Prospect Capital Corporation v. Mutual of Omaha Ba
819 F.3d 754
5th Cir.2016Background
- Prospect held a 2008 New York federal court money judgment (~$2.3M) against Michael Enmon who then transferred assets to evade collection.
- Enmon’s valuable Texas mineral rights were transferred to his mother, partly sold, and proceeds moved into an irrevocable trust; the trust later acquired Texas real and personal property and 90% of Kickapoo Kennels, LLC.
- In 2009–2010, Mutual Bank made ~$2.3M in small-business loans to Kickapoo and the trust and took security interests in the mineral rights, the trust’s real property, and personal property; Mutual perfected those liens immediately.
- Prospect did not record an abstract of its New York judgment in Harris County, Texas, until February 2013.
- Prospect sued Mutual in federal court (Texas) seeking a declaratory judgment that Prospect’s judgment lien had priority over Mutual’s security interests; the district court granted summary judgment for Mutual.
- Prospect appealed, arguing (1) it had priority under Texas title-dispute law and (2) the court erred in granting summary judgment before additional discovery under Rule 56(d).
Issues
| Issue | Plaintiff's Argument (Prospect) | Defendant's Argument (Mutual) | Held |
|---|---|---|---|
| Priority of lien in Texas property | Prospect’s judgment gives it superior interest in the contested collateral | Mutual’s earlier-perfected security interests are prior because Prospect’s judgment was not abstracted in Texas when Mutual perfected | Held for Mutual: first in time/first in right; Prospect’s unabstracted judgment gave no property lien |
| Applicability of bona-fide purchaser/lender defense | Mutual was not a bona-fide lender; Prospect contends this defeats Mutual’s priority | Mutual argues bona-fide doctrine applies only against prior unrecorded interests, and Prospect had no recorded/legal property interest when Mutual perfected | Held for Mutual: bona-fide-lender doctrine inapplicable because Prospect had no recorded interest in the specific collateral |
| Creation of judgment lien under Texas law | Prospect: its money judgment should afford an interest in property for priority purposes | Mutual: Texas creates a judgment lien only upon filing/indexing an abstract of judgment per Prop. Code §52.001 | Held for Mutual: judgment lien arises only after abstract is properly filed and indexed; Prospect’s judgment alone created no lien |
| Denial of Rule 56(d) discovery | Prospect: district court abused discretion by granting summary judgment before discovery; needed evidence on Mutual’s diligence/backdating | Mutual: Prospect failed to identify specific, collectible facts that would affect summary judgment; prior motion to compel electronic discovery was denied without objection | Held for Mutual: denial of Rule 56(d) not an abuse—Prospect gave only speculative assertions and could not show additional discovery would change outcome |
Key Cases Cited
- Hemphill v. State Farm Mut. Auto. Ins. Co., 805 F.3d 535 (5th Cir. 2015) (summary judgment standard and de novo review on appeal)
- World Help v. Leisure Lifestyles, Inc., 977 S.W.2d 662 (Tex. App.—Fort Worth 1998) (first in time/first in right principle in Texas property disputes)
- Drake Interiors, L.L.C. v. Thomas, 433 S.W.3d 841 (Tex. App.—Houston [14th Dist.] 2014) (judgment lien created by filing and indexing an abstract)
- Rogers v. Peeler, 271 S.W.3d 372 (Tex. App.—Texarkana 2008) (mere rendition of a money judgment does not create a lien on specific property)
- Murray v. Cadle Co., 257 S.W.3d 291 (Tex. App.—Dallas 2008) (judgment creditor must file and index abstract in accordance with property code to create lien)
- Noble Mortg. & Inv., LLC v. D & M Vision Inv., LLC, 340 S.W.3d 65 (Tex. App.—Houston [1st Dist.] 2011) (bona-fide purchaser/lender defense is a response to holders of prior unrecorded interests)