Metropolitan Bank & Trust Co. v. Desert Valley Financial LLC

FILED

NOT FOR PUBLICATION DEC 07 2012

MOLLY C. DWYER, CLERK

UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

METROPOLITAN BANK & TRUST 11-15849

CO.,

D.C. No. 01-cv-622-LDG-LRL Plaintiff-counter-defendant,

MEMORANDUM*

v.

DESERT VALLEY FINANCIAL LLC,

Defendant-Appellee,

PACIFIC BUSINESS CAPITAL CORP.

Defendant-cross-claimant- Appellee,

v.

HUNTINGTON NATIONAL BANK,

Counter-defendant-Appellant,

Appeal from the United States District Court for the District of Nevada Lloyd D. George, District Judge, Presiding

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. Argued and submitted August 7, 2012 San Francisco, California

Before: CALLAHAN and WATFORD, Circuit Judges, and KORMAN, Senior District Judge.**

Silver State Mobile Home sold mobile homes that were financed by Galaxy

Financial Services. Pacific Business Capital Corporation (“PBCC”) extended loans

to Silver State and Galaxy in return for a blanket security interest in all their property,

including the chattel paper created from the…

MEMORANDUM **

Silver State Mobile Home sold mobile homes that were financed by Galaxy Financial Services. Pacific Business Capital Corporation (“PBCC”) extended loans to Silver State and Galaxy in return for a blanket security interest in all their property, including the chattel paper created from the mobile home sales. Subsequently, Silver State and Galaxy sold the chattel paper from the mobile home loans to Mountain, who in turn sold it to First Commercial, who in turn sold it to Metropolitan Bank & Trust Company. Metropolitan conducted due diligence on Silver State and Galaxy prior to purchasing the chattel paper. The sales contract provided that Silver State and Galaxy continued to service the loans underlying the chattel paper and that if a mobile home owner defaulted on a loan, Metropolitan could substitute the defaulted loan for a new loan in good standing.

In August of 2000, Silver State and Galaxy collapsed and PBCC commenced a foreclosure sale of their assets, at which it purchased the chattel paper. On May 15, 2001, Metropolitan sued PBCC for conversion, alleging that its interests in the chattel paper were superior, and PBCC counterclaimed for conversion. After a…

dissenting:

Metropolitan produced evidence that its employees who conducted the due diligence on the loan contracts it purchased did not actually know of PBCC’s security interest in those contracts. In response, the majority notes that Metropolitan failed to produce its due diligence file, and that one employee admitted having a brief conversation with a Galaxy employee about PBCC as a creditor. But the only information PBCC claims Metropolitan had access to during the due diligence review was legally insufficient to confer the required actual knowledge. Even if Metropolitan employees had seen the UCC filings in which PBCC asserted a blanket security interest in all of Galaxy’s chattel paper, that would not have sufficed to impart actual knowledge as to any specific chattel paper. See U.C.C. § 9-308, Official Comment 3 (“Mere knowledge of an Article 9 filing against chattel paper does not give knowledge of the existence of a security interest in the chattel paper.”); see also 9 Ronald A. Anderson & Lary Lawrence, Anderson on the Uniform Commercial Code § 9-308:7 (3d ed.1999) (“Even knowledge that another party has filed a financing statement covering chattel paper is not…