In re Dota
| Decision Date | 27 January 2003 |
| Docket Number | No. CIV.A.H-02-3421.,CIV.A.H-02-3421. |
| Citation | 288 B.R. 448 |
| Parties | In re Gregory P. DOTA d/b/a Greg's Auto Sales and Carmen Dota, Debtors. Peyton Lundy, Appellant, v. First National Bank of El Campo and Joseph Hill, Trustee, Appellees. |
| Court | U.S. District Court — Southern District of Texas |
Gregory P. Dota, El Campo, TX, Pro se.
William Gibbs Harris, Attorney at Law, Sugar Land, TX, for Gregory P. Dota dba Greg's Auto Sales.
Barnet B. Skelton, Jr., Attorney at Law, Houston, TX, for Peyton Lundy.
Donald Joseph Knabeschuh, Parker & Knabeschuh, Houston, TX, for First National Bank of El Campo.
Appellant, Peyton Lundy, appeals the Judgment denying his claims for declaratory judgment, turnover, and conversion entered by the United States Bankruptcy Court for the Southern District of Texas, Houston Division, on July 30, 2002. For the reasons set forth below, the Judgment of the bankruptcy court will be reversed, and this action will be remanded to the bankruptcy court for entry of judgment in Lundy's favor on his claims for declaratory judgment and turnover and for consideration of his claim for conversion.
The Judgment appealed in this case was entered by the United States Bankruptcy Court for the Southern District of Texas on July 30, 2002, in an adversary proceeding styled Peyton Lundy v. First National Bank of El Campo and Joseph Hill, Trustee, Adversary No. 01-3515. This adversary proceeding is ancillary to the Chapter 7 bankruptcy case of Gregory P. Dota (Dota) d/b/a Greg's Auto Sales and Carmen Dota administered by the bankruptcy court under Case No. 01-34223-H3-7. Joseph Hill is the Chapter 7 Trustee (Trustee).
Dota was a licensed motor vehicle dealer who sold used cars to the public. On December 31, 1999, Dota executed a Commercial Security Agreement with appellee, First National Bank of El Campo (Bank), for floor plan financing of his inventory. The loan agreement provided for the Bank to retain possession of the original certificates of title to Dota's inventory of used vehicles. The loan agreement required Dota to arrange for the release of the original title from the Bank for each vehicle sold and to apply the sales proceeds to the loan. The Bank perfected its security interest in Dota's vehicles by filing a financing statement at the Texas Secretary of State's office.1
On November 13, 2000, Lundy executed two separate contracts, titled "Motor Vehicle Purchase Order," for the purchase of two vehicles from Dota, and simultaneously executed an "Application for Texas Certificate of Title" as to each vehicle. Lundy left the executed applications with Dota, who was to complete the process required for issuance of new certificates of title to Lundy for the vehicles. Lundy delivered a check for $40,786.64 to Dota as full payment for both vehicles, and took possession of bota vehicles: a 1999 Chevrolet Silverado Pickup Truck, and a 1998 Chevrolet Tahoe. Lundy's check was credited to Dota's account at the Bank on the same date.2 Lundy subsequently obtained the certificate of title for the Tahoe, but did not obtain the certificate of title for the Silverado.
Dota failed to notify the Bank of the Silverado's sale to Lundy, failed to apply the proceeds from the sale to his loan from the Bank, and failed to request or arrange for the Bank to release the title to the vehicle. On April 16, 2001, Dota and his wife, Carmen Dota, filed a chapter 7 petition in bankruptcy. The Bank demanded that Lundy return the Silverado.
Lundy filed an adversary proceeding against the Bank and the Trustee seeking declaratory judgment for title to the Silverado, turnover of the certificate of title, and damages for conversion.3 On July 23, 2002, the bankruptcy court conducted a bench trial at which the parties submitted the following Joint Stipulation:
1. On November 13, 2000, Plaintiff purchased from Debtor, Gregory P. Dota, d/b/a Greg's Auto Sales, a used 1999 Chevrolet Silverado Pickup Truck, for which he paid the cash sum of $22,003.48. On the same day, Plaintiff purchased a used 1998 Chevrolet Tahoe for which he paid the cash sum of $18,782.16. The vehicles were purchased for the personal use of Plaintiff and his family.
2. Payment for the two vehicles was effected pursuant to a check drawn on Plaintiff's personal bank account ... The check was deposited by Debtor in Debtor's operating account at First National Bank of El Campo on November 13, 2000.
3. ... Contemporaneous with the execution of each Motor Vehicle Purchase Order, Plaintiff executed an Application for Texas Certificate of Title which was retained by Debtor for the purpose of processing issuance of a new Certificate of Title. Although Plaintiff subsequently received a Certificate of Title for the 1998 Chevrolet Tahoe, he did not receive a Certificate of Title for the 1999 Chevrolet Silverado Pickup Truck. Plaintiff took possession of the vehicles on November 13, 2000, and continues to have possession of the vehicles.
4. Debtor, at all times relevant to this proceeding, was a licensed motor vehicle dealer, holding general distinguishing number P37906, issued under Chapter 503 of the Texas Motor Vehicle Commission Code. Debtor was in the business of selling used cars to the public.
5. Plaintiff purchased the vehicles in good faith and without knowledge that the sale to him was in violation of the ownership rights or security interests of First National Bank of El Campo, or any other third party, in the vehicles. Debtor was a person in the business of selling vehicles of the kind purchased by Plaintiff and Plaintiff performed all actions required by law of purchasers of vehicles from dealers to obtain the Certificate of Title for the 1999 Chevrolet pickup truck.
6. Subsequent to the purchase, Defendant, First National Bank of El Campo, notified Plaintiff that it asserted a security interest in the inventory of the Debtor and had possession of the Certificate of Title to the 1999 Chevrolet Silverado pickup truck. First National Bank of El Campo has refused to release the Certificate of Title so as to allow Plaintiff to obtain the new Certificate of Title.
7. The vehicle in question was a used vehicle, for which a Certificate of Title had already been issued.
8. The Certificate of Title was endorsed to Debtor on the reverse side thereof. The First National Bank of El Campo is not shown as a lienholder on the Certificate of Title.
9. The 1999 Chevrolet Silverado Pickup Truck, which is the subject of Plaintiff's Complaint, was not scheduled by Debtor and was not administered by Defendant Joseph M. Hill, Trustee, as property of Debtor's estate.
10. First National Bank of El Campo held a security interest in any and all inventory of Dota to secure a line of credit for "floor plan" financing.
11. First National Bank of El Campo perfected its security interest in the vehicle inventory of Dota by filing a UCC-1 with the Texas Secretary of State office.
12. First National Bank of El Campo has possession of the original certificate of title to the 1999 Chevrolet Silverado Pickup Truck, which is the subject of this proceeding.4
On July 30, 2002, the bankruptcy court entered a Memorandum Opinion. The bankruptcy court held that the sale of the Silverado from Dota to Lundy was not valid because Lundy did not receive a certificate of title at the time of the sale and, therefore, that Lundy could not have been a "buyer in the ordinary course of business" who took the Silverado free of the Bank's security interest.5 The bankruptcy court based its conclusion on the Fifth Circuit's opinion in Bank One Texas, N.A. v. Arcadia Financial, Ltd., 219 F.3d 494 (5th Cir.2000):
The Bank One case is directly applicable to the instant adversary proceeding. Under section 501.071(a) of the Texas Transportation Code, the sale from Dota to ... [Lundy] was not valid unless accompanied by a certificate of title. Thus, the court concludes, following Bank One, that ... [Lundy] could not have been a buyer in the ordinary course of business with respect to the purported sale of the Silverado.6
The same day the bankruptcy court entered a Judgment denying Lundy's claims for declaratory judgment, turnover, and damages.
The court reviews findings of fact by the bankruptcy court under the clearly erroneous standard and reviews issues of law and mixed questions of fact and law de novo. Fed. Bank. R. Proc. 8013. In re Universal Seismic Associates, Inc., 288 F.3d 205, 207 (5th Cir.2002). Because this appeal is based on the bankruptcy court's application of law to undisputed facts, the de novo standard of review applies. Id.
Lundy raises the following issues on appeal:
2. The Bankruptcy Court erred in finding that under Tex. Trans. Code § 501.071(a) the sale of the 1999 Chevrolet Silverado Pickup Truck which is the subject of this suit was not valid unless accompanied by transfer of the Certificate of Title.
3. The Bankruptcy Court erred in finding that Tex. Trans. Code § 501.071(a) applied to the sale of the 1999 Chevrolet Silverado Pickup Truck which is the subject of this suit since Debtor was not an "owner." A "dealer" is excluded from the definition of "owner" in Tex. Trans. Code § 501.002(6).
4. The Bankruptcy Court erred in holding that Plaintiff/Appellant could not have been a buyer in the ordinary course of business with respect to the sale of the 1999 Silverado Pickup Truck.
5. The Bankruptcy Court erred in finding that Plaintiff/Appellant was not a buyer in the ordinary course of business who took free of any alleged lien or security interest of First National Bank of El Campo.
6. The Bankruptcy Court erred in failing to grant the relief requested in Plaintiff's Complaint.7
Lundy argues that the bankruptcy court erroneously based its decision on the Fifth Circuit's opinion in Bank One...
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