Court Opinion

ID: 3193650
Source: CourtListenerOpinion
Date Created: 2016-04-13 18:00:48.485456+00
Date Added: 2024-06-11T14:36:16.702045
License: Public Domain

Case: 15-20345   Document: 00513462809     Page: 1   Date Filed: 04/13/2016

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT

                                 No. 15-20345                   United States Court of Appeals
                                                                         Fifth Circuit

                                                                       FILED
PROSPECT CAPITAL CORPORATION,                                      April 13, 2016
                                                                  Lyle W. Cayce
             Plaintiff - Appellant                                     Clerk

v.

MUTUAL OF OMAHA BANK; THE ENMON IRREVOCABLE FAMILY
TRUST; GRACE W. ENMON; KICKAPOO KENNELS, L.L.C.,

             Defendants - Appellees

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

Before DAVIS, SMITH, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:
      This appeal arises from a declaratory judgment action seeking a
declaration as to which party—Prospect Capital Corporation, appellant here,
or Mutual Bank of Omaha, appellee—had priority, under Texas law, in certain
collateral. In 2008, in litigation unrelated to this case, Prospect obtained a
money judgment for approximately $2.3 million against Michael Enmon in
federal court in New York. To avoid paying the judgment, Enmon engaged in
a series of fraudulent transfers of his assets. His most valuable asset was Texas
mineral rights—worth between $440,000 and $840,000 at the time and rapidly
increasing in value—which he transferred to his mother, Grace Enmon, who
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then sold part of the rights and transferred most of the proceeds to an
“irrevocable trust.” The trust thereafter acquired a tract of land and personal
property in Texas. Enmon also formed a dog-kennel business called Kickapoo
Kennels, LLC, which was 90% owned by the trust.
      In 2009 and 2010, Kickapoo and the trust applied to Mutual for two
small-business loans totaling approximately $2.3 million. Mutual extended the
loans and obtained in return security interests in (1) the mineral rights, (2) the
real property owned by the trust, and (3) the personal property owned by both
Kickapoo and the trust. Each time, Mutual immediately perfected its liens.
Thereafter, in February 2013, Prospect recorded the abstract of its New York
money judgment in the Harris County, Texas, real property records.
      In April 2013, Prospect brought the current declaratory judgment action
against Mutual in federal court in Texas, seeking a declaration that Prospect
had a superior interest to Mutual in (1) the mineral rights, (2) the Kickapoo
real property, and (3) the Kickapoo personal property. Mutual filed a motion
for summary judgment, which the district court granted. This appeal followed.
      Prospect challenges the summary judgment. Prospect argues that, under
Texas’s law of title disputes, it was entitled to a declaratory judgment that it
had priority over Mutual in the contested collateral. We review a summary
judgment de novo, applying the same legal standards as the district court.
Hemphill v. State Farm Mut. Auto. Ins. Co., 805 F.3d 535, 538 (5th Cir. 2015).
Summary judgment is proper when the pleadings, the discovery and disclosure
material on file, and any affidavits show that “there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a).
      Under Texas law—which the parties agree applies here—“[i]n a contest
over rights or interests in property, ordinarily the party that is first in time is
first in right.” World Help v. Leisure Lifestyles, Inc., 977 S.W.2d 662, 668 (Tex.
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App.―Fort Worth 1998, pet. denied). Mutual secured its first and second liens
in the contested collateral in 2009 and 2010. In Texas, “[a] judgment lien is
created by filing and indexing an abstract of judgment.” Drake Interiors, L.L.C.
v. Thomas, 433 S.W.3d 841, 847 (Tex. App.―Houston [14th Dist.] 2014, pet.
denied). Prospect did not record an abstract of its New York judgment in the
Texas real property records until 2013. Thus, Prospect’s lien arose after
Mutual’s liens and security interests. Under the general rule, then, Prospect’s
lien is “junior” to Mutual’s liens and security interests.
      Prospect argues that it should have priority nonetheless because Mutual
was not a “bona fide” lender under Texas’s general law of title disputes. But
bona-fide lender doctrine comes into play only as a defense to a claim by a
“holder of a prior unrecorded deed or other unrecorded interest in the same
property,” Noble Mortg. & Inv., LLC v. D & M Vision Inv., LLC, 340 S.W.3d 65,
75 (Tex. App.―Houston [1st Dist.] 2011, no pet.), and Prospect did not have an
interest in any of the specific contested collateral at the time that Mutual took
its liens. “In Texas, no lien is created by the mere rendition of a money
judgment.” Rogers v. Peeler, 271 S.W.3d 372, 375 (Tex. App.―Texarkana 2008,
pet. denied). Instead, to create an interest in specific property, a judgment
creditor must correctly file and index an abstract of judgment in the real
property records “in accordance with the provisions of the property code.”
Murray v. Cadle Co., 257 S.W.3d 291, 296 (Tex. App.―Dallas 2008, pet. denied);
see Tex. Prop. Code § 52.001. Thus, Prospect’s unabstracted and unexecuted
money judgment did not give it a lien interest in any of the specific contested
collateral. Hence the doctrine does not apply.
      Prospect also argues that the district court abused its discretion by
granting summary judgment before the close of discovery. We review a district
court’s denial of a Rule 56(d) motion for abuse of discretion. Am. Family Life
Assurance Co. of Columbus v. Biles, 714 F.3d 887, 894 (5th Cir. 2013). Although
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Rule 56(d) motions for additional discovery are “broadly favored and should be
liberally granted,” parties seeking Rule 56(d) relief “may not simply rely on
vague assertions that additional discovery will produce needed, but
unspecified, facts.” Id. (quoting Raby v. Livingston, 600 F.3d 552, 562 (5th Cir.
2010)). Instead, a party must “set forth a plausible basis for believing that
specified facts, susceptible of collection within a reasonable time frame,
probably exist and indicate how the emergent facts, if adduced, will influence
the outcome of the pending summary judgment motion.” Id. (quoting Raby, 600
F.3d at 561).
      Below, Prospect argued that it was entitled to further discovery to
develop “strands of evidence” relating to Mutual’s “failure to conduct
reasonable diligence.” Presumably, such evidence would relate to Prospect’s
bona-fide lender argument, which, as shown above, fails. Prospect also argued
that it was entitled to additional electronic discovery related to allegedly
backdated documents produced by Mutual. But the magistrate judge denied
Prospect’s motion to compel that electronic discovery, and Prospect did not
object to the denial. That means that the electronic discovery was not
“susceptible of collection within a reasonable time frame”—Prospect was never
going to get it—so it cannot support Prospect’s Rule 56(d) motion. On appeal,
Prospect identifies no other “specified facts” that additional discovery would
reveal, much less explain how such facts would influence the outcome of the
summary judgment motion. Id. Thus, Prospect has not shown that the district
court abused its discretion in denying Prospect’s request for Rule 56(d) relief.
      The judgment of the district court is AFFIRMED.

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