     Case: 11-31218   Document: 00512209223    Page: 1   Date Filed: 04/16/2013




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

                                                                FILED
                                                               April 16, 2013

                                No. 11-31218                   Lyle W. Cayce
                                                                    Clerk



In the Matter of: HARI AUM, LLC, doing business as Deluxe Motel,

                                          Debtor

----------------------------------------

HARI AUM, LLC, doing business as DELUXE MOTEL,

                                          Appellant,
v.

FIRST GUARANTY BANK,

                                          Appellee.



                Appeal from the United States District Court
                   for the Eastern District of Louisiana


Before STEWART, Chief Judge, and DAVIS and CLEMENT, Circuit Judges.
CARL E. STEWART, Chief Judge:
      This matter involves an appeal from a bankruptcy judge’s interlocutory
order and judgment. The bankruptcy court ruled on cross-motions for partial
summary judgment in favor of Appellee First Guaranty Bank (“FGB”) that the
Multiple Indebtedness Mortgage that FGB recorded is valid, and that the
property underlying that mortgage, the Deluxe Motel, secures both the loan FGB
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                                No. 11-31218

made to Debtor-Appellant Hari Aum LLC (“Hari Aum”) and the loan FGB made
to a second entity, Mississippi Hospitality Services LLC. We now AFFIRM.
                                     I.
     In 2005, Hari Aum, a limited liability company (“LLC”) that one Suresh
Bhula (“Bhula”) wholly owned, borrowed $1.8 million from FGB to finance the
purchase of the Deluxe Motel in Slidell, Louisiana. As the 100% shareholder,
sole officer, and managing member of Hari Aum, Bhula signed both a promissory
note and a Multiple Indebtedness Mortgage (“MIM”), dated January 27, 2005,
on Hari Aum’s behalf to evidence and secure the $1.8 million loan. Also on
January 27, Hari Aum, through Bhula, signed a commercial security agreement
giving FGB a security interest in all equipment, furniture, fixtures, and an
assignment of rents and leases in the Deluxe Motel property. The MIM was
properly recorded in St. Tammany Parish, Louisiana on February 1, 2005.
     The pertinent sections of the MIM are as follows:
     1.    MORTGAGE               SECURING            FUTURE
           INDEBTEDNESS. This Mortgage has been executed
           by [Hari Aum] pursuant to Article 3298 of the
           Louisiana Civil Code for the purpose of securing [Hari
           Aum’s] Indebtedness that may now be existing or that
           may arise in the future as provided herein . . . .
           However, nothing under this Mortgage shall be
           construed as limiting the duration of this Mortgage or
           the . . . purposes for which [Hari Aum’s] Indebtedness
           may be requested or extended.

(italicized emphases added).

     2.    INDEBTEDNESS. The word “Indebtedness” as used
           in this Mortgage means individually, collectively and
           interchangeably any and all present and future loans,
           advances, and/or other extensions of credit obtained
           and/or to be obtained by [Hari Aum] from [FGB] . . .
           including without limitation, a Note dated January 27,
           2005, in the principal amount of $1,800,000.00, from


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               [Hari Aum] to [FGB], and any and all amendments
               thereto and/or substitutions therefor, and any and all
               renewals, extensions and refinancings thereof, as well
               as any and all other obligations, including, without
               limitation, [Hari Aum’s] covenants and agreements in
               any present or future loan or credit agreement or any
               other agreement, document or instrument executed by
               [Hari Aum] and liabilities that [Hari Aum] may now
               and/or in the future owe to and/or incur in favor of
               [FGB], whether direct or indirect, . . . and whether now
               existing or hereafter arising . . . whether [Hari Aum] is
               obligated alone or with others on a “solidary”1 or “joint
               and several” basis, as a principal obligor or as a surety,
               guarantor, or endorser, of every nature and kind
               whatsoever . . . . Notwithstanding any other provision of
               this Mortgage, the maximum amount of Indebtedness
               secured hereby shall be limited to $50,000,000.00.”

(italicized emphases added).

       Thus, the notable features of the MIM’s definition of “Indebtedness” are:
1) the MIM secures present and future loans between Hari Aum and FGB; 2) the
obligation broadly contemplates and includes the debts of third parties, whether
Hari Aum is the principal obligor or obligated on a “joint and several” basis with
others; and 3) the maximum amount of the Indebtedness secured is limited to
$50 million. The MIM also states that Hari Aum pledged the Deluxe Motel as
security for Hari Aum’s “Indebtedness” between itself and FGB. Notably, only
Hari Aum and FGB are parties to this MIM. Additionally, the MIM provides the
mechanisms for cancellation of the instrument in the provision entitled,
“Duration of Mortgage.”
       Bhula and FGB continued their relationship in 2006, when Bhula obtained
a commitment letter from FGB, dated May 31, 2006, by which FGB agreed to


       1
         “Solidary” is an alternative term for “joint and several” in the context of a liability or
obligation. Black’s Law Dictionary 1521 (9th ed. 2009).

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finance the purchase of a hotel in Hattiesburg, Mississippi through a new entity
that was not yet formed. Thereafter, Bhula formed a second LLC, Mississippi
Hospitality Services, LLC (“MHS”), of which Bhula was also the 100%
shareholder, sole officer, and managing member. The loan between FGB and
MHS was for $4.9 million, and was secured by a deed of trust that was properly
recorded in Forrest County, Mississippi on June 19, 2006. MHS also entered
into a commercial security agreement with FGB, dated June 16, 2006, which
gave FGB a security interest in all inventory, equipment, general intangibles,
consumer goods and fixtures, and an assignment of rents and leases for the
Hattiesburg property. The commitment letter specifically states that the Deluxe
Motel and the 160-unit hotel in Hattiesburg were to serve as collateral for FGB’s
loan to MHS.     The pertinent documents that Bhula executed in 2006 in
connection with the MHS loan do not demonstrate that the parties took any
specific steps to encumber the Deluxe Motel property as security for the MHS
loan at that time, however.
      Also on May 31, 2006, the U.S. Small Business Administration (“SBA”)
advanced a Disaster Loan in the amount of $735,000 to Hari Aum to repair roof
damage associated with Hurricane Katrina. Hari Aum, through Bhula, signed
a note and multiple indebtedness mortgage in favor of the SBA on June 13, 2006,
and this mortgage was recorded in St. Tammany Parish, Louisiana on July 10,
2006. Pursuant to this filing, Hari Aum granted the SBA a second mortgage
interest on the Deluxe Motel.
      On April 21, 2009, FGB refinanced both Hari Aum’s $1.8 million loan and
MHS’s $4.9 million loan. Bhula signed new promissory notes on behalf of each
of the LLCs, as well as a commercial guaranty personally obligating Bhula on
Hari Aum’s loan. Also on April 21, Bhula executed two other documents: 1) A
Limited Liability Company Resolution to Borrow/Grant Collateral (“Resolution”),
on behalf of Hari Aum; and 2) Hari Aum’s Acknowledgment of Existing Multiple

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Indebtedness Mortgage (“Acknowledgment”). In addition to the 2005 MIM, the
Resolution, the Acknowledgment, and the 2009 MHS promissory note are the
central documents to our resolution of this appeal.
      The Resolution broadly authorizes Bhula to pledge Hari Aum’s real
property as security for any future indebtedness. The company grants Bhula the
authority to enter into transactions concerning the company’s real estate,
including the pledging of collateral to secure debt between Hari Aum and FGB.
The Resolution states, in pertinent part:
             RESOLUTIONS ADOPTED. At a meeting of the
             members of [Hari Aum], duly called and held on April
             21, 2009, at which a quorum was present and voting, or
             by other duly authorized action in lieu of a meeting, the
             resolutions set forth in this Resolution were adopted.2

             MEMBER. The following named person is a member of
             HARI AUM, LLC: Suresh A. Bhula, Member
             [designated as an authorized person]

             ACTIONS AUTHORIZED.              Any one (1) of the
             authorized person listed above may enter into any
             agreements of any nature with [FGB], and those
             agreements will bind [Hari Aum]. Specifically, but
             without limitation, any one (1) of such authorized
             person is authorized, empowered, and directed to do the
             following for and on behalf of [Hari Aum]: . . . .

                    Grant Security. To mortgage, pledge,
                    transfer, endorse, hypothecate, or otherwise
                    encumber and deliver to [FGB] any
                    property now or hereafter belonging to
                    [Hari Aum] or in which [Hari Aum] now or
                    hereafter may have an interest, including
                    without limitation all of [Hari Aum’s] real
                    (immovable) property . . . as security for


      2
        As the bankruptcy court observed, it is unclear which other “members” would have
attended this meeting, since Bhula was the sole member of Hari Aum.

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                    the payment of any loans or credit
                    accommodations so obtained . . . or any
                    other or further indebtedness of [Hari
                    Aum] to [FGB] . . . . Such property may be
                    mortgaged, pledged, transferred, endorsed,
                    hypothecated, encumbered or otherwise
                    secured . . . . .

                    Execute Security Documents.             To
                    execute and deliver to [FGB] the forms of
                    mortgage, collateral mortgage, deed of
                    trust, pledge agreement, hypothecation
                    agreement, and other security agreements
                    and financing statements which [FGB] may
                    require which shall evidence the terms and
                    conditions under and pursuant to which
                    such liens and encumbrances, or any of
                    them, are given . . . .

            CONTINUING VALIDITY. Any and all acts authorized
            pursuant to this Resolution and performed prior to the
            passage of this Resolution are hereby ratified and
            approved. This Resolution shall be continuing, shall
            remain in full force and effect and [FGB] may rely on it
            until written notice of its revocation shall have been
            delivered to and received by [FGB] at [FGB’s] address
            shown above.

(italicized emphases added).

      The Acknowledgment indicates that Hari Aum’s 2005 MIM “shall secure
any and all of [MHS’s] and [Hari Aum’s] present and future indebtedness in
favor of [FGB],” and that Hari Aum and MHS will be jointly and severally liable
for all indebtedness, including the MIM and MHS’s promissory note with FGB.
The Acknowledgment identifies MHS as the “Borrower,” Hari Aum as the
“Grantor,” and FGB as the “Lender.” The Acknowledgment provides, in relevant
part, as follows:



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                            No. 11-31218

       MULTIPLE INDEBTEDNESS MORTGAGE. Desiring
       to secure the prompt and punctual payment and
       satisfaction of present and future Indebtedness may be
       outstanding from time to time, one or more times, as
       provided herein, [Hari Aum] previously executed the
       following described[.]

       MORTGAGE.        The word “Mortgage” means the
       multiple indebtedness mortgage described in the
       “Multiple Indebtedness Mortgage” paragraph in favor
       of [FGB]:

             a multiple Indebtedness mortgage
             dated 01/27/2005 executed by Hari
             Aum, LLC in favor of [FGB].

       CONTINUING SECURITY INTEREST TO SECURE
       PRESENT AND FUTURE INDEBTEDNESS. Hari
       Aum reaffirms that [Hari Aum’s] Mortgage was
       intended to and shall secure any and all of [MHS’s] and
       [Hari Aum’s] present and future Indebtedness in favor
       of [FGB] as may be outstanding from time to time, one
       or more times, including [MHS’s] loan and promissory
       note described therein. . . .

       WAIVERS. [Hari Aum] hereby waives presentment for
       payment, protest and notice of protest and of
       nonpayment, and all pleas of division and discussion
       with regard to the Indebtedness. [Hari Aum] agrees
       that [Hari Aum] shall remain liable together with
       [MHS] and any and all guarantors, endorsers and
       sureties of the Indebtedness on a “joint and several” or
       “solidary” basis. . . .

       FURTHER COVENANTS.                [Hari Aum] further
       represents, warrants and agrees that: (A) [Hari Aum]
       has agreed and consented to grant the security interest
       provided herein to secure payment of [MHS’s]
       Indebtedness in favor of [FGB] at [MHS’s] request and
       not at the request of [FGB]; (B) [Hari Aum] will receive
       and/or has received a direct or indirect material benefit


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             from the transactions contemplated herein and/or
             arising out of [MHS’s] Indebtedness . . . .

             DEFINITIONS. . . .

                     Note. The word “Note” means the Note executed
                     by MISSISSIPPI HOSPITALITY SERVICES,
                     LLC in the principal amount of $4,375,290.81
                     dated April 21, 2009 together with all renewals,
                     extensions, modifications, refinancing,
                     consolidations and substitutions of and for the
                     note or credit agreement.

(italicized emphases added).

        The MHS promissory note that Bhula executed on April 21, 2009 with
FGB identifies, inter alia, Hari Aum’s 2005 MIM as one of the forms of collateral
securing the note.
        Both Hari Aum and MHS subsequently defaulted on making their
respective loan payments. On August 12, 2010, Hari Aum filed a Chapter 11
petition for reorganization. Through the bankruptcy adversary proceeding, the
parties sought the court’s determination of whether the Deluxe Motel serves as
security for only the loan between Hari Aum and FGB or also for the loan
between MHS and FGB. Hari Aum asserted that the MIM does not secure the
MHS loan, while FGB argued to the contrary. The SBA also filed an unopposed
motion to intervene in the proceeding, which the bankruptcy court granted. The
SBA essentially agreed with Hari Aum that the MIM does not secure the MHS
loan.
        On July 12, 2011, the bankruptcy court issued its Memorandum Opinion,
concluding that: 1) the MIM allowed FGB to secure future loans without
recording further documents associated with those loans; 2) Bhula was
authorized to pledge Hari Aum’s property to secure MHS’s debt by virtue of the
Resolution; and 3) the MIM, MHS’s 2009 promissory note, and the

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Acknowledgment together effectuated a cross-collateralization whereby Hari
Aum granted FGB a security interest in Hari Aum’s Deluxe Motel to secure
FGB’s loan to MHS.
      Hari Aum filed for leave to appeal the bankruptcy court’s interlocutory
judgment in the district court. While the motion was pending, the bankruptcy
court, sua sponte, certified its judgment for direct appeal to this court, pursuant
to 28 U.S.C. § 158(d)(2)(A)(i) and (iii). We subsequently granted leave to appeal.
                                             II.
      “When directly reviewing an order of the bankruptcy court, we apply the
same standard of review that would have been used by the district court.
Findings of fact are reviewed for clear error, and conclusions of law are reviewed
de novo.” In re Halo Wireless, Inc., 684 F.3d 581, 586 (5th Cir. 2012) (citations
omitted).
                                            III.
      As the express language of the 2005 MIM indicates, the instrument was
executed pursuant to Article 3298 of the Louisiana Civil Code (“Article 3298”).
La. C.C. art. 3298. As an issue of first impression, we are called upon to
interpret Article 3298, which no published Louisiana case has yet to interpret
or apply even though the provision has been in effect since January 1, 1992.3
Thus, the plain language of the provision and the Legislature’s Revision
Comments attending the Article’s enactment are particularly instructive.
Further, we recently affirmed a district court’s application of Article 3298 in
KeyBank National Association v. Perkins Rowe Associates, LLC in an
unpublished decision by adopting the reasoning of the district court. 823 F.
Supp. 2d 399, 408 (M.D. La. 2011), aff’d by No. 12-30184, 2012 WL 6605767, at
*1 (5th Cir. Dec. 19, 2012) (“After reviewing the record, studying the briefs, and


      3
          Several Louisiana cases have interpreted a pre-1992 version of the Article.

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                                       No. 11-31218

listening to oral arguments, we [affirm] the judgment of the district court for
essentially the same reasons given by the district court in its well-reasoned
Ruling on Motions for Summary Judgment.”).
A.     Article 3298 of the Louisiana Civil Code
       Article 3298, entitled, “Mortgage May Secure Future Obligations,”
provides, in relevant part, as follows:4
              A. A mortgage may secure obligations that may arise
              in the future.

              B. As to all obligations, present and future, secured by
              the mortgage, notwithstanding the nature of such
              obligations or the date they arise, the mortgage has
              effect between the parties from the time the mortgage
              is established and as to third persons from the time the
              contract of mortgage is filed for registry.

              C. A promissory note or other evidence of indebtedness
              secured by a mortgage need not be paraphed for
              identification5 with the mortgage and need not recite
              that it is secured by the mortgage . . . .
La. C.C. art. 3298 (A)-(C).
       The 1991 Revision Comments (“Comments”) further explain the purpose
of Article 3298 and mortgages enacted pursuant to the provision:
              (a) . . . [T]his Article . . . . is intended to provide a direct
              and convenient substitute for the so-called collateral
              mortgage. . . and to permit a person to mortgage his


       4
         A mortgage “is a nonpossessory right created over property to secure the performance
of an obligation.” La. C.C. art. 3278. A mortgage “is accessory to the obligation it secures.”
La. C.C. art. 3282.
       5
         Under Louisiana civil law, a “paraph” is a notary’s signature evidencing an obligation,
such as a mortgage. See, e.g., Black’s Law Dictionary 1220-21 (defining “paraph,” in the civil
law context, as “[a] signature itself; esp., a notary public’s signature on a document, followed
by the date, names of the parties, and seal”). Thus, a promissory note “paraphed for
identification with a mortgage” is a note that is specifically linked to a mortgage in this
manner.

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                                  No. 11-31218

            property to secure a line of credit, or even to secure
            obligations that may not then be contemplated by him
            except in the broadest sense of an expectation that he
            may some day incur an obligation to the mortgagee. . . .

            (b) The expression in Paragraph A that “a mortgage
            may secure” is intended to emphasize that a mortgage
            securing future obligations is not a distinct or different
            form of mortgage. A mortgage may secure existing
            obligations; obligations contemporaneously incurred
            with the execution of the mortgage or specific
            identifiable or particular and limited future obligations;
            or general and indefinite future obligations; or any
            combination of them. The matter is one of contract, not
            law . . . .

            (c) Paragraph B declares that a mortgage securing
            future obligations has the same effect and priority it
            would have if the obligations were in existence when
            the contract of mortgage was entered into. . . .

            (d) The effect and rank of a mortgage securing future
            obligations thus essentially corresponds to the effect
            and rank which it would have if it secured a collateral
            note that was pledged to secure the future obligations,
            with the exception that the Article does not require that
            there initially be a debt or commitment in order to give
            vitality to the mortgage. Of course, the contract of
            mortgage must be in existence and, to affect third
            persons acquiring rights in and to the thing mortgaged,
            it must be recorded. Once recorded, however, it serves
            notice to the world that, until released or cancelled, it
            encumbers the property it describes to secure the
            obligations it contemplates.

La. C.C. art. 3298, Revision Comments (a)-(d) (1991) (internal citations omitted).
      Mortgages issued pursuant to Article 3298 are known as “multiple
indebtedness mortgages,” “future advance mortgages,” or “equity line mortgages”
(collectively, “MIMs”). See Kathy D. Underwood, Future Advance Mortgage, La.


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Practice La. Notary Handbook § 20:17 n.3 (2012-2013 ed.). As the Comments
indicate, MIMs are intended to be “a direct and convenient substitute for the
so-called collateral mortgage.” La. C.C. art. 3298, Revision Comment (a).
        The Louisiana Supreme Court has described the collateral mortgage as
not a “pure” mortgage but the “result of judicial recognition that one can pledge
a note secured by a mortgage and use this pledge to secure yet another debt.”
First Guar. Bank v. Alford, 366 So. 2d 1299, 1302 (La. 1978). Further, “[a]
collateral mortgage indirectly secures a debt via a pledge.” Id. It “consists of at
least three documents, and takes several steps to complete”:
              First, there is a promissory note, usually called a
              collateral mortgage note . . . . The collateral mortgage
              note is secured by a mortgage, the so-called collateral
              mortgage. The mortgage provides the creditor with
              security in the enforcement of the collateral mortgage
              note. . . . [M]oney is not directly advanced on the note
              that is paraphed for identification with the act of
              mortgage. Rather, the collateral mortgage note and the
              mortgage which secures it are Pledged [sic] to secure a
              debt.

Id.
        Given the relationship between MIMs and collateral mortgages, secondary
sources have discussed the similarities and differences between collateral
mortgages and MIMs in order to illustrate the features of MIMs.                The
bankruptcy court relied on a law review article that, inter alia, compares MIMs
to collateral mortgages. See David S. Willenzik, Future Advance Priority Rights
of Louisiana Collateral Mortgages: Legislative Revisions, New Rules, and a
Modern Alternative, 55 La. L. Rev. 1 (1994). We and the Louisiana Supreme
Court have cited this article previously for other purposes. See Keenan v.
Donaldson, Lufkin & Jenrette, Inc., 529 F.3d 569, 575 (5th Cir. 2008); Whitney
Nat’l Bank v. Rockwell, 661 So. 2d 1325, 1330 (La. 1995).
        In distilling Article 3298, Willenzik describes MIMs as follows:

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              If a multiple indebtedness mortgage is properly
              executed and filed, and if the mortgage contains broadly
              drafted future advance/cross-collateralization language,
              then any and all present and future extensions of credit
              and other obligations the borrower may obtain from or
              incur in favor of the mortgagee, or its successors and
              assigns, while the mortgage remains effective, will be
              secured by the mortgage up to the maximum dollar
              limitation stipulated in the mortgage agreement, with
              retroactive priority rights over intervening creditors
              dating back to the time the mortgage originally was
              filed in the public records.

Id. at 50-51 (citation omitted).
       Accordingly, Willenzik identifies several essential features of MIMs that
are relevant for our purposes.          First, “[a] multiple indebtedness mortgage
agreement must always be granted in favor of a specifically named and
designated mortgagee.” Id. at 52 (citations omitted). Second, “[a] multiple
indebtedness mortgage agreement . . . provides that the mortgage itself is being
granted directly to secure the on-going present and future indebtedness of the
borrower in favor of the specified mortgagee,” and thus, there is no reference to
a specific pledge agreement.6 Id. at 53. Third, the definition of “indebtedness”
in the MIM must contemplate both present and future indebtedness.                        Id.
Fourth, the MIM agreement must specify a maximum secured indebtedness
amount. Id. at 53 (citing La. C.C. art. 3288). Fifth, the MIM should reference
Article 3298 specifically.       Id. at 54.       Sixth, the MIM should provide the
procedures for canceling the mortgage. Id. Lastly, a “promissory note or other


       6
         Here, Willenzik contrasts the MIM with a collateral mortgage: “A collateral mortgage
agreement specifies that the mortgage is being granted to secure a demand collateral mortgage
note, which in turn is pledged under a separate collateral pledge or a U.C.C. security
agreement to secure the borrower’s present and future indebtedness.” Willenzik, 55 La. L.
Rev. at 53. Willenzik thus illustrates how the procedure for effectuating a MIM is more
straightforward and less onerous than the procedure for achieving a collateral mortgage. See
id.

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evidence of indebtedness secured by a multiple indebtedness mortgage . . . need
not be paraphed for identification with the mortgage.” Id. at 55 (quoting La.
C.C. art. 3298(C)).
       In KeyBank, the district court also noted several characteristics of
mortgages made pursuant to Article 3298:
             Historically, to secure an obligation that had not yet
             arisen, parties in Louisiana were forced to resort to a
             collateral mortgage, but the legislature in 1991 altered
             the code to reflect a new iteration of a conventional
             mortgage–the mortgage to secure future
             obligations. . . . [Article 3298] did away with the
             collateral mortgage requirement that the adjoining
             obligation supporting the mortgage be paraphed for
             identification to the mortgage.

823 F. Supp. 2d at 405 (citing La. C.C. art. 3298(C)). The court further observed,
“Article 3298 declares a policy demanding recognition of a mortgage at its date
of recordation, regardless of when the obligation is actually incurred.” Id. at 408.
B.     Louisiana’s Public Records Doctrine
       A principle of central importance to mortgages under Louisiana law is the
public records doctrine, which is captured in Articles 1839 and 3338 of the
Louisiana Civil Code.
       Article 1839, “Transfer of Immovable Property,”7 states, in relevant part,
that “[a]n instrument involving immovable property shall have effect against
third persons only from the time it is filed for registry in the parish where the
property is located.” La. C.C. art. 1839. Article 3338, entitled, “Instruments
Creating Real Rights in Immovables; Recordation Required to Affect Third
Persons,” echoes this concept and identifies the types of instruments that must
be publicly recorded:


       7
          Under Louisiana law, “immovable property” is real property. La. C.C. art. 462
(“Tracts of land, with their component parts, are immovables.”).

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             The rights and obligations established or created by the
             following written instruments are without effect as to
             a third person unless the instrument is registered by
             recording it in the appropriate mortgage or conveyance
             records pursuant to the provisions of this Title:

             (1) An instrument that transfers an immovable or
             establishes a real right in or over an immovable.

             (2) The lease of an immovable.

             (3) An option or right of first refusal, or a contract to
             buy, sell, or lease an immovable or to establish a real
             right in or over an immovable.

             (4) An instrument that modifies, terminates, or
             transfers the rights created or evidenced by the
             instruments described in Subparagraphs (1) through (3)
             of this Article.

La. C.C. art. 3338; see also McDuffie v. Walker, 51 So. 100, 105-06 (La. 1909)
(holding that an unrecorded contract affecting immovable property has no effect
as to third persons, even when a third person has actual knowledge of that
unrecorded contract).
                                       IV.
       We first address the validity of the 2005 MIM before turning to the
question of whether the subsequent agreements that Hari Aum, FGB, and MHS
executed reflect an effective cross-collateralization of the Deluxe Motel, as the
2005 MIM’s collateral, for MHS’s loan.
A.     The Validity of the 2005 MIM
       Hari Aum’s challenge to the validity of the 2005 MIM is intertwined with
its challenge of the bankruptcy court’s conclusion that Hari Aum agreed to
secure MHS’s loan from FGB. Hari Aum points out that the MIM “addresses
only present and future debt obligations owed by Hari Aum to FGB. None of the


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                                 No. 11-31218

language contained in this document directly and/or by reference identifies any
third party loan obligations, specifically the debt of Mississippi Hospitality.”
Accordingly, Hari Aum argues that, for FGB to have a mortgage on Hari Aum’s
property to secure MHS’s debt, “there must be a document existing evidencing
such debt obligation.” Hari Aum invokes several other provisions of the Civil
Code to argue essentially that FGB’s failure to amend the MIM properly to
include MHS’s debt or to publicly record a mortgage whereby the MIM
specifically secures MHS’s debt renders the purported cross-collateralization
ineffective. Hari Aum contends that, by finding that only the recorded MIM was
necessary and that no additional, recorded documents were necessary to
evidence the transactions here, the bankruptcy court erred by concluding that
Article 3298 “trumps” the public records doctrine. Additionally, Hari Aum
suggests that the 2009 refinancing of FGB’s loan to Hari Aum effectively
extinguished the original MIM such that FGB would have needed to record a
new MIM or record amendments to the prior MIM in order for it to be valid.
Accordingly, any purported amendments to the MIM are ineffective, at the least.
      FGB argues that the 2005 MIM is valid and thus secures Hari Aum’s
indebtedness to FGB up to the stated amount of $50 million. FGB further
asserts that no additional documents were necessary to secure any future loans
that Hari Aum incurred up to this maximum amount. FGB therefore argues
that Hari Aum’s subsequent agreements to be jointly and severally liable for
MHS’s loan and to pledge the MIM as collateral for the MHS loan fall within the
MIM’s broad definition of “Indebtedness.” According to FGB, the 2005 MIM is
thus valid in full–including as to MHS’s debt–as of the mortgage’s original
recordation date.
      The bankruptcy court concluded that the 2005 MIM between Hari Aum
and FGB sufficiently secured Hari Aum’s future indebtedness to FGB up to $50
million and thus, that no additional, publicly-recorded documents were

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                                       No. 11-31218

necessary to evidence Hari Aum’s indebtedness that did not exceed this amount.
We agree with the bankruptcy court. The 2005 MIM satisfies all of the relevant,
enumerated requirements under the Louisiana Civil Code for the creation of a
valid MIM: 1) it is granted in favor a specific mortgagee, FGB; 2) it expressly
provides that it secures Hari Aum’s present and future indebtedness to that
mortgagee; 3) its definition of “Indebtedness” includes both present and future
debt; 4) it provides a specific, maximum indebtedness amount of $50 million; 5)
it references Article 3298 specifically; and 6) it provides the methods for
canceling the MIM.
       Further, both the statutory guidance and secondary sources indicate that,
once the MIM is recorded in the public registry, it has effect as to third parties
and secures any types of obligations described in the MIM. Thus, Hari Aum’s
argument that the bankruptcy court erred by ignoring the public records
doctrine to conclude that Article 3298 “trumps” the doctrine is unavailing. To
the contrary, the plain language of and Comments to Article 3298 indicate that
Article 3298 incorporates the public records doctrine, insofar as it requires MIMs
to be publicly recorded in order to affect third parties. La. C.C. art. 3298(B)
(“[T]he mortgage has effect . . . as to third persons from the time the contract of
mortgage is filed for registry.”); id., Revision Comment (d). Accordingly, there
appears to be no tension in acknowledging the validity of the 2005 MIM under
Article 3298 in light of the public records doctrine, as Hari Aum argues.
       Moreover, Article 3298 makes clear that MIMs will not be invalidated or
canceled even if there is no underlying obligation outstanding at a given time,
until the parties affirmatively cancel the mortgage.8 See La. C.C. art. 3298,


       8
         We note, however, that the Louisiana Attorney General issued an advisory opinion
in 2009 opining that a mortgage issued pursuant to Article 3298 would need to be reinscribed,
or renewed, after ten years under other provisions of the Civil Code. See La. Att’y Gen. Op.
No. 08-0228 (2009), 2009 WL 1416432, at *2 (Apr. 27, 2009) (“[I]t is the opinion of this office
that a mortgage to secure future obligations that does not describe the maturity of any

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                                        No. 11-31218

Revision Comment (f) (“If . . . the mortgage secures future, indefinite obligations
with a maximum limit on their aggregate balance from time to time, then in
essence, the mortgage continues indefinitely until it is terminated by notice of
the mortgagor or the consent of the parties, or in some other manner recognized
by law.”).      Louisiana statutory law also “provides that amendments and
modifications to security agreements are valid, but may rank from the date of
the amendment’s recording if the amount of indebtedness increases” beyond the
maximum contained in original instrument. KeyBank, 823 F. Supp. 2d at 410
(citing La. R.S. 9:5390(B)).9
       Here, there was no increase in the maximum indebtedness of the 2005
MIM–in excess of $50 million–when Hari Aum assumed MHS’s debt; thus,
further recordation was not necessary. For example, in KeyBank, the bank made
certain amendments and modifications to the subject MIM and relevant
promissory notes through consolidation, which did not increase the amount of
secured indebtedness beyond the maximum aggregate principal stated in the
earliest original mortgage. Id. at 410-11. The KeyBank court thus held that
these amendments and modifications did not preclude the bank from using the


obligation that it secures must be reinscribed within ten years from the date of the
mortgage.”). As the original MIM here was recorded in 2005, this case does not implicate this
ten-year reinscription period.
       9
           La. R.S. 9:5390(B) provides, in relevant part:

                To the extent that the renewal or refinancing note or notes
                evidence an increase in the secured principal indebtedness
                [stated in the mortgage] (other than the increase that results
                from the conversion of unpaid accrued interest to principal), the
                mortgage with respect to the increase in the secured principal
                indebtedness shall rank from the date of the filing of an
                amendment to the mortgage reflecting the execution and delivery
                of such renewal or refinancing note or notes.




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                                   No. 11-31218

recordation date of the original mortgage to establish its security interest in the
subject real estate. Id. at 411 (“[T]he amendments and modifications to the
previous notes and mortgages were not invalid and did not defeat KeyBank’s
right to use the date of the original Wachovia mortgage to determine its priority
position. The Wachovia mortgage stated the maximum principal amount of the
secured debt as $200 million, and KeyBank’s obligations never surpassed that
amount.”).
      With respect to the MIM’s cousin, the collateral mortgage, the Louisiana
Supreme Court also has acknowledged that the collateral mortgage endures even
if the underlying obligation is paid. Alford, 366 So. 2d at 1302. The Alford court
stated: “A collateral mortgage note may be pledged to secure future obligations.
In that event full payment of a given obligation will not extinguish the collateral
mortgage note and accompanying mortgage. (And in such cases the collateral
mortgage will have a ranking from the initial pledge.)” Id. (citing La. C.C. art.
3158); see also In re Charrier, 167 F.3d 229, 234 (5th Cir. 1999) (“[The] language
[of the collateral mortgage, which] . . . specifically authorized future advances.
. . . together with the Charriers’ failure to retrieve the collateral mortgage note
or seek its cancellation after paying off the original debt . . . , and their repeated
willingness to accept new loans based on the purported pledge of the 1979
collateral mortgage package, are clear indicators of the Charriers’ intent to
secure future indebtednesses with that collateral.”).
      Accordingly, we conclude that the 2005 MIM here was effective to secure
Hari Aum’s future indebtedness up to $50 million.              Moreover, the 2009
refinancings did not invalidate the 2005 MIM or require further recordation,
since they did not increase the amount of secured indebtedness to more than $50
million. See La. R.S. 9:5390(B); KeyBank, 823 F. Supp. 2d at 410-11.
      The resolution of this question–whether the 2005 MIM is valid–is a
threshold consideration for determining whether the subsequent agreements

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                                    No. 11-31218

between Hari Aum, FGB, and MHS bring MHS’s loan within the ambit of the
MIM. If valid, the MIM secures Hari Aum’s future indebtedness to FGB up to
$50 million, whether Hari Aum is the principal obligor for a debt or jointly and
severally liable for the debt. Thus, the question becomes whether the 2009
Resolution and the 2009 Acknowledgment effectively demonstrate that the
Deluxe Motel, as the underlying collateral for the MIM, secures MHS’s loan,
where Hari Aum agreed to be held jointly and severally liable for MHS’s loan
and where Hari Aum pledged the MIM as collateral for FGB’s loan to MHS.
B.     The Effectiveness of the Cross-Collateralization of the Deluxe
       Motel for the MHS Note
       Related to the issue of the effectiveness of the cross-collateralization is the
threshold question of whether Bhula, as the sole member of Hari Aum, had the
authority to pledge Hari Aum’s collateral to secure MHS’s debt.
       1.    The Authority of an LLC’s Managing Member to Pledge Collateral
       Under Louisiana statutory law, a managing member of an LLC may act
as “a mandatary [or agent] of the limited liability company for all matters in the
ordinary course of its business other than the alienation, lease, or encumbrance
of its immovables.” La. R.S. 12:1317(A). Thus, unless otherwise provided in the
LLC’s articles of organization or a written operating agreement, “a majority vote
of the members shall be required to approve [inter alia] . . . [t]he alienation,
lease, or encumbrance of any immovables of the limited liability company.” La.
R.S. 12:1318(B).
       Hari Aum contends that there was no valid, written resolution authorizing
Bhula to pledge Hari Aum’s 2005 MIM to secure MHS’s loan, while FGB asserts
that the Resolution here validly conferred this authority on Bhula. We conclude,
as the bankruptcy court did, that Bhula had the authority to pledge the MIM
based on the relevant law, and also based on common sense. Bhula is the sole
managing member of Hari Aum, and he signed both the Resolution and the

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                                    No. 11-31218

Acknowledgment expressly on behalf of Hari Aum. The Resolution granted
Bhula the authority to “pledge . . . or otherwise encumber and deliver to [FGB]
. . . all of [Hari Aum’s] real (immovable) property . . . as security for . . . any other
or further indebtedness of [Hari Aum] to [FGB].” As the Resolution comported
with the requirements of the law–approval by a majority of the LLC’s members
of a manager’s pledge of the company’s real property–this document is
determinative of this threshold issue.          Hari Aum points to no persuasive
authority that leads us to conclude to the contrary.
      2.     Hari Aum’s Agreement to be Jointly and Severally Liable for MHS’s
             Loan and Hari Aum’s Pledge of its Collateral to Secure MHS’s Loan
      As the Comments to Article 3298 state, “a mortgage may secure existing
obligations; obligations contemporaneously incurred with the execution of the
mortgage or specific identifiable or particular and limited future obligations; or
general and indefinite future obligations; or any combination of them. The
matter is one of contract, not law. . . .” La. C.C. art. 3298, Revision Comment (b)
(emphasis added). Further, contracts have the effect of law between the parties
and courts enforce them according to the true intent of the parties. La. C.C.
arts. 1983, 2045. “When the words of a contract are clear and explicit and lead
to no absurd consequences, no further interpretation may be made in search of
the parties’ intent.” La. C.C. art. 2046.
      At the heart of this appeal, from Hari Aum’s perspective, is the apparent
tension between Article 3298 and the public records doctrine. Hari Aum argues
that the Acknowledgment is the type of document for which Louisiana law
requires recordation. Therefore, because the Acknowledgment was not recorded,
it is invalid. Relatedly, Hari Aum contends that, for the cross-collateralization
to be effective, FGB needed to publicly record an amendment to the MIM that
specifically evidences the inclusion of MHS’s loan. Hari Aum also maintains
that the Acknowledgment is vague and ambiguous and, thus, it must be

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                                 No. 11-31218

construed against the drafter, i.e., FGB. Hari Aum further argues that FGB
fails to prove the creation of a surety or guarantor relationship between Hari
Aum and MHS regarding MHS’s loan from FGB.
      FGB argues that the Acknowledgment demonstrates that Hari Aum
expressly and unambiguously agreed to be jointly and severally liable for MHS’s
debt and clearly pledged the MIM to secure MHS’s debt. FGB further asserts
that no additional documents were necessary to evidence Hari Aum’s
assumption of this debt. FGB suggests that Hari Aum’s agreement to assume
MHS’s debt is a relatively straightforward exercise in contractual interpretation
and that the relevant documents are unambiguous.
      We agree with the bankruptcy court’s conclusion regarding the effect of the
loan documents that Hari Aum, MHS, and FGB executed, i.e., that they
effectuated a cross-collateralization whereby Hari Aum’s Deluxe Motel, as the
underlying collateral for the 2005 MIM, also secures MHS’s loan from FGB. The
bankruptcy court made this conclusion on two alternative theories: 1) Hari Aum
became personally liable for MHS’s debt when it agreed, in the Acknowledgment,
to be held “jointly and severally liable” for MHS’s loan from FGB; and 2) Hari
Aum successfully pledged the 2005 MIM to secure MHS’s debt to FGB.
      Bhulah signed the Acknowledgment on behalf of Hari Aum, and the
Acknowledgment expressly and unambiguously reflects Hari Aum’s intent to be
personally liable for MHS’s loan from FGB:
            1.    “[Hari Aum] reaffirms that [Hari Aum’s]
                  Mortgage was intended to and shall secure any
                  and all of [MHS’s] and [Hari Aum’s] present and
                  future Indebtedness in favor of [FGB]”;
            2.    “[Hari Aum] agrees that [Hari Aum] shall remain
                  liable together with [MHS] and any and all
                  guarantors, endorsers and sureties of the
                  Indebtedness on a ‘joint and several’ or ‘solidary’
                  basis”;


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                                  No. 11-31218

            3.     “[Hari Aum] further represents, warrants and
                   agrees that: (A) [Hari Aum] has agreed and
                   consented to grant the security interest provided
                   herein to secure payment of [MHS’s]
                   Indebtedness in favor of [FGB][.]”

See La. C.C. art. 1796 (“A solidary obligation arises from a clear expression of
the parties’ intent or from the law.”); see also Kaplan v. Univ. Lake Corp., 381 So.
2d 385, 391 (La. 1979) (“It is well settled that the promise to pay the debt of
another must be express and in writing.”). As Hari Aum is personally liable for
MHS’s loan from FGB and the 2005 MIM contemplates future indebtedness
between Hari Aum and FGB, MHS’s loan thus falls within the MIM’s broad
definition of Hari Aum’s “Indebtedness” to FGB.
      Further, the Resolution, the Acknowledgment, and MHS’s 2009
promissory note clearly illustrate Hari Aum’s agreement to pledge the MIM to
secure MHS’s loan. La. C.C. art. 3133 (defining a pledge as “a contract by which
one debtor gives something to his creditor as a security for his debt”); id. art.
3141 (“A person may give a pledge, not only for his own debt, but for that of
another also.”). The Resolution grants Bhula the authority to pledge Hari Aum’s
real property as security for any future indebtedness. In the Acknowledgment,
Hari Aum then pledges the MIM as security for MHS’s loan from FGB, stating
that Hari Aum “grant[s] the security interest provided herein [the MIM] to
secure payment of [MHS’s] Indebtedness in favor of [FGB].” As we have noted,
Hari Aum (through Bhula) signed the Acknowledgment, which is the principal
document evidencing this pledge.         Finally, MHS’s 2009 promissory note
identifies Hari Aum’s 2005 MIM as one of the forms of collateral securing the
note. These documents together illustrate the clear intent of the parties. See
La. C.C. art. 2046.
      Moreover, our discussion regarding the applicability of the public records
doctrine to MIMs elucidates the issues here too. Just as the amendments to the

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                                       No. 11-31218

mortgages and promissory notes in KeyBank did not require recordation, neither
the Acknowledgment nor the 2009 MHS promissory note here required
recordation, as long as these alterations did not exceed the total indebtedness
permitted under the pre-existing 2005 MIM, which they did not. See La. R.S.
9:5390(B); KeyBank, 823 F. Supp. 2d at 410-11. Indeed, it would be counter-
intuitive to require that the Acknowledgment be recorded, as a mere pledge of
an existing, unaltered mortgage, while amendments to a mortgage would not
need to be recorded. As the Comments to Article 3298 clearly state, “Once
recorded . . . [the mortgage securing future obligations] serves notice to the world
that, until released or cancelled, it encumbers the property it describes to secure
the obligations it contemplates.” La. C.C. art. 3298, Revision Comment (d).
       Hari Aum’s arguments that additional documents needed to be recorded
are red herrings. There is no new mortgage here. Moreover, based on the
structure of MIMs under the Civil Code and related statutes, the bankruptcy
court is correct that “[m]any, if not all, of the [Hari Aum’s] arguments are
inapplicable if the MIM is compared to and recognized to be an improvement of,
the collateral mortgage/pledge agreement previously used by banks and other
lenders in Louisiana.” As Hari Aum validly agreed to be jointly and severally
liable for MHS’s loan and to secure MHS’s loan with the MIM, that loan simply
constitutes part of Hari Aum’s future “Indebtedness” that the 2005 MIM
contemplates. As a result, the MIM and, thus, the Deluxe Motel, secures MHS’s
loan from FGB.10




       10
         Moreover, based on these conclusions, it is apparent that the obligations secured by
the 2005 MIM have priority over the SBA’s second mortgage on the Deluxe Motel, since that
second mortgage was recorded after the MIM, on July 10, 2006. See La. C.C. art. 3298,
Revision Comment (c) (stating that “a mortgage securing future obligations has the same effect
and priority it would have if the obligations were in existence when the contract of mortgage
was entered into”).

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                              No. 11-31218

                                   V.
     For the foregoing reasons, we AFFIRM the bankruptcy court in all
respects and REMAND for further proceedings.




                                   25
