Zurita v. SVH-1 Partners, Ltd.

SVH-1 Partners, Ltd. (SVH) (plaintiff) owned a shopping center in Austin, Texas. In March 2007, Agustin Zurita (defendant) leased space in the shopping center for use as a restaurant. The lease granted SVH a lien on certain personal property owned or thereafter acquired by Zurita and located on the leased premises. The lease provided that if Zurita defaulted, SVH would have the right to sell the property subject to the lien. At the time Zurita signed the lease, no fixtures or other personal property were yet located on the premises. Once the premises were ready, Zurita’s wholly owned company, AZ Restaurant Ventures, LLC (AZR) (plaintiff), bought restaurant equipment and furnishings for the premises. AZR entered into financing agreements with US Bancorp that gave AZR legal title to the financed equipment and furnishings and gave US Bancorp a purchase-money security interest in the financed items. Zurita subsequently began defaulting on rent payments and notified SVH that the restaurant would be closing. SVH sent Zurita a letter indicating that SVH planned to dispose of the premises’ contents in which SVH held a security interest. SVH gave notice of a public sale of the items and purchased the items for $25,000. SVH credited the $25,000 against Zurita’s debt owed to SVH under the lease. SVH then sued Zurita in Texas state court, asserting breach of lease and seeking damages. AZR intervened in the action, asserting a conversion claim and seeking declarations that AZR had legal title to the property and that SVH had no valid lien on the property. The trial court granted judgment for SVH on the breach-of-lease claim and awarded damages. The court rendered judgment against AZR on the conversion claim, finding that (1) Zurita had granted SVH a security interest in personal property located on the leased premises, (2) SVH had perfected the security interest, and (3) even if AZR had legal title to the property, Zurita had rights in the property because he was AZR’s sole owner, and Zurita possessed and used the property in the restaurant. Zurita and AZR appealed.