Court: Court of Appeals for the First Circuit; August 12, 1988; Federal Appellate Court
The United States Court of Appeals for the Fifth Circuit addressed the appeal of Julian E. Fernandez regarding the choice-of-law determination made by the district court in a deficiency action involving Interfirst Bank Clifton. The district court ruled that Texas law governs the case based on a choice-of-law clause in the loan agreement, a decision that Fernandez challenged on several grounds.
First, he argued that the clause's absence from the Louisiana security instrument rendered it ineffective. The court disagreed, asserting that the clause demonstrated the parties' intention to adhere to Texas law, especially since Fernandez also signed a Texas security instrument related to the loan. The court noted that Fernandez's agreement to Texas foreclosure procedures further supported this intention.
Fernandez also contended that the Louisiana Deficiency Judgment Act invalidated the Texas choice-of-law clause, claiming that the private sale in question barred a deficiency judgment under Louisiana law. However, the court clarified that the Act did not apply, as diversity courts follow the choice-of-law rules of the state in which they sit. Texas law recognizes valid choice-of-law clauses, and since the transaction had a reasonable relationship to Texas, the court upheld the enforceability of the clause. There was no evidence suggesting that the agreement was made under duress or was otherwise invalid. Consequently, the court concluded that the Louisiana Deficiency Judgment Act posed no barrier to enforcing the choice-of-law clause, affirming that Louisiana law did not apply to the foreclosure sale. The motion for rehearing was denied, and the original holding was maintained.
Fernandez argues that Texas law should not apply to his case due to the Federal Aviation Act of 1958 (FAA), specifically Section 506, which he claims mandates the application of the law from the state where the security instrument was delivered. He asserts that since the security interest in his aircraft was delivered and recorded in Louisiana, Louisiana law should govern the foreclosure process. Section 506 serves as a federal choice-of-law rule regarding the substantive validity of aircraft security interests, which has been interpreted by the circuit to encompass formal contractual requirements, but not foreclosure procedures.
The argument that Section 506 preempts state choice-of-law rules regarding aircraft foreclosure sales is rejected, affirming that the district court correctly applied Texas conflict-of-law rules and Texas foreclosure law. Louisiana's Revised Statutes prohibit deficiency judgments if a sale is executed without appraisement, stating that the debt is fully satisfied in such cases. Additionally, these provisions cannot be waived by the debtor and only apply to obligations arising after August 1, 1934. Notably, a recent amendment clarifies that these protections do not extend to properties located outside Louisiana if the creditor opts to follow another state's laws.
La.Rev.Stat. Ann. Sec. 13:4108 allows creditors, including mortgagees, to obtain deficiency judgments against debtors, guarantors, or sureties regardless of prior actions taken, such as property sales through judicial or private means, even if those sales occurred without proper appraisals. The statute emphasizes that the location of the property outside Louisiana does not prevent the creditor from exercising their rights under the laws applicable in that location. Notably, the events in this case predate the enactment of Sec. 4108(4), which Louisiana courts are unlikely to apply retroactively, as established in First Guaranty Bank v. Baton Rouge Petroleum Center, Inc. Additionally, Louisiana case law suggests that Texas law may apply in this context, as indicated in Universal C.I.T. Credit Corp. v. Hulett.
