Opinion
CV136034341S
04-05-2016
Source One Financial Corp. v. Road Ready Used Cars, Inc
Filed April 6, 2016
UNPUBLISHED OPINION
Michael Hartmere, Judge Trial Referee.
MEMORANDUM OF DECISION
On March 26, 2013, the plaintiff, Source One Financial Corporation, commenced this action by service of process on the defendant, Road Ready Used Cars, Inc. The plaintiff's complaint alleges a single count for replevin of an automobile in the custody of the defendant. After a variety of pretrial rulings concerning the defendant's initial answer and counterclaims, the defendant filed its operative answer in this action, a corrected revised amended answer, special defenses, and set offs to the plaintiff's complaint on November 25, 2015. This matter was tried before the court on December 3, 2015 and January 7, 2016. As more fully set forth in this memorandum, the court finds for the defendant.
FINDINGS OF FACT
The court makes the following findings of fact, based on the evidence and testimony. The underlying facts are largely undisputed. On or about October 17, 2011, Christopher Laboy (Laboy), a nonparty, purchased a 2000 BMW 328i (Vehicle) from Lopez Motors LLC (Lopez Motors), also a nonparty. Lopez Motors had purchased the Vehicle at an auction in Hartford and reconditioned it prior to offering the Vehicle for sale to Laboy. Lee Lopez (Lopez) is the owner of Lopez Motors. When Lopez Motors purchased the Vehicle, Lopez Motors received a Massachusetts certificate of title from Safety Insurance of Boston, Massachusetts. In connection with the sale to Laboy, Lopez Motors prepared an official Connecticut registration certificate--Form H-13--and submitted the Connecticut registration certificate, along with the Massachusetts certificate of title, to the Connecticut Department of Motor Vehicles (DMV) in order for Laboy to obtain a Connecticut certificate of title for the Vehicle. Lopez Motors also arranged financing for Laboy in connection with his purchase of the Vehicle through the plaintiff, via a retail installment sales contract (security agreement). The security agreement was executed between Lopez Motors and Laboy, and then immediately assigned to the plaintiff.
Subsequent to Laboy's transaction with Lopez Motors, the DMV sent the plaintiff a letter, dated November 29, 2011, in which the DMV informed Source One that it had received an application for a Connecticut certificate of title from Lopez Motors on Laboy's behalf, but that the DMV was unable to process the application for title until the Vehicle passed a salvage inspection. Laboy also was sent this letter. Thereafter, the title was marked " suspended" in the DMV records system. In response to the letter from the DMV, the plaintiff telephoned and faxed Lopez Motors concerning the situation with the Vehicle's title, after which Lopez Motors contacted Laboy directly in an attempt to get Laboy to conduct the required inspection. Laboy never responded to Lopez Motors, however, and to the knowledge of Lopez Motors, never had the Vehicle inspected so that valid title could be issued by the DMV. Meanwhile, Source One placed the letter it had received from the DMV into Laboy's file, and did nothing further in regards to the required inspection.
In December 2012, the plaintiff learned that the defendant, a car dealership, had taken the Vehicle in on trade from Laboy in connection with Laboy's purchase of a car from the defendant. Cognizant of the fact that the Vehicle was subject to a lien, the defendant contacted the plaintiff to obtain the lien payoff and to obtain title. The defendant sent the plaintiff a check in the amount of $4, 541. A few days later, Laboy returned to pick up his new automobile and defendant took Laboy's vehicle in trade. After two or three weeks had passed without receiving the title, defendant called the plaintiff and was told that plaintiff never received the check. The defendant mailed the plaintiff another payoff check, dated January 11, 2013, for $4, 541 to satisfy plaintiff's lien on the Vehicle. After the defendant mailed the check, but before the plaintiff had cashed it, the plaintiff informed the defendant that no title had issued on the Vehicle because the salvage inspection had never been performed in accordance with the DMV's requirements. Upon learning that Source One could not convey title to the Vehicle to the defendant, the defendant stopped payment on its payoff check, and the plaintiff returned the check to the defendant.
Plaintiff maintained a " dealer reserve" which was an amount of money held by the plaintiff for each financed vehicle which would be sent to the dealership responsible for sending the client to the plaintiff for the financing, once the full amount of the contract loan was paid off by a specific customer. Lopez Motors had an ongoing relationship with the plaintiff, having had approximately 40 to 50 customers finance their automobiles with the plaintiff. If the loan was not paid in full by the customer, the dealership would be responsible for the deficit. The deficit, if any, would be deducted from the dealer's reserve. Lopez testified that he was informed by a representative of the plaintiff that the Laboy loan showed a zero balance. The plaintiff's records faxed to Lopez Motors show that the Laboy loan originated on October 25, 2011 in the amount of $9, 219.95 and that when the balance due was $4, 579.18, there was a back end charge to Lopez Motors of $3, 727.85, leaving a balance on the loan of $851.31.
After negotiations to resolve the dispute between the plaintiff and the defendant failed, the plaintiff, through its attorney, demanded that the defendant make the Vehicle available for repossession by the plaintiff in a letter dated February 28, 2013. The defendant refused, and, in response, the plaintiff brought this replevin action.
DISCUSSION
The parties assert that the resolution of this replevin action depends upon whether the plaintiff had a perfected security interest in the Vehicle, given that valid title was never issued to Source One or Laboy for the Vehicle by the state. Together, the parties insist that this issue is one of first impression for the court, which must be resolved because its resolution, in turn, determines the plaintiff's right to possession of the car in this replevin action. Succinctly stated, the question posed by the parties to the court is this: whether a creditor that finances a motor vehicle has a perfected security interest under General Statutes § 14-185(a) when all required documents have been delivered to the DMV, but a precondition to the issuance of title imposed by the DMV under § 14-177(c) has not been satisfied causing the DMV to withhold the issuance of a certificate of title.
General Statutes § 14-185(a) provides, in relevant part: " [A] security interest in a vehicle of a type for which a certificate of title is required is perfected by the delivery to the commissioner of the existing certificate of title, if any, an application for a certificate of title containing the name and address of the lienholder and the date of the security agreement and the required fee. It is perfected as of the time when it attached if such delivery is completed within twenty days thereafter . . . otherwise it is perfected as of the time of such delivery."
General Statutes § 14-177(c) provides, in relevant part: " The commissioner shall refuse issuance of a certificate of title . . . if he has reasonable grounds to believe that . . . (c) the applicant fails to furnish required information or documents or any additional information the commissioner reasonably requires."
However, in this case, whether the plaintiff ever perfected its security interest in the Vehicle is not determinative of whether the plaintiff is entitled to replevin, because the parties conflate attachment of a security interest with perfection of a security interest. Further, the resolution of whether the plaintiff has an enforceable security interest in the Vehicle does not, alone, determine whether the plaintiff is entitled to replevin. The court will address each of these points in turn.
I. The Plaintiff's Security Interest in the Vehicle
The parties each contend that the perfection of the plaintiff's security interest in the Vehicle determines its enforceability. This presents a question of law for the court. The plaintiff argues that it perfected its interest in the Vehicle when its title application was submitted to the DMV, on behalf of the plaintiff, by Lopez Motors. Therefore, the plaintiff asserts, it has a perfected interest in the Vehicle that was fully enforceable against Laboy, and is now fully enforceable against the defendant, without regard to the fact that the DMV never issued title to the Vehicle. The defendant responds that because the plaintiff never ensured that the Vehicle received the inspection required by the DMV so that title for the Vehicle could issue, the plaintiff's security interest was not perfected. As a result, the defendant contends, the plaintiff's security interest never attached to the Vehicle and is unenforceable against the defendant.
A review of the distinction between the attachment and the perfection of a security interest under Connecticut's version of the Uniform Commercial Code (UCC) is instructive. " A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment." General Statutes § 42a-9-203(a). In contrast, the perfection of a security interest in a motor vehicle occurs upon " delivery to the commissioner of the existing certificate of title, if any, an application for certificate of title containing the name and address of the lienholder and the date of the security agreement and the required fee." General Statutes § 14-185(a). If a security interest in a motor vehicle is unperfected, it " is subordinate to the rights of the persons described in sections 42a-9-317 and 42a-9-323 [dealing with subsequent purchasers who take without knowledge of unperfected interest, claims of other creditors with perfected interests, and other exceptions not relevant here]." General Statutes § 14-185(b).
As explained by a recent Superior Court decision, " [a]ttachment and perfection are two distinct concepts under the UCC. Attachment deals with the enforceability of a security interest against the debtor, while perfection deals with the issues of priority and enforceability of that interest against other creditors of the debtor who have claims to the same collateral. Attachment of a security interest to an item of collateral occurs when all three of the following requirements are met: 1) the secured party has given value; 2) the debtor has obtained rights in the collateral; and 3) the debtor has signed a written security agreement that describes the collateral. General Statutes § 42a-9-203." (Emphasis added.) State v. Kurrus , Superior Court, Judicial District of Hartford, Docket No. 07-4029723-S (June 23, 2011, Scholl, J.) (52 Conn. L. Rptr. 167, 167). A security interest in a motor vehicle that remains unperfected is not extinguished. See, e.g., Citicorp Acceptance Co. v. Bunnell, Superior Court, judicial district of New London, Docket No. CV-90-0512729-S (January 23, 1993, Quinn, J.T.R.) (impact of financing company's failure to perfect security interest in motor vehicle with title documents was inability to protect its interest against other creditors, not extinguishment of security interest in motor vehicle).
In the case of a motor vehicle, satisfying the requirements for perfection of a security interest does not simultaneously satisfy the requirements for attachment of a security interest, nor is the reverse true. " [T]he view, generally held, [is] that a security interest in a motor vehicle cannot be created just by completing the process prescribed [for perfection of a security interest] by a 'certificate of title' statute, nor does reference to a lien stated on a title certificate alone constitute a security agreement." Baystate Drywall, Inc. v. Chicopee Sav. Bank, 385 Mass. 17, 22, 429 N.E. 2d, 1138 (1982) (compiling federal and state cases). In the case of a motor vehicle, " at the time of the delivery of the funds, the taking of possession of the vehicle . . . and the execution of the Retail Installment Sales Contract, [the creditor] [acquires] a security interest in the [purchased vehicle]." Citicorp Acceptance Co. v. Bunnell, supra, Docket No. CV-90-0512729-S.
In this case, the moment Laboy executed the security agreement with Lopez Motors--which, by its terms, was immediately assigned to the plaintiff--the plaintiff's security interest attached to the Vehicle and became enforceable. At the time of Laboy's purchase, each requirement for the attachment of the plaintiff's security interest was satisfied. The plaintiff conveyed value to Laboy in the form of purchase money for the Vehicle. Laboy received an ownership interest in the Vehicle in exchange for his promise to pay installment payments to the plaintiff under the terms of the security agreement. Laboy memorialized this transaction by signing the written security agreement, and notably, no party to this litigation is disputing the validity of the security agreement. Further, the security agreement expressly provides for the attachment of a security interest in the Vehicle at the time of its execution. Thus, despite the parties' arguments to the contrary, whether the plaintiff's interest was perfected has no bearing on the attachment of the plaintiff's security interest to the vehicle, because attachment of the plaintiff's interest occurred at the time of Laboy's purchase of the Vehicle from Lopez Motors.
Further, whether the plaintiff's security interest in the Vehicle was ever perfected is not relevant to the outcome of this action, because perfection only determines the priority of security interests held by different creditors in the same collateral, or whether a subsequent purchaser can defend against the enforcement of a security interest by asserting that he was unaware of its existence. Here, the evidence indicated that the plaintiff was the only creditor with a claim to the Vehicle, and the defendant admitted that it was aware of the plaintiff's security interest at the time it purchased the Vehicle from Laboy. When the defendant purchased the Vehicle from Laboy on trade, under the terms of the security agreement the defendant assumed Laboy's obligations to the plaintiff along with all of the rights and defenses Laboy would have had against the plaintiff. Stated differently, the defendant stands in the shoes of Laboy as a debtor to the plaintiff, and not as creditor with a security interest in the Vehicle. The evidence adduced at trial further demonstrated that the defendant purchased the vehicle with full knowledge of the plaintiff's lien, as evidenced by the defendant's efforts to pay off the plaintiff's lien after purchasing the Vehicle from Laboy. Thus, the plaintiff had an enforceable interest in the vehicle.
Having determined that the plaintiff had an enforceable security interest, this court need not determine whether the plaintiff's security interest in the Vehicle was perfected in the absence of the DMV's issuance of a certificate of title, because priority of security interests is not an issue in this replevin action.
II. The Plaintiff's Entitlement to Replevin of the Vehicle
While the court has determined that the plaintiff has an enforceable security interest in the Vehicle under the security agreement, this determination does not end the inquiry. " In Connecticut, replevin proceedings are governed by statute rather than by the rules that apply to common-law actions of replevin. Cornelio v. Stamford Hospital, 246 Conn. 45, 49, 717 A.2d 140 (1998). General Statutes § 52-522 provides, in relevant part: In an action of replevin, no cause of action, except of replevin or for a conversion of the goods described in the writ of replevin, may be stated. General Statutes § 52-515 states: The action of replevin may be maintained to recover any goods or chattels in which the plaintiff has a general or special property interest with a right to immediate possession and which are wrongfully detained from him in any manner, together with the damages for such wrongful detention." (Emphasis omitted; internal quotation marks omitted.) Leasing Technologies International, Inc. v. Uniscribe Professional Services, Inc., Superior Court, judicial district of Stamford-Norwalk at Norwalk, Docket No. CV-01-0181875-S (D'Andrea, J.T.R., July 23, 2002) (32 Conn. L. Rptr. 547, 548). A replevin action " is not a contract action and, thus, it is not within the court's power to determine which party has superior title to the [property]. Rather, this is a replevin action, which involves a comparison of the superiority and inferiority of competing rights to possess the [property]." (Emphasis in original.) Angrave v. Oates, 90 Conn.App. 427, 430, 876 A.2d 1287 (2005). As our Supreme Court stated almost 130 years ago, " [t]he action of replevin is founded in tort. There must be a tortious taking or detention of property. A mere breach of contract is not sufficient. Hence, it is no remedy to enforce a contract or recover damages for its nonperformance . . . This [action] seems to have been instituted originally for the sole purpose of enforcing specifically a contract, and to have been prosecuted solely for the purpose of recovering damages for its breach--a manifest departure from the object of a replevin [action]." (Citation omitted.) Mead v. Johnson, 54 Conn. 317, 7 A. 718, 718-19 (1886). " A court's finding of the right to immediate possession in a replevin action raises a question of fact . . . [Which is] review[ed] . . . under the clearly erroneous standard." (Citation omitted.) Angrave v. Oates, supra, 90 Conn.App. 429.
It may be the case that ordinarily, a creditor with an enforceable security interest in property may be entitled to replevin of the property from a debtor who has not made the required payments under a security agreement. This is not the ordinary case. Here, the plaintiff, without disclosure to either the defendant or the court, withheld payments owed to Lopez Motors on unrelated accounts between the plaintiff and the Lopez Motors in order to satisfy the outstanding lien balance on the Vehicle. It was only after trial had already started that a representative of the plaintiff unknowingly disclosed this fact to the defendant in a voicemail message, an act which caused the defendant to petition this court to open testimony in this matter to hear additional evidence. The additional testimony provided to the court indicated that Lopez Motors had called a representative of the plaintiff to inquire about the status of amounts that Lopez Motors was owed on other accounts that Lopez Motors had with the plaintiff. In reply to the phone call, an employee of the plaintiff had called Lopez Motors to explain why Lopez Motors was not being paid on its other accounts. As the employee of the plaintiff explained in the voicemail message (offered by the defendant, and accepted by the court, as Exhibit L), the plaintiff had withheld money from Lopez Motors' other accounts in satisfaction of the amounts which the plaintiff determined that Lopez Motors owed in connection with the security agreement for the Vehicle. As further proof of this fact, the defendant offered into evidence a monthly dealer statement for Lopez Motors from the plaintiff (offered by the defendant, and accepted by the court, as Exhibit M), which confirms that the plaintiff had indeed withheld funds from Lopez Motors' other accounts in satisfaction of the lien on the Vehicle under the security agreement. Lopez Motors was informed that there was a zero balance on the Laboy loan.
It was explained at trial that as an automotive dealer, Lopez Motors received " back-end" payments from the plaintiff finance company in exchange for Lopez Motors' assignment of retail installment sales contracts from customer vehicle sales to the plaintiff. These are the accounts on which the plaintiff refused to pay Lopez Motors.
The plaintiff tried to explain away this fact by presenting evidence that the employee who left the defendant a voicemail was mistaken, a new-hire, and not knowledgeable about Lopez Motors' accounts. The court finds that this testimony was not credible. In this case, the court finds that the plaintiff availed itself to other funds which were rightfully owed to Lopez Motors in satisfaction of any amounts the plaintiff may have been owed under the terms of the security agreement. To the extent that the plaintiff can prove definitively that it never received the full amount that it was owed under the security agreement, that fact is more relevant for an action for breach of contract. Here, based on the evidence before the court and the credibility of the witnesses who testified, the court determines that the plaintiff does not have a superior right to possession of the Vehicle.
CONCLUSION
Based on the foregoing, the court finds for the defendant. The plaintiff has not proven by a preponderance of the evidence that it has a superior right to possession of the Vehicle over that of the defendant.