interpreted the constitutional materialman’s lien narrowly, and Art. 16 § 37 does not expressly
include proceeds, defendarits motion to dismiss Count I is granted.

When this court exercises supplemental jurisdiction it must apply state law to substantive
issues. Timmerman v. Modern Indus., Inc., 960 F.2d 692, 696 (7" Cir. 1992). The court must
determine the content of state law as that state’s supreme court would determine it. Allstate Ins.
Co, v. Menards, Inc., 285 F.3d 630, 636 (7 Cir. 2002) (citing Erie R.R. Co. v. Tompkins, 304
U.S. 64, 78 (1938)). Without clear guidance from the Texas Supreme Court, this court must use
its best judgment to make this determination, and may consider the decisions of lower Texas
courts and courts of other jurisdictions. Stephan v. Rocky Mountain Chocolate Factory, Inc., 129
F.3d 414, 417 (7" Cir. 1997). This court is not bound, however, by the decision of any particular
Texas appellate court; the issue is the content of state law at the "state, not the local, level."
Allstate Ins. Co, 285 F.3d at 636. Therefore, this court, sitting in diversity in the Northern
District of Illinois, must attempt to predict how the Texas Supreme Court would interpret a
unique state constitutional provision. Specifically, Article 16 § 37 of the Texas Constitution
provides:

Mechanics, artisans and material men of every class, shall have a lien upon the

buildings and articles made or repaired by them for the value of their labor done

thereon, or material furnished therefore and the legislature shall provide by law

for the speedy and efficient enforcement of said liens.

While this is one of seven constitutional liens in the country, it is the only self-executing
such lien. A & M Operating Company, Inc. v, South Coast Supply Company, Inc., 182 B.R. 997,
1000 (E.D. Texas 1995). Under the Texas Constitution, the materialman’s lien is automatic,

without notice. Id.



defendant to restore the benefits to the plaintiff. Barrett v. Ferrel, 550 S.W.2d 138, 143
(Tex.Civ.App.—tTyler 1977). Recovery under principles of unjust enrichment is also appropriate
when a contemplated agreement is unenforceable, impossible, not fully performed, thwarted by
mutual mistake, or void for other legal reasons. City of Harker Heights v. Sun Meadows Land,
Ltd., 830 S.W.2d 313, 319 (Tex.App—Austin 1992). Unjust enrichment generally is unavailable
when a valid, express contract governing the subject matter of the dispute exists. Woodward v.
Southwest States, Inc., 384 S.W.2d 674, 675 (Tex. 1964).

However, under Texas law, the existence of an express contract is not an absolute bar.
See e.g, Staats v. Miller, 150 Tex. 581, 243 S.W.2d 686, 687-88 (1951) (allowing restitution for
excess money held by defendant after selling plaintiffs' equipment pursuant to an oral contract);
Bowers v. Missouri, Kan & Tex. Ry. Co., 241 S.W. 509, 510-11 (Tex.Civ.App.—Texarkana ,
1922) (allowing restitution for freight charges paid in excess of rates specified in a shipping
contract); see also Gulf Oil Corp. v. Lone Star Producing Co., 322 F.2d 28, 31-33 (5" Cir. 1963)
(holding that the plaintiff could recover money mistakenly paid in excess of the contract price);
Natural Gas Pipeline Co. v. Harrington, 246 F.2d 915, 921 (5" Cir. 1957) (holding that a gas
company was entitled to restitution of the difference between the contract rate and the price paid
under an invalid rate order set by regulatory board). The question under Texas law is not just

whether a valid express contract exists, but whether that contract covers the issue being litigated.

Fortune Production Co. v. Conoco, Inc,, 52 §.W.3d 671, 677, 44 Tex.Sup.Ct.J. 97 (2002). When
a valid agreement already addresses the matter, recovery under an equitable theory is generally

inconsistent with the express agreement. Id.



It is true, as plaintiff argues, that there are no cases that have expressly held that the
materialman’s lien does not attach to proceeds. Several rulings have by implication, however,
excluded proceeds. See e.g. Lambert v. Williams, 21 $.W. 108, 110 (Tex.Civ.App. 1893)
(holding that as a matter of law a lien cannot include property on which work had not been done);
see also Black, Sivalls & Bryson, Inc. v. Operator’s Oil & Gas Co., 37 S.W.2d 313, 316 (Texas
Ct. App. 1931) (holding the lien extends only to articles prepared by the creditor); see also R.B,
Spencer & Co, v. Biggers, 108 S.W.2d 268, 270 (Texas Ct. App. 1937) (holding the lien attached
to property, not rents from the property).

Plaintiff's reliance on the general statement in In re Tazewell County Collector, 130 Ill.
App. 3d 77, 78 (3" Dist. 1985), that “[a] lien on property follows the property if moved, unless
sold to an innocent purchaser, in which case the lien follows the proceeds of the sale,” is
misplaced for a number of reasons. First, in Tazewell the lien in question (a tax lien) was on a
tesidence, and the court held merely that the lien “followed” the residence when its location was
moved, because the residence had not be “substantially destroyed.” There was no issue of a sale
to an innocent purchaser and the “following” of proceeds. Id. at 77-78. Second, the case on
which Tazewell relied for this statement, Marshall Savings and Loan Ass’n v. Chicago Nationa
Bank, 56 Ill. App. 2d 372 (2d Dist. 1965), involved proceeds of a foreclosure sale, and was later
overruled, leaving it of questionable value. See Cole Taylor Bank v. Cole Taylor Bank, 224 Iil.
App. 3d 696 (1* Dist. 1992). Finally, the case on which Marshall relied, Elgin Lumber Co, v.
Langman, 23 Ill. App. 250 (2d Dist. 1886), stated only “that in order to do justice equity will
frequently treat the money derived from property as it would the property itself and follow it as

long as it can be followed.” Id. In Elgin, the plaintiff had a statutory lien on lumber and



The constitutional provision is generally viewed as a back-up for creditors that fail to file
a statutory lien. See Woodward, The Constitutional Lien on Chattels in Texas, 28 Texas Law

Rev. 305, 315 (1950); see also In Re Ernest and Associates, Inc., 59 B.R. 495, 497 (W.D. Tex.

1985) (holding that while a debtor in possession could not have avoided a statutory lien, it could
avoid the constitutional lien). Consequently, the scope of the lien has been limited by Texas
courts. A. & M, 182 B.R. at 1000-1001. The limitations have included: requiring privity, First
Nat’! Bank of Paris v. Lyon-Gray Lumber Co., 194 S.W. 1146 (Tex.Civ.App.—Texarkana 1917),
aff'd 110 Tex. 162, 217 S.W. 133 (1919); eliminating subcontractors as possible lien holders,
Da-Col Pain MFG. Co. v. American Indemnity Co., 517 S.W.2d 270, 273 (Tex. 1974); freeing
subsequent innocent purchasers from the lien, Wood v. Barnes, 420 S.W.2d 425, 429
(Tex.Civ.App.—Dallas 1957, writ ref'd n.r.e.); and limiting the lien to only “a debtor who owns
the article or building.” A & M, 182 B.R. at 1001.

Trailmobile does not own or possess the trailers upon which plaintiff is claiming a
materialman’s lien. The issue is whether the proceeds from the sale of those trailers are an
“article or building” under the Texas Constitution. Texas courts have interpreted the phrase
“article or building” narrowly, excluding items such as refrigerators and ranges, First Nat. Bank
in Dallas v, Whirlpool Corp., 517 S.W.2d 262, 266 (Tex. 1975), machinery in a factory not
permanently fixed to the property, Lyon-Gray Lumber Co. v, Nocona Cotton Oil Co., 194 S.W.
633, 635 (Tex.Civ.App. 1917), and ceiling fans sold to a tenant who installed them in his leased
property and then left the property. Campbell v. Teeple, 373 S.W. 304, 307 (Civ.Ap.. 1925). No

Texas court has included proceeds within the definition of “article or building”.



"Ordinarily, Illinois follows the Restatement (Second) of Conflict of Laws (1971) in making
choice-of-law decisions." Chapman and Associates, Ltd, v. Kitzman, 193 Ill.2d 560, 739 N.E.2d
1263, 1269, 251 Ill.Dec. 141 (2002) (using Restatement (Second) Conflict of Laws §§ 6 and
221). Under § 221 of the Restatement, the court applies the law of the forum that has the most
significant relationship to the parties and the occurrence. According to the Restatement, the
following factors may be considered according to their importance with respect to the issue
before the court:

(a) the place where the relationship between the parties was centered, provided

that the receipt of the enrichment was substantially related to the relationship;

(b) the place where the benefit or enrichment was done;

(c) the place where the act conferring the benefit or enrichment was done;

(d) the domicile, residence, nationality, place of incorporation and place of

business of the parties; and

(e) the place where the physical thing, such as the land or chattel, which was

substantially related to the enrichment, was situated at the time of the enrichment

Every factor points to Texas as the forum with the most significant relationship to the
parties and the occurrence. Other than Trailmobile, every party is located in Texas. The
refrigeration units were incorporated into the trailers in Texas and sold to Texas corporations.
The express contract for the sale of the refrigeration units actually occurred between plaintiff, a
Texas corporation, and the end users, both Texas corporations. Therefore, Texas’ law on unjust
enrichment will be applied.

Under Texas law, unjust enrichment applies when for one reason or another the rights of
the parties are not governed by a contract. See Lone Star Steel Co. v. Scott, 759 S.W.2d 144,
154 (Tex. App.—-Texarkaria). When a defendant has been unjustly enriched by the receipt of

benefits in a manner not governed by contract, the law implies a contractual obligation upon the



a

~-esieminute Onier Form (0697)

United States District Court, Northern District of Mlinois

(11)

Name of Assigned Judge Sitting Judge if Oth
or Magistrate Judge Robert W. Gettleman than Assigned Judge
CASE NUMBER 02 C 5243 DATE Dec. 12, 2002
CASE Convoy Servicing Co. Vv Trailmobile Trailer, et al
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
(1) QO Filed motion of [ use listing in “Motion” box above.]
Q@ oa Brief in support of motion due
(3) o Answer brief to motion due. . Reply to answer brief due.
(4) Oo Ruling/Hearing on set for at .
(5) a Status hearing
(6) oO Pretrial conference[held/continued to) [set for/re-set for] on set for at -
”) Oo Trial[set for/re-set for] on at
(8) Oo [Bench/Jury trial] [Hearing] held/continued to at
(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) ClGeneralRule21 OFRCP41(a)\(1) CFRCP41(a)(2).
qo) «ox [Other docket entry]

Memorandum opinion and order entered. Accordingly, defendant’s motion to
dismiss as to count I is granted, and defendant’s motion to dismiss as to count VI is
denied.

a (For further detail see order attached to the original minute order.]

No notices required, advised in open court.
No notices required.

number of notices
Notices mailed by judge's staff
Notified counsel by telephone. DEC 13 2002
Docketing to mail notices.
Mail AO 450 form.

44n09 19 e
Copy to judge/magistrate judge. guyapsia sn

courtroom Chins Hd 2123020

GDS depuny’s .
= Dabber a |] J
central Clerk’s Office



t

CONCLUSION
For the foregoing reasons, defendant’s motion to dismiss as to Count I is granted, and

defendant’s motion to dismiss as to Count VI is denied.

ch) Soo

ENTER: December 12, 2002

Robert W. Gettleman
United States District Judge

11



Consequently, the questions to be asked are: (1) was there an express contract between
plaintiff and Trailmobile; (2) is it valid; and (3) did it cover the subject matter being litigated. It
is unclear from the allegations, and the briefs themselves, whether there was ever an actual
express contract between plaintiff and Trailmobile, or whether there was simply an implied
relationship based on industry practice and arising out of the express contracts between plaintiff
and the end users and Trailmobile and the end users.

The complaint itself alleges only arrangements and agreements between plaintiff and
Trailmobile to collaborate in the building of the refrigerated trailers. Specifically, paragraph 15
of the complaint states:

Pursuant to industry standard, [plaintiff] would contract directly with the end user for the

sale of refrigeration units. In most cases, the agreement between [plaintiff] and the end

user would take place prior to the end user’s selection of trailer manufacturer. Upon an
end user’s selection of [Trailmobile] as the trailer manufacturer, [Trailmobile] would
enter into an agreement with the end user for the sale of refrigerated trailers, and

[Trailmobile] and [plaintiff] would make arrangements between them for the installation

of the refrigeration units and delivery of the refrigerated trailers to the end user.

Taking all reasonable inferences in favor of plaintiff, it is unclear whether there was an
express contract between plaintiff and Trailmobile that covered the subject matter being
litigated—the funds being held by Trailmobile that were owed to plaintiff.

As plaintiff points out, even if there is an express contract, plaintiff can plead in the
alternative. Fed. R. Civ. P. 8(€)(2). Plaintiff cannot recover under inconsistent theories, but may
plead inconsistent theories in the alternative. Id. Because the court cannot determine at this

stage whether an express contract covered the subject matter being litigated, defendants motion

to dismiss as to Count VI is denied.

10



materials furnished to defendant Utman and used in the construction of a house on a lot owned
by Utman. Prior to completion, the house was destroyed by fire. Proceeds from an insurance
policy were deposited with the court which had before it the issue of who was insured under the
policy and the priority of the plaintiff's lien versus a mortgage lien. Id. Elgin, did not involve
the question in the instant case, which under plaintiff's theory would require the court to hold
generally that a self executing statutory (or constitutional) materialman’s lien converts to an
equitable lien and follows the proceeds of the sale of the property to which the statutory lien
originally attached. This court can find no case suggesting that the Texas Supreme Court would
so hold and, therefore, declines to do so.

Consequently, because the general trend of Texas courts has been to limit the scope of
Art. 16 § 37, because the plain language of the Constitution applies liens only to “article[s] or
building{s],” and because Texas courts have implicitly excluded proceeds, defendant’s motion to
dismiss as to Count I is granted.
Count VI—Unjust Enrichment

Trailmobile argues that plaintiff's unjust enrichment count fails because under both
Illinois and Texas law there cannot be a claim for unjust enrichment when there is an express
contract between the parties. However, there is a slight difference in Illinois and Texas law.
Consequently, prior to evaluating plaintiff's unjust enrichment claim, the court must determine if
the law of Illinois or the law of Texas applies.

A federal court exercising diversity jurisdiction applies the choice of law doctrines of the

state in which the court sits. See ECHO, Inc. v. Whitson Co., 52 F.3d 702, 706 (7" Cir, 1995)

(citing Klaxon v. Stentor Electric Mfg, Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L.Ed. 1477 (1941).



Bridgeford’s trailers. On December 12, 2001, Trailmobile voluntary filed for Chapter 11
bankruptcy.
Discussion

For purposes of a rnotion to dismiss, the court accepts the factual allegations of the
complaint as true and draws all reasonable inferences in favor of plaintiff. See Travel All Over
the World, Inc. v. Kingdorn of Saudi Arabia, 73 F.3d 1423 (7" Cir. 1996). When ruling ona
motion to dismiss for failure to state a claim, the court considers, "whether relief is possible
under any set of facts that could be established consistent with the allegations." Bartholet v.
Reishauer A.G., 953 F.2d 1073, 1078 (7" Cir. 1992). A claim may be dismissed only if it is
beyond doubt that under no set of facts would plaintiff's allegations entitle it to relief. Conley v.
Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The purpose of a motion to
dismiss is to test the sufficiency of complaint, not to decide its merits. See Gibson v. City of
Chicago, 910 F.2d 1510, 1520 (7" Cir. 1990).

Trailmobile argues that: (1) Count I fails as a matter of law because Texas’ Constitutional
Material Men’s Lien does not apply to proceeds; and (2) Count VI fails because under both
Texas and Illinois law unjust enrichment cannot exist when there is an express contract.

Count I—Texas’ Constitutional Materialman’s Lien

In Count I, plaintiff claims a materialman’s lien on the proceeds held by Trailmobile from
the sale of the refrigeration units. Trailmobile argues that plaintiffs fail to allege a claim because:
(1) no case has granted the constitutional lien on proceeds; and (2) the plain language of the

Texas Constitution does not expressly include proceeds. Because the Texas courts have



Allegations

For nearly forty years, plaintiff, a refrigeration unit supplier in Dallas, Texas, collaborated
with Trailmobile in the manufacturing of refrigerated trailers. Trailmobile, headquartered in
Northbrook, Illinois, manufactures trailers for commercial buyers. In the spring and summer of
2001, plaintiff contracted with T.I., a Texas trucking company, to supply 30 refrigeration units
for trailers manufactured by Trailmobile. In the summer of 2001, plaintiff contracted with
Bridgeford, a Texas food distributor, to supply three units for trailers manufactured by
Trailmobile.

For tax purposes, industry practice is that the refrigeration unit supplier contracts directly
with the end user, the end user pays the trailer manufacturer directly, and the trailer manufacturer
then remits payment to the refrigeration unit supplier. Under this arrangement, plaintiff's
payment is entrusted to Trailmobile by the end users. The complaint alleges that, “[a]s an
accommodation to the end users, invoices reflecting the cost of the trailers, with the refrigeration
units included, were issued to the end users by [Trailmobile] and payments were made by the end
users to [Trailmobile].” It is unclear from the complaint whether this arrangement is solely
implied based on industry practice or was expressed in a written contract. While the complaint
describes contracts between plaintiff and the end users, it describes only “arrangements” and
“agreements” between plaintiff and Trailmobile. The only invoices mentioned in the complaint
are invoices sent from Trailmobile to the end users.

Trailmobile delivered the trailers to Bridgeford and T.I. in the summer and fall of 2001.
Plaintiff alleges on information and belief that both T.1. and Bridgeford made full payments to

Trailmobile for all trailers. Trailmobile paid plaintiff for one of T.I.’s trailers, and one of



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
CONVOY SERVICING COMPANY, d/b/a
Thermo King of Dallas,
Plaintiff,

No. 02C 5243
v.

TRAILMOBILE TRAILER, LLC, TRANSPORT
INDUSTRIES, L.P., EDWARD I. WANANDI,
BRUCE R. BLACK, BYRDELL C. GOLDSMITH
I and WILLIAM C. DAILEY,

DOCKETED

)
)
)
)
}
) Judge Robert W. Gettleman
)
)
)
)
)
) DEC 13 2002

Defendants.
MEMORANDUM OPINION AND ORDER

Plaintiff Convoy Servicing Company filed an eleven count complaint against Trailmobile
Trailer LLC (“Trailmobile”), Transport Industries, L.P. (“T.L”), Bridgeford Foods (Bridgeford
and T.I. together, the “end users”), and Trailmobile’s officers, Edward I. Wanandi, Bruce R.
Black, Byrdell C. Goldsmith, II and William C. Dailey. All counts arise out of an agreement
under which plaintiff supplied refrigeration units to trailers sold by Trailmobile to T.I. and
Bridgeford. Trailmobile has moved to dismiss Count I (Texas’ Constitutional Materialman’s
Lien) and Count VI (unjust enrichment) arguing that the Materialman’s Lien does not apply to
proceeds as a matter of law, and that the unjust enrichment count cannot survive because an
express contract defined the parties’ relationship. For the reasons set forth below, the motion to

dismiss is granted as to Count I and denied as to Count VI.

\“1