Noel J. Smith, Appellant, vs. PACCAR Financial Corp., Respondent.

Noel J. Smith, Appellant, vs. PACCAR Financial Corp., Respondent. A07-804, Court of Appeals Unpublished Decision, December 18, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS
A07-0804
 
Noel J. Smith,
Appellant,
 
vs.
 
PACCAR Financial Corp.,
Respondent.

 

 

Filed December 18, 2007

Affirmed

Huspeni, Judge*

 

 

Chippewa County District Court

File No. 12CV-06-340

 

Douglas D. Kluver, Nelson Oyen Torvik, P.L.L.P., 221 North First Street, P.O. Box 219, Montevideo, MN 56265 (for appellant)

 

Henry T. Wang, Gray, Plant, Mooty, Mooty & Bennett, 500 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for respondent)

 

 

            Considered and decided by Dietzen, Presiding Judge; Ross, Judge; and Huspeni, Judge.

U N P U B L I S H E D   O P I N I O N

HUSPENI, Judge

            Appellant Noel Smith filed this lawsuit to clear title to a truck he purchased from Ronald Francis, who is not a party to this action.  The district court entered summary judgment against Smith, ruling that, because the Nebraska Motor Vehicle Certificate of Title Act prohibited the court's recognition of Smith's title to the truck, respondent PACCAR Financial Corp. has the right to possess and sell the truck.  The district court also denied Smith's motion to dismiss for failure to join Francis, who Smith claims is a necessary party. 

            We conclude that the district court correctly determined that PACCAR is entitled to possess and sell the truck and that the district court did not abuse its discretion in denying Smith's motion to dismiss.  Although the Nebraska Motor Vehicle Certificate of Title Act does not prohibit recognition of Smith's title to the truck,[1] we conclude that summary judgment was warranted because Smith did not raise a genuine issue as to Francis's default or the validity of PACCAR's security interest.  We therefore affirm.

FACTS

            Francis purchased a used truck from a dealership in Missouri for $30,000 and entered into a security agreement retail installment contract with the dealership in September 2000.  The dealership assigned the agreement, including all rights, title, and interest in the truck, to PACCAR.  Nebraska issued a certificate of title for the truck on October 4, 2000, listing Francis as the owner and indicating that PACCAR had the first and only lien on the truck.  In the district court proceedings, PACCAR alleged that Francis failed to make payments required under the security agreement.

            In April 2002, Francis filed the second of three bankruptcy cases he has filed to date.  In the bankruptcy court proceedings, Francis filed a motion seeking authorization to sell the truck.  The motion was titled Motion to Sell Real Property of the Bankruptcy Estate.  PACCAR did not object to the motion because it did not realize that the motion included a request to sell the truck.  The bankruptcy court granted Francis's motion on March 12, 2004.  When PACCAR realized its mistake, it motioned for relief from the bankruptcy court.  Pursuant to PACCAR's motion, the bankruptcy court vacated the order that granted Francis's motion to sell the truck.  The second bankruptcy case was dismissed on August 24, 2004.  The third bankruptcy case, which was filed in April 2006, is still pending.

            Between June 2003 and March 2004, PACCAR made offers to release its lien on the truck if it received $7,000 or $10,000 from Francis.  In August 2004, Francis's attorney tendered a $10,000 check to PACCAR and requested that the lien be released pursuant to the prior agreement.  PACCAR responded within a week, rejecting the check and stating that it would accept no less than $16,000 for the truck.

            Shortly before the bankruptcy court granted Francis's motion to sell his truck and long before Francis tendered the $10,000 check to PACCAR, Francis sold the truck to Noel Smith.  The sale took place at Francis's father's auto dealership in Nebraska in February 2004.  Smith paid a total of $27,000 for the truck, including a down payment of $2,500.  Smith did not obtain a certificate of title for the truck.  Smith claims that, sometime before February 2006, he sold the truck "under the terms of an oral installment contract and subject to [Smith] obtaining clear title."  To complete the sale of his truck, Smith filed this suit against PACCAR on February 26, 2006, intending to clear title to the truck.

            PACCAR counterclaimed, seeking a declaratory judgment that PACCAR was entitled to take possession of and sell the truck.  PACCAR subsequently filed a motion to recover possession of the truck under Minnesota's replevin statute, Minn. Stat. §§ 565.21-.29 (2006), and the district court granted PACCAR's motion in August 2006.  As a result, Smith was required to file a bond in the amount of $24,000 to keep possession of the truck until the case was resolved.  PACCAR then filed a motion in limine requesting the court to narrow the legal question to whether the transfer of the truck from Francis to Smith is governed exclusively by the Nebraska's Motor Vehicle Certificate of Title Act.  Smith then filed a motion to dismiss the case for failure to join Francis.

            On April 5, 2007, the district court denied Smith's motion to dismiss and granted PACCAR's motion in limine.  Finding the motion in limine dispositive, the court entered summary judgment sua sponte in favor of PACCAR.  This appeal follows.

D E C I S I O N

A district court may enter summary judgment sua sponte, provided conditions exist that "would justify a summary judgment on motion of a party."  Fed. Land Bank of St. Paul v. Obermoller, 429 N.W.2d 251, 255 (Minn. App. 1988) (quotation omitted), review denied (Minn. Oct. 26, 1988).  Summary judgment is justified "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law."  Minn. R. Civ. P. 56.03.  "[T]he party resisting summary judgment must do more than rest on mere averments."  DLH, Inc. v. Russ, 566 N.W.2d 60, 71 (Minn. 1997). 

We review a district court's entry of summary judgment de novo.  Lefto v. Hoggsbreath Enters., Inc., 581 N.W.2d 855, 856 (Minn. 1998).  But if the district court properly applied the law governing summary judgment, the district court's entry of summary judgment sua sponte should not be disturbed "[u]nless an objecting party can show prejudice from lack of notice or other procedural irregularities, or was not afforded a meaningful opportunity to oppose summary judgment."  Obermoller, 429 N.W.2d at 255.

I.

            A preliminary matter in this case is which state's law applies to PACCAR's security interest.  Because Minnesota, Nebraska, and Missouri have adopted the UCC and neither party has disputed the proper choice of law, we apply Minnesota law.  See Allete, Inc. v. GEC Eng'g, Inc., 726 N.W.2d 520, 522 (Minn. App. 2007) (applying Minnesota law where all three states had adopted the UCC and parties did not dispute proper choice of law). 

            The truck's certificate of title, issued on October 4, 2000, lists PACCAR as the first and only lienholder.  Therefore, when Smith purchased the truck from Francis in February 2004, he purchased the truck subject to PACCAR's lien.  Under UCC article 9, if a debtor defaults, a party with a valid security interest is entitled to take possession of and dispose of collateral.  Minn. Stat. §§ 336.9-609(a)(1), .9-610 (2006).  Consequently, the district court did not err when it entered summary judgment unless Smith raised a genuine issue as to (1) whether Francis is in default under the security agreement or (2) whether PACCAR's security interest is valid.  We find that Smith did not raise a genuine issue as to either of these elements.

Francis's Default

            In the district court proceedings, PACCAR alleged that Francis was in default under the security agreement and submitted an affidavit from one of PACCAR's corporate portfolio senior litigation specialists supporting the allegation.  Smith claimed in his answer to PACCAR's counterclaim that he was without sufficient information to affirm or deny PACCAR's allegation and asserted that his response should be treated as a denial.  Thus, Smith rested on a mere averment that Francis was not in default.  While summary judgment should not be entered sua sponte if an objecting party can show prejudice or was not afforded a meaningful opportunity to oppose summary judgment, Smith has at no point claimed that he has or would be able to obtain evidence that Francis is not in default.  We therefore find that Smith has not raised a genuine issue as to whether Francis defaulted on the security agreement.

PACCAR's Security Interest

            Turning to the issue of whether PACCAR's security interest is valid, we note that PACCAR contends this issue is governed exclusively by the Nebraska Motor Vehicle Certificate of Title Act.  Indeed, Neb. Rev. Stat. § 60-164 (Supp. 2006) states that "article 9, Uniform Commercial Code, shall never be construed to apply to . . . a security agreement . . . covering a vehicle."  PACCAR implies that, although Smith claims Francis was authorized to sell the truck to Smith under UCC article 9 and federal bankruptcy law, such authorizations, assuming they were given, would have no effect on PACCAR's security agreement.

            Nebraska courts have rejected such narrow readings of the certificate of title act, recognizing that literal applications of the act would "‘lead[] to something like chaos'" and "‘reverse the whole elaborate structure of priorities'" established by article 9.  Alford v. Neal, 425 N.W.2d 325, 330 (Neb. 1988) (quoting 1 Grant Gilmore, Security Interests in Personal Property § 20.1 at 554 (1965)).  Instead of applying a plain interpretation of the statute, Nebraska courts have favored readings that promote principles of law, equity, and natural justice.  Id.  Thus, the Nebraska Supreme Court has applied UCC provisions to vehicle transfers where the UCC provisions supplement, but do not conflict with, the certificate of title act.  Id. at 331.  Nebraska courts however have not yet ruled on whether the certificate of title act may be supplemented with federal bankruptcy law.  For the purpose of resolving this case, we assume that UCC article 9 and federal bankruptcy law apply to PACCAR's security agreement because Smith's arguments fail on other grounds.

            Smith does not dispute that PACCAR possessed a valid security interest in the truck up until June 2003.  Rather, he makes two arguments that PACCAR's security interest has since become invalid. 

Smith's first argument is based on UCC § 9-315(a)(1), which states, "a security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest."  Minn. Stat. § 336.9-315(a)(1) (2006) (emphasis added).  This provision implies that if a secured party authorizes disposition free of the security interest, the security interest is extinguished and does not continue in the collateral after the collateral is sold.  See Conseco Loan Fin. Co. v. Boswell, 687 N.W.2d 646, 651 (Minn. App. 2004) (holding that security interest was not extinguished because secured party did not authorize the sale); Churchill Bus. Credit, Inc. v. Pac. Mut. Door Co., 49 F.3d 1334, 1336 (8th Cir. 1995) ("If the secured party authorizes a sale, exchange, or other disposition, its interest is extinguished.").  

Smith argues that Francis and PACCAR reached an agreement between June 2003 and March 2004 under which PACCAR agreed to release its interest in the truck upon receipt of Francis's payment of either $7,000 or $10,000.  Smith argues that, under Minn. Stat. § 336.9-315(a)(1), this agreement authorized Francis's disposition of the truck free of the security interest such that, once Smith tendered $10,000 to PACCAR, PACCAR no longer had a security interest in the collateral, i.e., the truck.  We disagree for two reasons.

First, the Minnesota Supreme Court has held that, when a security agreement states that the debtor needs written approval to sell the collateral, the creditor's waiver of its right to prohibit the sale is only valid if the facts clearly show that the creditor knew of and intended to relinquish its right. Citizens Nat'l Bank of Madelia v. Mankato Implement, Inc., 441 N.W.2d 483, 487 (Minn. 1989).  Thus, because the security agreement at issue in this case expressly states that the buyer cannot sell the truck without the seller's written approval, Smith needed to show that PACCAR knew of its right to prohibit Francis's sale of the truck and clearly intended to relinquish that right. 

Smith has not submitted any documents clearly showing that PACCAR waived its right.  Smith cites four documents in his brief.  All of the documents referenced indicate that PACCAR agreed to release its lien on the truck if Francis paid PACCAR a certain amount.  At best, it is possible to infer from the documents that once Francis paid PACCAR and PACCAR released its lien, Francis would be free to sell the truck.  Smith, however, has not offered any evidence demonstrating that Francis tendered payment to PACCAR before August 2004, several months after Francis sold the truck in February 2004.[2] 

Second, we find that it is not unreasonable to hold that PACCAR's offer to release its interest in the truck expired before Francis tendered his payment of $10,000.  See Stone v. Harmon, 31 Minn. 512, 515, 19 N.W. 88, 89 (1884) (stating offer lapses after reasonable time); Riley Bros. Constr., Inc. v. Shuck, 704 N.W.2d 197, 202-03 (Minn. App. 2005) (stating offer remains open for reasonable time if no expiration date is stated in offer).  The record indicates that, at the very latest, PACCAR made its offer in March 2004 and that, at the earliest, Francis tendered payment in August 2004.  At least four months passed between offer and acceptance.  It is reasonable to conclude that the offer had expired by August when Francis tried to accept it.  Cf. Riley Bros., 704 N.W.2d at 203 (holding offer remained open for 30-45 days where trade usage indicated that was norm).

Thus, because PACCAR never waived its right to prohibit Francis's sale of the truck and because Francis did not accept PACCAR's offer within a reasonable time, Smith did not raise a genuine issue as to whether PACCAR's security interest was extinguished under Minn. Stat. § 336.9-315(a)(1).

            Smith's second argument that PACCAR's interest in the truck is no longer valid is based on federal bankruptcy law.  Under 11 U.S.C. § 363 (2000 & Supp. 2005), a debtor may sell property of the estate if certain conditions are met.  One of those conditions is that the sale has been authorized by a court after notice and hearing.  11 U.S.C. § 363(b)(1), (c)(2)(B).  Smith claims that the bankruptcy court authorized Francis's sale of the truck to Smith when it granted Smith's motion to sell real property on March 12, 2004.  The problem with this argument is that Francis sold the truck to Smith in February 2004, before the bankruptcy court authorized the sale.  As a result, the sale did not comply with the statutory requirements of 11 U.S.C. § 363.[3]  Therefore, as a matter of law, the bankruptcy court did not authorize Francis's sale of the truck to Smith under the provisions of 11 U.S.C. § 363.

            Consequently we find that, because Smith did not raise genuine issues as to Francis's default or the validity of PACCAR's security interest, the district court did not err when it determined that PACCAR is entitled to take possession of and sell the truck under Minn. Stat. §§ 336.9-609(a)(1) and 336.9-610.

II.

            Smith's second main argument is that PACCAR was not entitled to recover under Minnesota's statutory replevin action, Minn. Stat. §§ 565.21-.29 (2006), because Smith raised a genuine issue as to whether he actually possessed the truck.  We reject this argument because in the district court proceedings, Smith never stated directly that he did not have possession of the truck.[4]  Even if Smith had stated that did not have possession of the truck, a party opposing summary judgment must do more than merely make averments.  DLH, Inc., 566 N.W.2d at 71. 

            We recognize that summary judgment should not be entered sua sponte if the opposing party was not afforded a meaningful opportunity to oppose summary judgment.  We find however that Smith had ample opportunity to raise this issue before the district court.  He clearly had the opportunity to raise the issue in the memorandum he submitted opposing PACCAR's motion for replevin.  Instead, Smith stated that the truck was one of three trucks he owned and that he had invested significantly in the truck since taking possession of it in 2004.  Both of these statements implied that Smith did in fact possess the truck.

            We find that the district court did not err when it determined that PACCAR was entitled to final judgment against Smith under Minn. Stat. §§ 565.21-.29. 

III.

Finally, Smith argues that Francis is an indispensable party to this action and that PACCAR's claims must be dismissed in Francis's absence.  We apply an abuse-of-discretion standard when reviewing a district court's denial of a motion to dismiss for failure to join a necessary party.  See Hoyt Props., Inc. v. Prod. Res. Group, L.L.C., 716 N.W.2d 366, 377 (Minn. App. 2006) (holding that district court did not abuse its discretion when it denied motion to dismiss for failure to join necessary party), aff'd, 716 N.W.2d 313 (Minn. 2007). 

            Under Minn. R. Civ. P. 19.01, a person is a necessary party if (1) in the person's absence complete relief cannot be accorded among those already parties, (2) disposition of the case in the person's absence will, as a practical matter, impair or impede the person's ability to protect an interest relating to the subject of the action, or (3) disposition of the case in the person's absence will leave any one already a party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations.

            The district court did not abuse its discretion in determining that Francis was not a necessary party under the three criteria in Minn. R. Civ. P. 19.01.  First, because PACCAR need not obtain a judgment against Francis in order to take possession of and dispose of the truck, complete relief can be accorded PACCAR in Francis's absence.  See Minn. Stat. § 336.9-609(b)(2) (2006) (stating that, after a debtor defaults, a secured party may take possession of collateral "without judicial process, if it proceeds without breach of the peace").  Second, disposition of this action in Francis's absence will not impair or impede his ability to protect his interest in the truck because nothing will prevent Francis from bringing a conversion action if he wishes to challenge PACCAR's repossession of the truck.  Finally, the district court did not abuse its discretion when it determined that Smith is not at a substantial risk of incurring inconsistent obligations.  The bankruptcy court is fully aware of this case and intends to give due consideration to Smith's claims in the bankruptcy action.

            In summary, we find that Smith purchased the truck subject to PACCAR's valid security interest.  As a matter of law, PACCAR is entitled to take possession of and dispose the truck under the applicable provisions of UCC article 9.

            Affirmed.

* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

[1] The invoice and agreement documenting Francis's sale of the truck to Smith appears to be "a written instrument as required by section 60-1417" that would allow the court to recognize Smith's title to the truck.  See Neb. Rev. Stat. § 60-140 (Supp. 2006) (allowing court to recognize person's title to vehicle if he has physical possession of vehicle and written instrument as required by section 60-1417); see also Dyas v. Morris, 235 N.W.2d 636, 638 (Neb. 1975) (holding that instrument entitled "Invoice and Agreement" fully complied with statutory requirements in § 60-1417).  Regardless, we affirm because we find that summary judgment was warranted and "we will not reverse a correct decision simply because it is based on incorrect reasons."  Katz v. Katz, 408 N.W.2d 835, 839 (Minn. 1987).

[2] Smith argues that this is too narrow a reading of the documents, particularly because "there would be no other reason to release the lien except in contemplation of a proposed sale of the secured property."  But, the law requires that there be an express relinquishment of the right to prohibit the sale, and there is simply no express waiver in the documents cited.

[3] At oral argument, Smith suggested that this court should not apply the statute as written because, under 11 U.S.C. § 363, courts frequently uphold the validity of sales made prior to court authorization.  Smith however provided no legal basis for his claim.  We are therefore bound by the text of the statute.

 

[4] Smith merely averred that he had "sold the truck to another under the terms of an oral installment contract and subject to [Smith] obtaining clear title."