of T.I.'s trailers, and one of
Bridgeford's trailers. On December 12, 2001, Trailmobile voluntary filed
for Chapter 11 bankruptcy.
For purposes of a motion to dismiss, the court accepts the factual
allegations of the complaint as true and draws all reasonable inferences
in favor of plaintiff. See Travel All Over the World, Inc. v. Kingdom of
Saudi Arabia, 73 F.3d 1423 (7th Cir. 1996). When ruling on a motion to
dismiss for failure to state a claim, the court considers, "whether
relief is possible under any set of facts that could be established
consistent with the allegations." Bartholet v. Reishauer A.G.,
953 F.2d 1073, 1078 (7th Cir. 1992). A claim may be dismissed only if it
is beyond doubt that under no set of facts would plaintiffs allegations
entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99,
2 L.Ed.2d 80 (1957). The purpose of a motion to dismiss is to test the
sufficiency of complaint. not to decide its merits. See e.g., Gibson v.
City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990).
Trailmobile argues that: (1) Count I fails as a matter of law because
Texas' Constitutional Material Men's Lien does not apply to proceeds; and
(2) Count VI fails because under both Texas and Illinois law unjust
enrichment cannot exist when there is an express contract.
Count I—Texas' Constitutional Materialman's Lien
In Count I, plaintiff claims a materialman's lien on the proceeds held
by Trailmobile from the sale of the refrigeration units. Trailmobile
argues that plaintiffs fail to allege a claim because: (1) no case has
granted the constitutional lien on proceeds; and (2) the plain language
of the Texas Constitution does not expressly include proceeds. Because
the Texas courts have interpreted the constitutional materialman's lien
narrowly, and Art. 16 § 37 does not expressly include proceeds,
defendants motion to dismiss Count I is granted.
When this court exercises supplemental jurisdiction it must apply state
law to substantive issues. Timmerman v. Modem Indus., Inc., 960 F.2d 692,
696 (7th Cir. 1992). The court must determine the content of state law as
that state's supreme court would determine it. Allstate Ins. Co. v.
Menards, Inc., 285 F.3d 630, 636 (7th Cir. 2002) (citing Erie R.R. Co.
v. Tompkins, 304 U.S. 64, 78 (1938)). Without clear guidance from the
Texas Supreme Court, this court must use its best judgment to make this
determination, and may consider the decisions of lower Texas courts and
courts of other jurisdictions. Stephan v. Rocky Mountain Chocolate
Factory, Inc., 129 F.3d 414, 417 (7th Cir. 1997). This court is not
bound, however, by the decision of any particular Texas appellate court;
the issue is the content of state law at the "state, not the local,
level." Allstate Ins. Co. 285 F.3d at 636. Therefore, this court, sitting
in diversity in the Northern District of Illinois, must attempt to
predict how the Texas Supreme Court would interpret a unique state
constitutional provision. Specifically, Article 16 § 37 of the Texas
Mechanics, artisans and material men of every
class, shall have a lien upon the buildings and
articles made or repaired by them for the value of
their labor done thereon, or material furnished
therefore and the legislature shall provide by law
for the speedy and efficient enforcement of said
While this is one of seven constitutional liens in the country, it is
the only self-executing such lien. A & M Operating Company, Inc. v.
South Coast Supply
Company, Inc., 182 B.R. 997, 1000 (E.D. Texas 1995).
Under the Texas Constitution, the materialman's lien is automatic,
without notice. Id.
The constitutional provision is generally viewed as a back-up for
creditors that fail to file a statutory lien. See Woodward, The
Constitutional Lien on Chattels in Texas, 28 Texas Law Rev. 305, 315
(1950); see also In Re Ernest and Associates, Inc., 59 B.R. 495, 497
(W.D. Tex. 1985) (holding that while a debtor in possession could not
have avoided a statutory lien, it could avoid the constitutional lien).
Consequently, the scope of the lien has been limited by Texas courts. A
& M, 182 B.R; at 1000-1001. The limitations have included: requiring
privity, First Nat'l Bank of Paris v. Lyon-Gray Lumber Co., 194 S.W. 1146
(Tex. Civ. App.-Texarkana 1917), aff'd 110 Tex. 162, 217 S.W. 133
(1919); eliminating subcontractors as possible lien holders, Da-Col Pain
MFG. Co. v. American Indemnity Co., 517 S.W.2d 270, 273 (Tex. 1974);
freeing subsequent innocent purchasers from the lien, Wood v. Barnes,
420 S.W.2d 425, 429 (Tex. Civ. App.—Dallas 1967, writ ref'd
n.r.e.); and limiting the lien to only "a debtor who owns the article or
building." A & M, 182 B.R. at 1001.
Trailmobile does not own or possess the trailers upon which plaintiff
is claiming a materialman's lien. The issue is whether the proceeds from
the sale of those trailers are an "article or building" under the Texas
Constitution. Texas courts have interpreted the phrase "article or
building" narrowly, excluding items such as refrigerators and ranges,
First Nat. Bank in Dallas v. Whirlpool Corp., 517 S.W.2d 262, 266 (Tex.
1975), machinery in a factory not permanently fixed to the property,
Lyon-Gray Lumber Co. v. Nocona Cotton Oil Co., 194 S.W. 633, 635 (Tex.
Civ. App. 1917), and ceiling fans sold to a tenant who installed them in
his leased property and then left the property. Campbell v. Teeple,
373 S.W. 304, 307 (Civ.Ap. 1925). No Texas court has included proceeds
within the definition of "article or building".
It is true, as plaintiff argues, that there are no cases that have
expressly held that the materialman's lien does not attach to proceeds.
Several rulings have by implication, however, excluded proceeds. See
e.g. Lambert v. Williams, 21 S.W. 108, 110 (Tex. Civ. App. 1893) (holding
that as a matter of law a lien cannot include property on which work had
not been done); see also Black, Sivalls & Bryson, Inc. v. Operator's
Oil & Gas Co., 37 S.W.2d 313, 316 (Texas Ct. App. 1931) (holding the
lien extends only to articles prepared by the creditor); See also R.B.
Spencer & Co. v. Bigger, 108 S.W.2d 268, 270 (Texas Ct. App. 1937)
(holding the lien attached to property, not rents from the property).
Plaintiff's reliance on the general statement in In re Tazewell County
Collector, 130 Ill. App.3d 77, 78 (3rd Dist. 1985), that "[a]lien on
property follows the property if moved, unless sold to an innocent
purchaser, in which case the lien follows the proceeds of the sale," is
misplaced for a number of reasons. First, in Tazwell the lien in question
(a tax lien) was on a residence, and the court held merely that the lien
"followed" the residence when its location was moved, because the
residence had not be "substantially destroyed." There was no issue of a
sale to an innocent purchaser and the "following" of proceeds. Id. at
77-78. Second, the case on which Tazewell relied for this statement.
Marshall Savings and Loan Ass'n v. Chicago National Bank,
56 Ill. App.2d 372 (2d Dist. 1965), involved proceeds of a foreclosure
sale, and was later overruled, leaving it of
questionable value. See Cole
Taylor Bank v. Cole Taylor Bank, 224 Ill. App.3d 696 (1st Dist. 1992).
Finally, the case on which Marshall relied, Elgin Lumber Co. v. Langman,
23 Ill. App. 250 (2d Dist. 1886), stated only "that in order to do
justice equity will frequently treat the money derived from property as
it would the property itself and follow it as long as it can be
followed." Id. In Elgin, the plaintiff had a statutory lien on lumber and
materials furnished to defendant Utman and used in the construction of a
house on a lot owned by Utman. Prior to completion, the house was
destroyed by fire. Proceeds from an insurance policy were deposited with
the court which had before it the issue of who was insured under the
policy and the priority of the plaintiff's lien versus a mortgage lien.
Id. Elgin, did not involve the question in the instant case, which under
plaintiff's theory would require the court to hold generally that a self
executing statutory (or constitutional) materialman's lien converts to an
equitable lien and follows the proceeds of the sale of the property to
which the statutory lien originally attached. This court can find no case
suggesting that the Texas Supreme Court would so hold and, therefore,
declines to do so.
Consequently, because the general trend of Texas courts has been to
limit the scope of Art. 16 § 37, because the plain language of the
Constitution applies liens only to "article[s] or building[s]," and
because Texas courts have implicitly excluded proceeds, defendant's
motion to dismiss as to Count I is granted.
Count VI—Unjust Enrichment
Trailmobile argues that plaintiff's unjust enrichment count fails
because under both Illinois and Texas law there cannot be a claim for
unjust enrichment when there is an express contract between the parties.
However, there is a slight difference in Illinois and Texas law.
Consequently, prior to evaluating plaintiffs unjust enrichment claim, the
court must determine if the law of Illinois or the law of Texas applies.
A federal court exercising diversity jurisdiction applies the choice of
law doctrines of the state in which the court sits. See ECHO. Inc. v.
Whitson Co., 52 F.3d 702, 706 (7th Cir. 1995) (citing Klaxon v. Stentor
Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)).
"Ordinarily, Illinois follows the Restatement (Second) of Conflict of
Laws (1971) in making choice-of-law decisions." Chapman and Associate,
Ltd. v. Kitzrnan, 193 Ill.2d 560, 739 N.E.2d 1263, 1269, 251 Ill.Dec. 141
(2002) (using Restatement (Second) Conflict of Laws §§ 6 and 221).
Under § 221 of the Restatement, the court applies the law of the
forum that has the most significant relationship to the parties and the
occurrence. According to the Restatement, the following factors may be
considered according to their importance with respect to the issue before
(a) the place where the relationship between the
parties was centered, provided that the receipt of
the enrichment was substantially related to the
(b) the place where the benefit or enrichment was done;
(c) the place where the act conferring the benefit
or enrichment was done;
(d) the domicile, residence, nationality, place of
incorporation and place of business of the parties;
(e) the place where the physical thing, such as the
land or chattel, which was substantially related to
the enrichment, was situated at the time of the
Every factor points to Texas as the forum with the most significant
to the parties and the occurrence. Other than Trailmobile,
every party is located in Texas. The refrigeration units were
incorporated into the trailers in Texas and sold to Texas corporations.
The express contract for the sale of the refrigeration units actually
occurred between plaintiff, a Texas corporation, and the end users, both
Texas corporations. Therefore, Texas' law on unjust enrichment will be
Under Texas law, unjust enrichment applies when for one reason or
another the rights of the parties are not governed by a contract. See
Lone Star Steel Co. v. Scott, 759 S.W.2d 144, 154 (Tex.
App.—Texarkana). When a defendant has been unjustly enriched by the
receipt of benefits in a manner not governed by contract, the law implies
a contractual obligation upon the defendant to restore the benefits to
the plaintiff. Barrett v. Ferrel, 550 S.W.2d 138, 143 (Tex. Civ.
App.—Tyler 1977). Recovery under principles of unjust enrichment is
also appropriate when a contemplated agreement is unenforceable,
impossible, not fully performed, thwarted by mutual mistake, or void for
other legal reasons. City of Harker Heights v. Sun Meadows Land Ltd.,
830 S.W.2d 313, 319 (Tex.App—Austin 1992). Unjust enrichment
generally is unavailable when a valid, express contract governing the
subject matter of the dispute exists. Woodward v. Southwest States, Inc.
384 S.W.2d 674, 675 (Tex. 1964).
However, under Texas law, the existence of an express contract is not
an absolute bar. See e.g., Staats v. Miller, 150 Tex. 581, 243 S.W.2d 686,
687-88 (1951) (allowing restitution for excess money held by defendant
after selling plaintiffs' equipment pursuant to an oral contract); Bowers
v. Missouri, Kan & Tex. Ry, Co., 241 S.W. 509, 510-11 (Tex. Civ.
App. — Texarkana 1922) (allowing restitution for freight charges paid
in excess of rates specified in a shipping contract); see also Gulf Oil
Corp. v. Lone Star Producing Co., 322 F.2d 28, 31-33 (5th Cir. 1963)
(holding that the plaintiff could recover money mistakenly paid in excess
of the contract price); Natural Gas Pipeline Co. v. Harrington,
246 F.2d 915, 921 (5th Cir. 1957) (holding that a gas company was
entitled to restitution of the difference between the contract rate and
the price paid under an invalid rate order set by regulatory board). The
question under Texas law is not just whether a valid express contract
exists, but whether that contract covers the issue being litigated.
Fortune Production Co. v. Conoco, Inc., 52 S.W.3d 671, 677, 44
Tex.Sup.Ct.J. 97 (2002). When a valid agreement already addresses the
matter, recovery under an equitable theory is generally inconsistent with
the express agreement. Id.
Consequently, the questions to be asked are: (1) was there an express
contract between plaintiff and Trailmobile; (2) is it valid; and (3) did
it cover the subject matter being litigated. It is unclear from the
allegations, and the briefs themselves, whether there was ever an actual
express contract between plaintiff and Trailmobile, or whether there was
simply an implied relationship based on industry practice and arising out
of the express contracts between plaintiff and the end users and
Trailmobile and the end users.
The complaint itself alleges only arrangements and agreements between
plaintiff and Trailmobile to collaborate in the building of the
refrigerated trailers. Specifically, paragraph 15 of the complaint
Pursuant to industry standard, [plaintiff] would
contract directly with the end user for the sale of
refrigeration units. In most cases, the agreement
between [plaintiff] and the end user would take
place prior to the end user's selection of
trailer manufacturer. Upon an end user's selection of
[Trailmobile] as the trailer manufacturer,
[Trailmobile] would enter into an agreement with the
end user for the sale of refrigerated trailers, and
[Trailmobile] and [plaintiff] would make
arrangements between them for the installation of
the refrigeration units and delivery of the
refrigerated trailers to the end user.
Taking all reasonable inferences in favor of plaintiff, it is unclear
whether there was an express contract between plaintiff and Trailmobile
that covered the subject matter being litigated—the funds being
held by Trailmobile that were owed to plaintiff.