IN THE FLORIDA SUPREME COURT GENERAL MOTORS

IN THE FLORIDA SUPREME COURT

GENERAL MOTORS ACCEPTANCE

CORP., a Delaware corporation

Authorized to do business in Florida

Petitioner,

CASE NO. SC06-1522

vs. CASE NO. 2D05-3583

HONEST AIR CONDITIONING &

HEATING, INC., CORY BABCOCK,

and WILLIAM STEVENSON,

Respondents,

___________________________________/

AMENDED BRIEF ON JURISDICTION

OF RESPONDENTS HONEST AIR CONDITIONING &

HEATING, INC. AND CORY BABCOCK

On Review from the District Court of Appeal

Second District, State of Florida

GEORGE R. McLAIN (115510)

DANIEL JOY (119257)

GEORGE R. McLAIN, CHARTERED

1800 Second Street, Suit e717

Sarasota, Florida 34236

(941) 365-4174

(941) 366-4741 – Facsimile

e-mail: [email protected]

ATTORNEYS FOR RESPONDENTS

TABLE OF CONTENTS

Table of Authorities…………………………………………… ii

Statement of the Facts…………………………………………. 1

Statement of the Case…………………………………………. 2

Summary of Argument………………………………………... 3

Argument……………………………………………………… 4

THE DISTRICT COURT ADDRESSED AND DECIDED A

CASE OF FIRST IMPRESSION IN THE STATE OF

FIRST IMPRESSION WHEN IT HELD THAT THE

DEBTOR UNDER A NON-NEGOTIABLE INSTRUMENT

IS ENTITLED TO A CREDIT AGAINST HIS/HER/ITS

OBLIGATION WHEN THAT SECURED CREDITOR

SATISFIES THE LIEN WITHOUT FIRST OBTAINING

PAYMENT OF THE DEBT SECURED BY THE

COLLATERAL…………………………………………….. 4

Conclusion………………………………………………….. 10

Certificate of Service………………………………………… 11

Certificate of Font Compliance……………………………… 11

TABLE OF AUTHORITIES

Cases

Baitcher vs. National Industrial Bank

Of Miami, 368 So2d 439 (Fla. 3

DCA

1979)……………………………………………… 9

Citizens National Bank of Orlando vs.

Bornstein, 374 So.2d 6 (Fla. 1979)……………….. 4, 5, 6, 7

FDIC vs. Hardt, 646 F. Supp. 209 (D.C.

Ill., 1986)…………………………………………. 8, 9

General Motors Acceptance Corporation vs.

Honest Air Conditioning & Heating, Inc.,

933 So2d 34 (Fla. 2

DCA 2006)……………….. . 4

Guide vs. Exchange National Bank of Tampa,

308 So2d 148 (Fla. 2

DCA 1975)……………….. 3

L&S Enterprises, Inc. vs. Miami Tile &

Terrazzo, Inc., 148 So2d 299 (Fla.

DCA 1963)…………………………………….. 3

Noe vs. State, 930 So2d 579 (Fla. 2006)…………… 5

Owen County State Bank v. Guard, 217

Ind. 75 26 NE2d 395) (1940)…………………….. 8, 9

Redlon vs. Heath, 59 Kan 255, 52 P2d

862 (1898)……………………………………….. 8, 9

Southwest Florida Production Credit Assoc.

vs. Schirow, 388 So2d 338 (Fla. 4

DCA

1980)……………………………………………… 3

Tetzlaff vs. Florida Unemployment Appeals

Commission, 926 So2d 1267 (Fla. 2006)………… 5

Statutes

Chapter 673, Fla. Stat……………………………….. 3, 5

Chapter 679, Fla. Stat……………………………….. 7

§673.1041, Fla. Stat………………………………… 7

§673.6051(6), Fla. Stat……………………………... 2, 3, 7

STATEMENT OF THE FACTS

By September, 2002, GMAC knew that the Respondents had traded

the Corvette to Florida Auto Brokers. Motor vehicle dealers frequently

accept a buyer’s vehicle in trade against the purchase of a new or different

one. In such instances, the debtor signs a bill of sale when the title document

is not available evidencing a transfer of interest to the dealer. When the

traded vehicle is encumbered by a lien (frequently arising from a purchase

money obligation), the dealer needs to secure a release of the lien and the

original of the title document in order to be able to transfer title to another

party.

Three months after GMAC learned that the Respondents had traded

the Corvette, Florida Auto Brokers sent a payoff check to GMAC, along

with a request that GMAC satisfy the lien and send the title document to it.

GMAC did as requested, even before the dealer’s check cleared.

GMAC follows this procedure for business reasons. Because its

source of future business depends on dealers, GMAC satisfies the lien and

sends the title document to the dealer before the check clears in order to

“assist” the dealers. In GMAC’s words, it wants to help the dealer in any

way that it can.

The Florida Auto Brokers’ bank dishonored the check. GMAC then

entered into an agreement with the dealer wherein the dealer promised to

make periodic payments to cover the obligation. The dealer made a single

payment of $3000.00 and then defaulted.

STATEMENT OF THE CASE

GMAC sued Florida Auto Brokers, as well as the Respondents. The

predicate for liability on the part of Florida Auto Brokers was the agreement

that it signed after its bank dishonored its check. The predicate for liability

on the part of the respondents was the Retail Installment Sales Contract

(RISC).

The Respondents asserted a number of defenses, including the

impairment of collateral defense. They also asserted that the agreement

between GMAC and Florida Auto Brokers resulted in a novation.

The Trial Court, at the urging of the Respondents, found that

§673.6051(6) F.S. applied. Contrary to the Second District’s recital, the

Trial Court did not explicitly find that the debt instrument was a negotiable

instrument, as GMAC did not plead that the impairment of collateral defense

Because the trial court held that the Respondents were entitled to

a credit equal to the value of the collateral released, it did not address

whether the GMAC-Florida Auto Brokers agreement replaced the

RISC agreement resulted in a novation.

is available only to a debtor under a negotiable instrument that is secured.

The Trial Court found that the instrument was a negotiable instrument only

by implication. It applied §673.6051(6) F.S. to the facts, and Chapter 673

applies only to negotiable instruments. However, the Respondents relied on

cases where the District Court did not address the negotiability of the debt

instrument.

The Second District concluded that the RISC was not a negotiable

instrument and, therefore, §673.6051(6) could not apply. However, it held

that the result would be the same: the Respondents were entitled to a credit

equal to the value of the collateral improvidently released by GMAC.

SUMMARY OF ARGUMENT

The Second District ruled that a debtor under a non-negotiable

instrument could employ the impairment of collateral defense when the

creditor releases the security interest without first obtaining payment in an

amount equal to the value of the collateral. None of this directly or

expressly conflicts with any of this Court’s rulings in Citizens National Bank

of Orlando v. Bornstein.

Those cases are: Guide v. Exchange National Bank of Tampa, 308

So2d 148 (Fla. 2

DCA 1975); Southwest Florida Production Credit

Association v. Schirow, 388 So2d 338 (Fla. 4

DCA 1980); and L & S

Enterprises, Inc. v. Miami Tile & Terrazzo, Inc., 148 So2d 299 (Fla. 3

DCA 1963).

The issue in this case is whether the person liable under non-

negotiable, chattel paper should be entitled to a credit when the secured

creditor releases the security interest without first requiring that the dealer

pay the underlying debt. This question has not previously been addressed by

any court of record in the State of Florida. Therefore, express and direct

conflict is not present.

ARGUMENT

THE DISTRICT COURT ADDRESSED AND DECIDED A

CASE OF FIRST IMPRESSION IN THE STATE OF

FLORIDA WHEN IT HELD THAT THE DEBTOR UNDER

A NON-NEGOTAIBLE INSTRUMENT IS ENTITLED TO A

CREDIT AGAINST HIS/HER/ITS OBLIGATION WHEN

THAT SECURED CREDITOR SATISFIES THE LIEN

WITHOUT FIRST OBTAINING PAYMENT OF THE DEBT

SECURED BY THE COLLATERAL.

GMAC makes two arguments in petitioning this court to review the

District Court’s decision in General Motors Acceptance Corporation v.

Honest Air Conditioning & Heating, Inc., 933 So2d 34 (Fla. 2

DCA 2006).

GMAC claims that the decision conflicts with this court’s decision in

Citizens National Bank of Orlando v. Bornstein, 374 So2d 6 (Fla. 1979). It

also argues that if this court were to allow the second district’s decision to

stand, the automobile finance business would be threatened. The first point

is without merit and the second irrelevant to the jurisdictional issue now

before this Court.

In order for this court to exercise jurisdiction, there must exist a

decision from this court or that of another district that directly and expressly

conflicts with it on a question of law. Noe v. State, 930 So2d 579 (Fla.

2006). Where the facts in two cases are distinct (i.e. different) the decisions

of two different courts will not be found to be in express and direct conflict.

Tetzlaff v. Florida Unemployment Appeals Commission, 926 So2d 1267

(Fla. 2006).

GMAC writes, “In addition to being wrong on the merits, the district

court’s application of the impairment of collateral defense to the [RISC] is in

direct conflict with this court’s decision with Citizens National Bank of

Orlando v. Bornstein, 374 So2d 6 (Fla., 1979).” [sic] (p. 8 of GMAC’s

Jurisdictional Brief). GMAC argues that “This Court held that the Chapter

673 defense [impairment of collateral defense] was not otherwise available

because, among other things, the transaction did not meet the definition of a

negotiable instrument or of a non-negotiable instrument meeting all of the

requirements of negotiability.” [emphasis added] (also p. 8)

The Citizens National Bank case involved a number of issues

including whether the holder of a non-negotiable “certificate of deposit”

could be “an account debtor” within the meaning of Article 9 of the UCC.

The case also addressed whether Article 9 applied and whether the bank

could assert certain defenses to defeat Mrs. Bornstein’s claim to the

certificate of deposit. This Court concluded that the defenses were not

available because the “collateral” (i.e. the CD) did not fall within

definitional categories of Article 9.

The dispute between the bank and Mrs. Bornstein centered on who

was entitled to the proceeds of a certificate of deposit. The original owner of

the CD had authorized the issuing bank to use the CD to pay down his other

debt should circumstances require. The CD owner assigned the CD to a

third party who, in turn, assigned it to Mrs. Bornstein. After the bank

learned of the assignment, it exercised its claimed right of setoff and applied

the proceeds of the CD to the original owner’s outstanding debt. The

question was whether the bank held a security interest within the meaning of

Article 9 and could claim the CD to pay down what it was owed by the

original CD owner.

The second district ruled that a debtor under a non-negotiable

instrument could employ the impairment of collateral defense when the

creditor releases the security interest without first obtaining payment in an

amount equal to the value of the collateral. None of this directly or

expressly conflicts with any of this Court’s rulings in Citizens National Bank

of Orlando v. Bornstein.

The defense in question that GMAC claims is not “otherwise

available” involves what is generally described as an “impairment of

collateral” defense. The defense is codified

and available to persons liable

under secured notes that are negotiable within the meaning of §673.1041,

F.S. The GMAC argument is that if the defense is available by statute to

debtors under negotiable instruments, the opposite result is mandated if the

instrument is not negotiable. The argument makes little sense. It ignores the

fact that there is no statute or section of the UCC that addresses defenses

arising out of the conduct of holders of chattel paper, unless the holder has

repossessed the collateral.

It also ignores that the “impairment of

collateral” defense finds its roots in the common law.

The issue in this case is whether the person liable under non-

negotiable, chattel paper should be entitled to a credit when the secured

creditor releases the security interest to a dealer (or broker) without first

requiring that the dealer pay the underlying debt. This question has not

previously been addressed by any court of record in the State of Florida.

Therefore, express and direct conflict is not present.

Although not relevant to the jurisdictional issue, GMAC argues that

the second district wrongly decided the case. It claims that the decision of

Section 673.6051 Florida Statutes

Chapter 679

the second district undermines the UCC policy objective of uniformity.

GMAC also claims that the case was wrongly decided because it would have

a serious impact on the auto finance business. Both arguments are nonsense.

GMAC has not cited a single case from any jurisdiction on facts

comparable to those present here that evidences a different result.

The

destruction of uniformity argument is a red herring.

GMAC cited FDIC vs. Hardt, 646 F. Supp. 209 (C.D., Ill., 1986).

That court held that Illinois does not recognize an impairment of

collateral defense, other than that afforded to a debtor pursuant to a

negotiable instrument. The court did not address the common law

foundation of the impairment of collateral defense. Courts have long

recognized that secured creditors have a duty to not impair the

collateral. See Redlon v. Heath, 59 Kan 255, 52 P2d 862 (1988) and

Owen County State Bank v. Guard, 217 Ind 75, 26 NE2d 395 (1940).

Moreover, GMAC failed to cite a Florida case that suggests that

Florida’s law must mimic Illinois’. In Baitcher v. National Industrial

Bank of Miami, 368 So2d 439 (Fla. 3

DCA 1979), the appellant

executed a guaranty for loans by National Industrial to a third party. A

guaranty is a non-negotiable instrument. See FDIC v. Hardt, infra.

National failed to perfect its security interest. When National sued

Baitcher, the latter argued he was released by virtue of National’s

impairment of collateral. Citing three other cases, the district court

GMAC cited FDIC v. Hardt, 646 F. Supp. 209 (C.D., Ill., 1986). That

court held that Illinois does not recognize an impairment of collateral

defense, other than that afforded to a debtor pursuant to a negotiable

instrument. The court did not address the common law foundation of

the impairment of collateral defense. Courts have long recognized that

secured creditors have a duty to not impair the collateral. See Redlon v.

Heath, 59 Kan 255, 52 P2d 862 (1898) and Owen County State Bank v.

Guard, 217 Ind 75, 26 NE2d 395 (1940). Moreover, GMAC failed to cite

a Florida case that suggests that Florida’s law must mimic reversed a

judgment for National, holding that the holder’s failure to properly

preserve the security interest discharged Baitcher. National’s failure

The impact on the auto finance business is greatly overstated. The

second district held that GMAC should bear the risk of loss because it

determined to take the risk for its own economic benefit. The second district

ruling might require an auto finance lender not well-known to the finance

company to require that it submit payoffs in the form of good funds as a

condition of a simultaneous release of the security interest and of the title

document. Perhaps the lender might proceed in that fashion; or

alternatively, the lender might withhold issuing the satisfaction until the

check clears, something that would require withholding the release for a few

days. In either way, the significance cannot be huge. When satisfying real

estate mortgages, banks typically require funds in hand before they issue

satisfactions. This has not crippled the real estate mortgage business.

GMAC wants the risk of non-payment shifted from it to the debtor so

as to enable it to continue its marketing policy of expediting the release of

the security interest, ahead of payment, in order to, in its words, “assist”

dealers from which it wants business in the future. While the auto finance

company and the dealer are the obvious beneficiaries of the policy, GMAC

wants the borrower to assume the risk of loss of the premature release of the

was the same failure to perfect a security interest with which the Illinois

court dealt. Citing no statute, the district court applied a common law

doctrine, inasmuch as liability was predicated upon a non-negotiable

instrument, i.e. the guaranty.

security interest and bear the cost when the dealer fails to make good on its

promise to pay off the underlying debt.

CONCLUSION

For the reasons set forth above, this Court should not accept

jurisdiction to review the decision of the Second District Court of Appeal.

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true copy of the foregoing has been

furnished by United States First Class Mail to Katherine E. Giddings, Esq.,

and Thomas A. Range, Esq., Akerman Senterfitt, 106 East College Avenue,

Suite 1200, Post Office Box 1877, Tallahassee, Florida 32302-1877

(counsel for GMAC), and to Marie P. Montefusco, 1333 S. University

Drive, Suite 201, Plantation, FL 33324 (counsel for Petitioner in the Second

District appellate proceeding), this _____ day of September, 2006.

____________________________

GEORGE R. McLAIN (115510)

DANIEL JOY (119257)

GEORGE R. McLAIN, CHARTERED

1800 Second Street, Suite 717

Sarasota, Florida 34236

(941) 365-4174

(941) 366-4741 – Facsimile

e-mail: [email protected]

Attorneys for Respondent

CERTIFICATE OF FONT COMPLIANCE

I HEREBY CERTIFY that the font used in this brief is the Times

New Roman 14-point font and that the brief complies with the font

requirements of Rule 9.210(a)(2).

_______________________________

GEORGE R. McLAIN