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Citizens Bank & Trust v. Piggly Wiggly Alabama Distributing Co. Inc.

Alabama Court of Civil Appeals

January 20, 2017

Citizens Bank & Trust
Piggly Wiggly Alabama Distributing Company, Inc.

         Appeal from Jefferson Circuit Court, Bessemer Division (CV-14-900509)

          THOMPSON, Presiding Judge.

         Citizens Bank & Trust ("Citizens") appeals from a judgment of the Bessemer Division of the Jefferson Circuit Court ("the trial court") determining that a security interest Citizens held in certain stock was subordinate to the rights Piggly Wiggly Alabama Distributing Company, Inc. ("Piggly Wiggly"), had in that same stock as a lien creditor. Because the amount of the lien far exceeded the value of the stock, the trial court found, Citizens had no rights in the stock.

         The record indicates the following facts relevant to this appeal. James David White was the president of DP Families, LLC ("DP Families"), and his brother, Patrick E. White, was its secretary. According to the affidavit of Matthew C. Peters, vice president and finance director of Piggly Wiggly, Piggly Wiggly entered into an agreement in November 2005 with DP Families to supply DP Families with inventory for resale at its retail grocery stores. The Whites executed guaranty agreements in favor of Piggly Wiggly in November 2005 and again in November 2012.

         On April 3, 2014, DP Families obtained a loan in the amount of $180, 000 from Citizens to buy into a grocery cooperative owned by Associated Wholesale Grocers ("AWG"). AWG is a wholesaler of grocery and supermarket products. In his affidavit, Patrick White said that the loan was primarily for the purchase of stock in AWG and to purchase inventory. He said that the stock purchase was a requirement under the membership agreement between AWG and DP Families ("the membership agreement"), allowing DP Families to become an AWG retail member. The Whites, in their respective roles with DP Families, signed a promissory note and a security agreement as collateral for the loan. The security agreement specifically defined the collateral as "Certificate Number 9945: 15 Shares of Class A Capital stock issued by [AWG]."

         On April 4, 2014, DP Families and AWG executed the membership agreement. One of the terms of the membership agreement provided that AWG would retain possession of the stock purchased by DP Families as security for all DP Families' obligations under the membership agreement. The provision also stated: "No third party shall be given any security interest in any [AWG] equity without the prior written consent of [AWG]." In their respective affidavits, the Whites testified that on April 4, 2014, they gave handwritten instructions to Citizens to wire $26, 550 to AWG for DP Families' purchase of the 15 shares of stock represented by Stock Certificate Number 9945 ("the stock certificate"). AWG then provided DP Families with a receipt ("the receipt") for the stock certificate. The receipt provided that it was given in lieu of the stock certificate, that the stock certificate was pledged to secure DP Families' obligations to AWG, and that it would be held by AWG.

         In his affidavit, David White testified that he took the receipt and delivered it to Citizens. He and his brother, Patrick White, both testified that it was their understanding that the AWG stock was to serve as the collateral for the loan from Citizens to DP Families. Danny Riggs, vice president of Citizens, testified by affidavit that he received the receipt and that he, too, understood that the AWG stock was to serve as collateral for the loan to DP Families.

         Meanwhile, DP Families defaulted on its financial obligations to Piggly Wiggly. By a letter dated February 6, 2014, counsel for Piggly Wiggly gave notice of default and demand for payment to DP Families and to the Whites as guarantors of DP Families for the failure to pay the amounts owed to Piggly Wiggly. After failing to receive the payment demanded, Piggly Wiggly filed a civil action against DP Families and the Whites. Ultimately, Piggly Wiggly obtained a default judgment against DP Families in the amount of $477, 569.26. On December 5, 2014, Piggly Wiggly recorded the default judgment.

         Piggly Wiggly filed a process of garnishment directed to AWG to collect the judgment against DP Families. AWG, as the garnishee, answered, stating that it was in possession of the following:

"Stock value upon redemption in January 2015: approximately $21, 802.73; Patronage: (I) cash portion payable in March 2015: approximately $2, 309.35, (ii) patronage certificate with estimated maturity in 2020 (or as determined by garnishee's Board of Directors): approximately $1, 539.57."

         Piggly Wiggly then filed a motion for an order on the garnishment. On December 15, 2014, the trial court entered an order on that motion, directing AWG to pay into court the amounts AWG had from the stock redemption in January 2015 and the cash otherwise due to DP Families for patronage value.

         DP Families also defaulted on its financial obligations to Citizens. In his affidavit, Riggs said that Citizens began collection efforts of its own and that, in February 2015, he contacted AWG to inquire about redeeming the stock. That was when he learned that Piggly Wiggly had garnished the stock. On April 17, 2015, Citizens moved to intervene in Piggly Wiggly's action against DP Families, asserting that it had a security interest in the stock. The motion to intervene was granted.

         On February 10, 2016, after a hearing to determine who had priority, the trial court entered a final judgment in which it found that Citizens had not filed a filing statement on the stock, it had not taken "control" of the stock pursuant to § 7-9A-314, Ala. Code 1975, and it had not taken delivery of the stock certificate pursuant to §§ 7-9A-313 and 7-8-301, Ala. Code 1975. As to the issue of whether Citizens took delivery of the stock certificate, the trial court found that Citizens presented no evidence to support that AWG was holding the stock certificate for Citizens. In fact, the trial court found that "the undisputed facts support the conclusion that AWG held the Stock Certificate for its own benefit as a secured creditor" and concluded that AWG did not acknowledge that it held the stock certificate for Citizens. The trial court pointed out that the date of service of a writ of garnishment is the date on which priority among various claimants is determined. Accordingly, the trial court determined, Citizens did not perfect its security interest as required by § 7-8-301 and, thus, its rights were subordinate to Piggly Wiggly's rights as a lien creditor. The trial court then denied Citizens any portion of the value of the stock.

         Citizens filed a timely motion to alter, amend, or vacate the judgment, which the trial court denied on April 19, 2016. Citizens then appealed to this court.

         On appeal, Citizens contends that the trial court erred in finding that Piggly Wiggly's security interest in the stock was superior to its own security interest. Specifically, Citizens asserts that it had perfected its security interest in the stock because, it says, it was a purchaser of the ...

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