Connerce Funding Corp. v. World Wide Security Serv., 00-1040

• Decision Date: 01 March 2001
• Docket Number: No. 00-1040,00-1040
• Citation: 249 F.3d 204
• Parties: (4th Cir. 2001) COMMERCE FUNDING CORPORATION, Plaintiff, v. WORLDWIDE SECURITY SERVICES CORPORATION, Defendant-Appellant, v. SOUTHERN FINANCIAL BANK, Defendant-Appellee, and BANK OF ASHEVILLE, Defendant. Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 204

249 F.3d 204 (4th Cir. 2001)

COMMERCE FUNDING CORPORATION, Plaintiff, v. WORLDWIDE SECURITY SERVICES CORPORATION, Defendant-Appellant, v. SOUTHERN FINANCIAL BANK, Defendant-Appellee, and BANK OF ASHEVILLE, Defendant.

No. 00-1040

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: March 1, 2001

Decided: April 20, 2001

Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Claude M. Hilton, Chief District Judge.

(CA-99-201-A)

[Copyrighted Material Omitted] COUNSEL ARGUED: Mark White Byrum, Jr., THE BYRUM LAW OFFICES, P.C., Alexandria, Virginia, for Appellant. James MacGregor Collins, DRAPER & GOLDBERG, P.L.L.C., Leesburg, Virginia, for Appellee. ON BRIEF: L. Darren Goldberg, DRAPER & GOLDBERG, P.L.L.C., Leesburg, Virginia, for Appellee.

Before KING and GREGORY, Circuit Judges, and HAMILTON, Senior Circuit Judge.

OPINION

GREGORY, Circuit Judge:

Worldwide Security Services Corporation ("Worldwide") appeals from a grant of summary judgment on each of two cross-claims it asserted against Southern Financial Bank ("Southern") for tortious interference with contractual relations and tortious interference with prospective economic advantage in an interpleader action to determine the entitlement to the proceeds of certain government contracts. As for the contractual relations claim, the district court ruled that Southern's interference was justified or privileged because Southern acted for the purpose of protecting its own "financial interest." Regarding the prospective economic advantage claim, the court ruled that Southern had not engaged in the type of improper conduct that is actionable under Virginia law. We agree with respect to the prospective economic advantage claim and disagree where the contractual relations claim is concerned. We therefore affirm in part, vacate in part, and remand.

I.

In September 1996, the United States Department of Labor awarded a contract to Denmark Security, Inc. ("Denmark") under which Denmark was to provide security guard services. The Federal Bureau of Investigation ("FBI") awarded Denmark two similar contracts in September 1997. In late 1996 and early 1997, however, Denmark was in need of capital. Southern loaned Denmark a total of $80,000.00 and Denmark, in turn, granted Southern a security interest in, inter alia, accounts receivable of Denmark. Southern properly perfected its security interests.

Denmark continued to experience financial problems. As a result, Worldwide commenced discussions with Denmark in early 1998 regarding a potential purchase. Although Worldwide and Denmark first discussed a stock purchase agreement, Worldwide contends that Denmark misrepresented information regarding its debts, causing Worldwide to explore the possibility of an asset purchase agreement instead.

In late April 1998, Denmark, still in search of additional operating funds, entered into a factor agreement with Commerce Funding Corporation ("Commerce") in which Denmark assigned to Commerce, inter alia, its accounts receivable, including amounts due under the two Denmark-FBI contracts. After Commerce properly perfected its security interests, Commerce, Southern, and Denmark entered into an inter-creditor agreement under which Southern's security interests in Denmark's receivables were subordinated to those of Commerce.

On or about May 4, 1998, Worldwide entered into a loan agreement with the Bank of Asheville.¹ As a part of that transaction, Worldwide granted the Bank of Asheville a security interest in, inter alia, its "contract rights." The Bank of Asheville then filed a financing statement to perfect its security interests.

Worldwide contends that on or about June 2, 1998, the FBI assigned the two Denmark-FBI contracts to Worldwide in a phone conversation. On that same day, according to Worldwide, the Department of Labor assigned the Denmark-Department of Labor contract to Worldwide in a separate phone conversation. The evidence shows that Southern never consented to these transactions.

By June 4, 1998, Worldwide had decided to purchase Denmark's assets. The parties entered into an asset purchase agreement, and Denmark ceased operations that day. Worldwide began performing the FBI and Department of Labor contracts (collectively, the "Government Contracts") the very next day. Two days later, Denmark, Worldwide, and the Department of Labor entered into a novation agreement which purported to recognize Worldwide as the successor party to Denmark's contract with the Department of Labor. The asset purchase agreement closed on June 12, 1998, and Denmark went out of business on that date.

On June 30, 1998, Worldwide, also in search of operating capital, entered into a one-year factor agreement with Commerce.² In that agreement, Worldwide assigned to Commerce the proceeds from its performance under any and all of its contracts. ³ Commerce thereafter collected receivables from those contracts to satisfy Worldwide's debts under the factor agreement. Under the terms of the agreement, if Commerce collected receivables in excess of Worldwide's thencurrent debt to Commerce, then Commerce turned the excess funds over to Worldwide or its other creditors.

Worldwide contends that by approximately mid-July 1998, Commerce had collected receivables sufficient to satisfy Worldwide's debt to Commerce. Accordingly, Worldwide expected to receive payments from Commerce. On July 14, 1998, however, Southern learned of the Worldwide-Denmark asset purchase agreement. On July 20, 1998, Southern sent a letter notifying Denmark that it had not complied with the terms of its loan agreements with Southern, and that full payment in the amount of $72,337.33 was due. On the next day, Southern sent a letter to Commerce demanding that Commerce send to Southern, as a secured creditor of Denmark and the secondary lienholder against the two Denmark-FBI contracts, "any excess paid funds" from the receivables Worldwide had assigned to Commerce.

Southern reiterated its claim to Commerce in a letter dated July 24, 1998. Southern asserted that under the terms of its loan and security agreements with Denmark and its inter-creditor agreement with Commerce, it was the secondary lienholder on accounts receivable from the Denmark-FBI contracts, and it was the primary lienholder on any proceeds Commerce collected from contracts that were not subject to the Commerce-Southern inter-creditor agreement. Southern also claimed that its liens were valid because it had neither been given notice of nor consented to the sale of Denmark's contracts.

On August 6, 1998, counsel for Worldwide demanded by way of letter that Southern immediately withdraw its demand that Commerce pay to Southern funds Commerce held on behalf of Worldwide (the "Receivables"). In that letter, Worldwide contended that Southern's claims had no legal basis. Chief among Worldwide's stated reasons were that (a) Southern possessed liens on the receivables of Denmark rather than those of Worldwide, and (b) Southern's security agreements were improperly marked and filed. Worldwide also put Southern on notice that it needed the Receivables to meet its payroll the next day, and that it would sue Southern for damages incurred if the Receivables were not released.

On August 7, 1998, Worldwide and Southern negotiated an agreement that permitted Commerce to release some of the Receivables by dividing them evenly between Worldwide and Southern. On August 21, 1998, Worldwide failed to meet its payroll, and its employees refused to report to work. On August 24, 1998, Worldwide and Southern negotiated another agreement that permitted Commerce to release additional funds to Southern and Worldwide. However, on August 28 and September 4, respectively, the FBI and Department of Labor each terminated its contract with Worldwide.

In a September 11, 1998 letter, Worldwide again attempted to persuade Southern to release its claims to the Receivables. In that letter, Worldwide demanded that Southern immediately contact Commerce and authorize it to release any funds held in excess of the sums Southern claimed it was owed. Southern apparently refused to comply with that demand. Worldwide's financial problems then escalated and it eventually filed a Chapter 11 bankruptcy petition.

On February 19, 1999, Commerce filed an interpleader action under 28 U.S.C. S 1335 with the United States District Court for the Eastern District of Virginia, Alexandria Division, naming Worldwide, Southern, and the Bank of Asheville as defendants and claimants to the stake. On July 28, 1999, Worldwide answered the complaint and asserted, inter alia, cross-claims for tortious interference with contractual relations and tortious interference with prospective economic advantage against Southern. Worldwide, Southern, and the Bank of Asheville each moved for summary judgment claiming ownership of the Receivables. Southern also moved for summary judgment with respect to Worldwide's cross-claims.

On November 30, 1999, the district court granted the Bank of Asheville's motion regarding entitlement to the Receivables and denied those of Worldwide and Southern. The court also granted Southern's motion for summary judgment on Worldwide's crossclaims. As to the tortious interference with contractual relations claim, the court ruled that Southern was privileged or justified "to assert claims on the disputed funds in which it had a legitimate financial interest." (J.A. at 173.) Regarding the prospective economic advantage claim, the court ruled that Worldwide did not "set forth facts which establish that Southern engaged in any intentional misconduct." Id. at 174. Worldwide now appeals the district court's rulings.

II.

We review the district court's grant of summary judgment de novo. Kubicko v. Ogden Logistics Servs., 181 F.3d 544, 551 (4th Cir. 1999). Summary judgment is appropriate only in those cases where the pleadings, affidavits, and responses to...