In re Reagor-Dykes Motors, LP

IN RE: REAGOR-DYKES MOTORS, LP¹

CASE NO. 18-50214-rlj11

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS LUBBOCK DIVISION

Filed: March 19, 2020

March 18, 2020

The following constitutes the ruling of the court and has the force and effect therein described.

Jointly Administered

MEMORANDUM OPINION AND ORDER

Edward Mitchell moves to enforce the Court's order of April 26, 2019 [Doc. No. 1216]that approved an agreement between the Reagor-Dykes debtor entities and the Lubbock County Tax Assessor-Collector.² Mitchell only wants to register the 2018 Toyota Tundra (Tundra) that he is driving under a lease agreement he signed with Reagor Auto Mall, Ltd. d/b/a Prime Capital Auto Lease (RAM) four days before certain of the Reagor-Dykes entities filed bankruptcy.³ Mitchell is unable to register the Tundra because Family Toyota Dealership Group, LLC d/b/a Family Toyota of Burleson (Family Toyota) refuses to release the Tundra's manufacturer's certificate of origin (MSO), which is needed for registration.

I.

In late July 2018, Edward Mitchell leased the Tundra from RAM. The Closed End Motor Vehicle Lease is dated July 26, 2018. Mitchell's Ex. 2. As is common with consumer financing of vehicles, the "Lease and all rights and title to the Vehicle" were assigned, here to MUSA Auto Leasing (MUSA). Id. at 4. MUSA paid RAM $56,892.67 for the Tundra and the Lease. Mitchell's Ex. 1 at 2. But the purchase (or lease) of a vehicle by a consumer can be, as it is here, complicated. RAM did not have on its lot the particular Tundra that Mitchell wanted. To accommodate Mitchell, RAM obtained a Tundra for Mitchell as part of a "dealer trade" with Family Toyota. RAM sent Family Toyota a 2018 Toyota Tacoma at a cost of $27,025; and Family Toyota sent RAM the desired Tundra at a cost of $45,417.55. Family Toyota's Ex. 2. Rather than pay the difference, each of RAM and Family Toyota was obligated to pay the other the full purchase price for the vehicle obtained in the trade. Mitchell traded-in a 2017 Ram pickup as part of the deal. Mitchell's Ex. 2. The Lease reflects that the "Net Trade-In Allowance" is zero: both the balance of the debt owing on the Ram and its value were $39,530. Id. Mitchell paid $1,789.89 on the Lease at signing. Id.

The Tundra was delivered to RAM and then, per the terms of the Lease, to Mitchell. The Tacoma was delivered to Family Toyota; Family Toyota paid RAM the $27,025. RAM failed to pay Family Toyota for the Tundra. It also failed to deliver to Family Toyota the proper title document, the MSO, on the Tacoma. And though Mitchell testified that he has had no repercussions regarding the Dodge Ram that he traded-in, the Court surmises that RAM failed to pay the outstanding debt on it, as well.

Mitchell has been making the regular lease payments to MUSA, but neither MUSA nor RAM has properly registered the Tundra. Mitchell, therefore, has had to pay for temporary plates so that he can legally drive the Tundra. He testified that he has paid $30 a month for sixteen months. Family Toyota holds the documents of title but refuses to provide them to Mitchell. Family Toyota is disinclined to help because it has never been paid for the Tundra, it is not receiving lease payments, and it paid for the Tacoma that it could not sell given RAM's failure to provide the MSO.

Family Toyota filed its proof of claim in the RAM and Reagor-Dykes Motors, LP cases. Case No. 18-50214, Claim No. 146-1; Case No. 18-50324, Claim No. 58-1. The proof reflects it has an unsecured claim of $45,417.55 that arose from its sale of the Tundra to RAM.

II.

Mitchell is asking that the Court require Family Toyota and RAM to provide the MSO to MUSA so that the Tundra can properly be registered and thus avoid his having to continue to pay for temporary plates. Family Toyota refuses to do so because, as it says, "Family Toyota was never paid for the Vehicle." Doc. No. 1579 at 3 (emphasis in original). Mitchell argues that Family Toyota consigned the Tundra to RAM or, alternatively, entrusted it with RAM. In either event, Mitchell argues that he has rights superior to Family Toyota's to the Tundra as aninnocent purchaser (or lessee) for value. Family Toyota says that the Tundra was neither consigned nor entrusted by Family Toyota to RAM. And, as Family Toyota was never paid for the Tundra, Family Toyota contends that the sale of the Tundra to RAM was never effected. Family Toyota presently holds the MSO or certificate of title. RAM says that it has a copy of an MSO but that such copy "is void because, upon information and belief, Family Toyota took action to have a duplicate MSO/title issued in the name of Family Toyota that supersedes the MSO in the possession of the Debtors and renders it void." Doc. No. 1581 at 2.

Mitchell asks the Court to require that Family Toyota comply with the following provision from the Court's April 26, 2019 order:

[A]ll persons in possession of certificates of titles ("Titles") or manufacturer's certificates of origin ("MSOs") for vehicles (i) sold (arguably or inarguably) by Reagor-Dykes Auto Group and (ii) that still need to be registered for the buyer ("Vehicles") shall provide the Debtors with a list of all such Titles and MSOs in their possession within five (5) days from entry of this Order. Upon receipt of a copy of (i) the retail sales contract or lease and (ii) reasonably satisfactory proof of funding, all such persons identified in the preceding sentence shall surrender the Titles and MSOs to the Debtors within seven (7) business days of such receipt.

Doc. No. 1216 at 2 (emphasis in original).

Family Toyota counters, arguing that the settlement is simply an agreement to remove the non-payment of motor vehicle tax as an impediment to the registration of purchased vehicles by consumers. Further, given that Family Toyota was never paid for the Tundra, the sale of the Tundra never took place. So, the order cannot apply to Family Toyota, it submits.

Mitchell contends that he is an innocent consumer, which is not disputed, and that he leased the Tundra from a dealer, here RAM. And, given his circumstances, his right to at least get the Tundra registered trumps any right of Family Toyota to refuse to provide the title documents to allow registration of the Tundra.

The Court addresses first the relative rights between Family Toyota and Mitchell. It thenconsiders whether the Court's April 26, 2019 order applies to and is enforceable against Family Toyota.

III.

A.

Under Texas's Certificate of Title Act, a subsequent sale by an owner of a car is void unless "the owner designated on the title submits a transfer of ownership of the title." Tex. Transp. Code § 501.071(a). It is clear by case law, and under the Certificate of Title Act, that an "owner" is not a licensed dealer. See In re Dota, 288 B.R. 448, 458 (S.D. Tex. 2003). Additionally, when a new car with an MSO passes between dealers, the sale by the second dealer to a buyer is not considered a subsequent sale that requires the second dealer to possess the title and pass the title to the buyer. Id. As such, the transaction between Family Toyota and RAM is not void under the Certificate of Title Act.⁴

Family Toyota argues that the sale was not complete and title did not pass to RAM because, as a practical course of performance and understanding, the sale was not complete until RAM paid for the Tundra. The Texas Business and Commerce Code specifically states that "[u]nless otherwise explicitly agreed[,] title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place." § 2.401(b). Additionally, "[a]ny retention or reservation by the seller ofthe title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest." § 2.401(a).

There was no written agreement or other evidence presented of the terms of the sale between Family Toyota and RAM. With no explicit agreement, the default provisions of the Texas Business and Commerce Code control. Title and ownership of the vehicle passed between Family Toyota and RAM at the time Family Toyota allowed RAM to take possession of the car. Additionally, Family Toyota knew that RAM had already "sold" the car to one of its customers.

Generally, "equity dictates that as between two innocent parties, the party that must suffer the loss is the one who mistakenly created the situation and was in the best position to have avoided it." H.E.B., L.L.C. v. Ardinger, 369 S.W.3d 496, 514 (Tex. App.—Fort Worth 2012, no pet.) (quoting several other Texas cases); see also Borg-Warner Acceptance Corp. v. Massey-Ferguson, Inc., 713 S.W.2d 351, 357 (Tex. App.—Dallas 1985, writ denied) (as between retail lender purchasing chattel paper in the ordinary course of its business and an inventory lender, the inventory lender was in a better position to protect itself against the dealer's misdeeds and the loss fell on the inventory lender even though the retail lender did not "inquire into the factual circumstances surrounding the transaction on which the paper [was] based"). Family Toyota was in a better position to prevent RAM's nonpayment than the ultimate purchaser. Family Toyota could have prevented RAM's possession of the Tundra until Family Toyota was paid.

Mitchell is a lessee in the ordinary course. To determine whether a person is a lessee in the ordinary course of business "is a mixed question of law and fact." In re Dota, 288 B.R. at 461 (applying this standard to a buyer in the ordinary course).

The Texas Business and Commerce Code provides that a lessee may benefit from theprotection afforded a buyer in the ordinary course of business. A lessee of goods in the ordinary course of business takes free of all security interests created by the lessor, even if perfected. See § 9.321(c) ("A...