## Facts

- A landlord leased unfinished restaurant space to Agustín Zurita under a commercial lease that permitted a one-time assignment to a new entity before the premises were ready for occupancy, but no timely assignment was executed and Zurita remained the tenant.
- The lease granted the landlord a continuing UCC security interest and landlord’s lien in the tenant’s present and after-acquired personal property located on the premises, with secured-creditor remedies upon default.
- After the premises became ready, AZ Restaurant Ventures, LLC (owned solely by Zurita) acquired and financed restaurant equipment and furnishings for the location; a lender held a purchase-money security interest in that equipment.
- Zurita defaulted on rent and informed the landlord the restaurant was closing.
- The landlord gave notice of a public sale of the premises’ contents as collateral, bought the items at the sale for $25,000, and credited that amount against the lease debt.
- The landlord sued Zurita for breach of the lease; AZ Restaurant Ventures intervened asserting conversion and tortious interference and sought declarations about the existence and priority of liens.
- After a bench trial, the court awarded the landlord damages and attorneys’ fees against Zurita, ordered that the intervenor take nothing on its tort claims, held Zurita and the intervenor jointly and severally liable for attorneys’ fees, and declined jurisdiction over the requested declaratory relief.

## Issues

1. Whether the landlord’s lease-based Article 9 security interest attached to and could be enforced against the restaurant equipment such that the landlord’s sale was not conversion as to the intervenor claiming title.
2. Whether the trial court properly declined to issue declaratory relief on lien existence and priority where the requested declarations would affect a non-party lender and risk an advisory opinion.
3. Whether attorneys’ fees could be awarded against both the tenant and the intervenor, including joint and several liability.
4. Whether challenged trial-management and evidentiary rulings constituted reversible error or denied a fair trial.

## Decision

- The court modified the judgment in part and, as modified, affirmed.
- It affirmed the take-nothing judgment on the intervenor’s conversion claim because the landlord had an enforceable security interest and acted within secured-party remedies on default.
- It affirmed the trial court’s refusal to entertain the requested declaratory relief to the extent it would require adjudicating rights of a non-party and would be advisory.
- It affirmed the landlord’s entitlement to attorneys’ fees and upheld fee liability against both appellants, subject to a modification of the fee-related portion of the judgment.
- It rejected claims of arbitrary or capricious procedural rulings, finding no reversible abuse of discretion.

## Legal Principles

- Under UCC Article 9, a security interest attaches when value is given, the debtor has rights in the collateral, and the debtor authenticates a security agreement describing the collateral; “rights in the collateral” may exist without formal title when the debtor possesses and uses the property and has sufficient control or beneficial ownership.
- Multiple enforceable security interests may exist in the same collateral; a priority dispute may be unnecessary or improper to decide when the relevant secured party is not joined.
- A secured party’s lawful repossession and disposition of collateral after default, conducted under Article 9 remedies and with required notice, is not conversion because it is not a wrongful exercise of dominion.
- Declaratory relief is unavailable where it would effectively determine the rights of non-parties or produce an advisory decision rather than resolve the concrete dispute before the court.
- Attorneys’ fees may be assessed against an intervenor asserting affirmative claims in the litigation when authorized by applicable fee statutes or contract-based fee entitlement, and joint and several liability may be imposed where supported by the judgment’s legal basis and record.

## Conclusion

The court held that the landlord’s lease granted an enforceable Article 9 security interest that permitted repossession and sale of restaurant equipment without committing conversion, declined declaratory relief that would reach non-party lienholders, and largely sustained attorneys’ fee liability against both the tenant and the intervening entity, while modifying the judgment in part.


Zurita v. SVH-1 Partners, Ltd., No. 03-10-00650-CV, 2011 Tex. App. LEXIS 9670 (Tex. App.—Austin Dec. 8, 2011)