Leasing Service Corp. v. Hobbs Equipment Co.

• Decision Date: 06 February 1989
• Docket Number: CV No. 85-HM-5471-NE.
• Citation: 707 F. Supp. 1276
• Parties: LEASING SERVICE CORPORATION, Plaintiff, v. HOBBS EQUIPMENT COMPANY, Defendant and Third Party Plaintiff, v. COLONIAL BANK OF NORTH ALABAMA, formerly Bank of Moulton; and River City Construction Company, Inc., Third Party Defendants. LEASING SERVICE CORPORATION, Third Party Plaintiff, v. COLONIAL BANK OF NORTH ALABAMA, formerly Bank of Moulton, Third Party Defendant.
• Court: U.S. District Court — Northern District of Alabama

707 F. Supp. 1276

LEASING SERVICE CORPORATION, Plaintiff, v. HOBBS EQUIPMENT COMPANY, Defendant and Third Party Plaintiff, v. COLONIAL BANK OF NORTH ALABAMA, formerly Bank of Moulton; and River City Construction Company, Inc.^*, Third Party Defendants.

LEASING SERVICE CORPORATION, Third Party Plaintiff, v. COLONIAL BANK OF NORTH ALABAMA, formerly Bank of Moulton, Third Party Defendant.

CV No. 85-HM-5471-NE.

United States District Court, N.D. Alabama, Northeastern Division.

February 6, 1989.

Michael L. Hall, Latrick M. Lavette, Johnston, Barton, Proctor, Swedlaw & Naff, Birmingham, Ala., for plaintiff.

Thomas A. Caddell, Caddell, Shanks, Harris, Moores & Murphree, Decatur, Ala., for Hobbs.

William E. Shinn, Jr., Harris, Shinn, Phillips & Perry, Decatur, Ala., for Colonial Bank.

Welborn Dent, President of River 102 Longhorn Pass, Hartselle, Ala., for River City Const.

MEMORANDUM OF DECISION

HALTOM, District Judge.

By Order of this Court entered on September 30, 1987 summary judgment was denied to each movant for summary judgment in the above entitled civil action, the Court finding and determining that each movant had failed to show that no genuine issue of material fact existed and that movant was entitled to judgment as a matter of law. As noted in said Order, these rulings merely preserved the status quo in the case. See T.B. Scottdale Contractors, Inc. v. United States, 815 F.2d 1425, 1428 (11th Cir.1987). Upon reconsideration, the Court sua sponte vacates its September 30, 1987 Order denying summary judgment and in conformity with directive of the Eleventh Circuit Court of Appeals now enters this Memorandum of Decision stating its reasons for the summary judgment rulings now made and entered in this case.

STATEMENT OF THE CASE

Plaintiff Leasing Service Corporation ("LSC"), a corporation organized and existing under the laws of a state other than the State of Tennessee and having its principal place of business in the State of New York, brought this diversity of citizenship civil action on July 5, 1985 against defendant Hobbs Equipment Company ("Hobbs"), a corporation organized and existing under the laws of the State of Tennessee and having its principal place of business in that state. The complaint alleged that the matter in controversy exceeded, exclusive of interest and costs, the sum of $10,000.00. The complaint further alleged that in September 1983 the defendant Hobbs purchased a Lorain Model MC 775 Crane ("Lorain Crane"), with serial number identified, from River City Construction Company, Inc. ("River City") for the sum of $75,000.00 and subsequently sold it to a third party for the sum of $80,000.00. Plaintiff LSC then alleged that the Lorain Crane in question was at all relevant times subject to a first priority perfected security interest therein owned and held by LSC pursuant to Alabama UCC law and that defendant and Hobbs' purchase and sale of such equipment item was in derogation of and in defiance to LSC's superior security rights thereto. LSC's complaint next alleges that despite written notice by LSC to Hobbs via certified United States mail that LSC owned and held a perfected first priority security interest in and to the Lorain Crane and written demand for immediate payment by Hobbs to LSC of the $80,000.00 purchase price above referenced, no such payment had been tendered. The complaint finally alleges that Hobbs' actions constituted a conversion of LSC's personal property. The complaint demands judgment against defendant Hobbs in the amount of $80,000.00 and costs.¹

Hobbs filed its Answer to LSC's complaint on August 14, 1985 admitting its purchase of the Lorain Crane from River City and its sale thereof to a third party for $82,000.00 after performing certain maintenance and repair work thereon. Hobbs alleged that at the time of its purchase from River City it Hobbs wired the $75,000.00 purchase price to Colonial Bank of North Alabama (the "Bank"), formerly Bank of Moulton, which claimed a security interest therein, authorized the sale of such equipment to Hobbs and in fact furnished it with a Certificate of Title. Admitting that the Bank's retention of such sales proceeds was a defiance of LSC's rights, Hobbs alleged that its conduct in purchasing the Lorain Crane and subsequently selling it to a third party in the State of Tennessee where LSC had never perfected its security interest in and to such equipment item constituted no actionable wrong on its part. Defendant Hobbs also asserted by way of special defense that LSC had omitted to make a necessary party a defendant in this action, alleging that the Bank was a corporate citizen of the State of Alabama subject to the jurisdiction of the court which could be made a party without depriving the Court of jurisdiction over the subject matter of this action and was a party needed for just adjudication of the controversy.

On August 23, 1985 the defendant Hobbs filed its third-party complaint in this case against the Bank and River City, as third-party defendants, alleging that the Bank misapplied the sales proceeds it received via Hobbs from River City's sale of the Lorain Crane to Hobbs by failing to pay such proceeds to the first lien holder, LSC, pursuant to Alabama's UCC Code. Jurisdiction is based upon diversity of citizenship and the amount in controversy. Hobbs' third-party complaint further alleges that River City and the Bank either negligently or intentionally misrepresented to Hobbs that it would have and receive a good and merchantable title to the Lorain Crane upon payment of the purchase proceeds to the Bank for application of the indebtedness owed it by River City. The third-party complaint next alleges that Hobbs relied upon such representation and delivered such proceeds to the Bank to its damage and detriment. Hobbs' third-party complaint against the Bank and River City further alleges that River City specifically warranted title to the Lorain Crane, that the Bank was privy to such warranty by obtaining execution by River City of the bill of sale at the Bank's office and by handling the application of the sales proceeds from Hobbs which it (Bank) applied as a payment by River City on its indebtedness to the Bank. Finally, the third-party complaint against the Bank and River City alleges that both the Bank and River City have wrongfully refused the demands of the third-party plaintiff for the Bank and River City to defend Hobbs in this litigation, thus causing it to incur legal fees and expenses in this case. The Hobbs' third-party complaint against the Bank and River City, as third-party defendants, demands judgment against the Bank and River City for all sums that may be herein adjudged against Hobbs in favor of LSC.

Third-party defendant Bank filed its ten-page Answer to Hobbs' third-party complaint on September 19, 1985. Stripped of its redundancy, the Bank's answer asserts the contributory negligence of Hobbs to Hobbs' third-party complaint charge of negligence against the Bank and River City, proximately contributing to the injury or loss complained of by Hobbs; the defense of no privity of contract between the third-party plaintiff and the Bank; that the Bank's constructive knowledge of LSC's lien priority was equally available to Hobbs; lack of standing; that the asserted claims for relief of the third-party plaintiff Hobbs are essentially claims for indemnity or contribution by one joint tort-feasor against other joint tort-feasors; one-year statute of limitations; that the lien claimed by LSC is either void or unenforceable or unperfected at all times material to the litigation; defense of res judicata; not qualified to transact business in the State of Alabama defense relates to LSC's assignor failing to qualify; fraud in the factum attempting to raise in its own defense the alleged fraud practiced by LSC's assignor upon River City at or immediately prior to the time of the execution of the documents by LSC's assignor and River City which give rise to LSC's security interest as assignee; other fraud allegedly committed by LSC in the preparation of the documents executed by River City and LSC's assignor; unconscionability taking of security interest in River City's equipment by LSC and its assignor; LSC's alleged failure to perfect its security interest; additional failure to perfect defense; and, failure to maintain perfection defense.

Under date of January 21, 1986, defendant Hobbs amended its Answer to LSC's complaint by adding to its defense to plaintiff's conversion claim for relief against Hobbs the defense that LSC's assignor was not qualified to transact business in the State of Alabama at the time of the execution of the documents between LSC's assignor and River City which give rise to LSC's claim, as assignee, of perfected first priority security interest in and to all of River City's equipment and by further adding an additional defense to LSC's complaint premised upon LSC's alleged failure to timely perfect its security interest in the Lorain Crane after such item of equipment was sold by River City to Hobbs which transported the Crane in question to the State of Tennessee for delivery to Hobbs' purchaser.

At the same time above referenced Hobbs, as third-party plaintiff, amended its third-party complaint against the Bank, as third-party defendant by adding thereto Count Two which alleges that if plaintiff LSC under its complaint against Hobbs is legally entitled to recover of Hobbs for conversion of the security in question then the third-party defendant Bank is indebted to Hobbs, as third-party plaintiff, for money had and received by the Bank in that Hobbs paid the money to the Bank on the mistaken supposition of fact that the Bank was entitled to the proceeds of sale as the owner and holder of a perfected first priority security interest in and to the Lorain Crane which Hobbs purchased from River City. The demand for relief in Count Two is that Hobbs demands judgment...