Fischer v. Bar Harbor Banking & Trust Co.

• Citation: 673 F. Supp. 622
• Decision Date: 22 September 1987
• Docket Number: Civ. No. 85-0185-B.
• Court: U.S. District Court — District of Maine
• Parties: E.G. FISCHER, Plaintiff, v. BAR HARBOR BANKING & TRUST COMPANY, Defendant.

673 F. Supp. 622

E.G. FISCHER, Plaintiff, v. BAR HARBOR BANKING & TRUST COMPANY, Defendant.

Civ. No. 85-0185-B.

United States District Court, D. Maine.

September 22, 1987.

Gilbert P. Verbit, Julius B. Levine, Boston, Mass., for plaintiff.

Thomas M. Brown, John F. Barnicle, Bangor, Me., for defendant.

MEMORANDUM AND ORDER ACCEPTING MAGISTRATE'S RECOMMENDED DECISION

CYR, Chief Judge.

Plaintiff, a Massachusetts resident, is the owner of a sailboat constructed by Ocean Cruising Yachts of Maine, Inc. OCY, a company which had obtained financing from defendant Bar Harbor Banking and Trust Company the Bank. Plaintiff sues the Bank, demanding compensatory and punitive damages for the alleged threatened conversion of the vessel, slander of title, and infliction of emotional distress, arising out of the Bank's assertion of a lien on the vessel. The complaint also seeks a judicial declaration that defendant does not have a lien on the vessel.

On September 27, 1985, plaintiff moved for partial summary judgment, "complete in regard to the demand ... for declaratory judgment but partial in regard to the demand ... for compensatory and punitive damages."¹ On October 28, 1985, defendant moved to dismiss the complaint or for summary judgment on all issues.

On September 29, 1986, the United States Magistrate recommended the granting of defendant's motion for summary judgment and the dismissal of plaintiff's claim for damages. The Magistrate recommended reserving judgment on the motion for declaratory relief pending the filing of a written statement, within 30 days, demonstrating that the demand for declaratory judgment had not been mooted. The court undertakes de novo review of those portions of the Magistrate's recommended decision to which plaintiff has objected. 28 U.S.C. § 636(b).

I. BACKGROUND

The Bank began financing OCY operations in 1979. In February 1984, two OCY loans were consolidated, and the $200,000 consolidated loan was secured by a security interest in four boats, including the plaintiff's sailboat hull in progress "OC 39 Hull # XYG39001 1083 (Fischer)." The Bank filed its financing statement on March 12, 1984.

Pursuant to the $172,500 contract for the construction of plaintiff's sailboat, plaintiff had made progress payments in the total amount of $112,125 through March 27, 1984.

Plaintiff remained unaware of any loan arrangements between the Bank and OCY until early May 1984, when he was informed by Henry R. Hinckley III, president of OCY, that OCY was in serious financial trouble,² that its loan payments to the Bank were overdue and that the Bank claimed a lien on plaintiff's boat.

On May 19, 1984, plaintiff and Hinckley met with Mr. Avery, president of the Bank, at which time Avery took the position that the Bank would not release its lien on the four boats unless it received a $200,000 loan payment from OCY. The Bank's position was confirmed in writing by John Reeves, vice president and treasurer of the Bank, who wrote to the plaintiff on June 13, 1984, stating that the Bank claimed a lien on his boat and would release its lien only upon payment of $50,000.

Instead of settling with the Bank, plaintiff supplied the Bank with an opinion letter drafted by his attorney, stating that plaintiff was a "buyer in the ordinary course of business" under Me.Rev.Stat. Ann. tit. 11, § 9-307(1) and, therefore, that the plaintiff was entitled to take free and clear of any lien of the Bank.

In late July 1984, plaintiff was informed by Hinckley that OCY was closing its doors. Plaintiff instructed Hinckley to move plaintiff's boat to another boatyard. The boat was removed without Bank interference.³ Also in late July 1984, Hinckley signed a bill of sale, transferring title in the boat from OCY to plaintiff. On the advice of the attorney for OCY, the bill of sale contained the following notation: "Manufacturers Warranty and Title is Given Subject to Bank Lien."

The following year, on May 24, 1985, plaintiff filed the present action. On October 25, 1985, the Bank filed termination statements with respect to the UCC filings on the four boats. Finally, on June 5, 1986, the Bank filed with this court a release of its lien on plaintiff's boat, dated May 16, 1986.

II. DISCUSSION

Plaintiff seeks a declaration that the Bank does not have a valid lien on his boat. Although the Bank has delivered a release to the plaintiff, stating that the Bank claims no security interest in the boat, plaintiff argues that any prospective buyer would have to retain counsel to determine the invalidity of the lien noted in the bill of sale, and that this affects the vendibility of the boat. Plaintiff also asserts that defendant could refile its financing statement in Rhode Island, where the boat is located.

Plaintiff also seeks partial summary judgment on his claim for damages, asserting that the Bank "acted maliciously in regard to the tort of slander of title," see Plaintiff's Second Motion for Partial Summary Judgment. Plaintiff argues that the Bank, as an experienced lender, knew or should have known that plaintiff occupied the status of a buyer in the ordinary course of business under Me.Rev.Stat.Ann. tit. 11, § 9-307(1) and, therefore, that the Bank should have known that it did not have a valid prior lien on plaintiff's boat. Plaintiff claims that the Bank's assertion of a lien was made in bad faith, for the purpose of "extorting" $50,000 from plaintiff. Plaintiff seeks recovery of the legal expenses incurred to clear the title to the boat, as well as damages for the emotional distress which the Bank's intentional or negligent conduct caused him.

The Bank argues that its assertion of a lien on plaintiff's boat was made in good faith, that it was OCY which included the reference to the OCY lien in plaintiff's bill of sale, without any direction from the Bank, and that, in any event, the Bank has relinquished any right it may have had in the boat by filing its UCC termination statements and by providing plaintiff with a release.

"The best and most inclusive name" for the tort of slander of title⁴ "is that of `injurious falsehood.'" W. Prosser, The Law of Torts § 122 at 939 (3d Ed. 1964). Prosser identifies injurious falsehood, or disparagement, as "publication of matter derogatory to the plaintiff's title to his property ... of a kind calculated ... to interfere with his relations with others to his disadvantage." Id. at 943.

In this diversity action, the court looks to Maine law to determine the rights of the parties. However, since there is a dearth of Maine authority, it is necessary to look to the common law of other jurisdictions.⁵

In an action for slander of title, "plaintiff must show that there has been a malicious publication of false allegations concerning the title to his property causing special damages." Markowitz v. Republic National Bank of New York, 651 F.2d 825, 828 (2d Cir.1981); see also Landstrom v. Thorpe, 189 F.2d 46 (8th Cir.), cert. denied, 342 U.S. 819, 72 S.Ct. 37, 96 L.Ed. 620 (1951); Frega v. Northern New Jersey Mortgage Association, 51 N.J.Super. 331, 143 A.2d 885 (App.Div.1958). In other words, plaintiff must prove "falsity," "publication,"⁶ "malice," and "special damages."⁷See Prosser, supra, § 122.

Malice is the "gist of the action" for slander of title. Markowitz, 651 F.2d at 828 (citing Andrew v. Deshler, 45 N.J.L. 167, 170 (N.J.1883)). Although malice may be implied in some circumstances, see, e.g., Gates v. Utsey, 177 So.2d 486 (Fla.Dist.Ct. App.1965) malice may be inferred where information published is false, or without legal justification, where the defense of privilege is raised "the presumption of malice is rebutted and ... the plaintiff must then prove actual or genuine malice in order to recover." Id. at 488.

The Bank asserts the qualified privilege of a "rival claimant." "A rival claimant is conditionally privileged to disparage another's property ... by an assertion of an inconsistent legally protected interest in himself." Restatement (Second) of Torts § 647 (1977). According to the Restatement, a "claimant" is "one who asserts that he has property in land, chattels or intangible things. If two persons claim one or more of the same legally protected interests, they are `rival claimants.'" Id. comment c.

In the circumstances of this case the Bank and plaintiff are "rival claimants." The gravamen of the slander of title action is that on March 12, 1984, when the Bank filed a financing statement asserting a security interest in the hull which plaintiff had contracted to buy, plaintiff was a "buyer in the ordinary course of business," see Me.Rev.Stat.Ann. tit. 11, § 9-307. Thus, on March 12, 1984, both the plaintiff and the Bank were asserting a property interest in the boat being constructed by OCY for plaintiff.

Since the Bank possessed the qualified privilege of a rival claimant, plaintiff has the burden of showing that the Bank did not have a good faith belief in the "possible validity of its claim," Restatement (Second) of Torts § 647 comment d (1977), but rather that it acted in knowing or reckless disregard of the truth, see id. § 623A. In particular, plaintiff has the burden of showing that the Bank knowingly or recklessly disregarded plaintiff's rights when it asserted a security interest in plaintiff's boat on March 12, 1984.

The Bank has produced affidavits stating that, in filing and asserting its lien against plaintiff's boat, it acted on the basis of its experience as a commercial lender, as well as upon the provision in the contract between plaintiff and OCY which provides that title remains with OCY until the full purchase price has been paid. Plaintiff responds that, upon identification of the boat to the contract, plaintiff became a buyer in the ordinary course of business entitled to take the boat free from any lien created by the seller (OCY); that the Bank, as an experienced lender, should have known this; and, therefore, that the continued assertion...