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For Summary Judgment On Replevin Claim, 5 Dots To Connect With Affidavit

Barbara v. Pringle, 2013 U.S. Dist. LEXIS 167024 (.pdf), discussed last week, involved a replevin claim.  The borrowers pledged a security interest in all relevant personal property owned by the companies.  The lender sought to recover such non-real estate property pledged as collateral for the loans. 

Security interest.  The lender in Barbara established a security interest in the collateral described in the guaranty agreement pursuant to Indiana Code § 26-1-9.1-203, which security interest had been perfected by the filing of financing statements with the Indiana Secretary of State.  The Court then noted “it is black letter law that, upon default, a secured creditor has the right to take possession of the collateral securing its claim.”  The Court basically said that the plaintiff lender should prevail on the replevin claim. 

But.  The Court, on summary judgment, concluded that summary judgment could not be entered for the borrower because the requisite affidavit supporting the replevin action had not been submitted.  In Indiana, a replevin claim is successful “if the plaintiff proves her right to title or possession of the property, proves that the property is unlawfully detained, and proves that the defendant wrongfully holds possession of the property.” 

Affidavit.  Before a replevin order could be issued, the lender needed to comply with Indiana law requiring the filing of an affidavit that describes the property at issue and states:

  1. the plaintiff is the owner of the property or is lawfully entitled to possession,
  2. the property has not been taken for a tax assessment or fine pursuant to statute;  seized under an execution or attachment against the property of the plaintiff, or if seized, it is by statute exempt from seizure,
  3. the property has been wrongfully taken and is unlawfully detained by the defendant,
  4. the estimated value of the property, and
  5. the county in which the property is being detained.

See, Ind. Code §§ 32-35-2-3 and 4.  Since the plaintiff lender did not provide the affidavit, the Court was unable to grant summary judgment at that time. 

Lenders and their loan enforcement counsel should remember the replevin affidavit when filing a motion for summary judgment.  The affidavit should address each of the five matters above.  Without such evidence, the motion will be denied.

Promissory Note Defaults Lead To Criminal Prosecution

The Indianapolis Star is reporting that local developer Lee Alig is "facing 20 felonies after prosecutors say he received thousands of dollars of funds from victims through promissory notes he was unable to pay."  The article goes on to state that the Marion County Prosecutor is alleging Alig "took personal profits from eight promissory notes, totaling $340,000 ... [and] had neither the ability to repay those funds nor ownership of the collateral offered as security for those notes."  Although there are few details in the story, the situation is remarkable and potentially frightening for borrowers/guarantors because it seemingly stands in contrast to Indiana civil/constitutional law holding that Jail Time Is Not An Available Remedy In Collection Actions In Indiana.

Guaranty of Subsequent Debt

Can a guaranty cover a promissory note executed in the future?  The United States District Court for the Northern District of Indiana, in Barbara v. Pringle, 2013 U.S. Dist. LEXIS 167024 (.pdf), said yes.

Structure.  The plaintiff lender in Barbara, a private individual, loaned the defendants millions of dollars in a series of promissory notes spanning several years.  However, only a single guaranty agreement was signed. 

Defense.  The defendant guarantors contended that the guaranty was ambiguous.  Specifically, they argued that the guaranty did not apply to the promissory notes that postdated it.  In reaching a result similar to that discussed in my May 2, 2014 post, the Court concluded that the guaranty did, in fact, unambiguously apply to all of the subsequent notes. 

Outcome.  The outcome turned on the guaranty’s definition of obligations:  “each guarantor undertook to personally guarantee the obligations . . . the guaranty applied to ‘all obligations’ of whatever type . . . .”  The guaranty covered obligations to the lender “now or hereafter existing or due or become due.”  The Court held that the guarantors’ “not only guaranteed the obligations in force at the time of the agreement, but also those that would arise between the parties later.”  The Court’s conclusion was consistent with Indiana law, which is settled on the idea that a guaranty can apply to debt incurred in future transactions. 

Words.  Please note that the language in the document backed up the result.  Most guaranties contain broad language that contemplates future debt, and such terms are enforceable.  But not all guaranties are the same.  Negotiate up front accordingly. 

Another Federal Court Dismisses A Borrower's Case Following A State Court Foreclosure

The U.S. District Court for the Northern District of Indiana, in Eslick v. Wells Fargo, 2013 U.S. Dist. LEXIS 174476 (.pdf), dismissed a borrower's federal lawsuit, which followed an adverse judgment in state court.  At issue once again was the Rooker-Feldman doctrine about which I discussed on 12/19/13, 4/25/14, 6/20/14, 7/18/14 and 11/30/14

In Eslick, as with virtually all the other opinions, the Court pointed out that:

the claims alleged by Plaintiff [borrower] all arise out of the earlier state court foreclosure action....  Under the Rooker-Feldman doctrine, federal district courts do not have subject matter jurisdiction over claims seeking review of state court judgments.

Since the Plaintiff did not assert any independent basis for federal jurisdiction, the claims were barred.  In short, you don't get a federal court do-over after you lose in state court.