F.D.I.C. v. Meyer

PATRICK E. HIGGINBOTHAM, Circuit Judge: In 1982, Hugh Meyer signed an agreement pledging some stock to the First National Bank of Midland. The pledge agreement entitled the bank to a security interest in the dividends upon the stock, but neither the bank nor the FDIC, the bank's successor in interest, registered the pledged shares in the bank's name. As a result, dividends from the pledged stock were delivered to Meyer. Among these dividends was a stock dividend worth about $500,000. Meyer eventually pledged these dividend shares to his law firm, Grambling & Mounce, to secure payment of a $125,000 retainer. Meyer then went bankrupt. His total indebtedness to the bank is in the neighborhood of $3 million. First Midland became insolvent and went into receivership. The FDIC sued Meyer and Grambling & Mounce to get the dividend shares. The district court held that the law firm had a perfected security interest in the shares up to the amount of its retainer, and that the FDIC was an unsecured creditor of the Meyer estate. The FDIC appeals. Because we find that possession is essential under Texas law to obtain a secured interest in securities, and because the bank never obtained possession of the contested securities, we affirm.