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ProGrowth Bank, Inc. v. Wells Fargo Bank, N.A.: US District Court : CIVIL PROCEEDURE - Rule 59 motions to alter or amend denied; underlying UCC QuestionsUNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA ProGrowth Bank, Inc., Civil No. 07-1577 (DWF/AJB) Plaintiff, v. MEMORANDUM OPINION AND ORDER Wells Fargo Bank, N.A.; and Global One Financial, Inc., Defendants. Richard T. Ostlund, Esq., Robert C. Moilanen, Esq., and Shannon M. Awsumb, Esq., Anthony Ostlund & Baer, PA, counsel for Plaintiff. Joseph C. Chancey, Esq., and Kalleen Huang Hubbs, Esq., Drew Eckl & Farnham, LLP; and Jennifer E. Ampulski, Esq., Meagher & Geer, PLLP, counsel for Defendants. INTRODUCTION This matter is before the Court pursuant to a Motion to Alter or Amend Judgment Pursuant to Federal Rule of Civil Procedure 59(e) brought by Global One Financial, Inc. (“Global One”) and Wells Fargo Bank, N.A. (“Wells Fargo”) (collectively, “Defendants”). For the reasons set forth below, the Court denies Defendants’ motion. BACKGROUND The background of this matter is more fully detailed in the Court’s August 14, 2007 Memorandum Opinion and Order (the “August 14 Order”). Briefly, this case arises out of separate and unrelated loans that Global One and ProGrowth Bank, Inc. (“ProGrowth”) extended to Christopher Hanson (“Hanson”) and/or the Christopher 2 Hanson Insurance Agency (the “Agency”). Hanson, a former Minnesota resident who currently resides in Missouri, owns and operates the Agency. Hanson secured the loans at issue using the same collateral, specifically two Fidelity & Guaranty Life Insurance Company annuity contracts (the “Annuity Contracts”). In September 2005, Wells Fargo, acting as collateral agent for Global One, filed two financing statements with the Secretary of State of Missouri relating to loans Global One made to Hanson and/or the Agency. Then, in early 2006, Hanson approached ProGrowth, seeking to obtain a loan, and identified the Annuity Contracts as collateral. In connection with that loan, ProGrowth filed two financing statements with the Secretary of State of Missouri in connection with its security interest in the Annuity Contracts. The August 14 Order addressed the issue of whether ProGrowth had perfected a security interest in the Annuity Contracts that is prior to and superior to any security interest claimed by Defendants. In that Order, the Court denied Defendants’ Motion to Dismiss and granted ProGrowth’s Motion for Summary Judgment.1 Specifically, the Court concluded that Defendants’ September 2005 financing statements did not comply with the Missouri Uniform Commercial Code (the “Missouri UCC”) because they were seriously misleading and therefore failed to perfect a security interest in the Annuity 1 Also in that Order, the Court inadvertently referred to the parties’ motions as cross motions for summary judgment. Nonetheless, as discussed at the motion hearing, the Court applied the correct standard when evaluating the parties’ motions and notes that this clerical error did not impact the outcome of the parties’ Rule 12 and Rule 56 motions. 3 Contracts. (Doc. No. 32 at 9.) The Court also found that the September 2005 financing statements did not provide potential creditors with notice that Defendants may be claiming a security interest in all of Hanson’s assets. (Id. at 12.) Finally, the Court noted that it need not decide whether the Missouri UCC had an “actual notice” requirement because Defendants had not established that there was a genuine issue of material fact with respect to whether ProGrowth had actual notice of Defendants’ interests in the Annuity Contracts. (Id.) The Court then concluded that ProGrowth was entitled to summary judgment on its declaratory judgment claim because it had perfected security interests in the Annuity Contracts that were prior to and superior to any security interest claimed by Defendants. (Id. at 13.) On August 30, 2007, Defendants filed a Motion to Alter or Amend Judgment Pursuant to Federal Rule of Civil Procedure 59(e). As Defendants explain it, the “central basis” of their motion is to have the Court vacate its Order granting ProGrowth’s summary judgment motion because ProGrowth, unlike Defendants, had both “a legal and an evidentiary burden,” which it failed to meet and therefore was not entitled to summary judgment on its declaratory judgment claim. (Doc. No. 46 at 2-3; see also Doc. No. 40 at 1.) 4 DISCUSSION A district court has broad discretion to determine whether to grant or deny a motion to alter or amend judgment pursuant to Rule 59(e). Innovative Home Health Care v. P.T.-O.T. Assoc. of the Black Hills, 141 F.3d 1284, 1286 (8th Cir. 1998). Rule 59(e) motions serve the limited function of correcting manifest errors of law or fact or to present newly discovered evidence. Id. “Such motions cannot be used to introduce new evidence, tender new legal theories, or raise arguments which could have been offered or raised prior to entry of judgment.” Id. Defendants seek to have the Court alter its August 14 Order based on three grounds. The Court will consider each in turn. A. Burden of Proof Defendants assert that ProGrowth has not met its initial evidentiary, as opposed to legal, burden of presenting evidence to support the elements of its prima facie case. Specifically, Defendants argue that ProGrowth failed to establish that it has a valid and enforceable security interest in the Annuity Contracts and that the Court improperly placed an evidentiary burden on Defendants on issues for which they did not bear the burden—namely of establishing that ProGrowth did not have actual notice of Defendants’ security interest. (See Doc. No. 40 at 3, 5-6.) First, Defendants point out that ProGrowth never submitted copies of the pertinent documents to show that it complied with the Missouri UCC’s filing requirements. See Mo. Rev. Stat. § 400.9-203 (listing filing requirements). According to Defendants, the 5 Court improperly agreed with ProGrowth’s argument that it was “entitled to summary judgment ipso facto if Defendants’ motion to dismiss was denied.” (Doc. No. 46 at 7.) In response, ProGrowth notes that Defendants never challenged whether ProGrowth had properly secured a security interest in the Annuity Contracts. Instead, in conjunction with ProGrowth’s summary judgment motion, ProGrowth points out that Defendants argued only that there were genuine issues of material fact related to the issue of actual notice. (See Doc. No. 19 at 2-3 (discussing genuine issues of material fact with respect to actual notice), 12-14 (explaining that ProGrowth’s position that it is automatically entitled to summary judgment if the Court determines that Defendants did not perfect Global One’s security interest is incorrect because ProGrowth’s position does not take into account the issue of actual notice, on which Defendants contend there are genuine issues of material fact); see also Doc. No. 37 at 11 (stating at motion hearing that factual disputes exist with respect to notice).) ProGrowth contends that Defendants waived their right to raise new prima facie issues when they failed to raise them at the summary judgment stage. The Court agrees with ProGrowth. Rule 59(e) motions cannot be used to tender legal theories or raise arguments that could have been offered or raised prior to the entry of judgment. Innovative Home, 141 F.3d at 1286. In conjunction with its summary judgment motion, ProGrowth submitted copies of the documents it filed with the State of Missouri to establish that it had perfected a security interest in the annuity contracts at issue. (See Doc. No. 17.) ProGrowth also specifically argued in its summary judgment 6 memoranda that it had perfected its security interest in the Annuity Contracts. (See Doc. No. 16 at 16; Doc. No. 25 at 7.) Defendants never objected to ProGrowth’s documents, questioned the legitimacy of those documents, or disputed ProGrowth’s assertion about its perfected security interest. In fact, at the motion hearing and in response to the Court’s questions about Defendants’ position with respect to ProGrowth’s summary judgment motion, Defendants stated that it was helpful to mention items not in dispute. (Doc. No. 37 at 14.) According to Defendants, based on statements made in ProGrowth’s Complaint, those undisputed items included the fact that ProGrowth made a loan to Hanson and subsequently filed a financing statement in Missouri in February 2006. (Id. at 15.) It should also be noted that Defendants never invoked Rule 56(f) either in their briefing or at the motion hearing. Finally, it should be noted that any arguments regarding the propriety of ProGrowth’s filing would not change the fact that the Court has already found Defendants’ filing to be seriously misleading. Based on the foregoing, it is apparent that Defendants are now raising arguments that could have been raised at the summary judgment stage. As the parties well know, summary judgment orders “shall be rendered forthwith if the pleadings . . . together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). This is precisely what the Court did in its August 14 Order when it concluded that ProGrowth had a valid and enforceable security interest in the annuity contracts at issue. Given this, the Court denies Defendants’ motion with respect to the burden of proof issue as it relates 7 to ProGrowth’s prima facie case. Second, Defendants contend that the Court improperly rejected Defendants’ actual notice argument. In essence, Defendants contend that there is, at a minimum, a genuine issue of material dispute with respect to whether ProGrowth had actual notice of Global One’s loan to Hanson prior to ProGrowth entering into its loan with Hanson and/or the Agency. Defendants further assert that it is ProGrowth’s burden to show that it did not have actual notice of Global One’s loan.2 ProGrowth responds that whether a party had actual notice is irrelevant under Missouri law. The Court agrees with ProGrowth. There is no dispute that Missouri’s Revised Article 9 applies to the parties’ dispute. See Mo. Ann. Stat. § 400.9-101, et seq. The rules governing the priority of security interests under that article are set forth in § 400.9 322(a)(2). The commentary to that section explains: Whichever secured party first perfects its security interest (by taking possession of the collateral or by filing) takes priority. It makes no difference whether that secured party knows of the other security interest at the time it perfects its own. Mo. Ann. Stat. § 400.9-322, cmt. 4, ex. 2 (emphasis added); see also U.S. Claims, Inc. v. Flomenhaft & Cannata, LLC, No. 06-978, 2006 WL 4916343, at * 5 (E.D. Pa. Nov. 13, 2006) (concluding that creditor’s subjective knowledge is “wholly irrelevant” to the question of lien priority); 4 James J. White & Robert S. Summers, Uniform Commercial 2 Throughout their briefing in conjunction with their Rule 59(e) motion and ProGrowth’s summary judgment motion, Defendants often morph the concepts of actual 8 Code § 33-3 (5th ed.) (noting that there is no requirement under the UCC’s Article 9 that the first to perfect interest be without knowledge of a competitor’s claim). Given that ProGrowth’s actual knowledge of Global One’s loan is irrelevant, the Court denies Defendants’ motion with respect to the burden of proof issue as it relates to actual notice. B. Newly Discovered Evidence Defendants ask the Court to grant their Rule 59(e) motion based on newly discovered evidence that they assert establishes that ProGrowth had actual knowledge of Defendants’ interest in the Annuity Contracts. Defendants’ “newly discovered evidence” is an Affidavit of Christopher Hanson dated August 16, 2007. Defendants offer this evidence to rebut ProGrowth’s assertion in its Complaint that at the time ProGrowth made its loan to Hanson it was “unbeknownst to” ProGrowth that Defendants had a security interest in the Annuity Contracts. According to Defendants, “the affidavit is offered to illuminate to the Court the lack of any contrary evidence by ProGrowth supporting its claims and to illustrate why ProGrowth’s unsupported allegation should not be used as the basis for summary judgment in its favor.” (Doc. No. 40 at 10.) ProGrowth responds that the Hanson Affidavit is not “newly discovered evidence,” given that Defendants could have secured an affidavit from Hanson and submitted it in connection with their summary judgment motion. And ProGrowth reiterates its position that actual notice is irrelevant under Missouri law. notice and inquiry notice. (See, e.g., Doc. No. 46 at 14.) 9 The Court agrees with ProGrowth. Rule 59(e) motions cannot be used to introduce new evidence that could have been offered or raised prior to the entry of judgment. U.S. v. Metro. St. Louis Sewer Dist., 440 F.3d 930, 933 (8th Cir. 2006) (listing criteria for evidence to be considered for a Rule 59(e) motion). The Hanson Affidavit could have been offered or raised prior to the entry of summary judgment. Putting aside any credibility issues raised by the affidavit and the fact that, as discussed above, actual notice is irrelevant, there is no dispute that the issues addressed in the Hanson Affidavit were discussed in the parties’ summary judgment memoranda and that Defendants knew where to locate Hanson and could have secured an affidavit or deposed Hanson during the summary judgment stage. For these reasons, the Court denies Defendants’ motion insofar as it is based on newly discovered evidence. C. Clear Legal Error Defendants assert that the Court committed a clear legal error when it “specifically rejected, without authority, the ‘reasonable inquiry’ standard that is clearly imposed on creditors by the UCC in the face of a financing statement that indicates the possible existence of a prior security interest.” (Doc. No. 40 at 11.) Defendants explain that the Court’s Order “turns the policy of the UCC on its head” when it improperly “compels the conclusion that because a financing statement misidentifies specific collateral, that the subsequent creditor is entitled to ignore a broader stated interest in all of a debtor’s assets.” (Id. at 12.) Defendants contend that there is no case law to support the proposition that a creditor can ignore “supergeneric” language because it contains a 10 specific reference that is in error. Based on the Hanson Affidavit purportedly showing that ProGrowth had actual knowledge of Global One’s loan and other inferences raised by documents in ProGrowth’s possession, Defendants assert that ProGrowth had a duty to conduct a reasonable inquiry into whether Defendants had an interest in the Annuity Contracts. ProGrowth responds that Defendants have not demonstrated that the Court’s Order constituted a manifest error of law. ProGrowth points out that “Defendants cite no legal authority to support their strained argument that a seriously misleading financing statement can somehow be cured by the inclusion of purported ‘supergeneric’ language.” (Doc. No. 44 at 13.) The Court agrees with Defendants that the Missouri UCC charges a creditor with some duty of inquiry. See Mo. Ann. Stat. § 400.9-502, cmt. 2, ex. 2 (explaining that “further inquiry” from the parties may be necessary to disclose the complete state of a filing). But the Court disagrees with Defendants to the extent they assert that ProGrowth’s duty of inquiry should somehow be focused only on the “supergeneric” language in Defendants’ September 2005 filing statements. Defendants’ argument fails to recognize that the Court has previously found Defendants’ September 2005 filing statements to be seriously misleading. A manifest error of law is created by a disregard, misapplication, or failure to recognize controlling precedent, not by the disappointment of the losing party. Sedrak v. Callahan, 987 F. Supp. 1063, 1069 (N.D. Ill. 1997). The Court has already considered 11 and rejected the argument that forms the basis of Defendants’ current clear legal error argument, and it has already rejected Defendants’ attempts to bolster its inquiry argument with accusations related to what ProGrowth actually knew about Global One’s loan to Hanson. In the August 14 Order, the Court found that “the plain language of the September 2005 financing statements does not put a hypothetical creditor on notice that Global One was claiming an interest in ‘all assets or all personal property’ of Hanson.” (Doc. No. 32 at 10.) Rather, the Court concluded that it puts a hypothetical creditor on notice that Global One was claiming an interest in “certain” collateral, namely in certain Lincoln Benefit Life annuity contracts listed in Defendants’ September 2005 filing statements, not in the Annuity Contracts. (Id. at 10-11.) The August 14 Order also stated that the “supergeneric” language in Defendants’ filing statements does not overcome the fact that Defendants’ filing statements are seriously misleading, thereby rejecting Defendants’ inquiry argument. Finally, the Order noted that Defendants had not provided the Court with any authority for their contention that the errors in specific collateral descriptions can be subsumed by “supergeneric” language. (Id. at 11.) Given this, the Court denies Defendants’ motion insofar as it is based on inquiry notice. 12 CONCLUSION Having considered the submissions and reviewed the procedural history of the file, IT IS HEREBY ORDERED that: 1. Defendants’ Motion to Alter or Amend Judgment Pursuant to Federal Rule of Civil Procedure 59(e) (Doc. No. 38) is DENIED. Dated: December 5, 2007 s/Donovan W. Frank DONOVAN W. FRANK Judge of United States District Court |
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