     Case: 18-30970   Document: 00515195762     Page: 1   Date Filed: 11/12/2019




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                             United States Court of Appeals
                                                                      Fifth Circuit

                                                                    FILED
                                 No. 18-30970               November 12, 2019
                                                               Lyle W. Cayce
BANK OF THE WEST,                                                   Clerk


             Plaintiff - Appellee Cross-Appellant

v.

DANNY K. PRINCE,

             Defendant - Appellant Cross-Appellee




                Appeals from the United States District Court
                    for the Western District of Louisiana


Before HIGGINBOTHAM, SMITH, and SOUTHWICK, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
      Bank of the West and Danny K. Prince cross-appeal the district court’s
damages award in this breach-of-contract suit. We agree with the district court
that the liquidated damages provision of the parties’ contract is unenforceable
because it contravenes the Louisiana Lease of Movables Act. However, we hold
that the district court erred by basing its alternative damages calculation on
the expectations of the lessor’s assignee, Bank of the West, rather than those
of the original lessor, Summit Funding Group. We therefore affirm the district
court’s holding that Bank of the West was not entitled to contractual liquidated
damages, but we vacate the district court’s alternative damages award and
remand for recalculation.
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                                            I.
      In May 2014, Gladiator Energy Services, LLC 1 leased a trailer-mounted
frac unit (“the Equipment”) from Summit Funding Group, Inc. Danny K. Prince
and Steven Cloy Gantt personally guaranteed the Lease on behalf of Gladiator.
The Lease, which was to last until November 2018, set a base rent of just under
$20,000 per month. It provided that, in the event of default, Summit could
exercise one or more of a range of remedies, including:
      (iv) recover from Lessee all accrued and unpaid amounts, (v)
      recover from Lessee, as liquidated damages for loss of bargain and
      not as a penalty, the present value of all amounts to be paid by
      Lessee for the remainder of the Firm Term, or any successive
      period then in effect, discounted at the rate of 2% per annum,
      which amount will become immediately due and payable, (vi)
      demand that Lessee return the Equipment in strict compliance
      with the terms hereof . . . (xi) recover from Lessee all amounts
      incurred by Lessor in enforcing its rights and remedies hereunder,
      including, but not limited to, Lessor’s repossession costs . . .
      reasonable attorneys’ fees, and reasonable internal costs . . . .

Summit subsequently assigned its interest in the lease to Bank of the West
through a nonrecourse promissory note for $832,147.91. In February 2016,
Gladiator defaulted on the lease by failing to make its monthly payment. In
July 2016, Gladiator voluntarily surrendered the Equipment to the Bank at
Gladiator’s facility in Arcadia, Louisiana. The Bank then sold the Equipment
at auction for $320,964.00.
      On July 26, 2016, the Bank sued Prince and Gantt to recover the
remaining amount due under the lease, plus costs and attorneys’ fees. The case
against Gantt was stayed when he filed for bankruptcy in September 2016, so
only Prince participated as a defendant in the litigation. In July 2017, the



      1 Originally a Louisiana limited liability company, Gladiator subsequently converted
to a Texas limited liability company before ceasing operations altogether.
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                                 No. 18-30970
district court granted the Bank’s motion for summary judgment as to Prince’s
liability but denied it as to damages, finding the Bank’s evidence “insufficient
. . . to determine the amount of the debt.” Shortly thereafter, Prince obtained
new counsel and the Bank filed an amended complaint. The district court
denied the parties’ cross-motions for summary judgment in January 2018 and
ordered additional briefing on damages.
      The parties agreed that Prince owed past-due rent of $118,916.46.
However, they disagreed about what else, if anything, the Bank was entitled
to collect. The Bank contended that Prince also owed contractual liquidated
damages, defined by the Lease as the full amount of future rental payments
discounted to present value at a rate of two percent per annum. After
subtracting the proceeds of the Equipment sale, the Bank calculated its
contractual liquidated damages at $333,628.79. 2 Prince argued that the
Lease’s liquidated damages clause was invalid under the Louisiana Lease of
Movables Act (“LLMA”), so he should be held accountable only for the agreed-
upon sum of past-due rent. 3
      The district court agreed with Prince in part, holding that the LLMA
barred the Bank from both repossessing the Equipment and recovering
accelerated rent. However, the court reasoned, “some award of reasonable
damages” was still warranted. It therefore set out to determine an appropriate
figure on its own. It started with what it termed the Bank’s “initial
investment”—the $832,147.91 the Bank had loaned Summit in exchange for
Summit’s assignment of the Lease. Reasoning that the liquidated damages
award should approximate the Bank’s loss, the court calculated as follows:




      2  At the time of Gladiator’s default, it still owed 34 monthly payments of
approximately $20,000 each.
      3 See LA. STAT. ANN. § 9:3318.

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                                        No. 18-30970
       Bank’s Initial Investment                           $832,147.91
       Lease Payments Made                                 ($237,832.92)
       Proceeds from Equipment Sale                        ($320,964.00)
       Past Due Rent Owed                                  ($118,916.46)
       Total                                               $154,434.53
Thus, in addition to past-due rent and attorneys’ fees, the district court
awarded the Bank $154,434.53 in liquidated damages—far less than it sought
under the Lease but far more than Prince conceded he owed. These cross-
appeals followed.
                                              II.
                                               A.
       We review “a grant of summary judgment de novo, applying the same
standard as the district court.” 4 “Summary judgment is called for only ‘if the
movant shows there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.’” 5
                                               B.
       The LLMA “applies to all leases of movable property located in”
Louisiana. 6 It provides that in the event of default by the lessee, the lessor may
either (1) sue “to recover accelerated rental payments and additional amounts
that are then due and outstanding and that will become due in the future over



       4  Kinsale Ins. Co. v. Georgia-Pacific, LLC, 795 F.3d 452, 454 (5th Cir. 2015) (quoting
Martco Ltd. P’ship v. Wellons, Inc., 588 F.3d 864, 871 (5th Cir. 2009)).
        5 Deshotel v. Wal-Mart La., LLC, 850 F.3d 742, 746 (5th Cir. 2017) (quoting FED. R.

CIV. P. 56(a)).
        6 Walnut Equip. Leasing Co., Inc. v. Moreno, 643 So. 2d 327, 330 (La. Ct. App. 1994).

The parties agree that the LLMA governs this case. The Lease purports to select Ohio law,
but that clause is invalid under the LLMA. See LA. STAT. ANN. §§ 9:3303(F)(1)–(2)
(invalidating “leases of movable property . . . in which the lessee consents to the jurisdiction”
or venue of another state); see also Ha Thi Le v. Lease Fin. Grp., LLC, 2017 WL 2915488, at
*4 (E.D. La. May 9, 2017) (“Louisiana has a strong public policy against the inclusion of forum
selection clauses in leases of movables . . . located in Louisiana.”).
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                                      No. 18-30970
the full base term of the lease”; or (2) cancel the lease, repossess the leased
property, “and recover such additional amounts and liquidated damages as
may be contractually provided under the lease agreement.” 7 The statute
expressly states that its remedies “are not cumulative in nature.” 8 In other
words, “[t]he lessor may not seek to collect accelerated rental payments under
the lease and also to cancel the lease and recover possession of the leased
equipment.” 9
       In any case, a court may “award liquidated damages to the lessor only if
it finds the amount thereof to be reasonable.” 10 If the court finds the
contractual liquidated damages “unreasonable, or if there is no such
stipulation, then the court may, in its discretion, award liquidated damages to
the lessor.” 11 In short, regardless of the language of the parties’ contract, a
lessor has a “right to recover liquidated damages” only “to the extent the court
finds them reasonable.” 12
       Of course, even when a court elects to create its own liquidated damages
award, it must still follow Louisiana law. Louisiana Civil Code Article 1995,
which governs damages in breach-of-contract cases, provides that “[d]amages
are measured by the loss sustained by the obligee and the profit of which he
has been deprived.” 13 In other words, a “stipulated damage clause should
reasonably approximate the lessor’s loss and profits [but] should not be




       7 LA. STAT. ANN. §§ 9:3318(A)(1)(a)–(b).
       8 Id. § 9:3318(A)(2).
       9 Id.; see Express Blower, Inc. v. Earthcare, LLC, 410 F. App’x 742, 747 & n.11 (5th

Cir. 2010) (unpublished) (per curiam).
       10 LA. STAT. ANN. § 9:3325(A).
       11 Id. § 9:3325(B).
       12 Ouachita Equip. Rental Co., Inc. v. Baker Brush Co., Inc., 388 So. 2d 477, 480 (La.

Ct. App. 1980).
       13 LA. CIV. CODE ANN. art. 1995.

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penal.” 14 This Court reviews the “imposition of liquidated damages . . . for
abuse of discretion.” 15
                                                III.
                                                A.
       As noted above, the LLMA requires lessors to choose between two
exclusive sets of remedies: (1) cancelling the lease and collecting accelerated
rental payments, or (2) repossessing the property and collecting liquidated
damages. 16     “Any     provision     of   a     lease   agreement       to   the    contrary
notwithstanding, the lessor is allowed to select one remedy or the other, but he
is not allowed to cumulate both.” 17 In the event of default, the Summit Lease
provides for liquidated damages of “the present value of all amounts to be paid
by [Gladiator] for the remainder of the” Lease term. By defining liquidated
damages in terms of future rental payments, the Lease straddles the line
between the LLMA’s two exclusive remedial classes: Whereas the statute
prohibits lessors from pursuing both repossession and accelerated rent, the
Lease provides for just that combination of remedies, albeit under the label of
liquidated damages. We must decide whether the Lease’s liquidated damages
provision is enforceable despite its apparent conflict with the governing
statute.




       14 Am. Leasing Co. of Monroe, Inc. v. Lannon E. Miller & Son, Gen. Contracting, Inc.,
469 So. 2d 325, 328 (La. Ct. App. 1985).
       15 Dacar v. Saybolt, 914 F.3d 917, 924 (5th Cir. 2018).
       16 LA. STAT. ANN. § 9:3318(A)(2); see Gen. Elec. Capital Corp. v. Se. Health Care, Inc.,

950 F.2d 944, 953 (5th Cir. 1991) (noting that there are “only two options available” to lessors
under the LLMA).
       17 Gen. Elec., 950 F.2d at 953; see also Day Leasing & Ins., Inc. v. Hart, 619 So. 2d 114,

117 (La. Ct. App. 1993) (“[I]f the lessor recovers possession of the leased movable, then his
remaining remedy is for past-due rent and liquidated damages; by recovering the property,
a lessor waives his right . . . as to accelerated rentals . . . .”).
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       The Bank claims the Lease’s language is consistent with the second set
of remedies under the LLMA. 18 After all, the Lease does not call for
repossession and accelerated rental payments; it calls for repossession and
liquidated damages in the amount of accelerated rental payments discounted
to present value. The Bank disclaims any attempt to circumvent the LLMA—
although “based on future rental payments, [the contractual liquidated
damages provision] is not accelerated rent but a means of calculating the loss
of an expected return on investment” for the Bank. Thus, the Bank argues, we
should hold the Lease fully enforceable or, “[a]t a very minimum, . . . affirm the
District Court’s award” of reduced liquidated damages. The Bank emphasizes
that the parties freely bargained for the remedial provision, and it attempts to
distinguish the Lease’s liquidated damages provision from accelerated rent on
the ground that the Lease imposes a two percent discount.
       In Prince’s view, the present-value discount is immaterial: The Lease
contravenes the LLMA by defining liquidated damages—a remedy available
only under the second set of statutory remedies—as the total of all future
rental payments, a sum available only under the first set of remedies.
Moreover, neither arms-length bargaining nor artful drafting can create an
exception to a governing statute. 19
       We agree with Prince and the district court that following “the formula
provided in the Lease for calculating liquidated damages” would “circumvent
Louisiana law.” The LLMA “means what it says”: a lessor must choose one of
the statute’s two categories of relief—he cannot have both. Because the Lease’s
liquidated damages provision would allow the Bank to evade the statutory


       18 LA. STAT. ANN. § 9:3318(A)(1)(b).
       19See Gen. Elec., 950 F.2d at 954 n.22 (“Section 3318(A)(2) of the [LLMA], prohibiting
the lessor from both collecting all future rental and terminating the lease and re-possessing
the lease property, reflects Louisiana public policy and thus cannot be varied by the
contract.”).
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prohibition on cumulative remedies, the district court did not abuse its
discretion in finding it unreasonable.
       We are not persuaded by the Louisiana appellate decisions the Bank
cites, which are subordinate to the LLMA under Louisiana’s civilian
methodology. 20 The Bank is correct that in Cenval Leasing Corp. v. Nunnery,
the appellate court appears to have allowed the lessor to recover possession of
a leased car and the remaining balance on the lease. 21 Without discussing the
tension between its result and the LLMA’s prohibition on cumulative remedies,
the court determined that the damages award was not unreasonable because
it followed the lease provision. 22 However, “in Louisiana, courts must look first
and foremost to the state’s ‘primary sources of law: the State’s Constitution,
codes, and statutes.’” 23 Not only is the Cenval court’s decision “a secondary law
source in Louisiana,” 24 but it contravenes the plain text of the LLMA and other
Louisiana cases finding that the LLMA does not permit cumulative recovery. 25
       The Bank also relies heavily on First National Bank of Lafayette v.
Edwards, 26 which it cites for the proposition that a lessor may “recover future
rentals for the remainder of the term of a lease of equipment as liquidated
damages,” even if it has already “repossessed and sold the equipment.” The
Bank overreads the case. The Edwards court determined only that the lessor
could sue for liquidated damages, subject to the court’s reasonability




       20  See In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007).
       21  577 So. 2d 1042, 1045–46 (La. Ct. App. 1991).
        22 Id. at 1046.
        23 Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 260 (5th Cir.

2003) (quoting Prytania Park Hotel, Ltd. v. Gen. Star Indem., 179 F.3d 169, 175 (5th Cir.
1999)).
        24 Prytania, 179 F.3d at 175.
        25 See, e.g., Gen. Elec., 950 F.2d at 953; Day Leasing, 619 So. 2d at 117; Am. Leasing,

469 So. 2d at 329.
        26 465 So. 2d 983 (La. Ct. App. 1985).

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determination. 27 The trial court had calculated damages on an entirely
separate basis, so the appellate court had no opportunity to opine on the
reasonableness of awarding accelerated rent after a lessor has sold the
equipment. 28
      In short, the plain language of the LLMA forbids a lessor from both
repossessing leased equipment and collecting accelerated future rental
payments. Because the Lease’s liquidated damages clause authorizes just this
combination of remedies, the district court properly held it unenforceable. We,
like the district court, “agree[] with Prince that lessors cannot be allowed to
circumvent Louisiana law by simply including a lease provision allowing
liquidated damages in the amount of future rent payments.”
                                           B.
      Because the Lease’s liquidated damages clause is invalid under the
LLMA, it was proper for the district court to disregard the contractual
provision and fashion its own award of liquidated damages. 29 However, the
question remains whether the court abused its discretion by using the incorrect
baseline for its alternative calculation. Again, the district court began its
calculation “by considering the Bank’s initial investment in the Lease”—the
$832,147.91 the Bank loaned Summit in exchange for Summit’s assignment of
the Lease. The court then subtracted Gladiator’s pre-default rental payments,
the proceeds of the Equipment sale, and the agreed-upon sum of past-due rent
to reach its ultimate award of $154,434.53.
      Prince argues that the district court erred by basing its calculation on
the Bank’s lost investment rather than on Summit’s. As Prince points out, the
original parties to the Lease were Summit and Gladiator; the Bank only


      27 Id. at 985.
      28 Id. at 986.
      29 LA. STAT. ANN. § 9:3325(B).

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entered the picture later, when Summit assigned the Lease to the Bank.
Because damages are generally limited to the “loss of profits that were
contemplated or foreseen by the parties at the time of the agreement,” 30 Prince
argues, the district court should have considered only the expectations of
Summit, the original beneficiary of the Lease. After all, the Bank merely
“stands in the shoes of Summit.” Any loss the Bank suffered beyond past-due
rental payments arose under the Bank’s separate nonrecourse note with
Summit, not under the Lease with Gladiator. 31
       Prince is correct. Article 1995 of the Louisiana Civil Code provides that
“[d]amages are measured by the loss sustained by the obligee and the profit of
which he has been deprived.” 32 Summit was the original obligee in this case,
so “the loss sustained by the obligee” is the amount that Summit would have
lost in the event of a breach—in other words, the amount Summit expected to
receive under the lease had no breach occurred. Instead, the district court



       30   Galloway v. Tenneco Oil Co., 313 So. 2d 317, 321 (La. Ct. App. 1975) (emphasis
added).
       31   Prince further argues that the Bank is not entitled to any liquidated damages
because its note with Summit was nonrecourse. Because the Bank had no recourse against
Summit when Gladiator defaulted, Prince claims, Summit did not suffer any damage as a
result of the default—and because the Bank stands in Summit’s shoes, it cannot recover
damages either. Prince cites no case law to support this circular logic. Either the Bank’s
damages are based on the pre-assignment expectations of Summit (as we hold), or they are
based on the post-assignment expectations of the Bank itself (as the district court found).
Prince cannot have it both ways. Damages cannot be determined by both Summit’s pre-
assignment expectations and the Bank’s post-assignment remedies. In short, the promissory
note limited the Bank’s remedies against Summit; it did not, and could not, limit Prince’s
obligations under the Lease.
         32 LA. CIV. CODE art. 1995; see Am. Leasing, 469 So. 2d at 328–29. At oral argument,

counsel for the Bank pointed out that the district court did not take the Bank’s lost profits
into account; it only attempted to get the Bank “back to zero,” i.e., the position it was in before
it contracted with Summit. Although we reject the Bank’s argument that its own
expectations, rather than Summit’s, were the proper starting point for the district court’s
damages calculation, we acknowledge that Article 1995 contemplates damages for lost
profits. Thus, on remand, the district court should consider not only what it would take to
restore Summit to its status quo ante but also what profits Summit expected to make off its
initial lease with Gladiator.
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started with the Bank’s expectations under a different agreement—the
promissory note it issued to Summit. However, the note did not confer on the
Bank additional rights to payment that Summit had not possessed; it simply
placed the Bank in Summit’s shoes. Thus, Summit’s expectations under the
lease are the appropriate baseline from which to calculate damages. Because
it is not clear from the record or the parties’ briefs how much Summit
anticipated making on the original Lease, we must vacate in part and remand
to allow the district court to recalculate its damages award.
                                      IV.
      The district court correctly ruled that Bank of the West is not entitled to
contractual liquidated damages. We must, however, vacate its award of
alternative damages and remand for recalculation based on the expectations
of the original lessor, Summit Funding Group, Inc.




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