Mahana v. Onyx Acceptance Corp.

• Decision Date: 09 July 2004
• Docket Number: No. 20010892.,20010892.
• Citation: 2004 UT 59,96 P.3d 893
• Parties: Chris S. MAHANA and Rick Warner Toyota, Plaintiffs and Appellees, v. ONYX ACCEPTANCE CORPORATION and GLS Recovery, Inc., Defendants and Appellants.
• Court: Utah Supreme Court

96 P.3d 893

2004 UT 59

Chris S. MAHANA and Rick Warner Toyota, Plaintiffs and Appellees, v. ONYX ACCEPTANCE CORPORATION and GLS Recovery, Inc., Defendants and Appellants.

No. 20010892.

Supreme Court of Utah.

July 9, 2004.

P. Bryan Fishburn, Salt Lake City, for plaintiffs.

Evan A. Schmutz, Curtis R. Hussey, Provo, for defendants.

PARRISH, Justice:

¶ 1 This appeal arises from a dispute over the rightful ownership of a 1994 Mazda pickup truck. Shortly after purchasing and financing the truck in California, the purchasers disappeared and defaulted on their loan payments. The truck surfaced in Arizona, where it was sold several times. It then made its way to Utah, where nineteen-year-old Chris Mahana purchased it from Rick Warner Toyota. Three years later, after learning that the truck was in Utah, the entity that had financed the original California purchase, Onyx Acceptance Corporation ("Onyx"), hired GLS Recovery Services, Inc. ("GLS") to repossess it. GLS removed the truck, along with personal items of Mahana's located inside, from the parking lot of a Home Depot store where Mahana was working.

¶ 2 Mahana and Rick Warner Toyota sued Onyx and GLS for conversion. Mahana and Rick Warner Toyota prevailed in the district court, and Onyx appeals. We affirm.

FACTUAL BACKGROUND

¶ 3 In early 1995, Thomas and Silvia Hartley purchased the Mazda truck in California. The Hartleys financed the purchase through a loan from Onyx. On March 26, 1995, the state of California issued a certificate of title to the Hartleys reflecting the Onyx lien. Shortly thereafter, the Hartleys stopped making payments to Onyx and disappeared with the truck.

¶ 4 A few months later, unbeknownst to Onyx, the state of Arizona issued a certificate of title for the truck in the name of Sonny Nicholas. Onyx's lien was not reflected on the Arizona title. A second Arizona title, also reflecting no lien, was subsequently issued to a Mike Fostino. The truck then passed through two Arizona car dealers. In September of 1995, approximately five months after the issuance of the original California title, the truck was purchased by Rick Warner Toyota, a Utah car dealer, at the Southwest Auto Auction in Chandler, Arizona.

¶ 5 Rick Warner Toyota brought the truck to Utah. About three months later, in December of 1995, Rick Warner Toyota sold the truck to Mahana. Mahana financed the purchase of the truck through Zions Bank and faithfully made the required payments for nearly three years. It was not until November of 1998 that GLS, acting on behalf of Onyx, repossessed Mahana's truck.

¶ 6 After finding that Zions Bank was not responsible for the repossession, an undoubtedly bewildered Mahana demanded that GLS return the truck. Zions Bank also notified GLS that it held a Utah certificate of title naming it, rather than Onyx, as lienholder. GLS relayed this information to Onyx. In addition, a sales manager from Rick Warner Toyota spoke to Onyx and explained that Rick Warner Toyota had purchased the truck in Arizona, relying on an Arizona certificate of title that reflected no lien.

¶ 7 Onyx responded to this information by ordering its employee to "immediately" move the truck out of Utah "ASAP." With the assistance of truck transporter "No Procrastination Joe Boyland," Onyx transported the truck to Nevada. Onyx then mailed a notice of repossession and intent to sell the truck to the Hartleys' last known California address, despite the fact that Onyx knew the Hartleys no longer lived there. Onyx failed to send a similar notice to Mahana. Thereafter, Onyx sold the truck.

¶ 8 In February of 1999, Mahana and Rick Warner Toyota filed suit against Onyx and GLS for conversion. Because Mahana was without transportation, but was still making payments on his truck loan to Zions Bank, Rick Warner Toyota provided Mahana with a series of small vehicles from its inventory on a courtesy basis. In April of 2000, after the district court had determined on summary judgment that Onyx was liable for conversion, but before the trial on damages, Onyx repurchased the truck and returned it to Mahana. By then, it had been driven an additional 10,000 miles, its interior had been damaged, and Mahana's personal property that had been inside the truck at the time of its repossession was missing.

¶ 9 The dispositive question presented by Mahana's conversion action is whether Mahana's interest in the truck was superior to any interest held by Onyx. On cross-motions for summary judgment, the district court found in favor of Mahana on this issue. Following a bench trial on damages, the district court awarded Mahana compensatory damages of $11,880 for lost use of the truck, as well as punitive damages of $25,000 based on the district court's finding that Onyx showed a "knowing and reckless indifference toward and disregard of" Mahana's rights.

ANALYSIS

¶ 10 Onyx raises four claims on appeal. Onyx first challenges the district court's ruling with respect to Onyx's liability for conversion. Its three remaining challenges relate to the district court's award of both compensatory and punitive damages.

¶ 11 With respect to the liability challenge, Onyx argues that it cannot be liable for conversion because Onyx's security interest in the vehicle was superior to Mahana's interest by virtue of the applicable provisions of the Uniform Commercial Code ("U.C.C."), which were then in effect in both Utah and Arizona.¹ See Utah Code Ann. § 70A-9-103(2)(d) (1999) (repealed effective July 1, 2001); Ariz.Rev.Stat. § 47-9103(B)(4) (1999) (repealed effective July 1, 2001).

¶ 12 In challenging the damage awards, Onyx maintains that the district court's compensatory award was excessive, because it was greater than the total amount Mahana paid for the truck. Onyx also contends that it should be entitled to offset the compensatory award by the amount that Mahana recovered from a bond posted in Arizona. Finally, Onyx maintains that punitive damages are not appropriate in cases such as this where the underlying liability turns on unsettled questions of law. We affirm the district court with respect to all four of the challenges raised on appeal.

I. ONYX'S LIABILITY FOR CONVERSION

¶ 13 Onyx's liability for conversion was premised on the district court's holding that Mahana's interest in the truck was superior to any interest held by Onyx. The relative priority of interests is governed by statute. We review the district court's interpretation of statutes for correctness, giving no deference to its conclusions. Ward v. Richfield City, 798 P.2d 757, 759 (Utah 1990).

¶ 14 Article 9 of the U.C.C., in effect in both Utah and Arizona at the relevant time, protects non-dealer purchasers who rely on unencumbered or clean certificates of title to goods and who are otherwise unaware of prior security interests. See Utah Code Ann. § 70A-9-103(2)(b), (d) (1999) (repealed effective July 1, 2001); Ariz.Rev.Stat. § 47-9103(B)(2), (4) (1999) (repealed effective July 1, 2001). Such purchasers are commonly referred to as "bona fide purchasers." See, e.g., Timm v. Dewsnup, 921 P.2d 1381, 1393 n. 7 (Utah 1996)

(defining the term "bona fide purchaser"). The relevant statute provides:

If goods are brought into this state while a security interest therein is perfected in any manner under the law of the jurisdiction from which the goods are removed and a certificate of title is issued by this state and the certificate does not show that the goods are subject to the security interest or that they may be subject to security interests not shown on the certificate, the security interest is subordinate to the rights of a buyer of the goods who is not in the business of selling goods of that kind to the extent that he gives value and receives delivery of the goods after issuance of the certificate and without knowledge of the security interest.

Utah Code Ann. § 70A-9-103(2)(d) (1999) (repealed effective July 1, 2001); Ariz.Rev. Stat. § 47-9103(B)(4) (1999) (repealed effective July 1, 2001). We will refer to this provision as the Bona Fide Purchaser provision.

¶ 15 The Bona Fide Purchaser provision is subject to an exception, however. When collateral in which a lender has a perfected security interest is removed from the state that issued the certificate of title, the U.C.C. establishes a four-month period during which the security interest remains perfected as against a subsequent bona fide purchaser in the new state. From the perspective of the lienholder, this constitutes a grace period during which the lienholder retains priority over a bona fide purchaser and during which the lienholder has an opportunity to re-perfect its security interest in the new jurisdiction. The operative provision states:

Except as otherwise provided in this subsection, perfection and the effect of perfection or nonperfection of the security interest are governed by the laws, including the conflict of law rules, of the jurisdiction issuing the certificate until four months after the goods are removed from that jurisdiction and thereafter until the goods are registered in another jurisdiction, but in any event not beyond surrender of the certificate. After the expiration of that period, the goods are not covered by the certificate of title within the meaning of this section.

Utah Code Ann. § 70A-9-103(2)(b) (1999) (emphasis added) (repealed effective July 1, 2001); Ariz.Rev.Stat. § 47-9103(B)(2) (1999) (repealed effective July 1, 2001). We will refer to this section as the Governing Law provision.

¶ 16 The Bona Fide Purchaser provision establishes a general rule that a perfected security interest reflected only on the certificate of title issued by a prior jurisdiction is subordinated to the interest of a bona fide purchaser when goods are moved to a new jurisdiction. The Governing Law provision operates as an exception to that general rule by establishing that the Bona Fide Purchaser provision in the new state's law does not apply until after the...