Brittany Napoleon v. Strategic Dealer Services, Inc.

Brittany Napoleon sued Strategic Dealer Services, LP for use of a fraudulent motor vehicle lien. Strategic countersued Napoleon for breach of a motor vehicle retail installment contract.1 Each party moved for traditional and no-evidence summary judgment on its own claim and the other party’s claim. The trial court granted summary judgment in favor of Strategic. Napoleon appeals the trial court’s rulings. We affirm the trial court’s judgment.

BACKGROUND

On February 16, 2014, Napoleon purchased a vehicle on credit from El Caporal Auto Sales and signed a motor vehicle retail installment contract requiring a down payment, the first

1 Both parties alleged other causes of action that they later nonsuited.

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month’s payment, and 47 monthly payments of $450 each. The contract gave El Caporal a

security interest in the vehicle and stated that the contract could be assigned or sold.

El Caporal had a “Master Agreement” with Strategic and Bonfire Capital Group, LLC to

sell its paper and loans pursuant to specific terms and conditions. Nine days after finalizing

Napoleon’s deal, El Caporal assigned Napoleon’s contract and two other contracts to Bonfire

pursuant to the Master Agreement and a separate “Purchase Agreement” listing the details of the

three loans. The day after El Caporal assigned Napoleon’s contract to Bonfire, it also assigned

the contract to Strategic. Strategic in turn paid El Caporal $8,450 for the contract and its name

was listed on the vehicle title as second lienholder. It is undisputed that Napoleon paid El

Caporal the down payment and first month’s payment, and then paid Bonfire or its servicing

agent eleven monthly payments over the next year.

Sometime in October 2014, Strategic and Bonfire became aware that El Caporal had sold

Napoleon’s contract and thirteen other contracts to both of them. They determined that Strategic

had the superior rights, and Bonfire assigned all of its rights under Napoleon’s contract to

Strategic by a separate written agreement. Bonfire and its servicing agent returned the payments

it had received from Napoleon to her and recommended that she use the money to pay Strategic.

She did not.

In November 2014, Strategic, through its loan servicing agent TexCap Financial LLC,

sent a letter to Napoleon advising her that El Caporal no longer owned her contract and gave her

an address to which to send future payments. At some point, TexCap was no longer involved,

and in February 2015, Strategic advised Napoleon that her payments were due to Strategic and

notified her of the address to which to send payments. But Napoleon was skeptical about

Strategic’s status as second lienholder and began investigating the matter. She discovered an

application for title to her vehicle on which she claimed her signature had been forged. She filed

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complaints with the Consumer Financial Protection Bureau and the Texas Department of Motor

Vehicles.

Meanwhile, in March 2015, Napoleon told Strategic about the forged application for title

and said she was not going to make any payments to Strategic. When Napoleon did not make

payments due under the contract, Strategic repossessed the vehicle. Napoleon reported the

vehicle as stolen, and the police took possession of it. Napoleon hired a lawyer who sent

Strategic a letter advising Strategic to stop all attempts to enforce a fraudulent lien and to release

its lien on the vehicle in order to avoid litigation. After conducting its own investigation, the

police released the vehicle to Strategic about a month later and Strategic ultimately sold it.

Napoleon sued Strategic for use of a fraudulent lien. In her amended petition, Napoleon

alleged that El Caporal reproduced blank copies of the contract, forged her signature, and then

sold forged contracts to Bonfire and Strategic. She alleged that Strategic “became aware of the

fact that El Caporal had perpetrated a massive fraud on several creditors by falsifying

documents” based on the following statement by Strategic to the Consumer Financial Protection

Bureau in May 2015:

Upon contact with Ms. Napoleon, we were advised that she had been making

payments to Bonfire Financial/Innovate Finance. El Caporal Auto Sales had

fraudulently pledged the [vehicle] to Bonfire Financial/Innovate Finance while

Strategic Dealer Services LP was recorded as the lien holder.

Napoleon alleged that despite its knowledge of El Caporal’s fraud, Strategic attempted to

enforce the contract and lien against her. She alleged eight different “uses” of the fraudulent lien

by Strategic: (i) in a November 2014 letter to her stating El Caporal no longer owned her

contract and that payments were due to Strategic through its loan servicer TexCap Financial; (ii)

in its May 2015 response to the Consumer Financial Protection Bureau; (iii) in its response to the

DMV investigation in which it asserted an interest in the vehicle; (iv) in a March 2015 letter to

her stating that the contract was owned by Strategic Automotive Servicing, LLC and that

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payments were due to that entity; (v) on March 25, 2015, when Strategic repossessed the vehicle;

(vi) in a March 25, 2015 letter to her advising that Strategic would sell the vehicle; (vii) on April

22, 2015, when Strategic reclaimed the vehicle from the city pound; and (viii) during various

telephone calls to Napoleon in an attempt to collect payments. Napoleon sought statutory

damages of $10,000 per violation, exemplary damages, attorney’s fees, and costs.

Napoleon did not sue El Caporal. Strategic answered and filed a counterclaim against

Napoleon for breach of contract.2

The trial court granted summary judgment in favor of Strategic on its claim for breach of

contract and on Napoleon’s claim for use of a fraudulent lien. The final judgment stated that

Strategic was entitled to “offsets” of $10,135.03 and attorney’s fees. But because Napoleon had

not been awarded damages, the court rendered a take-nothing judgment as to both parties.

On appeal, Napoleon asserts six issues, grouped into two categories: (1) the trial court

erred by granting summary judgment in favor of Strategic on its claim for breach of contract; and

(2) the trial court erred by granting Strategic’s motion and denying her own on her claim for use

of a fraudulent lien.

STANDARD OF REVIEW

We review the grant of summary judgment de novo. Mann Frankfort Stein & Lipp

Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We review the summary-judgment

evidence in the light most favorable to the party against whom the summary judgment was

rendered, crediting evidence favorable to that party if reasonable jurors could, and disregarding

contrary evidence unless reasonable jurors could not. Id. The party moving for traditional

summary judgment must show that no genuine issue of material fact exists and it is entitled to

judgment as a matter of law. Id.; TEX. R. CIV. P. 166a(c). In a no-evidence motion for summary

2 Strategic also filed a third-party claim against Bonfire for contribution and indemnity, which it later nonsuited.

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judgment, the nonmovant bears the burden to produce evidence that raises a genuine issue of

material fact on the challenged elements of its claim. TEX. R. CIV. P. 166a(i); Sw. Elec. Power

Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002).

DISCUSSION

Breach of Contract

In issues one and five, which Napoleon argues together, she asserts that the trial court

erred by granting Strategic’s motion for summary judgment on the breach-of-contract claim

because “there was no evidence establishing that [she] signed the counterfeit notes held by

Bonfire and [Strategic], or that either [Strategic] or Bonfire was in physical possession of the

original Note signed by [her.]”3 Napoleon does not state to which element of the claim this

argument is directed. We interpret the argument as challenging the existence of an enforceable

contract.

Napoleon refers to the contract as a negotiable promissory note and argues that “[t]o

enforce a note, a claimant generally needs to establish that it is a holder of the note and is in

physical possession of the original note.” She argues that Strategic is not entitled to enforce the

contract because Strategic is in possession of a forged contract. She cites Wheeler v. Security

State Bank, N.A., 159 S.W.3d 754 (Tex. App.—Texarkana 2005, no pet.), and section 3.301 of

the Texas Business and Commerce Code to support her argument. We do not find this authority

persuasive under the circumstances of this case.

The Wheeler case involved a creditor’s attempt to collect on promissory notes and states

the general proposition that to enforce a promissory note, the plaintiff must establish the

3 Issue 5 challenges the summary judgment on the contract claim. Issue 1 states:

Texas Business and Commerce Code Section 3.401 states that a person is not liable on an instrument unless the person

signed the instrument. Are counterfeit copies of a Motor Vehicle Installment Contract that were not signed by a person, but

were instead forged without that person’s permission, enforceable against that person?

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existence of the note, the plaintiff is the legal owner and holder of the note, the defendant is the

maker of the note, and the balance owed on the note. Id. at 757. Section 3.301 of the Business

and Commerce Code addresses who is entitled to enforce a negotiable instrument, specifically,

the holder, a nonholder who is in possession with the rights of a holder, and a person not in

possession but who is entitled to enforce it under a different provision of the code. TEX. BUS. &

COM. CODE ANN. § 3.301 (West 2002).

However, the contract at issue here is not made payable to bearer or to order as required

to be a negotiable instrument, and Napoleon does not explain how the contract is a negotiable

instrument such that the cited authority would apply. See id. § 3.109 (explaining that negotiable

instrument must be made payable to bearer or to order); see also Guzman v. Ugly Duckling Car

Sales of Tex., L.L.P., 63 S.W.3d 522, 527–28 (Tex. App.—San Antonio 2001, pet. denied) (retail

installment contract subject to law of contracts not to law of negotiable instruments); Mauricio v.

Mendez, 723 S.W.2d 296, 298 (Tex. App.—San Antonio 1987, no writ) (written agreement was

non-negotiable promissory note because not made payable to bearer or to order); Gen. Motors

Acceptance Corp. v. Matson, 336 S.W.2d 628, 630 (Tex. Civ. App.—Austin 1960, no writ)

(retail installment contract not negotiable instrument because not made payable to bearer).

Instead, we conclude that the contract is subject to the laws of contract, not to the laws governing

negotiable instruments. See Ugly Duckling Car Sales, 63 S.W.3d at 527–28.

Napoleon concedes that she signed a contract with El Caporal for purchase of the vehicle

on credit and that she owed monthly payments pursuant to that contract. She concedes that the

contract granted a security interest in the vehicle and authorized El Caporal to sell or assign its

rights under the contract. But she argues that Strategic cannot enforce the contract because the

contract that Strategic has in its physical possession is a forged copy, not the original.

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Napoleon’s own summary-judgment evidence established that El Caporal assigned its

rights under her contract to Bonfire. Napoleon attached business records from Bonfire that

included a Purchase Agreement dated February 25, 2014, between El Caporal and Bonfire

assigning three of El Caporal’s contracts to Bonfire. The three contracts assigned to Bonfire were

listed on “Attachment A” to the Purchase Agreement. Attachment A listed the debtor’s name; the

VIN, year, make, model, and mileage of the vehicle; the GPS serial number; the purchase price

and principal balance; and the purchase advance rate, amount withheld from advance, and

amount funded to dealer. Napoleon states that El Caporal only “purported” to assign her contract

to Bonfire through this Purchase Agreement, but she does not challenge the validity of this

assignment. In a separate Bill of Sale dated the same day, El Caporal also sold to Bonfire “all

rights, title and interest in and to” the contracts listed on Attachment A to the Purchase

Agreement, including “[t]he security interests created by the Contracts, and other rights of [El

Caporal] arising out of such security interests, in the Vehicles”; “[t]he original Certificate(s) of

Title relating to the Vehicle(s)”; and “[a]ll documents and information reflecting the Contracts

and Vehicle(s).” Napoleon does not challenge the validity of the Bill of Sale.

In addition to Napoleon’s evidence, Strategic’s summary-judgment evidence included a

written agreement between Bonfire and Strategic in which Bonfire assigned all of its rights in

Napoleon’s contract and vehicle to Strategic effective January 1, 2015. Napoleon argues that

Bonfire had nothing to assign, however, because Bonfire signed the agreement in October 2015

and by that time had already refunded her payments and released its claim to her vehicle. But

even though the parties signed the agreement in October 2015, they agreed to make it retroactive

to January 1, 2015, which was well before Bonfire refunded the payments to Napoleon or

released its claim to her vehicle. Consequently, Napoleon’s argument that Bonfire had nothing to

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assign to Strategic fails. See Transcon. Realty Inv’rs, Inc. v. Wick, 442 S.W.3d 676, 680 (Tex.

App.—Dallas 2014, pet. denied) (assignment may be made retroactive).

We conclude that the summary-judgment evidence conclusively established that all rights

to enforce the original contract between Napoleon and El Caporal were assigned to Strategic. See

Adams v. Eastex Finance Co., 379 S.W.2d 355, 359 (Tex. Civ. App.—Tyler 1964, no writ).

Consequently, the trial court did not err by granting summary judgment in favor of Strategic on

its claim for breach of contract.

We resolve issues one and five against Napoleon.

Use of Fraudulent Lien

In issues two, three, four, and six, which Napoleon also argues together, she asserts the

trial court erred in its rulings on her claim for use of a fraudulent lien. She contends she was

entitled to judgment on this claim as a matter of law and the trial court erred by denying her

motion for summary judgment. Alternatively, she argues that the trial court erred by granting

Strategic’s no-evidence motion for summary judgment on this claim because she raised a

genuine issue of material fact that must be resolved by the factfinder.4 We disagree.

A claim for use of a fraudulent lien requires proof of the following elements: (1) a person

made, presented, or used a document purporting to create a lien; (2) knowing that the lien was

4 Issue 6 challenges the rulings on the motions for summary judgment on this claim. Issues 2, 3, and 4 state:

Issue 2. Texas Civil Practice and Remedies Code Section 12.001(3) states that “Lien” means a claim in property for the

payment of a debt and includes a security interest. Is a forged Motor Vehicle Installment Contract purporting to grant a

security interest in a motor vehicle a fraudulent lien in violation of Texas Civil Practice and Remedies Code Section

12.002?

Issue 3. Forgery of title documents is a third degree felony. Tex. Transp. Code § 501.155. Is a lien that was placed on a

Texas Certificate of Title by filing a forged Application for Texas Title a fraudulent lien under Texas Civil Practice and

Remedies Code Section 12.002 if the purported lien holder had no constitutional or statutory lien, security interest, or child

support lien on the vehicle at the time the application for title was filed?

Issue 4: Whether Appellee knowingly made, presented, or used a fraudulent lien in violation of Texas Civil Practice and

Remedies Code Section 12.002 when (1) Appellee required that there be a lien in its favor on a Texas Certificate of Title

before deciding to purchase a Motor Vehicle Installment Contract (“Note”) secured by the vehicle; (2) Appellee purchased

a forged note; (3) Appellee was informed by another creditor that 14 of the same notes were sold to both of them by the

same car dealer; and (4) Appellee attempted to collect payments on the forged note by, inter alia, repossessing and selling

the vehicle listed as collateral in the forged note.

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fraudulent; (3) with intent that the fraudulent lien be given legal effect; and (4) with intent to

cause another person to suffer physical injury, financial injury, mental anguish, or emotional

distress. TEX. CIV. PRAC. &REM. CODE ANN. § 12.002(a) (West Supp. 2016).

We focus on the second element of the claim, knowledge the lien was fraudulent. As the

party with the burden of proof, Napoleon was required to conclusively establish that Strategic

knew its lien was fraudulent. See Salomon v. Lesay, 369 S.W.3d 540, 549–50 (Tex. App.—

Houston [1st Dist.] 2012, no pet.). We quote Napoleon’s appellate argument on this element

verbatim:

Bonfire notified Strategic that the same 14 notes were sold to more than one

creditor. (CR 369–70). Napoleon told Strategic that the Application for Texas

Title was forged. (CR 337, 352). Therefore, Strategic knew, or with reasonable

inquiry would have known, that the lien was fraudulent. Further, as indicated in

Strategic’s response to Appellant’s Interrogatory 9, Strategic knew that there was

a competing claim of ownership of the note by Bonfire. (CR 356–57). With

reasonable inquiry, Appellee would have uncovered that it was a victim of fraud

because the note it believed it purchased was previously sold to another creditor.

Napoleon does not argue or explain how Strategic’s knowledge “that the same 14 notes

were sold to more than one creditor” and that “the Application for Texas Title was forged”

equates to conclusive evidence or raises a fact issue that Strategic knew its lien was fraudulent.

See id.; see also Gordon v. W. Houston Trees, Ltd., 352 S.W.3d 32, 46–47 (Tex. App.—Houston

[1st Dist.] 2011, no pet.). Additionally, her burden was to prove that Strategic knew its lien was

fraudulent, not that it would have known upon reasonable inquiry. See TEX. CIV. PRAC. & REM.

CODE ANN. § 12.002; Gordon, 352 S.W.3d at 46–47.

The summary-judgment evidence that Napoleon cites also does not support her argument.

She first cites the affidavit of Scott Moles, Strategic’s Director of Operations, in which he

testified how Strategic and Bonfire became aware that they had competing claims to Napoleon’s

contract and thirteen other contracts assigned by El Caporal. Nothing in the affidavit, however,

suggests fraudulent activity was involved or that Strategic should have suspected fraud.

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Napoleon next cites the April 17, 2015 letter from her attorney to Strategic in which the

attorney advised that “someone fraudulently completed a new ‘Application for Texas Title,’

added Strategic Dealer Services as a second lien holder, and forged Mrs. Napoleon’s signature.”

The letter stated that “[t]he application was used to secure a Texas Certificate of Title from the

Texas Department of Motor Vehicle[s] listing Strategic as a lienholder.” Still, this letter did not

establish that Strategic knew its lien was fraudulent. Other summary-judgment evidence showed

that Strategic paid El Caporal for Napoleon’s contract in February 2014, and that when Strategic

and Bonfire realized they had competing claims, Bonfire assigned its rights in the contract to

Strategic.

Napoleon also cites her declaration in which she claimed Strategic knew the lien was

fraudulent. But those portions of her declaration were stricken by the trial court and constitute no

evidence of Strategic’s knowledge.

Finally, she cites Strategic’s answer to Interrogatory 9, in which Strategic stated it

purchased the Retail Installment Contract signed by [Napoleon] for value without

notice of any defects from El Caporal Auto Sales. Subsequently, Bonfire Capital

Group, LLC, made a claim on the same Retail Installment Contract and for a lien

on the vehicle described therein purchased by [Napoleon], but such claims w4ere

[sic] inferior and subordinate to the ownership of [Strategic]. There is no dispute

that [Napoleon] bought the vehicle on credit, did not pay for it, and [Strategic] is

the creditor and owner of the contract, and that the lien on the vehicle is valid,

existing, unsatisfied and enforceable.

Napoleon does not explain how Strategic’s answer shows that it knew the lien was fraudulent. At

most it shows that there was a claim by two entities to the contract and that the two entities

determined which claim was superior and which was subordinate. The answer does not contain

any suggestion of fraud, and it supports Strategic’s claim that it was the owner of the contract

and entitled to enforce it.

We conclude that Napoleon did not establish she was entitled to judgment as a matter of

law on her claim for use of a fraudulent lien and the trial court did not err by denying her motion

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for summary judgment on this claim. Additionally, because Napoleon’s summary-judgment

evidence did not raise a genuine issue of material fact about Strategic’s knowledge the lien was

fraudulent, we further conclude that the trial court did not err by granting Strategic’s no-evidence

motion for summary judgment on this claim.

We resolve issues two, three, four, and six against Napoleon.

Because of our resolution of these issues, we do not need to decide Strategic’s crosspoints

on appeal.

We affirm the trial court’s judgment.