Prime Financial Services LLC v. Vinton

Bedford Financial, Inc. (Bedford) was in the business of making subprime construction loans to individual customers. In return, the customers executed mortgages and notes in favor of Bedford. Bedford obtained funding for its business through a loan from Prime Financial Services LLC (Prime Financial) (plaintiff), a limited-liability company. In turn, Prime Financial obtained a loan for the funding from Bank One, NA (defendant). In 1998, Prime Financial gave Bedford a loan. Bedford then gave Prime Financial security interests in the notes from Bedford’s customers. Bedford also assigned the customers’ mortgages to Prime Financial. Prime Financial did not take possession of the mortgages or the notes. The following year, Bank One provided a loan directly to Bedford. As part of the loan transaction, Bank One paid off a portion of Bedford’s debt to Prime Financial. Bedford gave Bank One security interests in the notes from Bedford’s customers, including 23 notes for which Prime Financial had provided the funding. Bank One took possession of the mortgages and notes. Bedford later defaulted on its loans, owing millions of dollars to Bank One and Prime Financial. Bank One settled Bedford’s debt to Bank One in an action with a guarantor of the Bedford loan. As part of a settlement with the guarantor, Bank One transferred the collateral of its security interest to the guarantor. This collateral included the 23 notes for which Prime Financial had provided the funding. Prime Financial later sued various entities, including Bank One. In the suit, Prime Financial claimed that Prime Financial had security interests in the notes for which it had provided funding. Prime Financial also claimed that the security interests in those notes had priority over Bank One’s security interests in those notes. The trial court entered judgment in favor of Prime Financial. Bank One appealed.