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
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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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
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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
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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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.
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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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.
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AFFIRMED