The First District Court of Appeals in Houston didn't exactly declare Russell David Balusek innocent, but it did give him another chance this month to prove he isn't a car thief.
MSMTBR Inc. and Mr. Balusek, (collectively MSMTBR for purposes of the First District's March 11 opinion) were financing their used cars through Clearwater, Fla.-based Mid-Atlantic Finance Co. Inc.
The way this was supposed to work was MSMTBR would present Mid-Atlantic with a contract to purchase an installment sales contract. Mid-Atlantic would advance cash for a portion of the value of a number of vehicles.
Additional payments were forthcoming as each consumer performed on the installment sales contract. If a customer defaulted within six months, Mid-Atlantic would recover the loss by repossessing and selling the vehicles or demanding that MSMTBR repurchase the contract.
Once Mid-Atlantic bought a contract, "all rights under the contract immediately transferred to Mid-Atlantic." In order to assist enforcing this provision MSMTBR also granted limited power of attorney to its lender.
This dispute involved a 2009 contract in which Mid-Atlantic had sales contracts for 82 vehicles worth $364,498. Mid-Atlantic filed a lawsuit after it found out that MSMTBR obtained substitute titles to 53 of these same cars, then repossessed and resold them.
MSMTBR got substitute titles by telling the Texas Department of Motor Vehicles the original titles were "lost or destroyed."
"MSMTBR knew, however, that the titles had not been lost because it had already sold all rights to those vehicles and had delivered the original titles to Mid-Atlantic," wrote Justice Terry Jennings.
Mid-Atlantic sued for conversion and recovery under the Texas Theft Liability Act. The lender demanded $294,525, the collateral value of the converted cars, plus a $1,000 statutory penalty "for each instance of theft," Jennings said.
Also, for every car where title didn't go to a third party, Mid-Atlantic asked for restoration of good title. Mid-Atlantic was in a bind. It didn't possess good title even to the cars it did control. Three of these were repossessed cars it could therefore not resell. And Mid-Atlantic could not issue title to the one customer that had paid in full.
MSMTBR denied committing theft, and said Mid-Atlantic started this when it withheld $50,000 that was owed. After the lawsuits was filed, MSMTBR returned title to five cars.
Mid-Atlantic denied withholding $50,000.
Mid-Atlantic's motion for summary judgment was granted and the trial court awarded $266,875 in actual damages and $50,000 in statutory damages. But MSMTBR got an 484,675 off-set for 14 titles it delivered.
MSMTBR appealed on three issues. It said the trial judge erred because alleged breaches based on contractual obligations are not theft torts, therefore Mid-Atlantic couldn't claim theft by conversion.
Jennings cited a 1968 state Supreme Court decision, Jim Walter Homes Inc. v. Reed: "The acts of a party may breach duties in tort or contract alone or simultaneously in both."
"Here, both the duty allegedly breached and the nature of the injury claimed are independent from the duties and remedies contained in the agreement," Jennings aid. "Thus, Mid-Atlantic's claims can sound in tort."
On its second and third issues, MSMTBR said there were material issues of fact that should be tried before a trial court finds in Mid-Atlantic's favor in the Texas Theft Liability Act and conversion claims.
MSMTBR said that the express terms of the agreement provide it remain the lienholder on all collateral. It asserted the agreement didn't make Mid-Atlantic the owner or give the lender rights to repossess, or prohibited MSMTBR from acting to protect its interests.
Mid-Atlantic, Jennings said, didn't bring evidence "conclusively showing" that MSMTBR was no longer entitled to exercise any rights as a lienholder.
"The limited power of attorney expressly provides authorization for Mid-Atlantic to act on behalf of MSMTBR. It is further undisputed that the titles at issue at all times remained in MSMTBR's name," Jennings said.
The First District remanded the case to the 190th District Court to hear evidence on the TLA and conversion claims.
Houston attorney Brent C. Perry represented MSMTBR.
Arthur S. Feldman of The Feldman Law Firm in Houston represented Mid-Atlantic.