Ring Construction, LLC v. Chateau Des Lions, LLC

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

05-568

RING CONSTRUCTION, LLC

VERSUS

CHATEAU DES LIONS, LLC

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APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF LAFAYETTE, NO. 03-4031
HONORABLE GLENN EVERETT, PRESIDING
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SYLVIA R. COOKS
JUDGE

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Court composed of Sylvia R. Cooks, Michael G. Sullivan and James T. Genovese,
Judges.

AFFIRMED.

David C. LaBorde
The LaBorde Law Firm, LLC
102 Asma Boulevard, Suite 100
P.O. Box 80098
Lafayette, LA 70598-0098
(337) 261-2617
COUNSEL FOR DEFENDANT/APPELLANT:
Chateau des Lions, L.L.C.

Shelly D. Dick
Forrester, Jordan & Dick, L.L.C.
7809 Jefferson Hwy., Bldg. G
Baton Rouge, LA 70809
(225) 928-5400
COUNSEL FOR DEFENDANT/APPELLANT:
Chateau des Lions, LLC

Paul J. McMahon, III
P.O. Box 3643
Lafayette, LA 70502-3643
(337) 233-6768
COUNSEL FOR PLAINTIFF/APPELLEE:
Ring Construction, L.L.C.

Steven B. Loeb
Braezeale, Sachse & Wilson, L.L.P.
23rd Floor – One American Place
P.O. Box 3197
Baton Rouge, LA 70821-3197
(225) 387-4000
COUNSEL FOR PLAINTIFF/APPELLEE:
Ring Construction, L.L.C.

Eugene R. Preaus
Edward C. Gleason
Preaus, Roddy & Associates, L.L.P.
650 Poydras Street, Suite 1650
New Orleans, LA 70130-6114
(504) 529-5695
COUNSEL FOR PLAINTIFF/APPELLEE:
Hartford Casualty Insurance Co.

COOKS, Judge.

Appellant asks this court to vacate a judgment confirming an Award of

Arbitrators, and remand the matter to allow discovery of the actual consideration paid

on an assignment so it can extinguish the debt by subsequent payment of that

consideration. For the following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

Ring Construction sued Chateau Des Lions, alleging it was owed money for

repair work that was performed at the Chateau apartment complex in Lafayette in

October 2002 as a result of Hurricane Lily. The parties eventually agreed to binding

arbitration, and the trial court stayed the proceedings pending the arbitration. On July

27, 2004, the arbitration panel rendered an opinion in favor of Ring for damages in

the amount of $315,131.50.

Ring filed a Motion to Lift Stay to obtain an order confirming the arbitration

award. While Ring’s motion was pending, an assignment was executed whereby

Ring assigned to Hartford Casualty Insurance Company all of its right, title and

interest in and to the award of the arbitrators. Apparently, Ring had several liens

pending on another construction project, and assigned its award against Chateau to

Hartford to secure a release of the liens and general indemnity agreement.

After becoming aware of the assignment, Chateau filed a peremptory exception

of No Right of Action and Lack of Standing asserting that Ring no longer had

standing to seek confirmation of the arbitration award as a result of the assignment.

Chateau also filed an Exception asserting the Sale of a Litigious Right and asked the

trial court to stay the proceedings so that Chateau could determine what consideration

had been paid to Ring for the assignment so that Chateau could exercise its right to

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extinguish the debt, namely the arbitration award, by tendering to Hartford the

amount or price paid for the assignment with accrued interest. Hartford then

intervened as party plaintiff, asserting it had an interest in the proceedings that had

been conferred to it by Ring in the assignment. A few days later Hartford filed a

Motion and Order to Dismiss its Petition of Intervention. An order was subsequently

signed dismissing Hartford without prejudice from these proceedings.

The trial court denied Chateau’s exceptions and asked the parties to submit a

judgment confirming the arbitration award. Judgment eventually was entered

confirming the arbitration award and denying Chateau’s peremptory exceptions.

Chateau filed a Motion for New Trial, which was denied by the trial court. This

appeal followed.

ANALYSIS

Chateau argues the district court erred in denying its Exception asserting the

Sale of a Litigious Right, contending La.Civ.Code art. 2652 allows the debtor to

extinguish his obligation by paying to the assignee the price the assignee paid for the

assignment, along with the accrued interest. La.Civ.Code art. 2652 reads in pertiment

part as follows:

When a litigious right is assigned, the debtor may extinguish his
obligation by paying to the assignee the price the assignee paid for the
assignment, with interest from the time of the assignment.

A right is litigious for that purpose, when it is contested in a suit
already filed.

Chateau alleges that Ring sold a litigious right to Hartford, thereby invoking

La.Civ.Code art. 2652, which would allow Chateau to escape its liability under the

arbitration award by paying to Hartford the consideration for the alleged sale of the

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litigious right. We disagree. The assignment executed by Hartford served to effect

a security interest in the award, not a sale. The pertinent provisions in the assignment

are as follows:

Assignment. Assignor hereby assigns, conveys, transfers, delivers and
grants a security interest to Assignee, as additional security for the
obligations of Ring under the General Indemnity Agreement, as well as
in connection with the Release of Lien Bonds issued by Hartford, of all
its right, title and interest in and to the Award, a copy of which is
attached hereto . . . . Ring and Hartford agree that the consideration for
this Assignment, including Hartford’s decision not to exercise, at this
time, certain rights which Hartford has under the General Indemnity
Agreement and as a matter of law, equals or exceeds the amount of the
Award and any Order or Judgment issued in connection therewith.

....

Execution. In the event of the declaration by Hartford that Ring is in
default of any of its obligations under the General Indemnity
Agreement, Hartford is hereby given full and irrevocable authority to
collect the Award and any Order of Judgment issued in connection
therewith and to hold the amounts collected as collateral for the
obligations of Ring to Hartford, provided that when all liability of
Hartford, under all Bonds, has been issued, including the Release of
Lien Bonds, that the balance of any collateral remaining after Hartford
has reimbursed itself for all liability, losses and expenses shall be
returned to Ring.

(Emphasis added.)

Pursuant to the wording of the assignment, Ring argues its clear effect was to provide

Hartford a security interest in the arbitration award. La.Civ.Code art. 2046

specifically provides “[w]hen the words of a contract are clear and explicit and lead

to no absurd consequences, no further interpretation may be made in search of the

parties’ intent.”

Chateau argues the use of particular terms within an agreement does not alone

characterize the agreement or invalidate a finding that the agreement was an

assignment. In support of this argument, it cites the fourth circuit opinion in

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Mahayna, Inc. v. Poydras Center Associates, 96-2089 (La.App. 4 Cir. 4/30/97), 693

So.2d 355, writ denied, 97-1741 (La. 10/13/97), 703 So.2d 619. In Mahayna,

Haywilk Galvanizing, Inc. loaned C. Peck Hayne $150,000 for the benefit of

Mahayna, Inc., a corporation in which Hayne owned a fifty percent interest. In return,

Mahayna gave Haywilk both a stock pledge and an assignment of its rights of

recovery in a contract dispute lawsuit pending against Poydras Center. Mahayna filed

its suit against Poydras in 1989. Mahayna assigned its interest in this suit to Haywilk

in August 1990. In May 1992, Whitney National Bank, an additional creditor of

Mahayna, seized Mahayna’s interest in the suit pursuant to a writ of fieri facias.

Mahayna’s judgment against Poydras became final in March 1996. Both Whitney

and Haywilk claimed the proceeds of the judgment. The district court rendered

judgment in favor of Haywilk and against Whitney, ordering that the funds from

Mahayna’s judgment against Poydras be paid to Haywilk. Whitney appealed.

The appellate court rejected Whitney’s argument that Haywilk acquired only

a security interest in the lawsuit which was unperfected at the time of Whitney’s

seizure because Haywilk did not file a UCC-1 financing statement. The Mahayna

court agreed with Haywilk that the agreement was intended as a true assignment of

the judicial proceeds rather than a security interest. The court stated that “[s]imply

because the word ‘pledge’ is used in the agreement, the security transaction is not

invalid as an assignment.” Id. at 357. The court found that “[t]he terms of the

contract clearly support a finding that an assignment and transfer of the judgment

proceeds was intended and accomplished by the parties.” Id. at 358.

While Mahayna is analagous in many respects to the present case, it does not

change our opinion that the trial court did not err in finding the assignment at issue

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here was a security device and not a transfer of full ownership in the judgment. We

note a strongly worded dissent in BG Wire Rope & Slings, Inc. v. Dyson, 03-2390

(La.App. 1 Cir. 9/17/04), 884 So.2d 688, writ denied, 04-2993 (La. 3/24/05), 896

So.2d 1045, that suggested Mahayna should not be followed. The dissent stated as

follows:

I respectfully suggest that [Mahayna] was wrongly decided or at least
should be limited to its facts. See David Willenzik, Louisiana Secured
Transactions, Appendix 2. UCC Article 9 Case Law (1999) § 4,
Personal Observations. This article states: “The appeals court was
correct in holding in favor of Whitney [Bank], but did so for the wrong
reasons.” It continued, “Clearly, the parties intended that the assignment
of Mahayna’s interest in its lawsuit against Poydras be given as security
for Hayne’s . . . loan to Haywilk, which loan was made for the benefit
of Mahayna. As such, the transaction was a ‘security interest’ under La
UCC § 1 201(37) and a secured transaction subject to Louisiana UCC
Article 9. The Appeals court erred in not recognizing this fact.”
(Emphasis added.) The article’s final observation was that, “[t]he
Mahayna [decision] is the first case decided by a Louisiana Court that
incorrectly interpreted and applied the provisions of Louisiana UCC
Article 9. Whitney did not appeal this decision to the Louisiana
Supreme Court in that Whitney was the prevailing party even though the
Appeals Court was wrong in its legal holding.”

Id. at 693.

The assignment given to Hartford by Ring specifically “assigns, conveys,

transfers, delivers and grants a security interest to Assignee.” Further, unlike

Mahayna, after the assignment was executed, Hartford filed the assignment with a

UCC-1, which is a financing statement used to perfect security interests. We find no

error in the trial court’s finding the parties intended that the assignment of Ring’s

right and interest in the arbitration award serve as security for the obligation it

separately undertook to Hartford. The assignment provided that the “balance of any

collateral remaining after Hartford has reimbursed itself for all liability, losses and

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expenses shall be returned to Ring.” The assignment, thus, was not completely

translative of ownership.

Chateau argues further that the trial court erred when it confirmed the

arbitration award before it lifted the previously imposed stay. It asserts, because the

stay had not been lifted, the judgment is an absolute nullity and must be vacated.

In its motion seeking to obtain confirmation of the arbitration award, Ring

expressly requested that the stay be lifted. Inadvertently, the trial court failed to lift

the stay when it issued the judgment confirming the arbitration award. When this was

brought to the trial court’s attention in the Motion for New Trial, the court addressed

its oversight as follows:

THE COURT: Well, with respect to failure to lift the stay, that was self-
evident. I mean, the ruling alone did that. The stay was only to allow
the case to go to the arbitrator. Once it gets back, its self-evident. I’m
not inclined to amend the judgment. That was self-evident. All we’re
doing then is delaying this process again. . . I’m not doing anybody any
good in amending the judgment and putting self-evident language in it.
Once I made it a final judgment, it was self-evident. So that issue I
don’t think is significant and I’m not going to change my mind.
Everything else deals pretty much with what I think this assignment is.
Can we all agree on that?

COUNSEL FOR CHATEAU: Yes, sir.

COUNSEL FOR RING: Yes, sir.

In brief, Chateau cites federal bankruptcy law, noting it has long been held in

bankruptcy cases that “actions taken in violation of [a stay] are void ab initio and are

without effect.” See United Bldg. Co. v. Harp, 25,852 (La.App. 2 Cir. 6/22/94), 639

So.2d 349. The filing of a federal bankruptcy petition operates as an automatic stay

under 11 U.S.C. § 362 that prevents creditors from commencing or continuing

judicial or administrative proceedings against the debtor. However, actions for

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nullity, filed pursuant to Louisiana law, are governed by La.Code Civ.P. art. 2002.

Chateau did not reference any grounds found in art. 2002 to support its claim that the

judgment is an absolute nullity.

DECREE

For the foregoing reasons, the judgment of the trial court is affirmed. Costs of

this appeal are assessed to appellant, Chateau des Lions, L.L.C.

AFFIRMED.

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