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Ford Motor Credit Co. LLC v. First National Bank of Crossett

Court of Appeals of Arkansas, Division I

September 14, 2016

FORD MOTOR CREDIT COMPANY, LLC, f/k/a FORD MOTOR CREDIT COMPANY APPELLANT
v.
FIRST NATIONAL BANK OF CROSSETT APPELLEE

         APPEAL FROM THE ASHLEY COUNTY CIRCUIT COURT [NO. CV-2015-138-4] HONORABLE DON GLOVER, JUDGE

          Nixon & Light, by: John B. Buzbee, for appellant.

          Streetman, Meeks & Gibson, PLLC, by: Thomas S. Streetman, for appellee.

          CLIFF HOOFMAN, Judge

         Appellant Ford Motor Credit Company, LLC, f/k/a Ford Motor Credit Company (FMCC) appeals from the circuit court's order granting summary judgment in favor of appellee First National Bank of Crossett (FNBC) in FNBC's suit for declaratory judgment. On appeal, FMCC argues that the circuit court erred by (1) granting summary judgment to FNBC and (2) denying its cross-motion for summary judgment. We reverse and remand the order granting summary judgment in favor of FNBC and affirm the denial of FMCC's countermotion for summary judgment. On July 16, 2015, FNBC filed a declaratory-judgment action against FMCC, seeking to have the circuit court declare that it (FNBC) held prior, perfected liens on two vehicles that were owned by Crossett Ford Lincoln, LLC (Crossett Ford). According to the facts alleged in the complaint, FNBC had a history of providing new and used motor-vehicle-inventory financing for Crossett Ford. Floor-plan agreements signed on August 5, 2010, and on January 28, 2011, gave FNBC a security interest in Crossett Ford's new and used vehicle inventory during the time period relevant to this case. The agreements were signed by James (Jimmy) Murphy, the owner of the dealership, as well as by several other joint obligors.

         In July 2012, Crossett Ford purchased a new 2012 Ford F-150 truck (F-150) from Ford Motor Company. FNBC financed the purchase price of the F-150 by advancing $34, 072.98 to Crossett Ford on August 2, 2012. In accordance with the terms of the floor-plan agreement, FNBC retained the certificate of origin (COO) for the vehicle, which was issued in the name of Crossett Ford and identified FNBC as the source of financing. The agreement provided that when Crossett Ford sold a vehicle from its inventory and FNBC was repaid the amount it had advanced for the vehicle, FNBC would then release the COO or certificate of title to the dealer. FNBC alleged that it had perfected its interest in the new and used vehicle inventory, including the F-150, by filing financing statements with the Arkansas Secretary of State's office on August 6, 2010, and March 11, 2011.

         On August 20, 2012, Murphy executed a Tennessee vehicle retail installment contract to purchase the F-150 from Crossett Ford. The contract was then assigned to FMCC, with Murphy signing his name as the buyer and signing on behalf of Crossett Ford as the seller and assignor. That same day, on August 20, 2012, FMCC filed a direct lien on the F-150 with the Arkansas Department of Finance and Administration (DFA) that listed Murphy as the owner of the vehicle. Crossett Ford did not remit the funds received for the F-150 to FNBC, and FNBC remained in possession of the COO. FNBC thus alleged that it had a prior, perfected security interest in the F-150 and that FMCC's direct lien was invalid due to the "fraudulent conduct" of Murphy in attempting to sell the vehicle to himself and granting FMCC a lien without paying off FNBC. FNBC further alleged that FMCC was on notice of its prior lien based on the financing statements it had filed with the secretary of state.

         The second vehicle for which FNBC requested declaratory judgment was a 2012 Ford Expedition (Expedition). This vehicle was traded to Crossett Ford on August 28, 2014, by Bobby and Stephanie Knight. FNBC advanced the funds to Crossett Ford to pay off the Knight's remaining vehicle loan with State Farm Bank in the amount of $38, 747.85, and a cashier's check dated September 24, 2014, was sent by Crossett Ford to State Farm Bank. The Expedition's title was then sent to FNBC. On September 23, 2014, Murphy executed a Tennessee vehicle retail installment contract with Crossett Ford to purchase the Expedition, and the contract was again assigned to FMCC. FMCC filed a direct lien on the Expedition with the DFA on September 23, 2014.

         In March 2015, Crossett Ford defaulted on its inventory loan with FNBC, and FNBC repossessed all of the vehicles at the dealership, including the F-150 and the Expedition. FNBC applied for and received a repossession title on the Expedition from the DFA on May 13, 2015. There were no other liens or encumbrances reflected on this title. FNBC alleged that its certificate of title on the Expedition should be declared free and clear of any lien claimed by FMCC.

         In its answer, FMCC denied the allegations and asserted that FNBC's security interest in the F-150 and the Expedition had been released following the disposition of the collateral pursuant to the floor-plan agreements and the Uniform Commercial Code. FMCC claimed that the repossession title on the Expedition was issued in error and that the DFA should be made a party to the suit. FMCC prayed that the circuit court enter an order confirming that it held a first-priority purchase-money security interest in the F-150 and in the proceeds of the Expedition, which FNBC had sold following its repossession.

         On September 4, 2015, FNBC filed a motion for summary judgment, claiming that there were no material facts in dispute and that it was entitled to its request for a declaratory judgment. In support of its motion, FNBC attached an affidavit by Gary Brannon, its chief lending officer, who stated that FNBC had held a perfected, first security interest in the F-150 since August 2, 2012, when it had advanced the funds to Crossett Ford to purchase the vehicle and received the COO reflecting it as the source of financing. Brannon asserted that Crossett Ford currently owed FNBC $366, 397.57 on its new-vehicle floor-plan debt and that it had a first lien on the F-150 as security for that debt. Brannon further stated that FNBC had clear title to the Expedition when it was sold to a third party on May 30, 2015, based on the repossession title that was issued to FNBC on May 13, 2015. According to Brannon, Crossett Ford owed FNBC a balance of $701, 442.94 at the time of the sale, which was secured by its perfected, first lien on the Expedition. Attached as exhibits to Brannon's affidavit were the floor-plan agreements, the financing statements filed with the secretary of state, the COO for the F-150, the original title and the repossession title on the Expedition, and the loan transaction history and cashier's check showing the money it had advanced for Crossett Ford to purchase both vehicles.

         FNBC claimed that Murphy never had title to either the F-150 or the Expedition when he attempted to "fraudulently grant [FMCC] a lien on those vehicles" and that FMCC did not acquire any better title than Murphy had. In addition, FNBC asserted that FMCC could not stand in the shoes of Murphy as a "buyer in the ordinary course of business" because Murphy, from whom FMCC had obtained its lien, was not a person in the business of selling goods of that kind; because FMCC never had possession of either vehicle; and because FMCC could not establish that it took the lien without knowledge that the sale violated the rights of another person in the vehicles.

         On September 24, 2015, FMCC filed a response to the summary-judgment motion and a countermotion for summary judgment. FMCC claimed that FNBC's inventory liens in the F-150 and Expedition had been released when the vehicles were sold to Murphy. FMCC attached the August 20, 2012 retail installment contract for the sale of the F-150 that was subsequently assigned to FMCC by Crossett Ford. This contract reflected that Murphy had traded in a 2008 Lincoln to Crossett Ford and had financed the remaining purchase price of $34, 072.98, plus interest, over sixty months. The contract and dealer documents indicated that the F-150 had been purchased for Murphy's personal use. FMCC also attached a copy of the electronic funds detail report showing that it had deposited the balance of the contract into Crossett Ford's bank account at FNBC in exchange for the assignment of the contract. FMCC claimed that it had obtained a purchase-money security interest in the F-150 and had perfected its interest by filing a direct lien with the DFA on August 20, 2012. A copy of this lien was attached to the response.

         FMCC also attached a copy of the September 23, 2014 retail-installment contract for the Expedition. This contract reflected that the purchase price of $37, 000, plus interest, was to be paid over a period of forty-eight months and that the vehicle had been purchased for Murphy's personal use. Crossett Ford assigned the contract to FMCC, which deposited the contract balance into Crossett Ford's account at FNBC via an electronic funds transfer. FMCC attached a copy of this electronic-funds-transfer report. FMCC claimed that it took a purchase-money security interest in the Expedition at the time of the assignment and that it perfected this interest by filing a lien with the DFA on September 23, 2014. A copy of this lien was attached to the countermotion.

         In addition, FMCC attached the affidavit of Murphy, who stated that he had purchased the F-150 to use as a "shop truck" and that it was not marketed for sale on the lot of Crossett Ford. Murphy indicated that he had made approximately thirty of the sixty monthly installment payments on this vehicle to FMCC at the time he declared bankruptcy in 2015. With regard to the Expedition, Murphy stated that it had been purchased for his wife's personal use, although she did not drive it, and it remained on the lot. He indicated that he had made approximately five monthly payments on this vehicle prior to his bankruptcy filing. Murphy further attested that he had purchased a 2014 Ford Explorer in April 2014 for his daughter and that the floor-plan lien on this vehicle was paid in full. He stated that FNBC was aware of this transaction and had not offered any objection. According to Murphy, the floor-plan agreements, as well as the course of his dealing with FNBC, authorized him to sell vehicles free and clear of FNBC's security interest in the regular course of his business, without prior approval by FNBC. He stated that the transactions at issue were the same as any other transaction between Crossett Ford and a retail customer. Murphy further indicated that FMCC had no knowledge that FNBC's floor-plan liens on the F-150 and Expedition were not paid in full. He stated that FNBC performed ...


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