Regions Bank v. Thomas D. Thomas
2013 WL 791616, 422 S.W.3d 550, 2013 Tenn. App. LEXIS 156 (2013)
Rule of Law:
Under Tennessee's adoption of UCC Article 9, a secured party must provide clear, reasonable, and specific notification to the debtor regarding the intended disposition of collateral, including the method and timing of the sale, to recover a deficiency judgment, even if the debtor has otherwise defaulted and been unresponsive.
Facts:
- In August 2004, LGT Aviation, Inc. (LGT) obtained a $2,351,700 loan from Regions Bank's predecessor, Union Planter's Bank, secured by a 1981 Hawker 700-A twin engine aircraft.
- The loan was guaranteed by Thomas D. Thomas, Helen L. Thomas, and the Thomas Family Living Trust (Appellants), and the loan documents explicitly required LGT to maintain insurance on the aircraft.
- In August 2006, LGT allowed the insurance policy on the aircraft to lapse, prompting Regions Bank to send multiple e-mails and letters to Mr. Thomas requesting proof of insurance and warning of default and acceleration.
- On August 23, 2007, Regions Bank's legal counsel accelerated all of LGT's obligations, demanding immediate repayment of over $2 million by August 30, 2007, and stating failure would result in Regions pursuing all available remedies.
- In January and March 2008, Regions Bank's legal counsel sent memos to Appellants, stating Regions 'may also elect to exercise rights as a secured creditor to take possession of, store and sell the aircraft' and mentioning 'unknown repairs in order to enable the aircraft to be transported to any place of sale.'
- Regions Bank repossessed the aircraft in February 2008, undertook repairs to make it flight-worthy, and subsequently sold it in December 2008 for $875,000.
- LGT made all scheduled loan payments in a timely fashion through December 2008, when the aircraft was sold.
Procedural Posture:
- Regions Bank filed an action against Thomas D. Thomas, Helen L. Thomas, and The Thomas Family Living Trust (Appellants) in the Circuit Court for Shelby County (trial court/court of first instance) on October 9, 2007, alleging breach of contract and seeking to collect amounts due on the accelerated loan.
- Service of process was effected on Helen L. Thomas in January 2008, and on Thomas D. Thomas and The Thomas Family Living Trust in April 2008.
- Regions Bank moved for entry of a default judgment and assessment of liquidated damages on February 12, 2009.
- Appellants filed an answer and counter-complaint on February 27, 2009, denying wrongdoing and raising defenses.
- The trial court denied Regions Bank's motion for default judgment in April 2010.
- The trial court heard the matter in May 2011 and subsequently entered findings of fact and an order of judgment in favor of Regions Bank on June 27, 2011, finding LGT breached the loan agreement, default occurred, and Regions Bank sold the aircraft in a commercially reasonable manner, awarding Regions Bank $1,642,771.91 plus interest.
- Appellants filed a motion to alter or amend the judgment, which the trial court largely denied by order entered October 26, 2011.
- Appellants filed a timely notice of appeal to the Court of Appeals of Tennessee (intermediate appellate court).
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Issue:
Does a secured creditor provide sufficient notice of the disposition of collateral under Tennessee Code Annotated §§ 47-9-611 and 47-9-613 when its correspondence to the debtor merely suggests it 'may elect' to take possession of and sell the collateral, rather than stating a settled intent, method, and date of sale?
Opinions:
Majority - David R. Farmer
No, a secured creditor's correspondence suggesting it 'may elect' to sell collateral does not provide sufficient notice under Tennessee Code Annotated §§ 47-9-611 and 47-9-613 because it fails to communicate a settled intent to sell, the method of disposition, or a specific date of sale. The court affirmed the trial court's findings that Appellants materially breached the loan agreement by failing to maintain insurance on the aircraft, that Regions Bank did not waive or cure the breach, and that Regions Bank did not act in bad faith by accelerating the loan. The loan documents unambiguously imposed an obligation to obtain and maintain insurance, and failure to do so constituted an event of default. The Appellants failed to demonstrate that Regions Bank acted in bad faith, especially given Mr. Thomas's unresponsiveness to multiple communications. The 'no waiver unless in writing' clause in the loan documents, combined with Regions Bank's continuous assertions of default, precluded a finding of waiver by conduct or acceptance of payments. However, the court reversed the trial court's finding regarding the sufficiency of notice for the disposition of the aircraft. For notice to be reasonable and commercially acceptable, it must enable the debtor to protect their interest by paying the debt, finding a buyer, or bidding at the sale. Regions Bank's correspondence merely stated it 'may also elect' to take possession and sell, or referenced unknown repairs needed to transport the aircraft to a place of sale. These statements were ambiguous and did not provide the specific information required by UCC § 47-9-613(1), such as a settled intent to sell, whether the sale would be public or private, or a specific disposition date. Consequently, the disposition of the collateral was not commercially reasonable, and the deficiency judgment was vacated and remanded for recalculation under the rebuttable presumption rule of Tennessee Code Annotated § 47-9-626, which shifts the burden to the secured party to prove the amount of proceeds that would have been realized with a complying disposition.
Analysis:
This case highlights the strict adherence required for statutory notice provisions under UCC Article 9, particularly § 47-9-611 and § 47-9-613, regarding the disposition of collateral. Even when a debtor is clearly in default and unresponsive, a secured creditor's vague or conditional statements about potential future actions are insufficient to satisfy the specific notice requirements. The decision reinforces the 'rebuttable presumption rule' in § 47-9-626, placing a significant burden on secured parties who fail to provide proper notice to prove that a complying disposition would have yielded less than the full secured obligation, thereby limiting or eliminating their deficiency claims.
