Jipping v. First National Bank Alaska
Jipping v. First National Bank Alaska
Opinion of the Court
DECISION & ORDER ON APPEAL
Appellant Nacole M. Jipping, Trustee of the Chapter 7 bankruptcy estate of Omni Enterprises, Inc. (“Omni”), appeals the United States Bankruptcy Court for the District of Alaska’s order granting summary judgment to First National Bank Alaska (“FNBA”). The bankruptcy court determined that FNBA held a valid security interest in the bank account owned by Omni in the months preceding Omni’s filing a Chapter 7 bankruptcy petition, and therefore held that FNBA’s sweep of the account was supported by its lien rights and not avoidable under 11 U.S.C. § 550.
BACKGROUND/JURISDICTION
Before filing for bankruptcy, Omni operated retail stores in Bethel, Alaska.
In August 2013, Omni borrowed $2.6 million from FNBA for equipment for a new grocery store (the “2013 Loan”).
In early 2015, Omni defaulted on the 2013 Loan. FNBA debited Omni’s FNBA-maintained bank account to satisfy the mortgage payments for January and February 2015.
The Trustee filed a timely notice of appeal on June 1, 2016.
ISSUES PRESENTED/STANDARD OF REVIEW
The parties agree that resolution of this appeal turns on whether FNBA held a valid security interest in Omni’s FNBA-maintained bank account when FNBA swept the account in early 2015.
“The issues raised here involve interpretation of a security agreement executed between [Omni and FNBA] and the scope of a claimed security interest. The Alaska Uniform Commercial Code and applicable state law regarding contract interpretation will govern their resolution.”
This Court reviews de novo a bankruptcy court’s ruling on cross-motions for summary judgment, its interpretation of security agreements, and its interpretation of state law.
DISCUSSION
The Trustee seeks reversal of the bankruptcy court’s decision for two reasons. First, she argues that the 2009 Security Agreement, which provides that it terminates once the “Indebtedness” is paid in full, terminated in 2011. when Omni paid off the 2009 Loan.
As discussed below, the Court has determined that the second issue raised in this appeal is dispositive. Therefore, the Court will assume, without deciding, that the 2009 Security Agreement remained in effect after Omni paid off the 2009 Loan and turn to this second issue: whether the 2013 Security Agreement’s integration clause precludes FNBA’s reliance on. the 2009 Security Agreement as security for the 2013 Loan.
The 2013 Security Agreement contains the following integration clause:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.30
FNBA maintains that the integration clause does not exclude the 2009 Security Agreement and instead argues that the 2009 Security Agreement is implicitly included as a “Related Document[]” referenced in the integration clause itself.
*326 The answer lies in the somewhat circular definitions of “Related Documents” and “Indebtedness” in the 2013 Security Agreement. It becomes a chicken-and-egg question—does the integration clause exclude the 2009 Security Agreement or not? Despite this circularity, the Related Documents definition in the 2013 Security Agreement is sufficiently clear to mean, in this case [emphasis and bracket matter added]:
Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements [such as the 2009 Security Agreement], mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing [such as the 2009 Security Agreement], executed [by virtue of the Future Advances clause in the 2009 Security Agreement] in connection with the Indebtedness [such as the 2013 loan7.33
The Court finds, however, that FNBA and the bankruptcy court’s interpretation constitutes a strained reading of the Related Documents clause, as perhaps best evidenced by the parentheticals added by the bankruptcy court. In this Court’s view, a more natural reading of the Related Documents clause favors the Trustee’s position. For the 2009 Security Agreement to secure payment for the 2013 Loan, the 2009 Security Agreement must be a “Related Document[ ],” meaning that it was “executed in connection with the Indebtedness.” The bankruptcy court concluded that the 2009 Security Agreement was “executed in connection with” the 2013 Loan because the definition of “Indebtedness”
Giving ordinary words their ordinary meaning, as required by Alaska law,
Moreover, the Alaska Supreme Court has articulated an objective standard to contract interpretation.
FNBA cites to an Alaska statute that provides that a security agreement may commit collateral to secure “future advances or other value.”
FNBA also argues that “the 2009 Security Agreement constitutes a separate and distinct contract, capable of independent enforcement.”
ORDER
For the foregoing reasons, the judgment of the bankruptcy court is REVERSED, and the case is REMANDED to the bankruptcy court with direction to enter summary judgment in favor of the Trustee. The Clerk of Court is directed to enter a final judgment accordingly.
.Various provisions of the Bankruptcy Code grant a Chapter 7 trustee the power to avoid certain transfers of property for the benefit of the bankruptcy estate. See, e.g., 11 U.S.C. §§ 544, 545, 547, 548, 549, 553(b), 724(a). Once a transfer has been deemed avoidable in a bankruptcy case, § 550 is the vehicle a trustee uses to recover such property. The mechanics or proper application of these provisions are not at issue in this case.
. Docket 4-1 (Compl.) at 4.
. Id. at 6.
. Id. at 4.
. Docket 4-9 (2009 Security Agreement) at 1. Article 9 of the Alaska Uniform Commercial Code ("UCC”) provides that " ‘deposit account’ means a demand, time, savings, passbook, or similar account maintained with a bank except that the term does not include investment property or accounts evidenced by an instrument.” Alaska Stat. § 45.29.102(a)(36). Omni’s FNBA-maintained bank account, which FNBA swept in 2015, was a Deposit Account. Docket 4-1 (Compl.) at 6.
. Docket 4-9 (2009 Security Agreement) at 1.
. Docket 4-9 (2009 Security Agreement) at 1.
. Docket 4-1 (Compl.) at 5.
. Id.
. Id. at 5.
. Docket 4-9 (2013 Security Agreement) at 8.
. Docket 4-1 (Compl.) at 6-7.
. Id. at 7.
. Id. at 1-2.
. Docket 4-10 (Order Granting FNBA’s Mot. for Summ. J. and Final J. for Def.) at 1-2.
. Docket 4-8 (Mem. Decision Regarding Cross-Mots, for Summ. J.) at 17-18.
. Docket 3-1 (Transmittal Form) at 4-5.
. Docket 3-2 (Appellant Statement of Election).
. Docket 3 (Notice of Transfer of Appeal from Bankruptcy Court).
. Docket 12 (Appellant's Br.) at 8 n.6; Docket 14 (Appellee’s Br.) at 14. The parties agree that if FNBA had a valid lien in the bank account, it may retain the swept funds and, if it did not, it must return the swept funds to the Trustee.
. Docket 12 (Appellant's Br.) at 6.
. In re Alaska Fur Gallery, 457 B.R. 764, 765 (Bankr. D. Alaska 2011) (footnote omitted); see also Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (finding that whether a security agreement creates a lien on particular assets is a question of state law).
. Norville v. Carr-Gottstein Foods Co., 84 P.3d 996, 1004 (Alaska 2004).
. See Trunk v. City of San Diego, 629 F.3d 1099, 1105 (9th Cir. 2011) (summary judgment); Conrad v. Ace Prop. & Cas. Ins. Co., 532 F.3d 1000, 1004 (9th Cir. 2008) (interpretation and meaning of contracts); see also Salve Regina Coll. v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991) (interpretation of state law).
. Docket 12 (Appellant’s Br.) at 16-30. The 2009 Security Agreement includes a "Survival of Representations and Warranties” clause that states;
All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor’s Indebtedness shall be paid in full.
Docket 4-9 (2009 Security Agreement) at 4.
. The 2009 Security Agreement states, “In addition to the Note, this Agreement secures all future advances made by lender to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.” Docket 4-9 (Security Agreement) at 1.
. The “Cross-Collateralization” clause in the 2009 Security Agreement provides:
In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or anyone or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntaiy or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.
Docket 4-9 (Security Agreement) at 1.
. Docket 14 (Appellee’s Br.) at 24-33.
. Docket 4-9 (2009 Security Agreement) at 1.
. Docket 4-9 (2013 Security Agreement) at 8.
. Docket 14 (Appellee’s Br.) at 33-37.
. Docket 4-8 (Mem. Decision Regarding Cross-Mots, for Summ. J.) at 18-19 (emphasis in original).
. Id. at 18 (footnote omitted; emphasis in original); Docket 4-9 (2013 Security Agreement) at 9.
. The 2013 Security Agreement states:
The word "Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes the future advances set forth in the Future Advances provision, together with all interest thereon and all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement.
Docket 4-9 (2013 Security Agreement) at 9,
. The "Future Advances” provision in the 2009 Security Agreement states: "In addition to the Note, this Agreement secures all future advances made by Lender to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.” Docket 4-9 (2009 Security Agreement) at 1.
. Docket 4-8 (Mem. Decision Regarding Cross-Mots, for Summ. J.) at 16-17.
. Norville, 84 P.3d at 1001 n.3 ("In interpreting contracts, ... unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.”) (quotation marks and citation omitted).
. Martin v. Maldonado, 572 P.2d 763, 767 (Alaska 1977).
, Docket 14 (Appellee's Br.) at 20-21 (quoting Alaska Stat. § 45.29.204(c) ("A security agreement may provide that collateral secures ... future advances or other value, whether or not the advances or value are given pursuant to a commitment.”)).
. Docket 14 (Appellee’s Br.) at 21.
. Docket 4-9 (2013 Security Agreement) at 8.
. Id.
Reference
- Full Case Name
- Nacole M. JIPPING, Trustee v. FIRST NATIONAL BANK ALASKA
- Cited By
- 1 case
- Status
- Published