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Note: As part of a loan, Vista Louisiana, LLC (Debtor/Applicant) executed a USD 1,000,000 promissory note to the order of First NBC Bank (Creditor/Beneficiary). As part of an underlying contract, Debtor/Applicant also obtained a letter of credit in favor Creditor/Beneficiary “as security for the Note.” Subsequently, Creditor/Beneficiary went out of business, defaulted on the note, and the Federal Deposit Insurance Company (FDIC) was appointed receiver. As receiver, FDIC sold a pool of loans to SBN V FNBC LLC (Holder) that included the note executed by Debtor/Applicant which was endorsed by FDIC to the order of Holder.

Thereafter, Holder sued Debtor/Applicant for the face value of the note plus interest, arguing that it was a holder in due course. In response, Debtor/Applicant argued that it was entitled to a set-off regarding Holder’s claim as Creditor/Beneficiary failed to draw down the letter of credit. Additionally, Debtor/Applicant argued the claim should be considered null and void pursuant to a Louisiana state loansharking statute. Although Holder conceded that it was not a holder in due course when it moved for summary judgment, the trial court granted judgment in favor of Holder. When the trial court denied Debtor/Applicant’s motions to conduct further discovery and for a new trial, Debtor/Applicant appealed. The Court of Appeal of Louisiana, Brown, Jenkins and Ledet, JJ., affirmed.

Debtor/Applicant argued that summary judgment was prematurely granted because the parties had no reasonable opportunity to conduct discovery. The appellate court noted that the defenses Debtor/Applicant offered at the summary judgment phase as well as on appeal were “purely legal issues” which could be resolved by contractual and statutory interpretation, rendering further discovery unnecessary.

Debtor/Applicant argued that it was entitled to a set-off against Holder’s claim on the note due to Creditor/Beneficiary’s failure to draw on the LC. Holder countered that nothing in the contract required Creditor/Beneficiary to resort to the LC. The appellate court agreed with Holder, noting that the LC constituted an “accessory obligation” while the note was a “principal obligation”, and that “[Creditor/Beneficiary]’s failure to timely call the LOC c[ould] have no impact on the principal obligation [Debtor/Applicant] owe[d] on the Note.”

Finally, the appellate court rejected Debtor/Applicant’s loansharking argument noting that “the commercial practice of buying a note at a discount, here from the FDIC, is not the type of act the Louisiana Legislature was seeking to prevent” under the relevant statute.

[MJK]

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