The opinion of the court was delivered by: GAGLIARDI
Plaintiff Landmark Land Company, Inc. ("Landmark") commenced this action for a writ of mandamus and monetary and injunctive relief against the Federal Deposit Insurance Corporation (the "FDIC"), the United States of America, and several government employees affiliated with the FDIC (the "FDIC officials").
The action was initially based upon the allegedly wrongful refusal of defendants to deliver to plaintiff a certain promissory note (the "Cove note") and deed of trust (the "Cove deed of trust") executed by a joint venture known as La Quinta Cove. The FDIC and FDIC officials filed a counterclaim for interpleader pursuant to 28 U.S.C. § 1335 to permit this court to adjudicate conflicting claims to the Cove note and deed of trust (collectively referred to hereinafter as the "Cove collateral"). Pursuant to an order of this court, the Cove collateral had previously been delivered to the Clerk of the court.
The counterclaim defendants that claim an interest in the Cove collateral in these proceedings are Landmark and Mercantile Holdings, Inc. ("Mercantile Holdings"), the successor in interest with respect to the Cove collateral to counterclaim defendant the Mercantile National Bank of Chicago (the "Mercantile Bank") (Mercantile Bank and Mercantile Holdings are collectively referred to hereinafter as "Mercantile"). The FDIC, which along with the FDIC officials and the United States has settled its dispute with Landmark, now maintains that Landmark is entitled to possession of the Cove collateral as its sole owner. Presently before the court is a motion for partial summary judgment by Landmark seeking: (1) an order compelling the Clerk of this court to deliver the Cove collateral to Landmark; (2) a declaration that Landmark's rights in the Cove collateral have priority over Mercantile's claimed interests; and (3) a declaration that all security interests other than Landmark's in the Cove collateral have been extinguished. For the reasons set forth below, Landmark's motion is granted.
For the purpose of deciding the instant motion, the court has relied exclusively upon the following materials: numerous documents submitted by Landmark and Mercantile, the authenticity of which has not been challenged; facts set forth in affidavits submitted by Mercantile; and undisputed facts set forth in affidavits submitted by Landmark. In accordance with the requirements of Rule 56(c), the court has resolved all ambiguities and drawn all reasonable inferences against Landmark. See United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962) (per curiam); American International Group, Inc. v. London American International Corp. Ltd., 664 F.2d 348 (2d Cir. 1981). The facts so determined are as follows.
In 1972, the First State Bank of Northern California ("First State") made a loan of $ 300,000 to Elkee Corporation ("Elkee") and loans of $ 170,000 each to Richard Curtis, Michael Whelan and James Frankel. These loans were secured by a deed of trust (the "1972 deed of trust") on certain California property owned by Elkee. In 1974, Elkee along with Unique Golf Concepts, Inc. and Landmark formed a joint venture known as La Quinta Cove for the purpose of developing certain California real estate (the "La Quinta property") then owned by Elkee which included the property subject to the 1972 deed of trust. Pursuant to the joint venture agreement, Elkee sold the La Quinta property to the joint venture in exchange for, in part, the Cove collateral, i.e., a non-negotiable promissory note in the amount of $ 1,080,000 payable to Elkee (the Cove note) secured by a deed of trust on the La Quinta property (the Cove deed of trust). The transfer of clear title to the La Quinta property from Elkee to La Quinta Cove was made possible by a deed of reconveyance executed by First State on May 10, 1974 which released and reconveyed First State's interest in the property under the 1972 deed of trust.
During the next three years, Elkee assigned the Cove collateral at least three times to secure its own numerous obligations. The first collateral assignment, which was made in May 1974, was to First State to secure "the obligations of Elkee Corporation in the principal amount of $ 240,000." First State took possession of the Cove collateral pursuant to this initial assignment and remained in possession during the subsequent assignments. The second assignment, which incorporated the first assignment, was made in January 1975. At that time, Elkee executed an instrument assigning the Cove collateral first to First State to secure Elkee's obligations which then amounted to $ 280,000, and then to the Drovers National Bank of Chicago ("Drovers") to secure Elkee's indebtedness of approximately $ 1,161,000. Elkee subsequently repaid the $ 280,000 debt to First State using funds that Elkee obtained through a $ 275,000 loan from Mercantile Bank. Elkee did not, however, repay its obligation to Drovers. Finally, in March 1976 Elkee assigned the same collateral to First State and to Mercantile Bank, this time to secure the loans made by First State to Curtis, Whelan and Frankel. Mercantile Bank had previously purchased from First State 100 percent participations in the loans to Curtis and Whelan.
The FDIC's interest in the Cove collateral commenced in 1976 after First State was declared insolvent. In May 1976, the FDIC in its corporate capacity as liquidator of First State ("FDIC-First State") obtained First State's rights to the Cove collateral, and took physical possession of the Cove collateral as well. In 1978, Drovers was also declared insolvent and the FDIC in its corporate capacity as liquidator of Drovers ("FDIC-Drovers") obtained Drovers' rights to the Cove collateral. FDIC-Drovers, in turn, sold all of its right, title and interest in the Cove collateral to Landmark after Elkee defaulted on the underlying debt owed by Elkee to Drovers.
The instant action was commenced by Landmark after FDIC-First State refused to relinquish possession of the Cove collateral. Landmark's asserted priority to this collateral is premised upon the rights Landmark acquired through the purchase of the collateral from FDIC-Drovers, which in turn claimed priority to the collateral under the January 1975 assignment from Elkee to First State and then to Drovers. Mercantile's asserted priority to the Cove collateral is premised upon its status as successor in interest to First State's rights with respect to loans made by First State which were allegedly secured by the Cove collateral.
The resolution of the conflicting claims at issue in this case turns on the legal effect of the successive collateral assignments of the Cove note and deed of trust, and on the legal effect of the sale of the Cove collateral from FDIC-Drovers to Landmark following the default by Elkee on its obligations to Drovers. To the extent that the claimed interests in the Cove collateral involve the rights and obligations of the FDIC, the relevant issues are governed by federal law. D'Oench, Duhme & Co. v. Federal Deposit Insurance Corp., 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942); Federal Deposit Insurance Corp. v. Meo, 505 F.2d 790, 793 n.4 (9th Cir. 1974); Riverside Park Realty Company v. Federal Deposit Insurance Corp., 465 F. Supp. 305, 308 (M.D.Tenn.1978); In re Anjopa Paper & Board Manufacturing Co., Inc., 269 F. Supp. 241, 252 (S.D.N.Y.1967). However, where, as in the instant case, "the state commercial codes "furnish convenient solutions in no way inconsistent with adequate protection of the federal interest(s),' " the court should "decline to override intricate state laws of general applicability on which private creditors base their daily commercial transactions." United States v. Kimbell Foods, Inc., 440 U.S. 715, 729, 99 S. Ct. 1448, 1459, 59 L. Ed. 2d 711 (1979) (quoting United States v. Standard Oil Co., 332 U.S. 301, 309, 67 S. Ct. 1604, 1609, 91 L. Ed. 2067 (1947)). Accordingly, to the extent that federal law is applicable to the instant case, the federal rule of decision is given by the applicable state law. Id.
In order to determine the applicable state law the court turns to the relevant New York conflict of laws doctrine. As the analysis below indicates, see pp. 976-977 infra, the interests purportedly created by the successive collateral assignments fall within the ambit of article 9 of the Uniform Commercial Code ("U.C.C.").
Therefore, the court must apply the relevant U.C.C. conflicts rules set forth at N.Y.U.C.C. §§ 9-103(1)(b) & 1-105(1).
N.Y.U.C.C. § 9-103(1)(b) provides that the governing law with respect to the perfection of security interests and the effect of perfection or non-perfection of security interests is determined as follows:
Except as otherwise provided in this subsection, perfection and the effect of perfection or non-perfection of a security interest in collateral are governed by the law of the jurisdiction where the collateral is when the last event occurs on which is based the assertion that the security interest is perfected or unperfected.
The Cove collateral was in California in the possession of First State at all times during which the parties to this action could claim that their purported security interests became perfected. Accordingly, all ...