Opinion
Civil Action No: 02-0535, Section: "R" (1)
July 30, 2002
ORDER AND REASONS
Before the Court is plaintiff IberiaBank's motion for summary judgment declaring that it is entitled to a deficiency judgment against the defendants, Carmen and Nancy Marotta. Defendants did not submit any opposition to this motion. For the following reasons, the Court grants plaintiff's motion.
I. Background
Carmen Marotta was a principal in Tony Mart, L.L.C., a limited liability company that operated a night club on Decatur Street in New Orleans, Louisiana. In October 1998, Tony Mart borrowed $500,000 from IberiaBank (the "Original Loan"), signed a note for this Original Loan (the "Original Note"), and secured the Original Loan with a mortgage on its leasehold interest in the building in which it operated the night club (the "Decatur Street Property"). As further security, Carmen Marotta and his wife, Nancy Marotta, executed personal guaranties of Tony Mart's indebtedness to IberiaBank (the "Original Guaranties"). The Original Guaranties covered the indebtedness arising from the Original Loan.
Tony Mart defaulted on the Original Loan. In September 2000, IberiaBank caused Tony Mart's leasehold interest in the Decatur Street Property to be seized, and scheduled a judicial sale of the property pursuant to Louisiana law. Before the judicial sale could take place, Tony Mart initiated Chapter 11 bankruptcy proceedings. The automatic bankruptcy stay stopped the judicial sale from going forward.
One of Tony Mart's assets in the bankruptcy was an option to purchase the Decatur Street Property at a price that was less than the property's market price. On January 19, 2001, the United States Bankruptcy Court of the Eastern District of Louisiana authorized Tony Mart to borrow money from IberiaBank in order to fund Tony Mart's exercise of the option (the "DIP Loan Order"). On February 9, 2001, IberiaBank granted a loan to Tony Mart in the principal amount of $1,376,056.86 (the "DIP Loan"). Tony Mart's indebtedness under the DIP Loan is evidenced by a promissory note (the "DIP Loan Note"). Tony Mart used the proceeds of the DIP Loan to purchase the Decatur Street Property.
The DIP Loan Order provided that all indebtedness incurred by Tony Mart pursuant to the DIP Loan Order was secured by a security interest in the Decatur Street Property. It also provided that, to the extent that any portion of the indebtedness evidenced by the Original Note or incurred by Tony Mart pursuant to the DIP Loan Order remained unpaid on May 15, 2001, IberiaBank was granted relief from the automatic stay, to take all actions deemed appropriate by IberiaBank to enforce its liens and security interests. Carmen and Nancy Marotta again executed personal guaranties of Tony Mart's indebtedness to IberiaBank, including the DIP Loan indebtedness as well as Tony Mart's indebtedness under the Original Loan (the "February 2001 Guaranties").
Tony Mart failed to pay to IberiaBank the indebtedness evidenced by the Original Note and the DIP Loan Note by May 15, 2001. IberiaBank caused the seizure of the Decatur Street Property, and this property was sold with appraisal at a judicial sale. As of the date of the judicial sale, the total amount due from Tony Mart to IberiaBank on the DIP Loan was $1,586,811.52, including principal, interest attorneys' fees, and other fees and expenses to which IberiaBank was entitled. At the judicial sale, IberiaBank purchased the Decatur Street Property for $1,758,666.67. By way of this sale, IberiaBank recovered $1,586,811.52, the full amount to which it was entitled under the DIP Loan, and Tony Mart was relieved of its indebtedness under the DIP Loan.
This total does not include Tony Mart's indebtedness to IberiaBank under the Original Loan.
IberiaBank recovered this amount in the form of a credit that was applied toward the purchase price of the Decatur Street Property. IberiaBank's use of the credit resulted in the satisfaction of Tony Mart's DIP Loan indebtedness.
Tony Mart's indebtedness to IberiaBank on the Original Loan, however, remains unpaid and is the subject of this civil action. IberiaBank asserts that it is entitled to a deficiency judgment against Carmen and Nancy Marotta because, under the Original Guaranties and the February 2001 Guaranties, the Marottas are liable to IberiaBank as guarantors of the indebtedness arising from the Original Loan.
Plaintiff asserts that the principal debt of the Original Loan owed to them is $495,308.57. In addition, as of January 31, 2002, the following amounts were owed under the terms of the Original Loan: accrued unpaid interest of $187,515.57; accrued, unpaid late charges of $675.00; and attorneys' fees of $42,118.27. Interest on the Original Loan continues to accrue at the rate of $288.93 per day.
II. Discussion
A. Summary Judgment Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2551 (1986). The court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). The moving party bears the burden of establishing that there are no genuine issues of material fact. Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir. 1993). A factual dispute precludes a grant of summary judgment if the evidence would permit a reasonable jury to return a verdict for the nonmoving party. See Hunt v. Rapides Healthcare System, LLC, 2001 WL 1650961 (5th Cir. 2001) (citations omitted).
B. Deficiency Judgment
When a creditor seeks recovery from a debtor in an executory proceeding, the creditor may obtain a seizure and sale of the debtor's property which is subject to the mortgage without first obtaining a judgment. The Louisiana Supreme Court has explained that "if the proceeds of the sale are insufficient to satisfy the debt, the creditor must first obtain a judgment for the balance of the debt before seizing any of the debtor's other property." First Acadiana Bank v. Bieber, 582 So.2d 1293, 1295 (La. 1991); La. Code Civ. Proc. art. 2771. Such a judgment is known as a "deficiency judgment." In order to obtain a deficiency judgment, the creditor must (1) plead and prove the existence of the obligation giving rise to the debt and the grounds of nonperformance entitling him to maintain his judicial action, (2) plead and prove that the property was sold after appraisal in accordance with the codal and statutory laws, and (3) plead and prove that the proceeds of the judicial sale were insufficient to satisfy the balance of the performance then due. First Acadiana Bank, 582 So.2d at 1296; First Guaranty Bank, Hammond Louisiana v. Baton Rouge Petroleum Center, Inc., 529 So.2d 834, 842 (La. 1988); Gulf Coast Bank and Trust Co., v. GSR Properties, 809 So.2d 1238, 1240 (La.App. 3 Cir. 2002). In a deficiency judgment, the debtor has all the rights of a defendant in an ordinary proceeding. First Guaranty Bank, Hammond Louisiana, 529 So.2d at 841.
1. Existence of an Obligation
IberiaBank has established the existence of an obligation and the grounds of non-performance entitling it to maintain this judicial action. Gulf Coast Bank and Trust, 809 So.2d at 1240; La. Civ. Code arts. 1831 and 1994. The facts pertaining to the obligation owed by the Marottas to IberiaBank are uncontested. In the Original Loan of October 1998, Tony Mart borrowed $500,000 from IberiaBank. In the Original Guaranties, Carmen and Nancy Marotta personally guarantied Tony Mart's indebtedness to IberiaBank, specifically including the indebtedness arising from the Original Loan. In the DIP Loan of February 2001, Tony Mart borrowed an additional $1,376,056.86 from IberiaBank. In the February 2001 Guaranties, Carmen and Nancy Marotta again guarantied Tony Mart's indebtedness to IberiaBank, specifically including both the DIP Loan and the Original Loan. The Original Guaranties and the February 2001 Guaranties have been entered into the record. Pl.'s Mot. Summ. J., Exs. A, B, F, and G. Each guaranty complies with Louisiana law. La. Civ. Code art. 3035, et seq. Tony Mart remains indebted to IberiaBank under the Original Loan. Pl.'s Mot. Summ. J., Exs. I and J. Thus Carmen and Nancy Marotta are liable to IberiaBank as guarantors of that debt. Id.
2. Judicial Sale After Appraisal
It is an uncontested fact that Tony Mart failed to pay its indebtedness to IberiaBank by May 15, 2001. Pursuant to the DIP Loan Order, IberiaBank had the Decatur Street Property seized. IberiaBank has produced evidence asserting that IberiaBank had an appraisal done as required by Louisiana law. La. Code Civ. Proc. art. 2723. This uncontroverted evidence comes in the form of the sworn affidavits of Mr. Michael Brown, Chief Credit Officer for IberiaBank, and Mr. Fred Malzahn, Senior Vice President of IberiaBank. Pl.'s Mot. Summ. J., Exs. I and J. IberiaBank appointed Henry W. Tatje, III as its appraiser. Mr. Tatje appraised the Decatur Street Property's fair market value as $2,540,000, a value which includes both the property and its furniture, fixtures and equipment. Pl.'s Mot. Summ. J., Ex. K. IberiaBank purchased the Decatur Street Property at the judicial sale for $1,758,666.67. In compliance with Louisiana law, the purchase price is at least two-thirds of the appraised value. La. Code Civ. Proc. art. 2336. Thus IberiaBank has established the existence of a judicial sale that complied in all respects with Louisiana law.
3. Insufficiency of Sale
Finally, IberiaBank has also established that the proceeds from the judicial sale of the Decatur Street Property failed to satisfy the debt due. Gulf Coast Bank and Trust, 809 So.2d at 1240. The sworn and uncontroverted affidavits of Mr. Michael Brown and Mr. Fred Malzahn establish that while proceeds from the sale of the Decatur Street Property were sufficient to cover Tony Mart's indebtedness arising from the DIP Loan, the proceeds were insufficient to cover the indebtedness of Tony Mart arising from the Original Loan. Pl.'s Mot. Summ. J., Exs. I and J. The principal debt owed to IberiaBank is $495,308.57. Id. In addition, as of January 31, 2002, the following amounts were owed under the terms of the Original Loan: accrued unpaid interest of $187,515.57; accrued, unpaid late charges of $675.00; and attorneys' fees of $42,118.27. Id. Interest on the Original Loan continues to accrue at the rate of $288.93 per day. Id. Because Tony Mart remains indebted to IberiaBank under the Original Loan, defendants, as guarantors of that debt, are liable to IberiaBank for these amounts.
In summary, IberiaBank has established, first, the existence of an obligation owed by defendants to plaintiff, second, that a judicial sale of defendants' property was conducted after an appraisal that complied with Louisiana law, and, third, that the judicial sale was insufficient to cover all of defendants' indebtedness to IberiaBank. The indebtedness arising from the Original Loan remains outstanding, and IberiaBank is entitled to a deficiency judgment.
III. Conclusion
For the foregoing reasons, the Court grants plaintiff's motion for summary judgment.