Metropolitan Bank & Trust Co. v. HUNTINGTON NATIONAL BANK, Counter-defendant -

This disposition is not appropriate for publication and is not precedent*
except as provided by 9th Cir. R. 36-3.
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
METROPOLITAN BANK & TRUST
CO.,
Plaintiff-counter-defendant,
v.
DESERT VALLEY FINANCIAL LLC; et
al.,
Defendants-Appellees,
PACIFIC BUSINESS CAPITAL CORP.,
Defendant-cross-claimant -
Appellee v.
HUNTINGTON NATIONAL BANK,
Counter-defendant -
Appellant.
No. 08-16511
D.C. No. 2:01-cv-00622-LDG-
LRL
MEMORANDUM *
METROPOLITAN BANK & TRUST
CO.,
Plaintiff-counter-defendant,
No. 08-16758
D.C. No. 2:01-cv-00622-LDG-
LRL
FILED
NOV 18 2009
MOLLY C. DWYER, CLERK
U .S. C OU R T OF APPE ALS

-- 1 of 6 --

2
v.
DESERT VALLEY FINANCIAL LLC; et
al.,
Defendants-Appellees,
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
Argued and Submitted November 5, 2009
San Francisco, California
Before: HUG, RYMER and McKEOWN, Circuit Judges.
Metropolitan Bank & Trust Co. (Metropolitan) appeals from the district
court’s judgment for Pacific Business Capital Corp. (PBCC) after a bench trial on
PBCC’s conversion claim. We have jurisdiction under 28 U.S.C. § 1291. “We
review the district court’s findings of fact after a bench trial for clear error and its

-- 2 of 6 --

Metropolitan and PBCC agree that the pre-revision version of the U.C.C.1
and the former provisions of the California Commercial Code control.
3
conclusions of law de novo.” Friends of Yosemite Valley v. Norton, 348 F.3d 789,
793 (9th Cir. 2003). We affirm in part and reverse in part.
I
To establish a defense under Uniform Commercial Code (U.C.C.)
§ 9-308(a), Metropolitan needed to prove that without its own actual knowledge1
of PBCC’s security interest, it (1) gave new value for the mobile home loan
contracts (Home Loans) and (2) took possession of the Home Loans in the ordinary
course of its business. See U.C.C. § 9-308 cmt. 3; 9 Anderson on the Uniform
Commercial Code § 9-308:7 (1999); see also Cal. Comm. Code § 1201(25)(c)
(noting that “[a] person ‘knows’ or has ‘knowledge’ of a fact when he or she has
actual knowledge of it.”). The district court incorrectly attributed Mountain
Community Bank’s knowledge to Metropolitan. As the district court did not
determine whether Metropolitan acted without actual knowledge of PBCC’s

-- 3 of 6 --

If Metropolitan can establish on remand a U.C.C. § 9-308(a) defense as to2
the initial 128 Home Loans, the district court may need to reconsider whether
Metropolitan gave new value for the substitute Home Loans by releasing security
interests in the Home Loans it returned. See Cal. Comm. Code § 9105(1)(o); Nw.
Acceptance Corp. v. Lynnwood Equip., Inc., 1 U.C.C. Rep. Serv. 2d 1710 (W.D.
Wash. 1986), aff’d, 841 F.2d 918 (9th Cir. 1988).
4
security interest with respect to the initial 128 Home Loans or the substitute Home
Loans, we must reverse for it to make these findings.2
II
The district court properly rejected Metropolitan’s U.C.C. § 9-306(2)
defense. To establish this defense, Metropolitan needed to prove the transactional
documents between PBCC and Silver State Mobile Homes and Galaxy Financial
Services (collectively, Silver/Galaxy) authorized Silver/Galaxy to sell Home
Loans. The transactional documents authorized Silver/Galaxy to sell Home Loans
only with PBCC’s express written consent. The district court’s apparent reading of
section 2(f) of the Pledge Agreements as a prohibition against selling Home Loans
without consent is consistent with the scope of the Pledge Agreements. It also
matches the parties’ course of conduct. As PBCC did not expressly consent to
Silver/Galaxy’s initial sale of 128 Home Loans to Mountain Community Bank - or

-- 4 of 6 --

Even if the transactional documents authorized Silver/Galaxy to sell Home3
Loans in the ordinary course of business without consent, the record supports the
district court’s factual finding that Silver/Galaxy did not sell - or subsequently
transfer - the Home Loans in the ordinary course of its business.
The district court will need to reconsider its damage award, of course, if it4
finds on remand that Metropolitan can establish a U.C.C. § 9-308(a) defense.
5
Silver/Galaxy’s subsequent transfer of substitute Home Loans to Metropolitan -
Metropolitan’s U.C.C. § 9-306(2) defense fails.3
III
Finally, the district court’s damage award was not faulty or overstated.4
First, under California Commercial Code § 9503, PBCC had a right to take
possession of the Home Loans on April 3, 1998, the date Silver/Galaxy caused an
“Event of Default” under the transactional documents by selling Home Loans
without PBCC’s consent. Second, the district court reasonably refused to reduce
damages for returned Home Loans. To the extent these returned loans had any
value, the value was realized, for the most part, by Silver/Galaxy and not PBCC.
Third, the district court reasonably concluded the Home Loans’ actual value at the
time of conversion was at least equal to the amount Metropolitan originally paid
for those loans.
Each party shall bear its own costs on appeal.

-- 5 of 6 --

6
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

-- 6 of 6 --