Poling v. Morgan

• Decision Date: 27 November 1984
• Docket Number: No. CIV 82-761 TUC ACM.,CIV 82-761 TUC ACM.
• Citation: 598 F. Supp. 686
• Parties: Orris POLING and Ruth Poling, husband and wife, v. Max T. MORGAN and Jane Doe Morgan, husband and wife, Mobile Discount Corporation; Wheel Estates Corporation; Delta Service Corporation; Gulf Homes, Inc.; Western Coach Corporation; Delta Investment Corporation; E-Z Livin' Mobile Sales.
• Court: U.S. District Court — District of Arizona

598 F. Supp. 686

Orris POLING and Ruth Poling, husband and wife, v. Max T. MORGAN and Jane Doe Morgan, husband and wife, Mobile Discount Corporation; Wheel Estates Corporation; Delta Service Corporation; Gulf Homes, Inc.; Western Coach Corporation; Delta Investment Corporation; E-Z Livin' Mobile Sales.

No. CIV 82-761 TUC ACM.

United States District Court, D. Arizona, Tucson Division.

November 27, 1984.

Barry Kirschner, Stompoly & Even, P.C., Tucson, Ariz., for plaintiffs.

Stephen C. Birringer, Phoenix, Ariz., David W. Rees, Tucson, Ariz., Richard J. Hertzberg, Phoenix, Ariz., for defendants.

ORDER

MARQUEZ, District Judge.

This matter is before the court on defendants' Motion for Summary Judgment.

On August 2, 1973 the plaintiffs purchased a mobile home from Jackson's Mobile Homes. In purchasing the home, they granted a security interest to defendant Mobile Discount Corporation in exchange for a financing agreement. Mobile Discount assigned all its rights in the security agreement to the United Bank of Arizona. In its assignment Mobile Discount guaranteed the loan.

Under the purchase agreement, plaintiffs were to make 120 monthly payments to pay off the balance of the purchase money loan. After making only 15 payments, plaintiffs abandoned the mobile home and made no further payments. Mobile Discount, as guarantor, convinced the bank not to repossess as long as Mobile Discount would make the monthly payments. Mobile Discount took possession of the mobile home.

On October 14, 1976 defendant Gulf Homes sold the mobile home to third parties. Apparently that sale was unsuccessful as defendants resold the mobile home on July 3, 1978. All of the defendant corporations are controlled by the defendant Max T. Morgan. It is not clear from the record how or when Gulf Homes acquired the mobile home from Mobile Discount. In the meantime one of the defendant corporations had continued to make the monthly installment payments.

Mobile Discount also filed suit against plaintiffs for several of the installment payments made to the bank and obtained a judgment. The record also indicates that at some point defendant once again repossessed the mobile home and either sold or leased it. Finally, on July 27, 1981 one of the defendant corporations paid off the remaining balance due to the bank. Plaintiff was sent notice and on December 11, 1981 the mobile home was sold. In March of 1982, the defendants notified plaintiff that there was no deficiency after the sale.

After the state court judgment was entered, and defendants were able to force a sale of plaintiffs automobile, defendants engaged in several collection tactics to attempt to collect the outstanding balance of the judgment.

As a result of all these incidents, plaintiffs filed suit alleging the failure to follow Arizona repossession laws under the Uniform Commercial Code, fraud, unfair collections practices under the Fair Debt Collections Practices Act, and claims under RICO.

Defendants have moved for summary judgment on all claims. They argue that the U.C.C. repossession provisions are inapplicable, that the collections practices they used were not in violation of the statute and finally, that no RICO claim has been stated.

I.

Defendants assert two arguments in support of their contention that the U.C.C. repossession provisions are inapplicable. First, they argue that they are not "secured parties" under the code and second, that a consignment agreement permitted defendants to avoid the U.C.C. requirements.

A.R.S. § 47-9501 et seq. (formerly § 44-3147 et seq) sets forth the procedures that must be followed when a secured party takes possession of collateral after the debtors default. Defendants argue that under Arizona law they are not secured parties. Arizona law is applicable to this portion of the case.

Defendants contend that when they repossessed the mobile home, they were acting only as guarantors. They had concededly assigned the security interest to the United Bank prior to the repossession. Under the U.C.C. once you assign all rights as a secured party, you cease to be one.

Defendants expand the argument further. They argue that after they obtained possession of the collateral, their status did not change to that of a secured party. See, Western Coach Corp. v. Rexrode, 130 Ariz. 93, 634 P.2d 20 (1981).

In Western Coach, the Arizona court of appeals held that a guarantor, who had previously assigned his security interest to a third party, did not become a secured party by the mere repossession of the collateral. This is based on the state rule that one does not become subrogated to another's rights until he purchases the entire interest of the third party. Dykes v. Clem Lumber Co., 58 Ariz. 176, 180, 118 P.2d 454, 455 (1941). The court concluded that the U.C.C. was inapplicable to the repossessors conduct. The debtor, at best, would have only a claim for common law conversion had the guarantors conduct been improper.

The case seems to hinge on one premise, that there can be only one secured party. The Arizona court did not cite any case in its opinion that was decided after the enactment of the code. Nor was there any consideration of the three prong statutory test for determining a secured party status § 47-9203(A).

To hold that there can only be one secured party flies in the face not only of the statutes but also modern commercial credit transactions. There was not one debt in Western Coach but two different ones. One debt contained substantial unaccrued interest while the other grew as this previously unrecoverable interest was paid. The fact that Arizona permits the guarantor to collect its money from the debtor before the entire debt is incurred is evidence that this is a separate debt.

The overall policies of the U.C.C. were designed to prevent long delays due to litigation in commercial transactions and uncertainty in the law by providing clear relatively quick remedies. It was also designed to partially protect consumers in purchase transactions. Both of these policies fail in this case as almost seven years passed from the time of plaintiffs' breach until the plaintiffs were no longer liable for the debt and yet there was no real judicial action involved during the delay.

Western Coach creates significant problems not only in this case but under the bankruptcy laws and may raise Due Process considerations. It is interesting to note that the defendants who advocate this interpretation of the law here, do not hesitate to take an inconsistent position, see Mobile Discount Corp. v. LuBean, 134 Ariz. 350, 656 P.2d 639 (1982) where the defendant here claimed that it was a secured party in a similar situation.

Proper consideration should be given to A.R.S. § 47-9203(A). The key question should have been whether the defendants were in possession of the security under an implied agreement with the debtor, the voluntary abandonment. See A.R.S. § 47-1201(3) (definition of agreement). It is not clear from the record whether this test would be met.

Nevertheless, no matter how incorrect this court believes the state court's interpretation of the state statute may be, ...