* Pursuant to 5 TH C IR. R. 47.5, the court has determined that this opinion

s hould not be published and is not precedent except under the limited

circumstances set forth in 5 TH C IR . R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 97-50969

Summary Calendar

_______________

AMERICAN GOOSENECK, INC.,

d/b/a AG PRODUCTS,

Plaintiff-AppellantCross-Appellee,

VERSUS

WATTS TRUCKING SERVICE, INC.,

and

MEL KEMP,

Defendants-AppelleesCross-Appellants.

_________________________

Appeals from the United States District Court

for the Western District of Texas

(SA-96-CV-181)

_________________________

September 16, 1998

Before JOLLY, SMITH, and WIENER, Circuit Judges.

JERRY E. SMITH, Circuit Judge: *

American Gooseneck, Inc., doing business as AG Products

(“Gooseneck”), sued Watts Trucking Services, Inc. (“Watts

Tru cking”), and Mel Kemp for conversion. Gooseneck claimed that

Watts Trucking and Kem p had purchased front load containers, or2

“dumpsters,” on which Gooseneck held a valid and enforceable lien.

Watts Truckin g then distributed the dumpsters throughout the

country, and the containers cannot be identified or returned. The

district court hel d for Gooseneck on its conversion claim and

awarded $28,500, the amount the court determined to be the fair

market value of the dumpsters at the time and place of conversion.

Gooseneck has appealed, however, claiming that it should also

have received the value of the lost use of the contai ners during

their period of detention as well as exemplary damages and pre- and

post-judgment interest. Defendants cross-appealed, asserting that

Gooseneck's lien was invalid, that Goose neck's claim to the

dumpsters was thus subordinate to that of Watts Trucking under the

law of secured transactions, and that Gooseneck therefore had

failed to establish conversion. We reverse the finding of

liability, thus mooting the damages issue, and we render judgment

in favor of defendants.

I.

Gooseneck, an Arizona corporation, buys, sells, and leases

trash containers. In April 1993, Mid Western Waste, Inc. (“Mid

Western”) , a company owned by James Covington, leased 279 eightyard front load dumpsters and six six-yard dumpsters from

Gooseneck. Mid Western subsequently defaulted on the lease.

Gooseneck and Mid Western then agreed that Mid Western would

actually purchase the dumpsters, on an installment basis, with the

dumpsters serving as security. In August 1993, Gooseneck filed3

with the Texas Secretary of State a UCC-1 statement describing the

type of containers held as security. The UCC-1 form, however, did

not include the signature of Covington (for the debtor, Mid

Western) as required by the Texas UCC. S ee T EX

. B US

. & C OM

. C ODE

A NN .§ 9.402(a) (Tex. UCC) (Vernon 1994).

On November 3, 1993, Covington and James Watts entered an

agreement for Wat ts Trucking to purchase the 285 containers from

Mid Wester n for $20,500. Watts is the sole shareholder of both

Watts Trucking and a sepa rate company, Texas Waste Systems, Inc.

(“Texas Waste”). Kemp worked for Watts as general manager of Texas

Waste. Under the agreement between Watts and Covington, Watts

Trucking was to take the dumpsters in exchange for two cashier's

checks and satisfaction of a debt owed by Mid Western.

Watts directed Kemp, Texas Waste's manager, to issue the

checks to Mid Western, and the checks Kemp gave Mid Western showed

Texas Waste as the purchaser of the checks. Kemp was acting,

however, solely on behalf of Watts and Watts Trucking, not Texas

Waste. Watts Trucking was to reimburse Texas Waste for the

expenditure.

In late November and early December 1993, Kemp began to take

possessio n of the containers for Watts Trucking. The containers

were initially stored in Texas Waste's yard, where Greg Hambicki,

a Gooseneck sales representative, observed them in March 1994.

Hambi cki then told Kemp he thought the containers belonged to

Gooseneck. Kemp told Hambicki he had bought the containers and

that Hambicki would have to talk to someone el se in the company4

about the claim. Thereafter, Kemp, at Watts's instruction, began

shipping the containers to various parts of the country.

II.

Apparently unaware that it was Watts Trucking, not Texas

Waste, th at had purchased the dumpsters, Gooseneck filed suit in

state court to en force its lien against Texas Waste. In March

1996, the state court entered a judg ment finding that Gooseneck

held an enforceable lien on the containers as against Texas Waste.

During the state trial, Gooseneck learned for the first time

that Kemp had been acting for Watts Trucking, not Texas Waste, in

purchasing, acquiring , and distributing the containers, and in

February 1996, Gooseneck sued Watts Trucking and Kemp in state

court. Watts Trucking removed the case to federal court on the

basis of diversity of citizenship. Relying on the state court's

determination that Gooseneck had a valid lien on the dumpsters, the

federal district court held for Gooseneck on its conversion claim

and awarded it $28,500, the amount the court determined to be the

fair market value of the dumpste rs at the time and place of

conversion.

III.

Because we agree with defendants that the cou rt erred in

finding conversion SS a conclusion that renders moot Gooseneck's

claims concerning the inadequacy of the district court's remedy SS we

first add ress the cross-appeal. Defendants note that the UCC-1

financing statement Gooseneck filed with the Secretary of State and5

exhibited at trial lacked the deb tor's signature and is thus

invalid under Texas secured transactions law. S ee T E X

. B US

. & C OM

.

C ODE A NN

. § 9.402(a)(Vernon 1994). They argue that because the lack

of the debtor's signa ture rendered AG's security interest

imperfect SS a point the district court made SS priority of claims to

the dumpsters depends on § 9.301, the commercial code provision

governing the rights of “buyers who take priority over unperfected

security interests.” T E X

. B US

. & C OM

. C ODE A NN

. § 9. 301 (Vernon

1994). As it applies here, § 9.301(a)(3) provides that

an unperfected securi ty interest is subordinate to the

rights of

. . . in the case of goods,

. . . a person who

is not a secured party and who is a transferee in bulk or

other buyer not in the ordinary course of business,

. . . to the extent that he gives value and receives delivery

of the collateral without knowledge of the sec u rity

interest and before it is perfected.

The district court failed to apply § 9.301(a)(3).

Defendants argue that all the statutory elements of this

provision are satisfied, and that Gooseneck's security interest in

the dumpsters was thus subordinate to Watts Trucking's in terest.

They contend that (1) Gooseneck held an unperfected s ecurity

interest in the dumpsters, (2) Watts Trucking bought the dumpsters

not in the ordinary course of business, (3) Watts Trucking gave

value for the dumpsters, and (4) Watts Trucking received delivery

without knowledge of the unperfected security interest.

If all these assertions are correct, Goo seneck's security

interest was subordinate to Watts Trucking 's rights. Watts

Trucking thus could not have engaged in conversion, which requires

“the wrongful exercise of dominion and control over another's6

property in denial of or inconsistent with his rights.” G reen

Int'l, Inc. v. Solis , 951 S.W.2d 384, 391 (Tex. 1997).

Defendants' analysis is correct. The record establishes, and

the district court found, that Goosen eck's security interest was

unperfected and, consequently, is subordi nate to the ownership

rights of Watts Trucking, which purchased the dumpsters for value

not in the ordinary course of business and received them without

knowledge of the unperfected security interest.

Gooseneck contends that defendants did not raise this “failure

of perfection” argument at trial and are therefore barred from

pressing it on appeal. This claim, however, is without merit.

Defendants pursued this line of argument a number of times in

the district court. The pre-trial order highlighted the contention

three times. In its statement of the case, Watts Trucking claimed

that “[t]he UCC-1 was defective and therefore constitutes no notice

to Watts of AG Products' security interest.” As a contested issue

of fact, the parties identified whether “[Gooseneck] perfected its

se curity interest in the Containers by filing a UCC-1 Financing

Statement on August 16, 1993,” and as a contested issue of law, the

parties inclu ded “[w]hether [Gooseneck's] lien filed August 16,

1993 was valid.”

The val idity of Gooseneck's lien as to Watts Trucking also

surfaced at trial. On the day of trial, Watts Trucking filed a

brief attacking the UCC-1 as unperfected because it lacked the

debtor's signature. Even after trial, defendants pursued the

failure-of-perfection argument. Watts Trucking filed a post-trial7

brief re-stating the argument, and it moved for judgment under

F ED

. R. C IV

. P. 52(c) at the close of the evidence on the same

g round. Given all these statements of the failure-of-perfection

argument, Gooseneck's claim that defendants are raising a new issue

on appeal is unfounded.

Neither can Gooseneck successfully argue that Watts Trucking

is precluded from contesting the validity of a lien the state court

already had declared valid. While a Texas court did approve the

enforceability of the lien in a case brought by Gooseneck to

enforce the lien against Texas Waste

, Watts Trucking was not a

party to that suit and thus could not have appealed the judgment or

argued that a defect in the UCC filing rendered the lien invalid.

To invoke collater al estoppel, or issue preclusion, the

invoking party must establish that the facts sought to be litigated

in the second cas e were fully and fairly litigated in the prior

action, that those facts were essential to the judgment in the

first action, and that the parties in the second case were cast as

adversaries in the first action. B onniwell v. Beech Aircraft

Corp. , 663 S.W.2d 816, 818 (Tex. 1984); Benson v. Wanda Petroleum

Co.

, 468 S.W.2d 361, 362-63 (Tex. 1971). This last element is

missing here. Watts Trucking is a separate entity from Texas Waste

and was never in privity with Texas Waste, the defendant in the

state court action. Because Watts Trucking was not cast as an

adversary in the first case, the resolution of that action does not

control what it may argue now.

Gooseneck also makes a vain attempt to cast defendants'8

failure-of-perfection a rgument as a defense that F E D

. R. Civ.

P. 8(b) would require to be “set forth affirmatively” in the

answer to the initial complaint. In arguing that Gooseneck's

security interest was imperfect, and thus was subordinate to Watts

Trucking's interest, defe ndants are not setting forth an

affirmative defense; they are simply contesting an element of

Gooseneck's prima facie conversion case SS i.e.

, that its right to

the dumpst ers was superior to that of Watts Trucking. A denial

that an essential element of a claim exists is not the same as an

affirmative defense to the claim and need not be included in the

answer under rule 8(b). C ompare rule 8(b) with F ED

. R. C IV

. P. 8(c).

Gooseneck then argues that the cross-appeal should be

dismissed because the defendants/cross-appellants briefed the wrong

law SS that of Texas instead of that of Oklahoma, the state where the

debtor resides. Gooseneck points to UCC § 9.103(c)(2), which says

that for “mobile good s” the law of the jurisdiction in which the

debtor is located governs the perfection and the effect of

perfection or nonperfection of a securi ty interest. Gooseneck

notes that the debtor here, Mid Western, was an Oklahoma

corporation and that Oklahoma la w thus should apply. Because

defendants briefed Texas secured transactions law, Gooseneck

reasons, the failure-of-perfection argument is barred because it is

not accompanied by a proper legal analysis, as required by F ED

. R.

A PP

. P. 28(a)(c).

Gooseneck has nev er previously asserted that the Texas UCC

does not govern the security interest here, and Texas law in fact1 Item 20 of the pre-trial order states: “List conflict of law questions, if

any: Not Applicable. ” Item 21 states: “A copy of any statute not found in the

United States Code, Code of Federal Regulations or Vernon's Texas Statutes is

attached hereto: Not Applicable.” The plain implication is that the district court

believed, and the parties understood, that Texas law was the only applicable state

law in the case.

9 would control, unless the dumpsters at issue were “mobile goods”

rather than “ordinary goods,” a question appropriate for the trial

court. S ee T EX

. B US

. & C OM

. C ODE A NN

. § 9.103 (Vernon 1994). Indeed,

Gooseneck did not object to the pretrial order, which stated that

there wer e no conflict-of-law issues to resolve and implied that

there were no state statutes or regulations at issue other than

those included in Vernon's Texas Statutes. 1 Moreover, the district

court express ly tested the validity of Gooseneck's financing

statement “[u]nder Texas law,” and Gooseneck never attacked this

decision in any post-trial filing, nor has it cited to the record

to show where it preserved its position about the applicability of

Oklahoma secured transactions law.

Gooseneck acquiesced in the district court's choice of Texas

law as controlling the issue of UCC-1's va lidity, and it is a

little late in the day for Gooseneck to change its tune. The

position Gooseneck took in the district court binds it on appeal,

particularly as its position on appeal requires resolution of a

factual issue regarding the mobility of the dumpsters. S ee

American Int'l Trading Corp. v. Petroleos Mexicanos

, 835 F.2d 536,

540 (5th Cir. 1987); Shelak v. White Motor Co.

, 581 F.2d 1155, 1160

(5th Cir. 1978).

On the merits, Gooseneck claims that, under both Oklahoma and10

Texas law, Gooseneck's security interest was perfected, despite the

lack of the debtor's signature. Because Gooseneck is wrong with

respect to the law of both states, we need not address the issue of

which state's law applies SS an issue that turns on the factual

question of whether the dumpsters are “mobile goods,” see T E X

. B US

.

& C OM

. C ODE A NN

. § 9.103 (Vernon 1994), and that we are consequently

ill-equipped to resolve.

While Gooseneck claims that Oklahoma's secured transactions

law does not require the debtor's signature as a precedent to

perfection, even a cursory look at that state's law shows that the

debtor's signature is required. Section 9-402(1) of Oklahoma's UCC

includes the signature of the debtor as an essential element of a

suf ficient financing statement, s ee O KLA

. S TAT

. A NN

. tit. 12A

§ 9-402(1), and courts interpreting Oklahoma law on this issue have

required the debtor's signa ture for perfection. S ee, e.g.,

Pontchartrain State Bank v. Poulson

, 684 F.2d 704, 705 , 706-07,

708-09 & nn. 1,2 (10th Cir. 1982); Wilmot v. Central Okla. Gravel

Corp. , 620 P.2d 1350, 1353-54 (Okla. Ct. App. 1980).

Citing § 9-402 (2), Gooseneck states that Oklahoma permits a

financing statement to be sufficient when it is signed by the

secured party instead of the debtor. Gooseneck apparently fails to

read the whole of that statutory provision. Section 9-402(2)

permits a secured party's s ignature to be sufficient only for

certain classes of collateral that do not include the dumpsters2 The statute provides:

A financing statement which otherwise complies with subsection (1) is

sufficient when it is signed by the secured party in stead of the debtor

if it is filed to perfect a security interest in :

(a) colla teral already subject to a security interest in another

jurisdiction when it is brought into this state, or when the debtor's

location is changed to this state . . .; or

(b) proceeds . . . if the security interest in the original

collateral was perfected . . .; or

(c) collateral as to which the filing has lapsed; or

(d) collateral acquired after a change of name, identity or

corporate structure of the debtor . . . .

12A O.S. § 9-402(2) (emphasis added). Because the dumpsters do not fit into any of

these four categories, the subsection does not apply.

3 It may seem harsh that a “technicality” such as a missing signature could

subordinate SS and sometimes, as in this case, destroy SS a party's security interest

in collateral it believes is valid security. Gooseneck argues that the missing

signature should not weaken its security interest, because Watts Trucking could

easily have learned of Gooseneck's interest in the dumpsters had it made rea sonable

efforts to discover any encumbrances on the property. Gooseneck also points to

caselaw holding that “[s]ubstantial compliance is sufficient to sa tisfy the

requirements of § 9.402.” C row-Southland Joint Venture No. 1 v. North Fort Worth

Bank

, 838 S .W.2d 720, 723 (Tex. App. SS Dallas 1992, writ denied). This court,

however, has previously rejected Gooseneck's arguments:

When the state legislature swept away all statutes and judicial

precedents concerning se cured transactions in personal property,

tangible and intangible, it never inten ded that the simpler

requirements could be ignored. The process of simplification of

statutory procedures does not give license to omit one of the simpler

requirements.

It is true that the legislature did provide in [UCC § 9-402(5)] that

(5) A financing statement substantially

complying with the requirements of this

section is effective even though it contains

minor errors which are not seriously

misleading.

Obviously this pertains to minor errors in the contents of the

(continued...)

11 here. 2

Texas law also requires the presence of the debtor's signature

to create a valid financing statement. S ee T EX

. B US

. & C OM

. C ODE A NN

.

§ 9.402(a) (Vernon 1994). Without a UCC-1 signed by the debtor,

Gooseneck at most held an unperfected lien. 3 I d. ; Sommers v. Int'l(...continued)

statement and does not relate to one of the formal requisites of a

financing statement such as the signatures of the secured parties.

Republic Nat'l Bank v. Fitzgerald (In re E.A. Fretz Co.)

, 565 F.2d 366, 373 (5th

Cir. 1978).

4 Gooseneck notes that, in the definition of “buyer in ordinary course of

business,” the code defines “buying” so as to exclude “a transfer

. . . in total or partial satisfaction of a money debt.” T E X

. B US

. & C OM

. C ODE A NN

. § 1.201(9) (Vernon

1994). Gooseneck thus argues that Watts Trucking was not a “buyer not in ordinary

course of business” because part of the consideration it gave for the dumpsters was

satisfaction of a debt owed by Mid Western. This argument fails for two reasons.

First, § 1.201 defines “buying” for the purposes of identifying a “buyer in

ordinary c ourse of business.” The sentence precluding debt satisfaction

trans actions from being “buying” simply operates to exclude debt satisfaction

transactions from those transactions that otherwise would make a purchaser a “buyer

in ordinary course of business.” We should not lift the sentence from its context

and interpret it to mean that any purchase that involves a debt satisfaction as

consideration is not “bu ying.” Section 1.201(9) merely identifies those buyers who

are buyers in the ordinary course of business. All other buyers, even those who buy

(continued...)

12 Bus. Machs.

, 640 F.2d 686, 689 (5th Cir. Un it A Mar. 1981);

Republic Nat'l Bank v. Fitzgerald (In re E.A. Fretz Co.)

, 565 F.2d

366, 369-73 (5th Cir. 1978). Consequently, § 9.301, which

ide ntifies persons who take priority over unperfected security

interests, determines whose interest in the dumpsters had priority

in this case.

We agree with defendants that all the elements of § 9.301 are

met, and t hat Gooseneck's interest was therefore subordinate to

that of Watts Trucking. First of all, Watts Trucking bought the

dumpsters not in ordinary course of business. A buyer in ordinary

course of business buys “from a person in the business of selling

goods of that kind

. . . .” T E X

. B US

. & C OM

. C ODE A NN

. § 1.201(9)

(Vernon 1994). Because Mid Western, the seller, was not “in the

business of selling” dumpsters, Watts Trucking was a buyer not in

ordinary course of business. 4(...continued)

by satisfying a debt, are buyers not in the

ordinary course of business. S ee Cha se Manhattan Bank, N.A. v. J & L Gen.

Contractors, Inc.

, 83 2 S.W.2d 204, 211 (Tex. App. SS Beaumont 1992, no writ) (holding

that truck ing company was buyer not in ordinary course of business where it

satisfied a debt of $681,615 in exchange for property worth $630,000).

Second, even if the sentence defining buying in § 1.201(9) did apply to buyers

not in the ordinary course of business, Watts Trucking still would have bought the

dumpsters. It did so by fully canceling a debt a nd giving two cashier checks for

the containers. Money was exchanged here; this was not only a debt-cancellation

transaction.

5 See T EX

. B US

. & C OM

. C ODE A NN . § 1.201(44) (“[A] person gives 'value' for

rights if he acquires them

. . . in total or partial satisfaction of a pre-existing

claim.”); Chase Manhattan Bank, N.A. v. J & L General Contractors, Inc.

, 832 S.W.2d

204, 211 (Tex. App. SS Beaumont 1992, no writ) (holding that purchaser of equipment

gave value when it satisfied debt).

13 Watts Trucking also obviously gave value fo r the dumpsters,

paying $20,500. While a portion of this was satisfaction of a debt

Mid-Western owed, the consideration Watts Trucking gave certainly

constituted “value.” 5

Finally, Watts Trucking received delivery without knowledge of

the unperfected security interest. Actual, not constructive,

knowledge forms the litmus test under § 9-310(a)(3). S ee T EX

. B US

.

& C OM

. C ODE A NN

. § 1.201(25) (Vernon 1994) (“A person 'knows' or has

'knowledge' of a fact when he has actual knowledge of it.”). The

district court found that Watts Trucking entered its agreement to

purchase the containers on November 3, 1993, and that Kemp began to

take possession of the containers in late November or early

Decemb er 1993. The parties stipulated that “[t]he [c]ontainers

have been under the control of Watts Trucking Service, Inc. at all

times since December 1, 1993.” The key question, then, is whether

defendants had actual knowledge of Gooseneck's unperfected security

interest in the dumpsters as of December 1993.6 See Chase Manhattan

, 832 S.W.2d at 211 (rejecting bank's conversion claim

against purchaser of collateral where bank's financing statement was insufficient

and bank's security interest was therefore subordinate to right of purchaser).

14 Watts and Kemp never checked the UCC-1 filings to see whether

Gooseneck had a lien, nor did the UCC require them to do so. They

both testified that they lacked actual knowledge of any such lien,

and neither Watts nor Kemp actually knew of any lien on the

dumpsters when Watts Truc king bought them. The record suggests

that the first time Watts Trucking or Kemp would have had any idea

that Gooseneck might have a lien was March 1994, when a Gooseneck

sales representative saw the containers in Texas Waste's yard and

contacted Kemp to discuss Gooseneck's interest in the containers.

Given these facts, it is evident that Watts Trucking had no actual

knowledge of Gooseneck's lien when it received delivery.

Under § 9.301(a)(3), Watts Trucking's interest in the

dumpsters is superior to Gooseneck's unperfected security interest,

which was imperfect because the UCC-1 filin g lacks the debtor's

signature. Hence, under § 9.301(a)(3), Gooseneck's interest is

subordinate to that of Wa tts Trucking SS a buyer not in ordinary

course of business who gave value for the dumpsters and received

them without knowledge of Gooseneck's unperfected security

interest. Because Gooseneck does not have a right to the dumpsters

superior to t hat Watts Trucking holds, the defendants cannot be

liable for conversion. 6

The judgment is REVERSED and RENDERED in favor of defendants.