Lewiston State Bank v. Greenline Equipment

• Citation: 2006 UT App 446,147 P.3d 951
• Decision Date: 02 November 2006
• Docket Number: No. 20050689-CA.,20050689-CA.
• Parties: LEWISTON STATE BANK, Plaintiff, Appellee, and Cross-appellant, v. GREENLINE EQUIPMENT, L.L.C., a Utah limited liability company; John Does I-X; and Jane Does I-X, Defendants, Appellants, and Cross-appellees.
• Court: Court of Appeals of Utah

Page 951

147 P.3d 951

2006 UT App 446

LEWISTON STATE BANK, Plaintiff, Appellee, and Cross-appellant, v. GREENLINE EQUIPMENT, L.L.C., a Utah limited liability company; John Does I-X; and Jane Does I-X, Defendants, Appellants, and Cross-appellees.

No. 20050689-CA.

Court of Appeals of Utah.

November 2, 2006.

Dennis L. Mangrum, Salt Lake City, for Appellants.

Brian G. Cannell, Hillyard Anderson & Olsen, Logan, for Appellee.

Before Judges GREENWOOD, BILLINGS, and THORNE.

OPINION

GREENWOOD, Associate Presiding Judge:

¶ 1 Defendant Greenline Equipment, L.L.C. (Greenline) appeals the trial court's grant of summary judgment to Plaintiff Lewiston State Bank (the Bank). Greenline argues that it maintains a priority position in disputed collateral as the holder of a refinanced purchase-money security interest (PMSI). The Bank cross-appeals the trial court's failure to award it attorney fees and costs as consequential damages. We affirm.

BACKGROUND

¶ 2 On March 5, 1998, Pali Brothers Farms (Pali Brothers) purchased two combines from Case Equipment. Pali Brothers financed its purchase under an agreement with New Holland Credit Company (New Holland) whereby New Holland obtained a PMSI in the combines. New Holland filed and perfected a financing statement on March 5, 1998.

¶ 3 On February 22, 2000, Pali Brothers executed a promissory note, borrowing $300,750 from the Bank. Pali Brothers granted the Bank a security interest in all "present and incoming equipment." The Bank filed and perfected a financing statement on February 25, 2000. On February 26, 2001, Pali Brothers executed a second promissory note, payable to the Bank, this time borrowing $275,687.50 and granting the Bank a security interest in "all farm equipment." The Bank filed and perfected a financing statement on May 8, 2001.

¶ 4 Subsequently, Pali Brothers defaulted on its payments to New Holland. On January 14, 2002, Greenline paid Pali Brothers's outstanding debt to New Holland in the amount of $67,654.79. In exchange, Greenline requested and received a lien release from New Holland on the two combines.

¶ 5 On February 20, 2002, Eli and Bart Pali executed a variable rate loan contract and security agreement with John Deere & Company (John Deere), which financed Eli and Bart Pali's purchase of the two combines from Greenline.¹ Eli and Bart Pali agreed to pay John Deere an origination charge of $150 and a finance charge of $10,626.43, as well as $67,654.79 for the two combines. Repayment was deferred for one year. On March 6, 2002, John Deere filed and perfected a financing statement, designating the two combines as security for the loan.

¶ 6 Greenline contacted the Bank on March 25, 2002, to request subordination of the Bank's interest in the combines. The Bank did not agree to subordination. Pali Brothers defaulted on their payments to the Bank, and Eli and Bart Pali, as individuals, defaulted on their payments to John Deere. Thereafter, John Deere took possession of the two combines. Upon receiving a demand letter from the Bank that asserted its priority secured position in the equipment, John Deere assigned its interest in the equipment to Greenline. Greenline then sold the combines without notifying the Bank. On October 15, 2003, the Bank filed a complaint for disgorgement of the collateral or its proceeds, plus interest, costs, and attorney fees.

¶ 7 The parties filed cross-motions for summary judgment. The trial court denied Greenline's motion and granted the Bank's motion, ruling that Greenline's security interest in the combines was junior to the Bank's security interest as a matter of law. The court awarded damages to the Bank for $78,000 with ten percent per annum interest pursuant to Utah Code section 15-1-1(2). See Utah Code Ann. § 15-1-1(2) (2005). Additionally, the court denied the Bank's motion for summary judgment regarding attorney fees.

ISSUES AND STANDARDS OF REVIEW

¶ 8 Greenline appeals the trial court's grant of summary judgment and award of damages to the Bank. Greenline claims that the trial court erred in finding that the Bank held a priority security interest in the collateral. A trial court appropriately grants summary judgment when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Utah R. Civ. P. 56(c). "Whether the trial court properly granted summary judgment is a question of law that we review for correctness, according no deference to the trial court's legal conclusions." Bakowski v. Mountain States Steel, Inc., 2002 UT 62, ¶ 14, 52 P.3d 1179 (citation omitted). We make this determination by viewing "the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party." Id. (quotations and citations omitted).

¶ 9 The Bank challenges the trial court's denial of its motion for summary judgment regarding attorney fees and costs. "The award of attorney fees is a matter of law, which we review for correctness." Jensen v. Sawyers, 2005 UT 81, ¶ 127, 130 P.3d 325 (citation omitted). However, "[a] finding of bad faith is a question of fact and is reviewed by this court under the `clearly erroneous' standard." Jeschke v. Willis, 811 P.2d 202, 204 (Utah Ct.App.1991).

ANALYSIS

I. Purchase-Money Security Interest²

¶ 10 Greenline argues that it retained New Holland's original PMSI in the two combines after Pali Brothers refinanced its purchase-money obligation. Greenline relies, in part, on Utah Code section 70A-9a-103(6)(c), which states, "In a transaction other than a consumer-goods transaction, a purchase-money security interest does not lose its status as such, even if the purchase-money obligation has been renewed, refinanced, consolidated, or restructured." Utah Code Ann. § 70A-9a-103(6)(c) (2001). Greenline maintains that Pali Brothers refinanced its obligation as established by the following circumstances:³

To avoid default upon New Holland's purchase-money security interest, on February 20, 2002 the Pali Brothers as debtors negotiated a refinance of the outstanding balance of the original purchase-money debt, $67,654.79, with ... John Deere on behalf of Defendant Greenline. According to the terms of their refinance agreement, [Greenline] agreed to pay the outstanding balance owed to New Holland on the combines of $67,654.79, then refinance the same equipment for the same outstanding balance with the Pali Brothers.

¶ 11 Greenline asserts that in return for the refinance, Pali Brothers agreed to give Greenline "a [PMSI] in the combines in connection with this purchase and re[sale]." And because it purportedly retained the original PMSI in the collateral, Greenline concludes that it had priority over the Bank's security interest.⁴ We disagree with Greenline's interpretation of these circumstances and conclude that the status of the original PMSI did not survive under section 70A-9a-103(6)(c) because Greenline, as a new creditor, satisfied and terminated the original purchase-money obligation, thereby extinguishing the PMSI. It was only after a span of time that Greenline extended new credit to Eli and Bart Pali in return for a security interest in the same collateral.

¶ 12 "[R]efinanced" is not defined in Utah's Article 9. Utah Code Ann. § 70A-9a-103.⁵ When interpreting a statute, we "give effect to the legislative intent, as evidenced by the [statute's] plain language, in light of the purpose the statute was meant to achieve." Summit Water Distribution Co. v. Summit County, 2005 UT 73, ¶ 17, 123 P.3d 437 (alteration in original) (quotations and citations omitted). And we interpret a statute's plain language "in harmony with other statutes in the same chapter and related chapters." Id. (citation omitted). A well-settled principle of statutory construction is to rely on the plain meaning of a word or phrase unless it is ambiguous, see id. at ¶ 15, in which case "we look to legislative history and other policy considerations for guidance," id. at ¶ 17 (quotations and citation omitted).

¶ 13 Because the statute does not define "refinance"⁶ and its application appears to depend on the actual facts of a transaction, we turn first to the goals and purposes of Article 9. The policies underlying Article 9 support our conclusion that the status of an original PMSI does not survive when a new creditor satisfies and terminates the original purchase-money obligation and subsequently extends new credit to the debtor for a security interest in the same collateral. Such a transaction contravenes "`[a] fundamental purpose of Article 9, [which] is to give notice to third persons and simplify the filing process.'" J.R. Simplot Co. v. Sales King Int'l, Inc., 2000 UT 92, ¶ 14, 17 P.3d 1100 (footnote omitted) (quoting 9 Ronald A. Anderson & Lary Lawrence, Anderson on the Uniform Commercial Code § 401:5, at 43 (3d ed. rev. 1999)). In other words, the purpose of Article 9 is "to create commercial certainty and predictability by allowing [creditors] to rely on the specific perfection and priority rules that govern collateral." Boatmen's Nat'l Bank of St. Louis v. Sears, Roebuck & Co., 106 F.3d 227, 230-31 (8th Cir.1997) (alteration in original) (quotations and citation omitted).

¶ 14 In this case, the Bank received a security interest, junior to New Holland's PMSI, on February 22, 2000, and again on May 8, 2001. On January 14, 2002, in exchange for satisfying Pali Brothers's debt, Greenline requested and received from New Holland a lien release on the two combines, which thereby extinguished New Holland's PMSI. At this point, the Bank's perfected security interest became superior to any security interests perfected after May 8, 2001. See Utah Code Ann. §§ 70A-9a-324(7), -322(1)(a). Over one month later, on February 20, Eli and Bart Pali granted John Deere a security interest in the combines. Therefore, the Bank's perfected security interest had priority over John Deere's later-acquired security interest. See id. §§ 70A-9a-324...