USX Corp. v. Tanenbaum

• Decision Date: 04 April 1989
• Docket Number: No. 88-4809,88-4809
• Parties: USX CORPORATION, Plaintiff-Appellee, v. B.J. TANENBAUM, Jr. and Ted Tan, Defendants-Appellants. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1455

868 F.2d 1455

USX CORPORATION, Plaintiff-Appellee, v. B.J. TANENBAUM, Jr. and Ted Tan, Defendants-Appellants.

No. 88-4809

Summary Calendar.

United States Court of Appeals Fifth Circuit.

April 4, 1989.

Rehearing Denied April 27, 1989.

Frank H. Spruiell, Jr., Comegys, Lawrence, Jones, Odom & Spruiell, Shreveport, La., for defendants-appellants.

W. Lake Hearne, T. Haller Jackson, Jr., Tucker, Jeter, Jackson & Hickman, Shreveport, La., for plaintiff-appellee.

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

Before POLITZ, KING and SMITH, Circuit Judges.

POLITZ, Circuit Judge:

The district court granted summary judgment to USX Corporation in its suit against B.J. Tanenbaum, Jr. as a surety for Dawn Drilling Company. Concluding that the district court erred in finding Tanenbaum bound in solido with Dawn Drilling and, as a consequence, not entitled to plead division, ¹ we reverse and remand.

Background

In return for the extension of credit to Dawn Drilling by USX Corporation, successor in name to the United States Steel Corporation, seven of Dawn Drilling's shareholders, including Tanenbaum, signed separate personal guaranty agreements ² promising to pay any resulting indebtedness. The seven instruments are identical, stating in pertinent part:

1. In consideration of the giving of credit by the United States Steel Corporation, a Delaware Corporation, its successors and assigns, hereinafter designated as "USS", as and when it may deem proper to DAWN DRILLING COMPANY of SHREVEPORT, LOUISIANA, his, her, their, or its heirs, executors, administrators, successors and assigns, hereinafter designated as Principal, or the extension of any time of payment of any existing obligations of Principal to USS, and other valuable consideration, we, the undersigned (jointly and severally) hereinafter designated Guarantor(s), do(es) hereby unconditionally guarantee to USS, its successors and assigns, punctual payment at maturity of any and all indebtedness, including judgments, which Principal may now or hereafter owe to USS, whatever the nature of and however such indebtedness may be evidenced, and whether or however the same may be secured.

* * *

* * *

4.... The signature of or on behalf of any signatory party to this guaranty shall make the liability of such party absolute and unqualified and shall not be conditional upon the signing hereof by any other person, firm or corporation ...

* * *

* * *

6. In the event of any default by Principal, USS may institute one or more actions against Guarantor, or any one or more of them, as guarantors, cumulatively, concurrently, or consecutively, and invoke any legal or equitable remedies in said actions without being obligated first or at any time to institute suit against Principal or others liable upon or in connection with any obligations guaranteed hereunder or to foreclose or exhaust any lien, or other security, of any character whatever held by or available to USS and without affecting any such lien or security.

From April through July of 1985, USX sold Dawn Drilling oilfield equipment and supplies totalling $38,081.87. When payment was not made USX invoked diversity jurisdiction and filed suit against the seven guarantors in the Western District of Pennsylvania. Tanenbaum secured a transfer of venue to the Western District of Louisiana where USX proceeded against him alone.

In his response to the USX complaint, Tanenbaum claimed the benefit of division, as provided by article 3049 of the Louisiana Civil Code of 1870. USX moved for summary judgment, which the district court granted, finding that Tanenbaum had waived division by binding himself in solido with Dawn Drilling. Tanenbaum timely appealed.

Analysis

On review of the grant of a summary judgment we may affirm if, after examining the entire record we are convinced that there is no genuine dispute of a material fact and that the moving party is entitled to judgment as a matter of law. Netto v. Amtrak, 863 F.2d 1210 (5th Cir.1989); Estiverne v. Louisiana State Bar Assoc., 863 F.2d 371 (5th Cir.1989). Questions of fact are considered with deference to the non-moving party, Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577 (5th Cir.1986), while questions of law are subject to de novo review. Netto, 863 F.2d at 1212. And, although we customarily defer to the district judge in a diversity case involving interpretation of the law of the state in which that judge sits, NCH Corp. v. Broyles, 749 F.2d 247, 253 n. 10 (5th Cir.1985); Commonwealth Life Ins. Co. v. Neal, 669 F.2d 300, 304 (5th Cir.1982), we are "not bound by the district court's interpretation and can reverse the court if we believe the court has incorrectly applied the state's law." Dean v. Dean, 821 F.2d 279, 283 n. 4 (5th Cir.1987).

Tanenbaum concedes that by signing the guaranty agreement he became a surety for Dawn Drilling, thereby obligating himself to satisfy Dawn Drilling's debts in the event of its default. See La.Civ.Code art. 3035 (1870). But he maintains that because several other sureties guaranteed the company's debts he is entitled to the benefit of division, requiring USX to reduce its demand against him to the virile or proportionate share of the debt due by each surety. La.Civ.Code art. 3049 (1870).

We begin our analysis by considering the nature of suretyship under the Civil Code. Marcel Planiol, a noted civil law authority, explains:

Sureties resemble solidary co-debtors, in their relations with the principal debtor, and in their relations between themselves: there is no division between them, and each one of them can be sued before the debtor. However this is not true solidarity, since the law accords to them the benefits of discussion and of division, benefits which are the negation of solidarity and which are refused to real solidary co-debtors.

2 M. Planiol, Treatise on the Civil Law No. 2351 (11th ed.1939). The division referred to by Planiol is granted by article 3049 of the Louisiana Civil Code of 1870, which provides:

When several persons have become sureties ³ for the same debt, each of them is individually liable for the whole of the debt, in case of insolvency of any of them.

Any one of them may however demand that the creditor should ⁴ divide his action by reducing his demand to the amount of the share and portion due by each surety, unless the sureties have renounced the benefit of division.

Planiol expounds:

[The benefit of division] supposes the existence of several sureties. In such case, each one is held for the entire debt as if he were alone. This is a remarkable derogation from the general rule according to which an obligation contracted by several persons is divided, in principle, between the co-debtors. The sureties are therefore treated as if they were solidary debtors between themselves, which can only be explained by the Roman forms of suretyship and by the maintenance of ancient traditions. But this rigor of the law is tempered by the benefit of division, which permits sureties to be governed by the general rule, or close to it.

2 M. Planiol, Treatise on the Civil Law No. 2345 (footnote and citations omitted).

Although, as Planiol notes, the "rigor of the law is tempered by the benefit of division," the benefit is not absolute. It can be renounced by an express waiver. Slovenko, Suretyship, 39 Tu.L.Rev. 427, 452 (1965). USX's claim that paragraph 6 of the guaranty agreement constitutes such a waiver is without merit. That paragraph merely refers to USX's right to sue one or more of the guarantors without being obligated to proceed first against Dawn Drilling. Although this language may be interpreted to waive Tanenbaum's right to plead discussion, ⁵ it clearly does not renounce Tanenbaum's right to plead division.

The benefit of division also is waived if the surety binds himself in solido with the principal debtor, in which case "as between the creditor and the solidary surety, the obligations of the surety are governed by the rules of solidary obligors" and, hence, the "surety waives the plea[ ] of ... division." Louisiana Bank & Trust Co. v. Boutte, 309 So.2d 274, 278 (La.1975); see also Hibernia Bank & Trust Co. v. Succession of Cancienne, 140 La. 969, 74 So. 267, 272 (1917); La.Civ.Code art. 2094 (1870) ("The creditor of an obligation contracted in solido may apply to any one of the debtors he pleases, without the debtors' having a right to plead the benefit of division."). In determining whether a surety is bound in solido with the principal debtor, consideration must be given to article 2093 of the Civil Code, which provides that "[a]n obligation in solido is not presumed; it must be expressly stipulated." La.Civ.Code art. 2093 (1870). However, article 2093 "should not be so strictly construed as to require that such words as 'in solido ' or 'solidary' must appear in the contract in order to create solidary liability." Flintkote Co. v. Thomas, 223 So.2d 676, 679 (La.App.1969). Rather, a solidary obligation is created if the contract uses an expression which clearly shows an intent to be bound in solido. Id.

In finding Tanenbaum and Dawn Drilling bound in solido, the district court apparently relied on the following language in paragraph 1 of the guaranty agreement:

[W]e, the undersigned (jointly and severally ) hereinafter designated Guarantor(s), do(es) hereby unconditionally guarantee to USS, its successors and assigns, punctual payment at maturity of any and all indebtedness, including judgments, which Principal may now or hereafter owe to USS.... (Emphasis supplied.)

While it is true that the term "jointly and severally" may serve to express an intent to be bound in solido under Louisiana law, Flintkote, 223 So.2d at 679-80, we agree with Tanenbaum that the term "jointly and severally" as used in paragraph 1 refers to the type of liability that exists between "we, the undersigned," meaning only those guarantors who were signatories to...