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First Guaranty Bank v. Republic Bank Inc.

United States District Court, D. Utah

November 17, 2017



          Jill N. Parrish, United States District Court Judge.

         Before the court is First Guaranty Bank's Motion for a Prejudgment Writ of Attachment. [Docket 29]. The court DENIES the motion without prejudice.


         Med One Capital Funding LLC leased medical equipment to a number of hospitals and medical practices.[1] Med One then assigned the right to receive the lease payments to Republic Bank, Inc. The assignment agreement between Med One and Republic obligated Med One to continue to perform a number of “duties and obligations” in servicing the leases, including maintaining records regarding the lease payments and undertaking normal collection actions to collect past due accounts. The assignment agreement also stated that the “rights and obligations of the parties hereunder may not be assigned without the prior written consent of the other party.”

         Republic later assigned fifty-three separate equipment leases, including the Med One leases it held, to First Guaranty by way of two “Portfolio Purchase Agreements” (Purchase Agreements). A December 24, 2014 Purchase Agreement transferred forty-five separate lease agreements to First Guaranty. A subsequent May 26, 2015 Purchase Agreement transferred eight additional lease agreements to First Guaranty.

         The Purchase Agreements required First Guaranty to administer the leases in its own name. The agreements appointed First Guaranty as Republic's attorney-in-fact for the purpose of collecting the amounts owed under the leases. Republic agreed to allow First Guaranty to use its letterhead to send notices to the lessees informing them that the leases had been sold to First Guaranty and that all future payments should be sent to First Guaranty. Republic also made a number of warranties in the Purchase Agreements. It warranted that it had “the power and authority to enter into, execute, deliver and perform” the agreements. Republic further warranted that its obligations under the Purchase Agreements did not “require any consent or approval” under any other agreements to which it was bound.

         The majority of the lessees made all of the payments required by the lease agreements. The lessees under three of the leases, however, stopped making the required payments. In March 2016, Pioneer Health Services, Inc. stopped making payments under its lease contract. On March 30, 2016, Pioneer filed for bankruptcy. A bankruptcy judge determined that the lease agreement was not a “true lease” of personal property within the meaning of 11 U.S.C. § 365(d)(5). The judge, therefore, denied a motion brought by Med One and First Guaranty to compel Pioneer to continue to make payments under the lease agreement during the pendency of the bankruptcy proceedings.

         Sherman-Grayson Hospital, which was acquired by Alecto Healthcare Services Sherman, LLC dba WNJ Regional Medical Center (WNJ), also stopped making payments under two separate lease agreements it had entered into. First Guaranty alleges in its proposed amended complaint that it contacted WNJ and negotiated partial payments on the two Sherman-Grayson leases. But first Guaranty did not provide any evidence as to why WNJ stopped making payments for a time or explain the basis for negotiating partial payments on the leases.

         First Guaranty sued Republic for the lease payments it has not yet received under the Pioneer and Sherman-Grayson leases and for attorney fees. It asserts three causes of action: (1) declaratory relief under 28 U.S.C. § 2201, (2) breach of contract, and (3) breach of the covenant of good faith and fair dealing. During discovery, First Guaranty learned that Republic is no longer operating as a bank and that it is in the process of liquidating its assets in order to distribute the funds to its shareholders. First Guaranty brought this motion for a prejudgment writ of attachment against $1, 500, 000 of Republic's assets, asserting that it has sustained about $1, 000, 000 in damages and estimating that it will accrue at least $500, 000 in recoverable attorney fees before obtaining a judgment. First Guaranty argues that the writ is necessary because there is a probability that it will lose its remedy because Republic will distribute all of its assets before it can obtain a judgment.


         Rule 64 of the Federal Rules of Civil Procedure authorizes the court to apply Utah law regarding writs of attachment. The court therefore looks to Rules 64A and 64C of the Utah Rules of Civil Procedure for the appropriate standard for entering such a writ. Rule 64A provides the general requirements for entering a prejudgment writ, while Rule 64C provides the specific requirements for entering a writ of attachment. The requirements for both Rule 64A and 64C must be satisfied before this court may enter a prejudgment writ of attachment. The combined requirements of these two rules include:

1. “that the property [to be attached] is not earnings and not exempt from execution”;
2. “that the writ is not sought to hinder, delay or defraud a creditor of the defendant”;
3. “a substantial likelihood that the plaintiff will prevail on the merits of the underlying claim”;
4. “that the defendant is indebted to the plaintiff”;
5. “that the action is upon a contract or is against a defendant who is not a resident of this state or is against a foreign corporation not qualified to do business in this state or the writ is authorized by statute”; and
6. “that payment of the claim has not been secured by a lien upon property in this state.”

Utah R. Civ. P. 64A(c) & 64C(b). In addition, a movant must satisfy at least one of the seven requirements listed in Rule 64A(c)(4) through (c)(10). One of these requirements is “probable cause of losing the remedy unless the court issues the writ.” Id. 64A(c)(10).

         The parties dispute three of these requirements: (1) substantial likelihood that First Guaranty will prevail on the merits, (2) probable cause that First Guaranty will lose its remedy, ...

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