Scott's Big Truck Sales, LLC v. Auto. Fin. Corp., 02-19-00304-CV

SCOTT'S BIG TRUCK SALES, LLC; DON'S BIG TRUCK SALES, LLC;DONALD R. SCOTT; AND JOHNNY A. SCOTT, Appellants v. AUTOMOTIVE FINANCE CORPORATION, APPELLEE

No. 02-19-00304-CV

Court of Appeals Second Appellate District of Texas at Fort Worth

December 17, 2020

On Appeal from the 96th District Court Tarrant County, Texas

Trial Court No. 096-291366-17

Before Gabriel, Womack, and Wallach, JJ.

MEMORANDUM OPINION BY JUSTICE GABRIEL

JUSTICE WOMACK CONCURS WITHOUT OPINION.

MEMORANDUM OPINION

This appeal is from a final judgment awarding damages and attorney's fees to appellee and lender Automotive Finance Corporation (AFC) in its suit to collect a debt from appellants and borrowers Scott's Big Truck Sales, LLC, and Don's Big Truck Sales, LLC and from appellants and guarantors Donald R. Scott and Johnny A. Scott. The trial court's final judgment incorporated and was based on its partial summary judgment for AFC on its breach-of-contract, breach-of-guaranty, and Indiana statutory claims for fraud and deception. We affirm in part and reverse and remand in part.

I. BACKGROUND

Scott's Big Truck Sales and Don's Big Truck Sales signed notes¹ with AFC under a floorplan-lending arrangement, in which the lender provides financing to an auto dealership on a vehicle-by-vehicle basis so that the dealership can buy inventory. The dealer is obligated to repay the lender when the dealer sells the particular vehicle that had been financed. In conjunction with the notes, Donald Scott signed a guaranty of payment for amounts due on the Scott's Big Truck Sales note, and Johnny Scott signed a guaranty of payment for amounts due on the Don's Big Truck Sales note. Donald was a member of Scott's Big Truck Sales and Johnny a member of Don's Big Truck Sales.

AFC eventually sued Scott's Big Truck Sales, Don's Big Truck Sales, Donald, and Johnny (all four, collectively, the Scotts) to recover amounts it claimed were due on the notes and guaranty agreements. As part of the suit, AFC attempted to recover via sequestration four vehicles that had been sold but for which the Scotts had not remitted payment to AFC. AFC recovered two of the vehicles and credited the accounts accordingly. But it was not able to recover two others. As to those vehicles, AFC sought statutory civil damages for fraud and deception under Indiana law.

After AFC moved for summary judgment on its claims, the Scotts filed a plea to the jurisdiction challenging AFC's standing to sue them. AFC filed a response and attached evidence. The Scotts objected to a portion of AFC's summary-judgment evidence, but the trial court overruled all of their objections. The trial court did not sign a written order on the plea to the jurisdiction at the time, but it did grant AFC partial summary judgment on all of its claims except its request for attorney's fees.²

AFC then filed a second summary-judgment motion as to attorney's fees, and the Scotts filed a motion asking the trial court to reconsider its partial summary judgment ruling and the jurisdictional issue. The trial court granted AFC summary judgment on its attorney's fees request, denied the Scotts' motion to reconsider, and rendered a final judgment incorporating the partial summary judgment and awarding AFC attorney's fees. The Scotts appeal.

II. STANDING TO ENFORCE NOTES

In their first issue, the Scotts argue that AFC did not prove its standing to maintain a suit against them based on the debt. They base their argument primarily on the loan-related documents attached to AFC's pleadings and incorporated into those pleadings by reference; all of those documents state, at the bottom of each page, "This receivable has been sold to AFC Funding Corporation and an interest therein has been granted to [either BMO Capital Markets Corp. or Bank of Montreal] as agent." The Scotts contend that this statement is a judicial admission that when AFC filed suit, it no longer had any interest in the notes it sought to enforce and, therefore, that AFC pled facts negating its standing. See Rockwell Commons Assocs., Ltd. v. MRC Mtg. Grantor Trust I, 331 S.W.3d 500, 505 (Tex. App.—El Paso 2010, no pet.) (noting that element of suit to recover on promissory note is that plaintiff is legal owner and holder of note). The Scotts raised this issue in their plea to the jurisdiction and also in their response to AFC's summary-judgment motion.³ AFC argued in its motion for summary judgment that it was the appropriate party to enforce the contracts.

A. STANDARD OF REVIEW

We review de novo a trial court's ruling on jurisdiction. See Tex. Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 228 (Tex. 2004) (op. on reh'g); Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993) (holding that lack of standing defeats a trial court's subject-matter jurisdiction). A plaintiff must plead facts that affirmatively show trial-court jurisdiction. Tex. Ass'n of Bus., 852 S.W.2d at 446. We construe the pleadings liberally in the plaintiff's favor, accept all factual allegations as true, and look to the plaintiff's intent. Heckman v. Williamson Cty., 369 S.W.3d 137, 150 (Tex. 2012). We consider relevant evidence of jurisdictional facts when necessary to resolve the jurisdictional issues raised taking as true all evidence favorable to the nonmovant, indulging every reasonable inference, and resolving any doubts in the nonmovant's favor. Miranda, 133 S.W.3d at 227-28. If the evidence creates a fact question regarding the jurisdictional issue, then the trial court cannot grant the plea to the jurisdiction, and the fact issue will be resolved by the factfinder. Id. But if the relevant evidence is undisputed or fails to raise a fact question on the jurisdictional issue, the trial court rules on the plea to the jurisdiction as a matter of law. Id. at 228.

B. ANALYSIS

The notes and guaranty agreements provide that the documents are to be construed according to Indiana law.⁴ Both Indiana and Texas law provide that a note may be enforced by an owner and holder. See Ind. Code §§ 26-1-1-201(20)(A), 26-1-3.1-301; Tex. Bus. & Com. Code Ann. § 3.301; Collins v. HSBC Bank USA, Nat'l Ass'n, 974 N.E.2d 537, 540-41 (Ind. Ct. App. 2012); cf. Manley v. Wachovia Small Bus. Capital, 349 S.W.3d 233, 240 (Tex. App.—Dallas 2011, pet. denied) ("The owner of a note may enforce the note even if he is not a holder."). A holder is a person who possesses a negotiable instrument payable to an identified person when the one in possession is the person identified in the note. Pichon v. Am. Heritage Banco, Inc., 983 N.E.2d 589, 599 (Ind. Ct. App. 2013) (citing Ind. Code § 26-1-1-201(20)), trans. denied; Haley v. Beneficial Fin. I Inc., No. 13-18-00058-CV, 2019 WL 2709015, at *4 (Tex. App.—Corpus Christi-Edinburg June 28, 2019, no pet.) (mem. op.).

According to the Scotts, the form language on the notes stating that "[t]his receivable has been sold" proves conclusively that AFC has no right to enforce them. The Scotts also point to legends printed on a report attached as evidence to AFC's motion for partial summary judgment for their argument's support:

THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO AFC FUNDING CORPORATION PURSUANT TO AN AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT, DATED AS OF MAY 31, 2002 BETWEEN AUTOMOTIVE FINANCE CORPORATION AND AFC FUNDING CORPORATION, AS AMENDED; AND AN INTEREST IN THE RECEIVABLES DESCRIBED HEREIN HAS BEEN GRANTED TO THE AGENT FOR THE BENEFIT OF THE SECURED PARTIES, PURSUANT TO A SEVENTH AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, DATED AS OF DECEMBER 20, 2016 AMONG AFC FUNDING CORPORATION, AS SELLER, AUTOMOTIVE FINANCE CORPORATION, AS SERVICER, FAIRWAY FINANCE COMPANY, LLC AND SUCH OTHER ENTITIES FROM TIME TO TIME AS MAY BECOME PURCHASERS THEREUNDER, BANK OF MONTREAL, AS AGENT, BMO CAPITAL MARKETS CORP. AS PURCHASER AGENT FOR FAIRWAY FINANCE COMPANY, LLC, AND THE PURCHASER AGENTS FOR SUCH OTHER PURCHASERS THEREUNDER, AS AMENDED.⁵

But AFC contends that it sold only the right to payment under the notes and that it retains an ownership interest in the loan documents.⁶ AFC attached to its response to the Scotts' plea to the jurisdiction two affidavits from Dwayne Price:⁷ one as its assistant treasurer and the other as the assistant treasurer of AFC Funding Corporation (Funding). Price averred that AFC created Funding as a wholly owned subsidiary "solely for the purpose of purchasing finance receivables from AFC and selling undivided participation interests in the pool of finance receivables, referred to as a securitization pool, to a bank[-]conduit facility on a revolving basis." According to Price, "AFC does not sell, and Funding does not purchase, the underlying loan contracts between AFC and the used vehicle dealers who are its customers." Price averred that AFC made loans to the two dealerships—Scott's Big Truck Sales and Don's Big Truck Sales—"and [then] sold the rights to payment thereunder (the 'Receivables') into Funding's securitization pool." AFC is the servicer for the pool and is responsible for collecting all the pool receivables.

AFC also attached as evidence the "Receivables Purchase Agreement" signed by Funding as "Seller," AFC as "Servicer," and Bank of Montreal as the agent for seven named purchasers. Under that agreement, each purchaser would periodically "purchase and make reinvestments of" defined percentages of "Pool Receivables." A "Pool Receivable" is defined as "a Receivable conveyed to the Seller pursuant to the Purchase and Sale Agreement and not reconveyed to the Originator⁸ in accordance with the terms of the Purchase and Sale Agreement." "Receivable" is defined as

any right to payment from any Person, whether constituting an account, chattel paper, instrument, payment intangible or a general intangible, arising from the providing of financing and other services by the Originator . . . to (i) new, used and wholesale automobile, light truck or other Specialty Vehicle dealers . . . and includes the right to payment of any

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