This disposition is not appropriate for publication and is not precedent *

except as provided by 9th Cir. R. 36-3.

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS

 FOR THE NINTH CIRCUIT

METROPOLITAN BANK & TRUST

CO.,

 Plaintiff-counter-defendant,

 v.

DESERT VALLEY FINANCIAL LLC; et

al.,

 Defendants-Appellees,

PACIFIC BUSINESS CAPITAL CORP.,

 Defendant-cross-claimant -

Appellee v.

HUNTINGTON NATIONAL BANK,

 Counter-defendant -

Appellant.

No. 08-16511

D.C. No. 2:01-cv-00622-LDGLRL

MEMORANDUM *

METROPOLITAN BANK & TRUST

CO.,

 Plaintiff-counter-defendant,

No. 08-16758

D.C. No. 2:01-cv-00622-LDGLRL

FILED

NOV 18 2009

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS
2

 v.

DESERT VALLEY FINANCIAL LLC; et

al.,

 Defendants-Appellees,

PACIFIC BUSINESS CAPITAL CORP.,

 Defendant-cross-claimant -

Appellee,

 v.

HUNTINGTON NATIONAL BANK,

 Counter-defendant -

Appellant.

Appeal from the United States District Court

for the District of Nevada

Lloyd D. George, District Judge, Presiding

Argued and Submitted November 5, 2009

San Francisco, California

Before: HUG, RYMER and McKEOWN, Circuit Judges.

Metropolitan Bank & Trust Co. (Metropolitan) appeals from the district

court’s judgment for Pacific Business Capital Corp. (PBCC) after a bench trial on

PBCC’s conversion claim. We have jurisdiction under 28 U.S.C. § 1291. “We

review the district court’s findings of fact after a bench trial for clear error and its
 Metropolitan and PBCC agree that the pre-revision version of the U.C.C. 1

and the former provisions of the California Commercial Code control. 

3

conclusions of law de novo.” Friends of Yosemite Valley v. Norton, 348 F.3d 789,

793 (9th Cir. 2003). We affirm in part and reverse in part.

I

To establish a defense under Uniform Commercial Code (U.C.C.)

§ 9-308(a), Metropolitan needed to prove that without its own actual knowledge 1

of PBCC’s security interest, it (1) gave new value for the mobile home loan

contracts (Home Loans) and (2) took possession of the Home Loans in the ordinary

course of its business. See U.C.C. § 9-308 cmt. 3; 9 Anderson on the Uniform

Commercial Code § 9-308:7 (1999); see also Cal. Comm. Code § 1201(25)(c)

(noting that “[a] person ‘knows’ or has ‘knowledge’ of a fact when he or she has

actual knowledge of it.”). The district court incorrectly attributed Mountain

Community Bank’s knowledge to Metropolitan. As the district court did not

determine whether Metropolitan acted without actual knowledge of PBCC’s
 If Metropolitan can establish on remand a U.C.C. § 9-308(a) defense as to 2

the initial 128 Home Loans, the district court may need to reconsider whether

Metropolitan gave new value for the substitute Home Loans by releasing security

interests in the Home Loans it returned. See Cal. Comm. Code § 9105(1)(o); Nw.

Acceptance Corp. v. Lynnwood Equip., Inc., 1 U.C.C. Rep. Serv. 2d 1710 (W.D.

Wash. 1986), aff’d, 841 F.2d 918 (9th Cir. 1988).

4

security interest with respect to the initial 128 Home Loans or the substitute Home

Loans, we must reverse for it to make these findings. 

2

II

The district court properly rejected Metropolitan’s U.C.C. § 9-306(2)

defense. To establish this defense, Metropolitan needed to prove the transactional

documents between PBCC and Silver State Mobile Homes and Galaxy Financial

Services (collectively, Silver/Galaxy) authorized Silver/Galaxy to sell Home

Loans. The transactional documents authorized Silver/Galaxy to sell Home Loans

only with PBCC’s express written consent. The district court’s apparent reading of

section 2(f) of the Pledge Agreements as a prohibition against selling Home Loans

without consent is consistent with the scope of the Pledge Agreements. It also

matches the parties’ course of conduct. As PBCC did not expressly consent to

Silver/Galaxy’s initial sale of 128 Home Loans to Mountain Community Bank - or
 Even if the transactional documents authorized Silver/Galaxy to sell Home 3

Loans in the ordinary course of business without consent, the record supports the

district court’s factual finding that Silver/Galaxy did not sell - or subsequently

transfer - the Home Loans in the ordinary course of its business.

 The district court will need to reconsider its damage award, of course, if it 4

finds on remand that Metropolitan can establish a U.C.C. § 9-308(a) defense. 

5

Silver/Galaxy’s subsequent transfer of substitute Home Loans to Metropolitan -

Metropolitan’s U.C.C. § 9-306(2) defense fails.3

III

Finally, the district court’s damage award was not faulty or overstated.4

First, under California Commercial Code § 9503, PBCC had a right to take

possession of the Home Loans on April 3, 1998, the date Silver/Galaxy caused an

“Event of Default” under the transactional documents by selling Home Loans

without PBCC’s consent. Second, the district court reasonably refused to reduce

damages for returned Home Loans. To the extent these returned loans had any

value, the value was realized, for the most part, by Silver/Galaxy and not PBCC. 

Third, the district court reasonably concluded the Home Loans’ actual value at the

time of conversion was at least equal to the amount Metropolitan originally paid

for those loans. 

Each party shall bear its own costs on appeal.
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AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.