Aubrey Alexandra Denton v. St. Landry Bank and Trust Co.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

20-271

AUBREY ALEXANDRA DENTON, ET AL.

VERSUS

ST. LANDRY BANK & TRUST COMPANY, ET AL.

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APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF LAFAYETTE, DOCKET NO. C-20196857
HONORABLE MARILYN C. CASTLE, DISTRICT JUDGE

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SYLVIA R. COOKS
JUDGE
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Court composed of Sylvia R. Cooks, Billy Howard Ezell and Candyce G. Perret,
Judges.

AFFIRMED.

G. Andrew Veazey
Veazey Felder & Renegar
Post Office Box 80948
Lafayette, LA 70598-0948
(337) 234-5350
COUNSEL FOR PLAINTIFFS/APPELLANTS:
Aubrey Alexandra Denton, et al.

Richard D. Moreno
Richard D. Moreno, LLC
P.O. Box 149
Lake Charles, LA 70602-0149
(337) 656-8654
COUNSEL FOR PLAINTIFFS/APPELLANTS:
Aubrey Alexandra Denton, et al.

Peter F. Caviness
Falgoust and Caviness, LLP
505 South Court Street
P.O. Box 1450
Opelousas, LA 70571
(337) 942-5812
COUNSEL FOR DEFENDANT/APPELLEE:
St. Landry Bank and Trust Company

W. Simmons Sandoz
Sandoz Law Office
P.O. Box 471
Opelousas, LA 70571
(337) 942-8956
COUNSEL FOR DEFENDANT/APPELLEE:
St. Landry Bank and Trust Company

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COOKS, Judge.

Plaintiffs in this matter are the adult daughters of Aubrey “Butch” Edward

Denton: Aubrey Alexandra Denton, Laura Rae Denton and Sara Denton Kelley

(hereafter the Denton Sisters). Butch died on May 25, 2019. At issue in this appeal

are the proceeds of a policy of life insurance Butch acquired from Northwestern

Mutual Life Insurance Company (hereafter NW Mutual). The named beneficiaries

of the life insurance policy were Butch’s three daughters. That policy was numbered

13296904.

On July 31, 2003, Butch obtained a line of credit from defendant, St. Landry

Bank and Trust Company. To secure that line of credit, Butch executed an

“Assignment of Life Insurance Policy as Collateral,” using the NW Mutual policy

as collateral security. Under the terms of the assignment, St. Landry Bank acquired

the sole right to collect from the insurer the net proceeds of the policy at the death

of Butch or upon surrender of the policy to the insurer for the cash surrender value.

The Assignment did provide that any balance of proceeds collected by St. Landry

Bank in excess of the outstanding liabilities owed to it shall be paid back to the

named beneficiaries.

On May 25, 2005, Butch converted the NW Mutual policy number 13296904

to NW Mutual policy number 17191586. NW Mutual notified St. Landry Bank of

this change.

On July 23, 2007, in connection with a Promissory Note executed by Aubrey

E. Denton, Ltd., APLC (hereafter Denton, APLC, which was Butch’s law firm) in

favor of St. Landry Bank, Denton, APLC executed a document titled “Assignment

of Life Insurance Policy as Collateral” using the NW Mutual life insurance policy

as security. This 2007 Assignment was made in the name of Aubrey E. Denton,

Ltd., APLC and not Butch Denton individually. St. Landry Bank maintained

Denton, APLC was nothing more than an “alter ego” of Butch Denton. On May 5,

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2010, Butch Denton signed a personal “Guaranty” of the July 23, 2007 loan to

Denton, APLC.

On August 9, 2012, Butch Denton filed a Voluntary Petition for Relief under

Chapter 11 of the U.S. Bankruptcy Code. The petition admitted that Butch Denton

was a co-debtor with his corporation and owed St. Landry Bank $355,669.72. St.

Landry Bank filed a Proof of Claim in the proceedings, asserting a claim owed to it

of $362,036.01.

On December 10, 2012, Butch Denton filed a Third Amended Combination

Disclosure Statement and Plan. Notice of this filing was provided to St. Landry

Bank. In that Statement, the claim of St. Landry Bank was listed and provided as

follows:

Class 5 – Secured Claims of St. Landry Bank and Trust Co. – The
secured claim of this class shall be deemed satisfied in full by surrender
of the policy of life insurance on the life of debtor and which policy is
assigned to this creditor. The balance of this creditor’s claim in the
amount of $33,792.01 is unsecured and will be treated as a class 1
claim. This class is impaired.

St. Landry Bank notes the amount of the secured claim at that time was the value of

the policy and the remainder of the debt was treated as an unsecured claim, for which

St. Landry Bank was paid less than 1% of the said $33,791.01.

The Chapter 11 Plan was confirmed by the Bankruptcy Court on December

19, 2012, after which Butch Denton received a personal discharge. The Chapter 11

Plan became final and was not appealed by any party. The Denton sisters note that

there is no evidence in the record that, subsequent to confirmation of the Chapter 11

Plan, NW Mutual Policy No. 17191586 was ever delivered or surrendered to St.

Landry Bank.

Butch Denton died on May 25, 2019. Both St. Landry Bank and the Denton

Sisters filed proofs of claim for the death benefits of Policy No. 17191586. On July

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22, 2019, NW Mutual issued a check in the amount of $253,884.67 made payable

jointly to St. Landry Bank and the Denton Sisters.

On November 24, 2019, the Denton Sisters filed a “Petition for Declaratory

Judgment and Sums Due Under Life Insurance Policy.” In their petition, the Denton

Sisters sought a declaratory judgment that they, not St. Landry Bank, were entitled

to the policy proceeds and sought judgment against NW Mutual for payment. The

Denton sisters noted that on January 21, 2013, Butch Denton paid St. Landry Bank

$3,661.80 as “Payment in Full” under the Chapter 11 Plan, and maintained this

payment “released [Butch] from any further personal liability under the 2010

Guaranty.” They further noted from the period of January 21, 2013, until Butch’s

death, Denton, APLC did not make any payments to St. Landry Bank nor

acknowledge any debt to St. Landry Bank. No lawsuits were ever filed against Butch

personally or Denton, APLC to surrender the NW Mutual policy. The Denton

Sisters asserted that under La.Civ.Code art. 3498, actions on promissory notes are

subject to a liberative prescription of five years, and since this period was not

interrupted, suspended or extended during the period from January 21, 2103 through

Butch’s death, the 2010 Guaranty and/or the 2010 assignment are prescribed.

In response, St. Landry Bank filed a declinatory exception of lack of subject

matter jurisdiction and a peremptory exception of res judicata and/or no cause of

action. St. Landry Bank noted that under federal bankruptcy law, Butch Denton was

released from any obligation to pay any additional money back to St. Landry Bank

on the notes and St. Landry Bank was stayed from enforcing the notes. This stay, it

argued, would interrupt the five-year liberative prescription period. It further

maintained, if the Denton Sisters’ arguments were accepted it would allow the

succession of Butch Denton to walk away with hundreds of thousands of dollars

loaned to him without any necessity to pay it back.

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A hearing on the exceptions was held on January 21, 2020. After arguments

from the parties, the trial court granted the Exception of Res Judicata, held the

declinatory exceptions of lack of subject matter jurisdiction moot and dismissed the

Denton Sisters’ Petition for Declaratory Judgment with prejudice.

The Denton Sisters timely appealed the trial court’s judgment, asserting the

following assignments of error:

1. The trial court erred by sustaining St. Landry Bank’s Peremptory Exception
of Res Judicata based on a Confirmed Chapter 11 Plan.

2. The trial court erred by dismissing Plaintiffs’ Petition with prejudice without
an opportunity to seek to amend their Petition.

ANALYSIS

In their first assignment of error, the Denton Sisters argue the trial court erred

in granting St. Landry Bank’s Peremptory Exception of Res Judicata based on the

confirmed Chapter 11 Plan prepared and filed by Butch Denton.1 The record

establishes Butch Denton’s Chapter 11 Plan was confirmed by the Bankruptcy Court

by order dated December 19, 2012. The Third Amended Plan specifically noted the

secured claim of St. Landry Bank (held by virtue of the assignment of the NW

Mutual policy as collateral for Butch’s outstanding liabilities) was “deemed satisfied

in full by the surrender of the policy of life insurance on the life of [Butch] Denton

and which policy is assigned to St. Landry Bank.” The Plan also stated St. Landry

Bank’s secured claim would be deemed satisfied in full by the surrender of the

policy, which would occur at either Butch Denton’s death or by St. Landry Bank

choosing to collect the cash surrender value of the policy prior to death. St. Landry

Bank notes this Plan was prepared by and filed with the Bankruptcy Court by Butch

Denton, who was an attorney. Therefore, it is clear Butch Denton intended in his

Plan to satisfy the secured debt to St. Landry Bank.

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We note in their appeal, the Denton Sisters do not re-urge their lower court argument that
the 2010 Guaranty and Assignment are prescribed due to five years liberative prescription.
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The assignment specifically provided that St. Landry Bank has “the sole right

to collect from the Insurer the net proceeds of the Policy when it becomes a claim

by death or maturity.” As St. Landry Bank points out, this essentially made it the

beneficiary and/or owner of the NW Mutual policy with the “sole right” to collect

the net proceeds of the policy upon death, or if it instead chose, to collect the cash

surrender value of the policy prior to Butch’s death, regardless of any prior

beneficiary designation. St. Landry Bank chose the option to collect the death

proceeds. The assignment did also provide that any proceeds of the policy in excess

of the amount of liabilities owed to St. Landry Bank would then go to the designated

beneficiaries. This, St. Landry Bank notes, is a reason for the Denton Sisters to

remain designated beneficiaries on the policy. The Chapter 11 Plan and the

Bankruptcy Court, through its December 19, 2012 Order conforming the Plan,

recognized the validity of the assignments.

As both parties note, a confirmed bankruptcy plan has the effect of a judgment

rendered by a district court. See Terrebonne Fuel & Lube, Inc. v. Placid Refining

Co., 95-654, 95-671 (La. 1/16/96), 666 So.2d 624. When a state court is tasked with

determining the preclusive effect of a federal court judgment, the federal law of res

judicata must be applied. Reeder v. Succession of Palmer, 623 So.2d 1268

(La.1993). In Green v. Iberia Parish School Board, 06-1060, p. 3 (La.App. 3 Cir.

12/20/06), 945 So.2d 940, 943, writ denied, 07-111 (La. 3/16/07), 952 So.2d 697,

this court, set forth the requirements for barring a subsequent suit on res judicata

grounds:

As explained in Terrebonne Fuel & Lube, 666 So.2d at 633, federal res
judicata law indicates that a judgment bars a subsequent suit if the
following requirements are satisfied: “1) both cases involve the same
parties; 2) the prior judgment was rendered by a court of competent
jurisdiction; 3) the prior decision was a final judgment on the merits;
and 4) the same cause of action is at issue in both cases.”

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As St. Landry Bank notes, this four-part test has been applied repeatedly in the

bankruptcy context of an order confirming a plan. Eubanks v. FDIC, 977 F.2d 166

(5th Cir.1992); Howe v. Vaughn, 913 F.2d 1138 (5th Cir.1990); Republic Supply Co.

v. Shoaf, 815 F.2d 1046 (5th Cir.1987).

The Denton Sisters argue that res judicata does not apply in this case because

the parties to the lawsuit are different as those in the bankruptcy proceedings.

Specifically, they maintain the fact that the Denton Sisters were not involved in the

bankruptcy proceedings does not allow for res judicata effect to apply in this case.

We disagree.

As St. Landry Bank notes, the law is clear that it is not necessary that the

parties to the bankruptcy proceedings be identical to the parties in the instant lawsuit.

The law is clear that “[c]laim preclusion will . . . apply to bar a subsequent action on

res judicata principles where parties or their privies have previously litigated the

same claim to a valid final judgment.” Reeder, 623 So.2d at 1271 (emphasis ours).

In Eubanks, 977 F.2d at 170, the federal appeals court noted that “where the non-

party’s interests were adequately represented by a party to a prior action, we have

concluded that there is sufficient identity between the parties to apply the principals

of res judicata and give preclusive effect to the judgment.” The Eubanks court also

noted a non-party “is adequately represented where a party in the prior suit is so

closely aligned to her interests as to be her virtual representative.” Id. In Southmark

Properties v. Charles House Corp., 742 F.2d 862, 870 (5th Cir.1984), the federal

court held a “final judgment is res judicata not only between parties to the earlier

lawsuit, but also their privies.”

Butch Denton purchased the NW Mutual policy and named his daughters as

beneficiaries. Following that, Butch and his law firm obtained loans from St. Landry

Bank and executed assignments of the NW Mutual policy to St. Landry Bank as

collateral for the loans. Butch was fully aware these assignments provided that St.

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Landry Bank had the right to collect the proceeds of the policy at death or upon

maturity, regardless of the prior designation of his daughters as beneficiaries.

Similarly, Butch was aware of the effect of the assignments as to his daughters’

interests as named beneficiaries when he prepared and then filed the Chapter 11 Plan

in Bankruptcy Court. We agree with St. Landry Bank that the interests of Butch and

his daughters were so “closely aligned,” that the Denton Sisters were adequately

represented in Bankruptcy Court by Butch. The Denton Sisters claims derive

exclusively from Butch, and we find no merit in their contention that privity did not

exist between the parties. Moreover, Butch had the sole legal authority to name

assignees and/or beneficiaries on the policy.

The second prong for the test for res judicata, i.e., that the prior judgment was

rendered by a court of competent jurisdiction standard for is obviously met.

Likewise, the third prong, that the judgment of the prior court is final, was met as

the Order of the Bankruptcy Court was never appealed.

The Denton Sisters also argue the fourth prong of the test for res judicata, i.e.,

that the same cause of action is at issue in both the prior and current case, was not

met herein. The supreme court in Reeder, 623 So.2d at 1271-72, addressed this

prong of the res judicata analysis:

The clear trend, however, in the most recent decisions, in harmony with
such procedural concepts as the “transaction or occurrence” test for
compulsory counterclaims as stated in Federal Rules of Civil
Procedure, Rule 13(a) and the “common nucleus of operative fact”
standard . . . has been towards the adoption of § 24 of the Restatement
2d, of Judgments. That Section sets forth a “transactional analysis” as
to what constitutes a “claim,” the extinguishment of which prohibits
subsequent litigation with respect to the transaction(s) from which it
arose. A majority of the federal circuit courts, as well as the Claims
Court, have thus far expressly adopted the Restatement’s transactional
approach.

The U. S. Fifth Circuit, in Test Masters Educational Services, Inc. v. Singh, 428 F.3d

559, 571 (5th Cir.2005), cert. denied, 547 U.S. 1055, 126 S.Ct. 1662 (2006)

(citations, internal quotations, and parentheticals omitted), discussed the proper test

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used by federal courts in determining whether two suits involve the same cause of

action when it stated:

In order to determine whether both suits involve the same cause of
action, this Court uses the transactional test. Under the transactional
test, a prior judgment's preclusive effect extends to all rights of the
plaintiff with respect to all or any part of the transaction, or series of
connected transactions, out of which the original action arose. What
grouping of facts constitutes a “transaction” or a “series of transactions”
must be determined pragmatically, giving weight to such
considerations as whether the facts are related in time, space, origin, or
motivation, whether they form a convenient trial unit, and whether their
treatment as a unit conforms to the parties expectations or business
understanding or usage. If a party can only win the suit by convincing
the court that the prior judgment was in error, the second suit is barred.
The critical issue is whether the two actions are based on the same
nucleus of operative facts.

In the present case, the Denton Sisters claim they are entitled to a declaratory

judgment that they, and not St. Landry Bank, are entitled to the proceeds of the NW

Mutual policy. That claim is based upon the “same nucleus of operative facts” as

the Bankruptcy proceedings giving rise to the Chapter 11 Plan filed by Butch Denton

in the Bankruptcy Court, the indebtedness of Butch to St. Landry Bank and the

assignments of the NW Mutual policy to St. Landry Bank. Therefore, we find all

four prongs of the res judicata test have been met.

The Denton Sisters also argue the Chapter 11 Plan was a new contract, or

novation, between Butch Denton and St. Landry Bank. They further maintain this

new contract displaced the earlier assignments, and that the terms of the assignment

for the “new contract” are ambiguous. We disagree and find the Chapter 11 Plan

clearly provides that the parties are not extinguishing the original obligation owed

by Butch Denton to St. Landry Bank, but are acknowledging said obligation. St.

Landry Bank also notes that under La.Civ.Code art. 1881, “if any substantial part of

the original performance is still owed, there is no novation. . . . Mere modification

of an obligation, made without intent to extinguish it, does not effect a novation.

The execution of a new writing, the issuance or renewal of a negotiable instrument,

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or the giving of securities for the performance of an existing obligation are examples

of such a modification.” Nothing in the Chapter 11 Plan manifests an intention to

extinguish the existing obligation of Butch Denton to St. Landry Bank. Thus, the

Chapter 11 Plan cannot be a novation as argued by the Denton Sisters.

In their second assignment of error, the Denton Sisters assert the trial court

erred in dismissing their petition with prejudice without granting leave to amend the

petition. A trial court is vested with discretion when deciding whether to allow

amendment of the petition after it sustains a peremptory exception. Broussard v.

F.A. Richard & Assocs., Inc., 99-10 (La.App. 3 Cir. 5/5/99), 740 So.2d 156, writ

denied, 99-1048 (La. 6/4/99), 744 So.2d 625. The right to amend a petition is

qualified by the restriction that the objections to the petition be curable. “[L]eave

to amend is not required when it would constitute a ‘vain and useless act.’” Id. at

160.

The Denton Sisters allege they have made a showing with the previous

arguments advanced in their first assignment of error, such that they should be

granted “leave to amend their petition to more fully allege the grounds of their claims

to demonstrate their claims are not barred by the Chapter 11 Plan.” We disagree,

and for the reasons previously set forth, find the objections raised by St. Landry

Bank in its peremptory exception of res judicata are not curable and amendment of

the petition would be a “vain and useless act.” The terms of the Chapter 11 Plan,

which Butch Denton drafted, will not change, nor will the terms of the assignments.

The trial court did not err in failing to grant the Denton Sisters leave to amend their

petition.

DECREE

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

of this appeal are assessed against Plaintiffs-Appellants.

AFFIRMED.

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