IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 10-20813

Summary Calendar

In the Matter of: MARVIN E. MOYE; JOAN M. MOYE, 

 Debtors

HARDY RAWLS ENTERPRISES L.L.C.,

Appellant

v.

TRUSTEE LOWELL T. CAGE, 

Appellee

Appeal from the United States District Court

for the Southern District of Texas

USDC No. 4:09-CV-2747

Before REAVLEY, DENNIS, and CLEMENT, Circuit Judges.

PER CURIAM:*

Hardy Rawls Enterprises, LLC (“HRE”) appeals the district court’s order

affirming the bankruptcy court’s denial of its proof of claim. We AFFIRM.

United States Court of Appeals

Fifth Circuit

F I L E D

August 16, 2011

Lyle W. Cayce

Clerk

 Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not *

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

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No. 10-20813

I. FACTS

The debtors, Marvin and Joan Moye, sold motor vehicles. In 1989, the

debtors, doing business as JMW Auto Sales, began selling used motor vehicles

by purchasing them at auction or from car-rental agencies, refurbishing them,

and then reselling them at auction. HRE financed the debtors’ inventory. From

2002 until late 2007, the debtors opened and operated two additional used-car

retail sale lots. HRE and two other entities, Dealer Services Corporation (“DSC”)

and Automotive Finance Corporation (“AFC”), financed the inventory for these

lots. Both DSC and AFC filed UCC liens against the inventory; HRE did not.

Customers purchasing vehicles from the debtors could obtain financing

in-house. The debtors used a “Motor Vehicle Retail Installment Sales Contract,”

under which the purchase financing was secured by the used car the customer

bought. “JMW Auto Sales” was the listed lienholder on the certificate of title

issued to the customer. HRE retained possession of many of the original titles.

On October 31, 2007, an involuntary chapter 7 bankruptcy petition was

filed against JMW Motors. On November 6, 2007, JMW Auto Sales filed a

voluntary chapter 7 petition. HRE subsequently filed a proof of claim in the

amount of $1,756,012, of which $1,556,012 was identified as secured. The proof

of claim identified the secured claim as “motor vehicle” and as “Rev-Vehicle

Sales.” Attached to the proof of claim was a “Summary of Voluminous

Documents” that stated as follows:

Trustee has possession of approximately 150+ titles reflecting, in

princip[al] part, claims of $1,556,012 resulting from “floor plan”

loans, on various dates, by creditor on vehicles secured by purchase

money security interests and the titles to the vehicles. Additionally,

there is an unsecured loan of $200,000 made by creditor to debtors.

The Trustee filed an objection to HRE’s claim, arguing: (1) that HRE had

failed to provide documentation supporting the amounts due on its claim; (2)

that HRE had failed to perfect its interest in the vehicles because it did not file

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a UCC financing statement; and (3) that HRE’s claim to the vehicles did not

comply with the statute of frauds. AFC also filed an objection to HRE’s proof of

claim, asserting that it had a security agreement and UCC-1 financing

statements covering all the vehicles in which HRE claimed an interest. AFC

also filed a motion to compel the Trustee to turn over 158 certificates of vehicle

title that HRE had given the Trustee, arguing that it had a first priority security

interest. HRE filed an opposition to AFC’s motion, arguing that it had a

superior security interest in the vehicle titles. 

On August 25, 2008, the bankruptcy court held a two-day hearing on

AFC’s motion to compel. At the hearing, HRE conceded that AFC had a security

interest in the vehicles, but argued that it had a superior interest because it

provided the debtors with financing to purchase vehicles and kept the

certificates of title until the debtor paid the loan. Several days later, the court

issued an order holding that HRE did not have a perfected security interest in

the vehicle titles because the Texas Certificate of Title Act and the UCC do not

recognize possessing title as a means of perfecting a lien. HRE did not appeal

this order and AFC foreclosed on the 158 vehicle titles.

In October 2008, the bankruptcy court gave the parties an opportunity to

brief whether its previous order (on AFC’s motion to compel) precluded relitigating (in the context of the Trustee’s opposition to HRE’s proof of claim)

whether HRE had a perfected security interest in the vehicles. The Trustee

moved for judgment on the pleadings, asserting that HRE’s security interest was

unperfected under the law of the case and that the bankruptcy court’s previous

order controlled the disposition of HRE’s proof of claim. HRE responded,

reurging the legal positions it took in opposition to AFC’s motion to compel.

In July 2009, the bankruptcy court rejected HRE’s proof of claim, holding

that HRE did not have a perfected security interest in the vehicles under the law

of the case. HRE moved for reconsideration and rehearing, arguing that its

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interest in the vehicle titles was perfected and that it was entitled to a hearing

on its proof of claim under Bankruptcy Rules 3007 and 7001 . The bankruptcy 1 2

court denied HRE’s motion for reconsideration.

HRE appealed the bankruptcy court’s order to the district court, raising

two arguments. HRE first argued that the bankruptcy court violated

Bankruptcy Rules 3007 and 7001 and denied it due process by failing to conduct

an evidentiary hearing or trial before denying its proof of claim. It also argued

that it had a secured interest in the vehicles because “UCC § 9-311 permits a

creditor to comply with a state certificate of title act in lieu of filing a UCC

financing statement.” The district court rejected HRE’s arguments. It held that:

(1) any violation of the Bankruptcy Rules was harmless in light of the

bankruptcy court’s full consideration of HRE’s evidence and arguments during

the August hearing; (2) the August hearing satisfied HRE’s due process rights;

and (3) the UCC did not permit HRE to perfect its interest in the vehicle

inventory through title possession. HRE timely appeals.

II. STANDARD OF REVIEW

We review the bankruptcy court’s conclusions of law de novo and its

findings of facts for clear error. LSP Inv. P’ship v. Bennett (In re Bennett), 989

F.2d 779, 781 (5th Cir. 1993).

III. DISCUSSION

A. Due Process and Bankruptcy Rules 3007 and 7001

Rule 3007 describes the procedures for filing objections to claims against a bankruptcy 1

estate. Rule 3007(a) requires that an objector file the objection in writing and give a creditor

30-days notice prior to a hearing. Rule 3007(b) requires parties asking the bankruptcy court

to determine the validity or priority of secured claims to raise their objections to the claim in

an adversarial proceeding. See FED. R. BANK. P. 7001.

Rule 7001(2) states that a proceeding “to determine the validity, priority, or extent

2

of a lien or other interest in property” is an adversarial proceeding subject to the procedural

safeguards in Bankruptcy Rules 7001-7071. See In re Eads, 417 B.R. 728, 740 (Bankr. E.D.

Tex. 2009). 

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HRE first argues that the bankruptcy court’s failure to hold an evidentiary

hearing before denying HRE’s proof of claim violated Bankruptcy Rules 3007

and 7001 and denied it due process. It argues that the bankruptcy court’s

August 2008 hearing could not be the law of the case on the question of whether

HRE had a valid security interest in the vehicles because “the AFC motion

simply sought affirmative relief for AFC in establishing its priority among

secured creditors . . . . The motion did not challenge [HRE’s] proof of claim and

certainly [HRE] had no notice that there was any . . . intent to use the resulting

hearing as a substitute for [HRE’s] entitlement to a hearing on objections to its

proof of claim.” 

HRE’s argument has no merit. “Under the law-of-the-case doctrine, a

court follows its prior final decisions in the case as the law of that case, except

for a few narrow exceptions. The doctrine encompasses those decisions decided

by necessary implication as well as those decided explicitly.” Pritchard v. U.S.

Tr. (In re England), 153 F.3d 232, 235 (5th Cir. 1998) (internal citations and

quotation marks omitted). This rule is “based on the salutary and sound public

policy that litigation should come to an end.” Carpa, Inc. v. Ward Foods, Inc., 567

F.2d 1316, 1319 (5th Cir. 1978) (quoting White v. Murtha, 377 F.2d 428, 431 (5th

Cir. 1967)). 

As the bankruptcy court noted in its August order, HRE “assert[ed] that

its possession of the vehicle titles both creates and perfects a superior security

interest” to AFC’s. In order to decide whether HRE had a superior security

interest to AFC, the bankruptcy court necessarily had to determine (1) whether

HRE had a perfected security interest in the vehicle and (2) whether HRE had

filed or perfected its interest before AFC. See TEX. BUS & COM. CODE § 9.322

(“Conflicting perfected security interests and agricultural liens rank according

to priority in time of filing or perfection.”). After a two-day hearing, the

bankruptcy court answered the first question in the negative. Having already

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decided that HRE did not have a perfected security interest in the vehicles, the

bankruptcy court properly applied the law of the case doctrine to the Trustee’s

objections to HRE’s proof of claim.

Our holding that the bankruptcy court correctly applied the law of the case

disposes of HRE’s argument that the court violated the Bankruptcy Rules. HRE

does not dispute that the two-day August hearing was an adversarial hearing

that satisfies Bankruptcy Rules 3007 and 7001. Because HRE had already

received an adversarial hearing on the issue of whether it had perfected its claim

on the vehicles, the bankruptcy court’s failure to hold a meaningless adversarial

hearing in order to apply the law of the case and deny HRE’s proof of claim was

therefore inconsequential. Likewise, HRE does not argue that the two-day

August hearing violated its due process rights. The bankruptcy court’s failure

to convene another adversarial hearing merely to apply the law of the case did

not violate HRE’s due process rights.

B. HRE’s security interest in the vehicles

HRE next argues that the bankruptcy and district courts erred in holding

that it did not have a perfected security interest in the vehicles.

Texas Transportation Code § 501.111 states:

(a) Except as provided by Subsection (b), a person may perfect a

security interest in a motor vehicle that is the subject of a first or

subsequent sale only by recording the security interest on the

certificate of title as provided by this chapter.

(b) A person may perfect a security interest in a motor vehicle held

as inventory by a person in the business of selling motor vehicles

only by complying with [UCC] Chapter 9 . . . .

A person may perfect a security interest in inventory by filing a financing

statement with the Secretary of State. TEX. BUS. & COM. CODE § 9.310(a); Apeco

Corp. v. Bishop Mobile Homes, Inc., 506 S.W.2d 711, 717 (Tex. Civ.

App.—Corpus Christi 1974, writ ref’d n.r.e.) (“In Texas, a security interest in a

vehicle may be perfected in two ways. If the vehicle is part of inventory, the

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security interest must be filed with the Secretary of State.”). Texas

Transportation Code § 501.114(a) states:

A lienholder may assign a lien recorded under Section 501.113

without making any filing or giving any notice under this chapter.

The lien assigned remains valid and perfected and retains its

priority . . . .

HRE essentially argues it obtained a perfected security interest through

assignment under § 501.114(a) and therefore did not have to file a UCC filing

statement as required by § 501.111(b). Thus, HRE argues:

It is undisputed that the original lienholders on the instant vehicles

had perfected their security interest in the vehicles by causing their

names to be notated on the titles in question which were then

acquired by [HRE] which financed the vehicle purchases at auction.

[HRE] was then successor and assignee of the interest of the former

lienholder and was not required to re-title the vehicles with its own

name on the title in order to have a perfected security interest.

It cites to In re Clark Contracting Services, Inc., where the district court

addressed whether Wells Fargo, the purchaser of a secured loan by a financing

company for the purchase of several trucks, maintained a perfected security

interest in the trucks even though the financing company failed to have the

certificates of title changed to reflect Wells Fargo as the lienholder. 438 B.R. 913

(W.D. Tex. 2010). Interpreting § 501.114(a), the court held that § 501.114(a) did

not require Wells Fargo to be listed on the certificate of title in order to succeed

to the financing company’s perfected status. Id. at 925.

HRE’s argument has no merit because it miscomprehends the nature of

its purchase. Unlike In re Clark Contracting Services, HRE did not purchase the

vehicle liens at auction. Instead, it financed JMW Auto’s purchase of the vehicles

at auction. In doing so, it was not being assigned a previously perfected security

interest, it was creating a new security interest in the vehicles. And because the

vehicles were purchased by JMW Auto and held as inventory, HRE was required

under § 501.111(b) to file a UCC financing statement to perfect its security

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interest. It failed to do so, and therefore did not have a perfected security

interest in the vehicles at issue here. 

IV. CONCLUSION

For the foregoing reasons, the district court’s order is AFFIRMED.

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