Court Opinion

ID: 14331
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:34:44+00
Date Added: 2024-06-11T15:04:17.529218
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                         FOR THE FIFTH CIRCUIT

                     ____________________________

                       Nos. 97-20164 & 97-20339
                     ____________________________

            VW CREDIT INCORPORATED,

                                   Plaintiff-Appellant,

            v.

            FIRST AMERICAN BANK,

                                   Defendant-Appellee.

_________________________________________________________________

            Appeal from the United States District Court
                 for the Southern District of Texas

_________________________________________________________________
                          March 23, 1998
Before KING, EMILIO M. GARZA, and DeMOSS, Circuit Judges.

PER CURIAM:*

     Plaintiff-appellant VW Credit, Inc. appeals the district

court’s denial of its motion for summary judgment, its granting

of defendant-appellee First American Bank’s motion for summary

judgment, and its award of attorney’s fees to First American

Bank.    We reverse and remand.

                            I.    BACKGROUND

     *
        Pursuant to 5TH CIRCUIT RULE 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that this opinion should not be published and is not precedent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 CIRCUIT
RULE 47.5.4.
      In September 1989, plaintiff-appellant VW Credit, Inc. (VW

Credit) began providing floor-plan financing on new cars to Wayne

Thomas Volkswagen, Inc. (the Dealer), an automobile dealership.

As part of this financing agreement, the Dealer granted VW Credit

a security interest in its inventory, including new and used

cars, which VW Credit perfected by filing that same month.

      In March 1983, defendant-appellee First American Bank (First

American) began lending money to the Dealer to acquire used cars.

First American filed a financing statement describing used cars

in the Dealer’s inventory.   As a condition for receiving an

advance on this line of credit, First American required the

Dealer to deposit with it the certificates of title to the used

cars being financed.   First American returned the certificate of

title to the Dealer when the corresponding advance was repaid.

Over 150 used cars were financed in this manner.   First

American’s advances were repaid on all but thirteen used cars,

which were still in the Dealer’s inventory when VW Credit stepped

in.

      After First American began its lending relationship with the

Dealer, VW Credit performed various audits of the Dealer’s books

and inventory.   In May 1995, VW Credit discovered that the Dealer

had sold cars out of trust and was therefore in default.    As a

result of the Dealer’s default, VW Credit accelerated the

Dealer’s obligation and acted to collect the debt.   Relying upon

its security interest in the Dealer’s inventory, VW Credit

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instituted this declaratory judgment action (1) to force First

American to turn over the certificates of title to the used cars

currently in inventory, (2) to force First American to turn over

the monies it received from the Dealer in relation to all of the

used cars, and (3) to receive punitive damages.

     The district court concluded that (1) First American

perfected its security interest in the used car inventory by

possession of the used cars’ certificates of title; (2) First

American was not required to give notice to VW Credit of its

purchase money security interest, reasoning that the Dealer never

had possession of the cars because First American had the

certificates of title; (3) thus, First American’s security

interest had priority over VW Credits first-in-time, perfected

security interest; and (4) even if the bank did not have

priority, the theories of fraud, gross negligence, and malice

would not apply to First American’s conduct.      Based upon these

conclusions, the district court entered a take-nothing judgement

and awarded attorney’s fees to First American.

                      II.    STANDARD OF REVIEW

     We review the granting of summary judgment de novo, applying

the same criteria used by the district court in the first

instance.   Norman v. Apache Corp., 19 F.3d 1017, 1021 (5th Cir.

1994).

                            III.   DISCUSSION

                                    3
     VW Credit challenges the district court’s conclusions which

led it to find that First American’s security interest had

priority over VW Credit’s security interest in the used cars and

their proceeds.   We consider each of the district court’s

conclusions in turn.

     First, possession of the certificate of title of a vehicle

under Texas law does not perfect a security interest in a vehicle

that is part of inventory.   Article 9 of the Texas Uniform

Commercial Code and the Texas Transportation Code both

specifically apply Article 9’s filing provisions to vehicles

covered under the title rules in the Transportation Code when the

vehicle is held as inventory by a person in the business of

selling vehicles of that kind.   See TEX. BUS. & COM. CODE ANN.

§ 9.302(c)(2) (Vernon Supp. 1998); TEX. TRANSP. CODE ANN.

§ 501.111(b) (Vernon Pamphlet 1998).    Therefore, First American’s

security interest was not perfected by possession of the

certificates of title.

     Second, the district court’s conclusion that no notice was

required because the Dealer never possessed the used cars cannot

stand.   That conclusion apparently rests upon the theory that VW

Credit’s security interest did not attach because the Dealer

never had rights in the collateral and therefore that no

conflicting security interest requiring notice exists.      See TEX.

BUS. & COM. CODE ANN. §§ 9.203(a)(3), 9.312(c)(2) (Vernon 1991 &

Supp. 1998).   However, in order for First American’s security

                                 4
interest to attach, the Dealer had to have rights in the

collateral; thus, VW Credit’s security interest also attached.

See id. § 9.203(a)(3).    The Dealer’s control over the used cars

is similar to, and perhaps greater than, the control a consignee

has over consigned property.     Texas courts have found that

property placed with a seller on a consignment basis is subject

to a security interest covering the inventory of the seller.         See

A. Wolfson’s Sons, Inc. v. First State Bank, 697 S.W.2d 753, 755,

757 (Tex. App.--Corpus Christi 1985, no writ); see also 4 JAMES J.

WHITE & ROBERT S. SUMMERS, UNIFORM COMMERIAL CODE § 31-6, at 127-28, 128

n.15 (Practitioner Treatise Series, 4th ed. 1995) (“Courts have

looked to such factors as the debtor’s actual control over the

property and the extent to which the risks of ownership have been

shifted to the debtor.”).     Additionally, to hold that First

American’s possession of the certificates of title barred the

Dealer from possessing the used cars, despite having actual

possession of the used cars, would be inconsistent with the

provisions of the Texas Code applying Article 9 to vehicles in

inventory.   Therefore, First American was not excused from giving

notice to VW Credit under § 9.312(c), and the district court’s

judgment cannot stand.1

     1
        We need not reach the issue of attorney’s fees because,
with our resolution of VW Credit’s appeal, there no longer exists
a judgment upon which to base the award of attorney’s fees.

                                   5
     On appeal, both parties urge this court to resolve the case

using a rationale other than that used by the district court.2

We decline to do so.   In addition to the fact that the parties’

arguments have not been ruled upon by the district court, some

discovery issues, which relate to the other rationales the

parties urge us to adopt, have yet to be resolved, making the

factual basis of any ruling we might make uncertain.       Therefore,

it is more appropriate and efficient for the district court to

consider these questions in the first instance than for this

court to take them up on appeal.       We state no opinion on the

merits of either party’s claims.

                          IV.   CONCLUSION

     For the foregoing reasons, we REVERSE the district court’s

judgment and REMAND the case for further proceedings consistent

with this opinion.

     2
        We have found no authority that supports the district
court’s rationale, nor can the parties direct us to any such
authority. The district court’s Opinion on Judgment provided no
legal authority for its conclusions and resolved the case upon a
rationale that was not urged below by either party. In oral
argument before this court, no party argued for reversal or
affirmance on a rationale related to the one used by the district
court.

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