529 F.Supp.3d 371
E.D. Pa.2021Background
- NMAC provided "floor-plan" purchase-money financing to three related Nissan dealerships and perfected security interests in new vehicles by filing UCC-1 financing statements; vehicles arrived with MSOs (Manufacturer’s Statements of Origin).
- Dealerships sold many vehicles out of trust (SOT); NMAC discovered ~745 SOT vehicles and declared defaults, suing the dealerships in New Jersey.
- Sports Car Leasing (wholesaler) bought 79 Vehicles from the Dealerships (Sept–Dec 2018), some purchases routed through a New Jersey intermediary (Sound Motors); purchases were at prices near Manheim MMR and far below the dealerships’ financed amounts.
- Sports Car Leasing did not perform UCC searches, inspect vehicles, or otherwise investigate liens; many vehicles had <50 miles and later were resold at auction; Nissan sought replevin, declaratory relief, and conversion against Sports Car Leasing.
- Experts disagreed: Nissan’s expert said the deals were suspicious and due diligence was lacking; Sports Car Leasing’s expert said wholesalers routinely move dealer inventory to meet manufacturer quotas and the transactions were ordinary course wholesale sales.
- Court denied Nissan’s summary judgment: it held that the dealerships had entrustment power under the UCC so titles were voidable (not void) and Sports Car Leasing qualified as a buyer in the ordinary course acting in good faith; Nissan’s perfected security interest was cut off as to Sports Car Leasing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether titles received by Sports Car Leasing were void (no title transfer) or voidable (transferable to a good-faith buyer) | Nissan: Titles were void because sales violated its perfected PMSI; sales were nullities so transfer did not divest NMAC | Sports Car: Dealerships were entrusted merchants; deliveries gave them power to transfer title; transfers produced voidable title that could pass to good-faith buyers | Held: Titles were voidable under UCC §2403; entrustment to dealerships allowed transfer of rights to a buyer in ordinary course |
| Whether Sports Car Leasing was a buyer in the ordinary course of business (BIOCOB) and took free of NMAC’s security interest | Nissan: Sports Car Leasing should have known or suspected liens/SOTs given price and circumstances; not in ordinary course | Sports Car: Transactions fit ordinary/customary wholesale practices; longstanding dealer-wholesaler relationship; no actual knowledge of SOTs or that sales violated NMAC’s interest | Held: Sports Car Leasing met BIOCOB elements (good faith, ordinary course, no actual knowledge sales violated third-party rights); took free of NMAC’s interest |
| Whether Sports Car Leasing acted in good faith (subjective honesty) | Nissan: Lack of due diligence and suspicious pricing show lack of good faith | Sports Car: Subjective honesty shown by business practices, prior similar purchases, and belief sales were routine to meet quotas | Held: Good faith is subjective; record supports Sports Car Leasing’s honesty in fact — buyer acted in good faith |
| Liability for conversion / replevin; entitlement to summary judgment | Nissan: Sale to Sports Car Leasing voids transfers; conversion/replevin available; summary judgment warranted | Sports Car: Having acquired good title as a BIOCOB, it cannot be liable; summary judgment for Nissan inappropriate | Held: Nissan’s summary judgment denied; because no material facts in dispute, court concluded Sports Car Leasing took title free of NMAC’s security interest and cannot be liable for conversion or replevin; court invited Sports Car Leasing to move for summary judgment |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard and genuine dispute analysis)
- Celotex Corp. v. Catrett, 477 U.S. 317 (movant’s initial burden on summary judgment)
- Kaucher v. County of Bucks, 455 F.3d 418 (definition of a genuine issue of material fact)
- Empire Fire & Marine Ins. Co. v. Banc Auto, Inc., 897 A.2d 1247 (Pa. Super. Ct.) (distinguishing void vs. voidable title; entrustment principles)
- In re Hennessy, 494 A.2d 853 (Pa. Super. Ct.) (voidable title discussion)
- Chrysler Credit Corp. v. Smith, 643 A.2d 1098 (Pa. Super. Ct.) (conversion defined under Pennsylvania law)
- KDG Auto Sales, Inc. v. Asta Funding, Inc., 781 A.2d 202 (Pa. Super. Ct.) (buyer in ordinary course must lack actual knowledge of sale violating third-party security interest)
- Hartford Accident & Indem. Co. v. First Pa. Bank, 859 F.2d 295 (3d Cir.) (good‑faith/honesty-in-fact subjective standard)