U.S. v. Unum, Inc.
| Decision Date | 05 October 1981 |
| Docket Number | No. 79-3190,79-3190 |
| Citation | 658 F.2d 300 |
| Parties | 32 UCC Rep.Serv. 646 UNITED STATES of America, Plaintiff-Appellee, v. UNUM, INC. and Lance W. Dreyer, Defendants-Appellants. . Unit A * |
| Court | U.S. Court of Appeals — Fifth Circuit |
Marilyn H. Elam, Houston, Tex., for defendants-appellants.
Deborah Marie Frye, Helen M. Eversberg, Mary L. Sinderson, Asst. U. S. Attys., Houston, Tex., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before WISDOM, POLITZ and SAM D. JOHNSON, Circuit Judges.
The Small Business Administration (SBA), filed suit to collect the balance due on a promissory note executed by Unum, Inc., and Lance W. Dreyer. Defendants-appellants admitted the obligation, but claimed a discharge from liability because the SBA had unjustifiably impaired the collateral securing the debt by releasing its lien to a third-party purchaser for $1,000. After a bench trial, the district court found that the amount accepted by the SBA was equivalent to the fair market value of the collateral, rejected the defense of unjustifiable impairment, and rendered judgment for the principal and interest due on the note. We affirm.
In February, 1971, Unum purchased three used aircraft, airplane engines, and equipment from the SBA. The SBA had acquired this property in a foreclosure action. The sale was a credit transaction; Unum and Dreyer, individually, executed a promissory note for $61,000, payable to the SBA. The debt was secured by chattel mortgages on the aircraft and engines. Dreyer also executed a separate guaranty agreement on the SBA's standard guaranty form.
The sale included Lockheed Constellations numbered N6924C, N173W and N45516, all parked at Anchorage International Airport. Constellation N173W was flown to Florida; N6924C and three additional engines were sold by Unum and the net proceeds of $12,000 were applied to the SBA loan. The other aircraft, N45516, remained parked at Anchorage Airport throughout 1972, 1973 and most of 1974.
In February of 1973, Unum and Aviation Specialties, Inc., began negotiations for the sale of the two remaining Constellations. The resulting contract required that Aviation Specialties pay $25,000 cash immediately, entitling it to possession of N173W, and that upon Unum reducing the balance of the SBA note to $42,000 and paying the tie-down fees for N45516 accrued at the Anchorage Airport, Aviation Specialties would assume the note balance and take possession of N45516. Aviation Specialties paid the $25,000 and received N173W in February 1973. This aircraft was destroyed in a crash a few months later. After the crash, the relationship between Unum and Aviation Specialties deteriorated. Unum did not pay the tie-down fees and did not reduce the balance on the SBA note. Aviation Specialties informed Unum and the SBA that it considered the contract breached, and disavowed any responsibility under it. Aviation Specialties did not assume the note balance, and Unum made no payments.
In August 1973, officials of Anchorage Airport notified the SBA, Unum, Dreyer, and Aviation Specialties of their intention to sell N45516 to pay the delinquent tie-down fees which then totaled nearly $4,000. 1 In November 1973, the airplane was sold at public sale to Aviation Specialties for $3,670, the highest bid timely submitted. The formal bill of sale, dated October 21, 1974, vested title to N45516 in Aviation Specialties, subject to any existing liens or encumbrances. Aviation Specialties made approximately $20,000 worth of improvements to the aircraft, and in the fall of 1974 flew it to the company's home office in Arizona. On February 18, 1975, in exchange for $1,000 from Aviation Specialties, the SBA released its lien on the Constellation. This sum was credited to the balance due on the note.
The United States filed suit on the note against Unum and Dreyer on January 5, 1976. On February 17, 1976, after the plaintiff had moved for judgment by default, Unum and Dreyer filed their answer to the complaint. Neither party requested trial by jury on the issues presented by the suit on the note. In September 1976, Unum and Dreyer attempted to implead Aviation Specialties as a third-party defendant, alleging breach of contract for the sale of the Constellations. They requested a jury trial on this issue. Aviation Specialties moved for dismissal of the third-party demand against it. On March 16, 1978, the district court granted this motion. Unum and Dreyer did not seek a trial by jury on the issues presented by the original complaint until August 30, 1978, seven days before the final docket call and almost two years and eight months after the suit was filed. The trial judge denied this request.
Unum and Dreyer, admitting the debt, advanced an affirmative defense claiming discharge from the obligation to the extent of the fair market value of the airplane. They predicated their defense on U.C.C. § 3-606, arguing that the SBA's release of its lien for $1,000 unjustifiably impaired the collateral. Finding that the fair market value of the aircraft was $1,000 when the SBA released its lien, the trial judge concluded that the SBA had not unjustifiably impaired the collateral. Judgment was entered against defendants for the full balance due on the note.
Appellants raise two issues on appeal: whether the trial court erred in not granting a jury trial, and whether the court erred in rendering judgment for the full balance due on the note.
Appellants contend that they have a right to a jury trial because their request was timely made. We disagree. Rule 38(b) of the Federal Rules of Civil Procedure requires that in order to assert the right to a jury trial, demand must be made "not later than 10 days after the service of the last pleading directed to such issue." "Such issue" means the issue for which jury trial is requested. In the present case, the issue involved the extent of defendants' obligations under the promissory note. The last pleading relating to that issue was filed on February 17, 1976. The demand for jury trial was made on August 30, 1978. Appellants argue that their demand for jury trial in the suit on the note obligation should relate to their previous request for jury trial on their third-party claim against Aviation Specialties. Even if we were to accept defendants' "relation-back" theory, their request was still not timely made because the third-party demand was not filed until over seven months after their answer in the original suit.
Alternatively, appellants contend that the trial judge should have granted their request for jury trial under Fed.R.Civ.P. 39(b). A motion for trial by jury submitted under Rule 39(b) should be favorably received unless there are persuasive reasons to deny it. Swoffard v. B & W, Inc., 336 F.2d 406 (5th Cir.), cert. denied, 379 U.S. 962, 85 S.Ct. 653, 13 L.Ed.2d 557 (1964). Reviewing the salient factors in the case at bar, we conclude that persuasive reasons exist. The request for a jury trial was made only a few days before the final docket call. The plaintiff had prepared its case to be tried to the bench; there was an obvious reliance on depositions and documentary evidence, rather than on live witnesses. Forcing the plaintiff to change its trial strategy on such short notice would have worked a substantial hardship. In addition, the trial judge considered the defendants' explanation for their delay and found it not to be persuasive. We find no abuse of discretion in the denial of the Rule 39(b) motion for trial by jury.
Appellants advance three legal theories to support their argument that they should be released from liability in an amount equal to the fair market value of the airplane: (1) they are relieved of liability on the note under U.C.C. § 3-606 because the SBA unjustifiably impaired the collateral when it released its lien; (2) they should be held liable only to the extent the debt exceeds the fair market value of the aircraft because the sale was not commercially reasonable as required by U.C.C. § 9-504(1)(c); and (3) a creditor must act as a fiduciary with regard to a security interest and, as such, must not release the security interest for less than the fair market value of the secured property. We find that none of appellants' theories are applicable to the present case and that even if they were, appellants have failed to establish the facts necessary to prevail on them.
Each of appellants' theories is an affirmative defense. As such, appellants had the burden to establish supportive facts; they had the duty to produce competent evidence of the value of N45516 on February 18, 1975, the date the SBA released its lien. This fact is essential to their defense. That appellants were aware of this is apparent from the comment of their counsel to the district judge:
If we might, your honor, the defendants would respectfully move the court to have the right to open and close in argument because I believe we are carrying all of the burden.
We find no credible evidence in the record of the fair market value of Constellation N45516 when the SBA released its mortgage. We find testimony of the improvements made to the aircraft after purchase by Aviation Specialties, however, we agree with the trial judge that this amount should not be considered in computing the fair market value. There is a dearth of evidence of the value of the airplane before the improvements by Aviation Specialties restored it to use. The only direct evidence was testimony that it was worth $1,000 at the time of the airport sale. There was other evidence, inferentially indicative of value, consisting of a bid in the airport sale which was not timely submitted. That bid was for an amount approximately $1,000 more than the sum due the airport for tie-down fees. The skillful arguments in appellants' brief cannot...
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