinn-L note and the investor notes securing it. This was accomplished April 1, 1986, by endorsement of Simmons's note and the other documents to the order of Schwegmann, without recourse except as to one investor's $62,000 note. Schwegmann expressly reserved all claims against BOC and paid no consideration for the endorsement. Two weeks later, Quinn-L filed for bankruptcy. In mid-June, FDIC closed BOC and placed it in receivership.

DISCUSSION

I. PERSONAL JURISDICTION

Among the numerous issues raised by Dr. Simmons on appeal, the first we must address is that of personal jurisdiction. Simmons contends that the choice-of-forum clause in his security agreement with Q-L is unenforceable and that the district court in the Western District of Louisiana had no personal jurisdiction over him. The latter issue is controlling, because personal jurisdiction is required even if the choice of forum clause were unenforceable.

The district court found that Simmons had purposefully availed himself of the benefits of transacting business in Louisiana and that it would be neither unfair nor unreasonable to require him to litigate in Louisiana. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). Its conclusion is amply supported by the following facts. The partnership in which Simmons invested had as its general partner a corporation (Q-L) whose principal office was located in Shreveport, Louisiana. Simmons delivered his subscription agreement to the Louisiana general partner for East Pointe in Shreveport and gave Q-L his irrevocable power of attorney. The promissory note Simmons executed provides that it is governed in all respects by Louisiana law. Finally, all principal and interest payments on the note were to be made to Q-L in Shreveport, Louisiana. Simmons knew his note would be used as collateral for financing the partnership and thus could have foreseen that the note would be negotiated to a Louisiana entity. The district court also concluded that requiring Simmons, although a resident of South Texas, to defend a lawsuit in Shreveport, Louisiana was neither unreasonable nor unjust. We concur with that assessment on the facts before us.

The trial court's personal jurisdiction over Simmons cannot seriously be challenged.

II. ABSTENTION

Simmons next contends that the district court should have abstained from hearing this case because he filed a lawsuit one month earlier in Texas state court, alleging that the Simmons note was void and unenforceable. The district court declined to abstain, and in so doing did not abuse its discretion. A federal court should abstain only in exceptional circumstances. Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

Simmons's reliance on Ingersoll-Rand Financial Corp. v. Callison, 844 F.2d 133 (3d Cir.1988), to support his abstention argument is misplaced. The Third Circuit found that a district court had properly abstained from hearing a collection case filed by Ingersoll-Rand against investors in a limited partnership because to do otherwise would thwart the investors' choice of a state law forum for litigating securities suits they had already filed against Ingersoll-Rand. The court held that a plaintiff is entitled to his choice of a state or federal forum under the Federal Securities Act of 1933. Id. at 137. In this case, by contrast, Simmons had not joined in his Texas state suit a claim under the federal securities laws until more than six months after Schwegmann's complaint was filed in federal district court. Moreover, Simmons first alleged violations of the Securities Act in his answer to Schwegmann's complaint. He simply did not choose to litigate his securities action either first or foremost in the pending Texas lawsuit.

III. WHETHER SCHWEGMANN BANK IS A HOLDER IN DUE COURSE

Louisiana has adopted article three of the Uniform Commercial Code ("UCC") governing the rights of parties holding negotiable instruments. See La.Rev.Stat. Secs. 10:3-101 to 10:3-806. We apply Louisiana law in this diversity case but we also look for guidance to other jurisdictions that have adopted the identical UCC sections. See Bricks Unlimited, Inc. v. Agee, 672 F.2d 1255, 1258 (5th Cir.1982) (holding that it was unnecessary to decide whether to apply Louisiana or Mississippi negotiable instrument law since both states had adopted the identical UCC provisions).

La.Rev.Stat. Sec. 10:3-305 provides that a holder in due course takes the negotiable instrument free from all claims to it and all defenses except those enumerated in the section. Section 10:3-302 provides that:

A holder in due course is a holder who takes the instrument (a) for value; and (b) in good faith; and (c) without notice that it is overdue or has been dishonored or of a defense or claim to it on the part of any person.

It is undisputed that Schwegmann Bank is the legal holder of the Simmons note. However, Simmons contests the bank's good faith and lack of notice of his alleged defenses.

Schwegmann Bank responds that Simmons's pleadings are insufficient to establish a defense on the note to withstand summary judgment. We do not need to adjudicate Simmons's defenses against Quinn-L if it sought to collect on the note, because the critical issue is whether Simmons has raised a material fact question regarding Schwegmann's good faith and notice of those defenses when it acquired the note.

In Louisiana, there is conflicting authority on whether "in good faith" and "notice [of] ... a defense" are to be determined on the basis of Schwegmann's subjective or objective knowledge and conduct. Schwegmann relies on two Louisiana appellate court cases which hold that the good faith inquiry is entirely subjective and that the notice of defenses inquiry is essentially subjective, i.e., that the holder did not intentionally abstain from investigation to avoid notice of potential defenses. Republic of Texas Savings Assoc. v. First Republic Life Insurance Co., 417 So.2d 1251, 1255 (La.App. 1st Cir.1982), cert. denied, 422 So.2d 161 (1982); Arthur Dooley & Son of Louisiana, Inc. v. Johnson, 422 So.2d 1270, 1274-75 (La.App. 5th Cir.1982), writ denied, 429 So.2d 152 (1983).

Simmons cites Asian Int'l, Ltd. v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 435 So.2d 1058, 1062 (La.App. 1st Cir.1983) which holds that "[g]ood faith is determined on a reasonableness standard, in that the facts must be such as would necessarily put a reasonable person on inquiry to ascertain the true facts." This language in Asian Int'l creates an apparent ambiguity in Louisiana law concerning whether the test for good faith of a holder in due course is subjective or objective. We are persuaded, however, that Asian Int'l either used loose language or incorrectly interpreted Louisiana's UCC on this point. ¹ Because Republic of Texas and Arthur Dooley seem to apply the current UCC definitions of good faith and notice more rigorously than Asian Int'l, we therefore adhere to our prior decision in Bricks Unlimited, which holds, consistently with these two cases, that the identical good faith provision...