United States v. Topeka Livestock Auction, Inc., Civ. No. 73 F 73.

• Decision Date: 07 February 1975
• Docket Number: Civ. No. 73 F 73.
• Citation: 392 F. Supp. 944
• Parties: UNITED STATES of America, Plaintiff, v. TOPEKA LIVESTOCK AUCTION, INC., Defendant and Third-party Plaintiff, v. William D. BULT and Esther M. Bult, Third-party Defendants.
• Court: U.S. District Court — Northern District of Indiana

392 F. Supp. 944

UNITED STATES of America, Plaintiff, v. TOPEKA LIVESTOCK AUCTION, INC., Defendant and Third-party Plaintiff, v. William D. BULT and Esther M. Bult, Third-party Defendants.

Civ. No. 73 F 73.

United States District Court, N. D. Indiana, Fort Wayne Division.

February 7, 1975.

COPYRIGHT MATERIAL OMITTED

John Wilks, U. S. Atty., Charles W. Larmore, Charles F. Leonard, Asst. U. S. Attys., Fort Wayne, Ind., for United States of America.

Dann L. Goode, Kansas City, Mo., Paul C. Raver, Sr., Fort Wayne, Ind., for Topeka Livestock Auction, Inc.

Thomas A. Withrow, Indianapolis, Ind., Stephen R. Lea, Phoenix, Ariz., Donald B. Steininger, Fort Wayne, Ind., for William D. Bult and Esther M. Bult.

MEMORANDUM OF DECISION AND ORDER

ESCHBACH, Chief Judge.

This is a tort action by plaintiff United States against defendant Topeka Livestock Auction. The complaint charges that defendant as auctioneer sold certain livestock in which plaintiff held a security interest. The livestock sold was security for loans extended by the Farmers Home Administration (FHA) to the owners of the livestock, William and Esther Bult. As these loans are now in default, the sale of the livestock by defendant auctioneer is alleged to make defendant liable for conversion in the amount of the unpaid balance of the loans. Defendant by its amended answer brought in the owners of the livestock and debtors on the FHA loans, William and Esther Bult, as third-party defendants pursuant to Rule 14 of the Federal Rules of Civil Procedure.

This cause is now before the court on the following motions:

1. Motion for summary judgment filed by plaintiff United States on January 7, 1974; and 2. Motion by third-party defendants, filed March 5, 1974, to set aside a "default judgment" entered by the Clerk of this court on February 11, 1974.

For reasons set forth below, the motion of plaintiff for summary judgment will be granted, and the motion of third-party defendants to set aside the default will be denied.

Background

The plaintiff, through the FHA and pursuant to authority granted by 7 U.S. C.A. § 1921 et seq., made two farm operating loans, in July, 1969, and January, 1970, to third-party defendants William and Esther Bult. These loans were secured by a security agreement dated February 5, 1970, which gave plaintiff a security interest in livestock then owned by the Bults and in all livestock later acquired by them. This security interest was perfected by a financing statement filed in the proper office in August, 1969.

The complaint alleges that on February 15, 1972, without the consent of plaintiff, third-party defendants sold 57 head of livestock, valued at $22,145.96, through the defendant Topeka Livestock Auction, Inc., a livestock auctioneer. The complaint further alleges that the Bults are in default on the FHA loans in the amount of $6,677.88 of principal plus accrued interest. Plaintiff now brings this action against defendant auctioneer claiming defendant is liable in tort for converting property in which plaintiff held a perfected security interest.

Plaintiff's Motion for Summary Judgment

Plaintiff has accompanied its motion for summary judgment with copies of promissory notes evidencing the loans to the third-party defendants, and with copies of the security agreement between plaintiff and third-party defendants, the financing statement perfecting that security agreement, and the FHA's current statement of account showing the balance and interest due on the loans. Plaintiff has also submitted an affidavit from one Ned Metzger, the County Supervisor for the FHA for the relevant county. Metzger avers that "to the best of his knowledge, neither he nor anyone else in his office consented to any sales of livestock" by third-party defendant William Bult prior to February 22, 1972. Metzger further avers that one Paul Hostetler, the officer manager for defendant auctioneer, told him that defendant paid $22,145.96 to William Bult to cover the sale of 57 cows on February 15, 1972, and that Hostetler sent him copies of the sales receipts. These copies are attached to the Metzger affidavit.

Despite three different extensions of time granted by the court for defendant to file a response to the government's motion for summary judgment, the defendant has not done so. Therefore, plaintiff's allegations which are supported by the evidentiary submissions will be taken as true.

The only question of any difficulty in ruling on plaintiff's motion for summary judgment is that of determining what body of law, state or federal, governs this case. Involved are issues concerning security interests held by the United States under an FHA loan program, and the tort liability of auctioneers charged with converting property in which the government held such an interest. There is a split in authority among the United States Courts of Appeals as to which law governs such cases, and there is no precedent in this circuit. Holding that federal law controls are United States v. Sommerville, 324 F.2d 712 (3rd Cir. 1963); United States v. Hext, 444 F.2d 804 (5th Cir. 1971); United States v. Carson, 372 F.2d 429 (6th Cir. 1967); and Cassidy Commission Company v. United States, 387 F.2d 875 (10th Cir. 1967). Holding that state law controls are United States v. Union Livestock Sales Company, 298 F. 2d 755 (4th Cir. 1962); and United States v. Kramel, 234 F.2d 577 (8th Cir. 1956). However, although this court is inclined to the view that the judicial development of federal common law to govern the issues involved is neither compelled by the nature of the federal interest involved nor warranted by the congressional intent behind the Farmers Home Administration legislation, see especially, the concurring opinion of Judge Steel in United States v. Sommerville, supra, it is not necessary for the court to decide the issue in this case. No matter which law governs, state or federal, the outcome in this cause is the same. Cf. Duvall-Wheeler Livestock Barn v. United States, 415 F.2d 226 (5th Cir. 1969).

Every Federal Court of Appeals holding that federal law controls the issue of the liability of an auctioneer who sells property in which the government holds a perfected security interest has concluded that the auctioneer is liable for conversion. Sommerville, supra; Carson, supra; Cassidy Commission Company, supra. The most closely analogous Indiana law is to the same effect. In Fort v. Wells, 14 Ind.App. 531, 43 N. E. 155 (1896), the state court held general commission livestock salesmen liable in conversion for selling on commission, in good faith, livestock which in fact was stolen. Recent Indiana law shows no drift away from conversion as a strict liability tort, in which the actor's intent and knowledge are irrelevant to his liability. Indianapolis Saenger Choir, Inc. v. American Fletcher National Bank and Trust Company, 149 Ind.App. 665, 274 N.E.2d 728 (1971); Sikora v. Barney, 138 Ind.App. 686, 207 N.E.2d 846 (1965). Therefore, the court has no doubt that if confronted squarely with the issue, the Indiana courts would follow the "great weight of authority" among the states in holding that

"a sale by an auctioneer for a principal . . . who holds the property subject to a mortgage or other lien . . . entails liability to the . . . lienor, . . . as for a conversion, on the part of the auctioneer who sells it under such circumstances, pays over the proceeds to the principal, and hands the property over to the purchaser with a view to passing the title to him, notwithstanding the auctioneer acts without knowledge of the principal's lack of authority to sell."

Annot., 96 A.L.R.2d 208, 210 (1964).

Likewise, there is no difference in the measure of the extent of liability between federal and state law; the measure is the fair market value of the property at the time the conversion took place (rather than the amount retained by the converter). Carson, supra, 372 F.2d at 433; Sikora, supra; Miller v. Long, 126 Ind.App. 482, 131 N.E.2d 348 (1956).

Finally, between state and federal law, there is no difference in answer to the question of whether the government held a perfected security interest in the property sold by the defendant. The relevant Indiana law is the Uniform Commercial Code as adopted in Indiana for secured transactions. Burns Ind.Stat.Ann. § 19-9-101 et seq.; IC 1971, XX-X-X-XXX et seq. The Uniform Commercial Code on secured transactions has been judicially adopted as the federal common law as well. Hext, supra. It is true that there are many significant differences between the UCC on secured transactions as adopted in Indiana, and the current "idealized" version of the American Law Institute and the National Conference of Commission's on Uniform State Laws; compare Burns Ind.Stat.Ann. § 19-9-101 et seq. with Uniform Commercial Code § 9-101 et seq. (Official Text 1972) (hereinafter "U.C.C.1972"). And certainly one of the problems with judicially "enacting" a body of law such as the U.C.C. Hext, supra, is that of determining which version of the U.C.C. is deemed to be the federal law. However, under any version of the U.C.C., the government in this case held a perfected security interest in the Bults' livestock. The promissory notes, security agreement, and the filed financing statement are sufficient to give the government a perfected security interest in the livestock sold by defendant. U.C.C.1972 §§ 9-201, 9-203(1, 2), 9-204(1), 9-302(1), 9-303, 9-401(1); Burns Ind.Stat.Ann. §§ 19-9-201, 19-9-203(1, 2), 19-9-204(1), 19-9-302(1), 19-9-303, 19-9-401(1); IC 1971, XX-X-X-XXX, XX-X-X-XXX(1, 2), XX-X-X-XXX(1), XX-X-X-XXX(1), XX-X-X-XXX, XX-X-X-XXX(1). Under either version of the Uniform Commercial Code, the "after-acquired" livestock provision is proper. U.C.C.1972 § 9-204(3); Burns Ind.Stat.Ann. § 19-9-204(3). The description of the livestock as collateral is adequate in the security agreement, U.C.C.1972 § 9-110; Burns Ind. Stat.Ann. § 19-9-110; IC,...