UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-50655
Summary Calendar
BANK ONE TEXAS N.A.,
Plaintiff, Counter Defendant-Appellee,
v.
ARCADIA FINANCIAL LTD.,
Defendant, Counter Plaintiff-Appellant.
Appeal from the United States District Court
For the Western District of Texas, Austin Division
July 27, 2000
Before SMITH, BARKSDALE and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
Defendant, Arcadia Financial (“Arcadia”), appeals the
district court's denial of its motion for summary judgment.
Arcadia also appeals the district court's grant of summary
judgment in favor of plaintiff, Bank One Texas (“Bank One”).
Because we find that Bank One had a perfected security interest
at all times pertinent in this case, we affirm.
FACTUAL HISTORY AND PROCEEDINGS BELOW
Bank One, a Texas corporation, sued Arcadia, a Minnesota
corporation, seeking a declaratory judgment that it has a
security interest with respect to certain inventory owned by Lone
Star Used Cars (“Lone Star”). Arcadia filed a third-party
complaint against Lone Star, a Texas limited partnership, and
Francis Bradshaw, an individual who is the principal of Lone Star
and a citizen of Texas.
Bank One alleged that it perfected a security interest under
Texas law in Lone Star's inventory of automobiles for sale, and
pursuant to this security interest, Bank One retained physical
possession of the certificates of title to the automobiles in
Lone Star's showroom. In July of 1998, nine purported buyers in
the ordinary course of business purchased automobiles from Lone
Star's inventory. Each of these purchases was financed by
Arcadia. Bank One refused to relinquish possession of the
certificates of title, arguing that its perfected security
interest and physical possession of the certificates of title
protected its interest with regard to Lone Star, Arcadia and the
purported nine buyers. It is Bank One's position that its
security interest in the automobiles continued in full force and
effect notwithstanding the purported sales of the same. Arcadia
filed a counterclaim against Bank One seeking declaratory relief
and money damages for conversion and tortious interference.1
1
Arcadia also filed a third party complaint against Lone
Star for breach of contract and against Francis Bradshaw for
breach of a guaranty agreement. The district court severed this
action from the case on appeal. The parties to the third-party
action eventually filed an agreed summary judgment disposing of
the case and granting Arcadia damages and attorney's fees.
Advancing a theory of election of remedies and judicial estoppel,
Bank One argues that this judgment is an additional reason we can
affirm the district court. Because we affirm the district
court's ruling based on the merits, we do not speak to the
soundness (or lack thereof) of Bank One's argument. Furthermore,
we deny as moot Bank One's motion that we take judicial notice of
the district court's entry of the agreed summary judgment between
Arcadia and Lone Star.
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Arcadia and Bank One filed cross motions for summary
judgment. The district court granted Bank One's motion and held
that Bank One's security interest was perfected and had priority
over that of Arcadia. The district court denied Arcadia's motion
for summary judgment, holding that Arcadia's claims for
conversion and tortious interference failed as a matter of law.
Arcadia appeals both of these rulings.
STANDARD OF REVIEW
We review a district court’s grant of summary judgment de
novo, applying the same standard as the district court. See FED.
R. CIV. P. 56. The moving party is entitled to judgment as a
matter of law when the record indicates no genuine issue as to
any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986); Liberty Mut. Ins. Co. v. Canal Ins. Co., 177 F.3d
326, 331 (5th Cir. 1999).
We review a district court's decision that an absent party
is not indispensable for an abuse of discretion. See Wheat v.
Pfizer, Inc., 31 F.3d 340, 344 (5th Cir. 1994).
DISCUSSION
I. The Buyers of the Automobiles are not Indispensable Parties.
The district court did not abuse its discretion in retaining
jurisdiction as the buyers of the automobiles were not
indispensable parties under FED. R. CIV. P. 19.
II. Lone Star's Purported Sale of the Automobiles did not cut
off Bank One's Security Interest.
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The record shows that Bank One has a perfected security
interest in all present and future inventory of Lone Star to
secure a line of credit for inventory or “floor plan” financing.
Under Bank One's arrangement with Lone Star, it holds the
certificates of title to all automobiles in Lone Star's inventory
until Lone Star forwards money to Bank One following a purchase
by a consumer. Arcadia was on notice of Bank One's security
interest by virtue of Bank One's filing of a UCC-1 form as
required to perfect its security interest.
Lone Star purported to sell nine used vehicles to consumers
without informing Bank One of the transactions or forwarding the
proceeds of the sale to Bank One. The alleged buyers were given
physical possession of the vehicles and entered into loan
agreements with Arcadia where the buyer makes monthly payments to
Arcadia while Arcadia holds title to the automobiles as
collateral. Arcadia seeks possession of the certificates of
title to the nine automobiles from Bank One so it can record its
liens to perfect its security interests. The rub in this case is
that Bank One refuses to give up possession of the certificates
of title to Arcadia.
Arcadia argues that Bank One must surrender possession of
the certificates of title because the consumers were “buyers in
the ordinary course of business,” whose purchases extinguished
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Bank One's security interest.2 Bank One argues that, as between
Arcadia and Bank One, the consumers were not buyers in the
ordinary course of business because a valid sale never took place
under the Texas Certificate of Title Act. See TEX. TRANSP. CODE
ANN. § 501.071(a) (West 1999) (“A motor vehicle may not be the
subject of a subsequent sale unless the owner designated in the
certificate of title transfers the certificate of title at the
time of sale.”).3
The district court correctly found that, as between Bank One
and Arcadia, the purported sales by Lone Star violated the
Certificate of Title Act and were therefore void. See, e.g.,
Gallas v. Car Biz, Inc., 914 S.W.2d 592, 594-95 (Tex. App.--
Dallas 1995, writ denied); Everett v. United States Fire Ins.
2
See TEX. BUS. & COM. CODE ANN. § 1.201(9) (West 1994)
(“'Buyer in the ordinary course of business' means a person who
in good faith and without knowledge that the sale to him is in
violation of the ownership rights or security interest of a third
party in the goods buys in ordinary course from a person in the
business of selling goods of that kind but does not include a
pawnbroker.”). “[A] buyer in the ordinary course of business . .
. takes free of a security interest created by his seller even
though the security interest is perfected and even though the
buyer knows of its existence.” TEX. BUS. & COM. CODE ANN. §
9.307(a) (West 1994).
3
This provision creates no conflict between the Business
and Commerce Code and the Certificate of Title Act that would
trigger the pre-emption provision in the Certificate of Title
Act. See TEX. TRANSP. CODE ANN. § 501.005(a) (West 1999) (“Chapters
1-9, Business & Commerce Code, control over conflicting
provisions of this chapter.”); see also Pfluger, 620 S.W.2d 739,
741 (Tex. Civ. App.--Dallas 1981, writ ref'd n.r.e.) (concluding
that the two statutes “may reasonably be construed so as to give
effect to both”).
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Co., 653 S.W.2d 948, 950 (Tex App.--Ft. Worth 1983, no writ);
Pfluger, 620 S.W.2d at 741-42. “An owner's purported transfer of
an automobile which does not comply with the Texas Certificate of
Title Act does not affect a third party's rights.” United States
v. 1977 Porsche Carrera, 946 F.2d 30, 34 (5th Cir. 1991).
Therefore, since no legal sales were made to the purported
buyers, they could not be considered “buyers in the ordinary
course of business” as required to sever Bank One's security
interest. We agree with the district court's interpretation of
Texas law4 to wit: A third party's perfected security interest is
not interrupted when a purported buyer attempts to purchase an
automobile without receiving title as required to complete a sale
under the Certificate of Title Act.
III. Arcadia's Damage Claims Were Properly Dismissed as a Matter
of Law.
We also agree with the district court's determination that
because no sales were made under Texas law, Arcadia's claims for
conversion and tortious interference fail as a matter of law.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court's
judgment.
4
Because the district court properly had diversity
jurisdiction, it was obligated to determine how the Texas Supreme
Court would apply Texas law on this issue. See, e.g., Erie R.R.
Co. v. Tompkins, 304 U.S. 64 (1938).
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AFFIRMED
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