575 F.2d 587 (6th Cir. 1978), 76-2109, United States v. Burnette-Carter Co.

Docket Nº:76-2109.
Citation:575 F.2d 587
Party Name:UNITED STATES of America, Plaintiff-Appellant, v. BURNETTE-CARTER COMPANY, Defendant-Appellee.
Case Date:May 15, 1978
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 587

575 F.2d 587 (6th Cir. 1978)

UNITED STATES of America, Plaintiff-Appellant,



No. 76-2109.

United States Court of Appeals, Sixth Circuit

May 15, 1978

Argued Feb. 2, 1978.

W. J. Michael Cody, U.S. Atty., Devon L. Gosnell, Asst. U.S. Atty., Memphis, Tenn., Ronald R. Glancz, Frederic Cohen, Appellate Sect., Civil Div., Dept. of Justice, Washington, D.C., for plaintiff-appellant.

James E. Threlkeld, G. Keith Rogers, Jr., Threlkeld & Howard, P. A., Memphis, Tenn., for defendant-appellee.

Before EDWARDS, CELEBREZZE and LIVELY, Circuit Judges.

CELEBREZZE, Circuit Judge.

This is an appeal by the United States from a summary judgment granted to defendant-appellee Burnette-Carter Company.

Page 588

The complaint was filed on behalf of the Farmer's Home Administration of the United States Department of Agriculture (FmHA) and alleged that Burnette-Carter converted certain livestock subject to an FmHA security interest. 1 The primary issue on appeal is the validity of the security interest vis-a-vis Burnette-Carter under Uniform Commercial Code (UCC) § 9-103(3) (1962 Official Text). 2 We hold that the security interest was valid and reverse the judgment below.

Both parties moved the district court for summary judgment and the relevant facts are not in dispute. The FmHA made a loan to a Mississippi farmer, not a party to this action, pursuant to the Bankhead-Jones Farm Tenant Act, 7 U.S.C. §§ 1941 et seq. A financing statement was filed and all other steps were taken to properly perfect a security interest in Mississippi covering all of the farmer's livestock. Without the knowledge or approval of the FmHA, the farmer shipped the livestock from Mississippi to Tennessee (the "removal state") to be sold. The livestock were sold to bona fide purchasers at auction by Burnette-Carter, a Memphis commission livestock broker. There were several sales in this manner over two years, each sale occurring within four months of removal into Tennessee. The farmer did not apply any of the sale proceeds to the loan and defaulted on his loan repayments. The FmHA took no action to perfect its security interest in Tennessee.

The district court held that the FmHA could not recover in conversion since it had not filed a financing statement in Tennessee within four months of the collateral's removal. The court reasoned that UCC § 9-103(3), as codified in Tenn.Code Ann. § 47-9-103(3), required a secured party to file a financing statement in the removal state within the four month period and that absent such filing the security interest was deemed unperfected in the removal state retroactive to the date of the collateral's removal. Under this reasoning, the security interest was not perfected as to Burnette-Carter, and it could not be held liable for conversion. The FmHA argues that UCC § 9-103(3) gives four months of absolute protection to the secured party upon removal of the collateral, even without refiling in the removal state, and that its security interest was therefore valid at the time of the sales in question.

There is no dispute that the FmHA is entitled to recover if it had a valid security interest at the time and place of sale. This court has held, on almost identical facts, that a livestock auctioneer who unauthorizedly sells property subject to a third party's security interest is liable in conversion to that third party even if the auctioneer has no knowledge of the security interest. United States v. Carson, 372 F.2d 429, 435 (6th Cir. 1967). The appropriate

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measure of damages is the fair market value of the collateral at the time of the conversion. Id. Other circuits have uniformly reached the same conclusion on similar facts. 3 United States v. E. W. Savage & Son, Inc., 475 F.2d 305 (8th Cir. 1973); Cassidy Commission Co. v. United States, 387 F.2d 875 (10th Cir. 1967); United States v. Sommerville, 324 F.2d 712 (3d Cir. 1963), cert. den. 376 U.S. 909, 84 S.Ct. 663, 11 L.Ed.2d 608 (1964); United States v. Union Livestock Sales Co., 298 F.2d 755 (4th Cir. 1962); United States v. Matthews, 244 F.2d 626 (9th Cir. 1957). See also United States v. Topeka Livestock Auction, Inc., 392 F.Supp. 944 (N.D.Ind.1975). This is also the clear majority rule among the states. Annot., 96 A.L.R.2d 208, §§ 3 & 7; 3 C.J.S. Agency § 383.

We must now focus on whether the FmHA's security interest was valid vis-a-vis Burnette-Carter. There is a split among the circuits as to whether the federal courts should look to state law in making this determination or fashion a uniform federal rule. Following the dictates of Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), this court has held that a uniform federal rule is appropriate in FmHA security interest cases. 4 United States v. Carson, 372 F.2d 429, 431-35 (6th Cir. 1967). Accord, United States v. Hext, 444 F.2d 804 (5th Cir. 1971); Cassidy Commission Co. v. United States, 387 F.2d 875 (10th Cir. 1967); United States v. Sommerville, 324 F.2d 712 (3d Cir. 1963), cert. den. 376 U.S. 909, 84 S.Ct. 663, 11 L.Ed.2d 608 (1964); United States v. Matthews,244 F.2d 626 (9th Cir. 1957). Contra, United States v. Chappel Livestock Auction, Inc., 523 F.2d 840 (8th Cir. 1975); United States v. Union Livestock Sales Co., 298 F.2d 755 (4th Cir. 1962); United States v. Kramel,234 F.2d 577 (8th Cir. 1956). This does not mean that this court should ignore relevant state law; it simply means that we are not bound by state law as we are in diversity of citizenship cases under Erie R. Co. v. Tompkins,304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Indeed, in Carson we followed the substantive rule adopted in two other circuits but added:

We also take note of the fact that this rule is followed in nearly all the states. The formulation of a uniform federal rule does not require that the wisdom of the states be disregarded, and the federal rule may correspond to the rule applied in many states.

372 F.2d at 435.

The Fifth Circuit, which also opts for a uniform federal rule in FmHA cases, employed the following...

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