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In re Turley

172 F.3d 671 (1999)

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In re Turley

United States Court of Appeals for the Ninth Circuit

172 F.3d 671 (1999)

Facts

Norman Turley (debtor) was an auto racer and a member of Championship Auto Racing Teams (CART). CART organized auto-racing events that were only open to its members. CART members were required to purchase one share of its stock, represented by a stock certificate. If a member left CART, the member was required to return his stock certificate to CART in exchange for the share’s value. Members were prohibited from selling, transferring, or encumbering their shares without receiving permission from CART. Turley granted a security interest in all of his general intangibles to Thomas C. Thompson Sports (Thompson Sports) (creditor). Turley also pledged his CART stock certificate to Farmers and Merchants Bank of Long Beach (the bank) (creditor), which had possession of the certificate. Soon after granting these interests, Turley filed for bankruptcy. CART decided to redeem Turley’s stock certificate for $220,000 (the redemption funds). Both the bank and Thompson Sports filed claims for the redemption funds. Thompson Sports argued that it had a security interest in the redemption funds, reasoning that the redemption funds were part of Turley’s general intangibles because they were related to Turley’s membership agreement with CART. The bank argued that it had a security interest in the redemption funds because the redemption funds were the proceeds from the stock certificate. Because the bank possessed the stock certificate, the bank asserted that it held a perfected security interest in the certificate. The bankruptcy court held that the bank had a perfected security interest in the funds because it possessed the stock certificate. The district court affirmed the bankruptcy court. Thompson Sports appealed.

Rule of Law

Issue

Holding and Reasoning (Rymer, J.)

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