Opinion ID: 7101
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 This appeal involves a dispute between Chrysler Credit Corporation (Chrysler Credit) and Whitney National Bank (Whitney), the two primary creditors for Toyota of Jefferson, Inc. (TOJ), an automobile franchise owned and operated by Ethel and Louis Normand (the Normands) in Jefferson Parish, Louisiana. TOJ had its general operating account at Whitney. In addition, Whitney made personal loans to the Normands. Chrysler Credit provided floor plan financing for new vehicles sold by TOJ. As the floor plan lender for TOJ, Chrysler Credit loaned the funds TOJ needed to buy cars from its distributor. 3 Under the floor plan agreement, Chrysler Credit secured these loans with a chattel mortgage over all the cars bought by TOJ. The chattel mortgage provided as follows: 4 If the Mortgagor so sells any one or more such chattels, the proceeds of each such sale, and the evidence thereof in whatever form the same may be, shall be the property of the Mortgagee and shall be held in trust by the Mortgagor for the use and benefit of the Mortgagee and the Mortgagor agrees as such trustee to deliver such proceeds and such evidence of sale immediately upon his or its receipt thereof to the Mortgagee, to be applied by it toward the reduction of the indebtedness secured by this Mortgage. 5 This chattel mortgage was recorded on March 16, 1989. According to the floor plan agreement, TOJ would deposit its car sale proceeds into its general operating account at Whitney. It would then write a check drawn on the account to Chrysler Credit for the sold cars. 6 During the eighteen-month period of the floor plan agreement (February 28, 1989 through September 28, 1990), TOJ was constantly overdrawn; at one point, it owed over $1.6 million to Whitney. Whitney established the practice of covering TOJ's checks to Chrysler Credit when there were insufficient funds in the TOJ account. At times, TOJ would not pay Chrysler Credit immediately for the cars as they were sold. Instead, TOJ deposited the proceeds from the car sales into its account with Whitney. Whitney, in turn, set off the accounts in satisfaction of the outstanding loans and overdrafts that Whitney had paid. Finally, on September 27 and 28, 1990, Whitney dishonored two checks that TOJ had written to Chrysler Credit. TOJ filed for bankruptcy the next day. An audit of TOJ's books revealed that it had failed to pay Chrysler Credit for 176 cars worth approximately $2,279,342. 7 After TOJ filed for bankruptcy, it was discovered that TOJ had been consistently violating the floor plan agreement. TOJ had made out-of-trust sales, i.e., sales of cars where the proceeds were not immediately remitted to the floor plan lender, Chrysler Credit. 8 Although Chrysler Credit performed random audits whereby it would actually go to the dealership and count the number of cars left on the lot and compare it to the amount of money it had received, personnel at TOJ eventually found a pattern to the audits and were able to conceal some of the out-of-trust sales when confronted with the discrepancies. TOJ would then write a check to Chrysler Credit for the car sales it could not conceal. These checks were overdrafts honored by Whitney. TRIAL COURT PROCEEDINGS 9 On May 6, 1991, Chrysler Credit filed a complaint in the Eastern District of Louisiana asserting multiple causes of action against Whitney. By the time of trial, the claims had been narrowed to conspiracy to defraud, conversion, and conspiracy to commit conversion. A jury trial was conducted May 17-25, 1992. 10 Before trial, the district court made several significant rulings. It held that Chrysler Credit had created a valid security interest in the proceeds of the car sales that was effective on March 16, 1989. Chrysler Credit Corp. v. Whitney National Bank, 798 F.Supp. 1234, 1237 (E.D.La.1992). It also held that Whitney had a valid contractual pledge of the bank account effective on December 28, 1989. Id. at 1238. It then held that, despite the greater chronological priority of its security interest, Chrysler Credit could only trace the proceeds in the commingled account if it could prove that Whitney, in setting off the proceeds against the overdraft loans, had acted outside of the ordinary course of business. See id. at 1247. 11 In a motion to reconsider, Whitney argued that pursuant to La.Rev.Stat. Sec. 6:316, it also held a valid statutory pledge that was effective on March 1, 1989, the first day that TOJ overdrew its account. Whitney argued that its subsequent extensions of credit were retroactively ranked to this date and thus it had chronological priority over any security interest held by Chrysler Credit. The court rejected this contention, holding that in order for extensions of credit to receive retroactive ranking, they must be provided for in a contract. Chrysler Credit Corp. v. Whitney National Bank, 824 F.Supp. 587, 593 (E.D.La.1993). 12 During the middle of trial, the district court made another important ruling. The district court found that Whitney had knowledge of Chrysler Credit's interest in the car sale proceeds. 1 Included with the pretrial stipulations read to the jury was the following: 13 Whitney had actual knowledge of Chrysler Credit's security interest in the proceeds deposited into the TOJ bank account at Whitney. 14 Chrysler Credit's security interest in the proceeds in TOJ's bank account had priority over any right of set-off possessed by Whitney. 15 At the conclusion of all the evidence, the district court then instructed the jury to that effect. 16 The jury returned special verdicts finding that Whitney had committed conversion, and that Whitney had conspired to commit conversion and fraud. It also found that Whitney had acted outside of the ordinary course of business. The district court entered judgment on the direct conversion and conspiracy to commit conversion claims, but found that there was not enough evidence to find that Whitney had conspired to defraud Chrysler Credit because Whitney did not have a duty to inform Chrysler Credit about the out-of-trust sales. Chrysler Credit filed a motion for attorneys' fees which was denied. Whitney appeals the judgment of the district court; Chrysler Credit appeals the denial of attorneys' fees.